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                                                                      PAGE 1
                                 STATE OF DELAWARE

                          OFFICE OF THE SECRETARY OF STATE

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

     I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "IMAGING TECHNOLOGIES CORPORATION", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF AUGUST, A.D. 1997, AT 10:30 O'CLOCK A.M.

     A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.

                                        /s/ Edward J. Freel
                                       -----------------------------------------
                                        EDWARD J. FREEL, SECRETARY OF STATE

2008678   8100                [Seal]    AUTHENTICATION:     8616920
971280088                                         DATE:     08-21-97

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                      CERTIFICATE OF DESIGNATIONS, PREFERENCES
                 AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
                                         OF
                          IMAGING TECHNOLOGIES CORPORATION

     Imaging Technologies Corporation (the "COMPANY"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by the Certificate of Incorporation, as amended, of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $1,000 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of One Thousand Two
Hundred (1,200) shares of Series C Redeemable Convertible Preferred Stock of the
Company, as follows:

          RESOLVED, that the Company is authorized to issue 1,200 shares of
     Series C Redeemable Convertible Preferred Stock (the "PREFERRED SHARES"),
     par value $1,000 per share, which shall have the following powers,
     designations, preferences and other special rights:

          (1)  DIVIDENDS. The Preferred Shares shall not bear any dividends.

          (2)  HOLDER'S CONVERSION OF PREFERRED SHARES. A holder of Preferred
     Shares shall have the right, at such holder's option, to convert the
     Preferred Shares into shares of the Company's common stock, $.005 par value
     per share (the "COMMON STOCK"), on the following terms and conditions:

               (a)  CONVERSION RIGHT. Subject to the provisions of Section 2(k)
     below, at any time or times on or after the date which is 46 days after the
     Issuance Date (as defined below), any holder of Preferred Shares shall be
     entitled to convert any whole number of Preferred Shares into fully paid
     and nonassessable shares (rounded to the nearest whole share in accordance
     with Section 2(i) below) of Common Stock, at the


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     Conversion Rate (as defined below); provided, however, that in no event
     shall any holder be entitled to convert Preferred Shares in excess of that
     number of Preferred Shares which, upon giving effect to such conversion,
     would cause the aggregate number of shares of Common Stock beneficially
     owned by the holder and its affiliates to exceed 4.9% of the outstanding
     shares of the Common Stock following such conversion. For purposes of the
     foregoing proviso, the aggregate number of shares of Common Stock
     beneficially owned by the holder and its affiliates shall include the
     number of shares of Common Stock issuable upon conversion of the Preferred
     Shares with respect to which the determination of such proviso is being
     made, but shall exclude the number of shares of Common Stock which would be
     issuable upon (i) conversion of the remaining, nonconverted Preferred
     Shares beneficially owned by the holder and its affiliates and (ii)
     exercise or conversion of the unexercised or unconverted portion of any
     other securities of the Company (including, without limitation, any
     warrants) subject to a limitation on conversion or exercise analogous to
     the limitation contained herein beneficially owned by the holder and its
     affiliates. Except as set forth in the preceding sentence, for purposes of
     this paragraph, beneficial ownership shall be calculated in accordance with
     Section 13(d) of the Securities Exchange Act of 1934, as amended. The
     holder may waive the foregoing limitations by written notice to the Company
     upon not less than 61 days prior notice (with such waiver taking effect
     only upon the expiration of such 61 day notice period).

               (b)  CONVERSION RATE. The number of shares of Common Stock
     issuable upon conversion of cach of the Preferred Shares pursuant to
     Sections (2)(a), 2(g) and 2(h) shall be determined according to the
     following formula (the "CONVERSION RATE"):

                        (.06)(N/365)(10,000) + 10,000
                       -------------------------------
                              Conversion Price

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

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

                    (ii)   "FIXED CONVERSION PRICE" means 150% of the Market
Price ON the date of issuance of the applicable Preferred Shares, subject to
adjustment as provided herein;

                    (iii)  "FLOATING CONVERSION PRICE* means, as of any date
of determination, the amount obtained by multiplying the Conversion Percentage
in effect as of such date by the Market Price as of such date;

                    (iv)   "CONVERSION PERCENTAGE" means (A) 100 % for the
period beginning on the Issuance Date and ending on and including the date which
is 90 days after the


                                        -2-
<PAGE>

Issuance Date, (B) 95% for the period beginning on and including the date which
is 91 days after the Issuance Date and ending on and including the date which is
180 days after the Issuance Date and (C) 90% for the period beginning on and
including the date which is 181 days after the Issuance Date and ending on and
including the date which is five years after the Issuance Date, subject in cach
case to adjustment as provided herein;

                    (v)    "MARKET PRICE" means, with respect to any security
for any date, the lowest Closing Bid Price (as defined below) for such security
during the seven consecutive trading days immediately preceding such date;

                    (vi)   "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on The Nasdaq SmallCap
Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The
Nasdaq SmallCap Market is not the principal trading market for such security,
the last closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of Preferred Shares.  If the Company and the holders of 
Preferred Shares are unable to agree upon the fair market value of the Common 
Stock, then such dispute shall be resolved pursuant to Section 2(f)(iii) below 
with the term "Closing Bid Price" being substituted for the term "Market Price."
(All such determinations to be appropriately adjusted for any stock dividend, 
stock split or other similar transaction during such period).

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

                    (viii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.

               (c)  EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT.  If the registration statement (the "REGISTRATION
STATEMENT") covering the resale of the shares of Common Stock issuable upon
conversion or exercise of the Preferred Shares and the Warrants (as defined in
the Securities Purchase Agreement), respectively, and required to be filed by
the Company pursuant to the Registration Rights Agreement between the Company
and the Buyers referred to therein (THE "REGISTRATION RIGHTS AGREEMENT") is not
(i) filed within 45 days or the first Issuance Date of any Preferred Shares (the
"SCHEDULED FILING DATE"), (ii) declared effective by the United States
Securities and Exchange Commission (the "SEC") on or before 150 days after the
first Issuance Date for any Preferred Shares (the


                                        -3-
<PAGE>

"SCHEDULED EFFECTIVE DATE"), or (iii) if after the Registration Statement has
been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares of
Common Stock or otherwise), then, as partial relief for the damages to any
holder by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Conversion Percentage and the
Fixed Conversion Price shall be adjusted as follows:

                           (A)  CONVERSION PERCENTAGE. The Conversion Percentage
     in effect at such time shall be reduced by a number of percentage points 
     equal to the product of (I) .06 and (II) the sum of (x) the number of days 
     after the Scheduled Filing Date that the relevant Registration Statement 
     is filed with the SEC, (y) the number of days after the Scheduled 
     Effective Date and prior to the date that the relevant Registration 
     Statement is declared effective by the SEC (without double-counting any 
     number of days after the Scheduled Filing Date that the relevant 
     Registration Statement is filed, if applicable) and (z) the number of days 
     that sales cannot be made pursuant to the Registration Statement in 
     accordance with the Registration Rights Agreement after the Registration 
     Statement has been declared effective. (For example, if the Registration 
     Statement becomes effective 30 days after the Scheduled Effective Date, 
     the Conversion Percentage would be 88.2% percent until any subsequent 
     adjustment; if thereafter sales could not be made pursuant to the 
     Registration Statement for a period of 40 additional days, the Conversion 
     Percentage would then be 85.8%); and

                           (B)  FIXED CONVERSION PRICE. The Fixed Conversion 
     Price in effect at such time shall be reduced by an amount equal to the 
     product of (I) the Fixed Conversion Price in effect as of the Issuance 
     Date and (II) .0006 multiplied by (III) the sum of (x) the number of days 
     after the Scheduled Filing Date that the relevant Registration Statement 
     is filed with the SEC, (y) the number of days after the Scheduled 
     Effective Date and prior to the date that the relevant Registration 
     Statement is declared effective by the SEC (without double-counting any 
     number of days after the Scheduled Filing Date that the relevant 
     Registration Statement is filed, if applicable) and (z) the number of days 
     that sales cannot be made pursuant to the Registration Statement in 
     accordance with the Registration Rights Agreement after the Registration 
     Statement has been declared effective. (For example, assuming for purposes 
     of this Section 3(c)(B) only that the Fixed Conversion Price equals $9.00, 
     if the Registration Statement becomes effective 30 days after the 
     Scheduled Effective Date, the Fixed Conversion Price would be $8.982 until 
     any subsequent adjustment; if thereafter sales could not be made pursuant 
     to the Registration Statement for a period of 40 additional days, the 
     Fixed Conversion Price would then be $8.958.)

               (d)  ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS.
In order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).


                                         -4-
<PAGE>

                    (i)    ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE
OF COMMON STOCK. If and whenever on or after the date of issuance of the
Preferred Shares, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan (as
defined below)) for a consideration per share less than the Fixed Conversion
Price in effect immediately prior to such time (the "APPLICABLE PRICE"), then
immediately after such issue or sale, the Fixed Conversion Price shall be
reduced to an amount equal to the product of (x) the Fixed Conversion Price in
effect immediately prior to such issue or sale and (y) the quotient determined
by dividing (1) the sum of (I) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
shall be applicable:

                           (A)  ISSUANCE OF OPTIONS. If the Company in any 
     manner grants any rights or options to subscribe for or to purchase 
     Common Stock (other than pursuant to an Approved Stock Plan or upon 
     conversion of the Preferred Shares) or any stock or other securities 
     convertible into or exchangeable for Common Stock (such rights or 
     options being herein called "OPTIONS" and such convertible or 
     exchangeable stock or securities being herein called "CONVERTIBLE 
     SECURITIES") and the price per share for which Common Stock is issuable 
     upon the exercise of such Options or upon conversion or exchange of such 
     Convertible Securities is less than the Applicable Price, then the total 
     maximum number of shares of Common Stock issuable upon the exercise of 
     such Options or upon conversion or exchange of the total maximum amount 
     of such Convertible Securities issuable upon the exercise of such 
     Options shall be deemed to be outstanding and to have been issued and 
     sold by the Company for such price per share. For purposes of this 
     Section 2(d)(i)(A), the "price per share for which Common Stock is 
     issuable upon exercise of such Options or upon conversion or exchange of 
     such Convertible Securities" is determined by dividing (I) the total 
     amount, if any, received or receivable by the Company as consideration 
     for the granting of such Options, plus the minimum aggregate amount of 
     additional consideration payable to the Company upon the exercise of all 
     such options, plus in the case of such Options which relate to 
     Convertible Securities, the minimum aggregate amount of additional 
     consideration, if any, payable to the Company upon the issuance or sale 
     of such Convertible Securities and the conversion or exchange thereof, 
     by (II) the total maximum number of shares of Common Stock issuable upon 
     exercise of such Options or upon the conversion or exchange of all such 
     Convertible Securities issuable upon the exercise of such Options. No 
     adjustment of the Fixed Conversion Price shall be made upon the actual 
     issuance of such Common Stock or of such Convertible Securities upon the 
     exercise of such Options or upon the actual issuance of such Common 
     Stock upon conversion or exchange of such Convertible Securities.

                           (B)  ISSUANCE OF CONVERTIBLE SECURITIES. If the 
     Company in any manner issues or sells any Convertible Securities and the 
     price per share for which Common Stock is issuabIe upon such conversion or 
     exchange is less than the Applicable


                                        -5-
<PAGE>

     Price, then the maximum number of shares of Common Stock issuable upon 
     conversion or exchange of such Convertible Securities shall be deemed to 
     be outstanding and to have been issued and sold by the Company for such 
     price per share. For the purposes of this Section 2(d)(i)(B), the "price 
     per share for which Common Stock is issuable upon such conversion or 
     exchange" is determined by dividing (I) the total amount received or 
     receivable by the Company as consideration for the issue or sale of such 
     Convertible Securities, plus the minimum aggregate amount of additional 
     consideration, if any, payable to the Company upon the conversion or 
     exchange thereof, by (II) the total maximum number of shares of Common 
     Stock issuable upon the conversion or exchange of all such Convertible 
     Securities. No adjustment of the Fixed Conversion Price shall be made upon 
     the actual issue of such Common Stock upon conversion or exchange of such 
     Convertible Securities, and if any such issue or sale of such Convertible 
     Securities is made upon exercise of any Options for which adjustment of 
     the Fixed Conversion Price had been or are to be made pursuant to other 
     provisions of this Section 2(d)(i), no further adjustment of the Fixed 
     Conversion Price shall be made by reason of such issue or sale.

                           (C)  CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
     the purchase price provided for in any Options, the additional 
     consideration, if any, payable upon the issue, conversion or exchange of 
     any Convertible Securities, or the rate at which any Convertible 
     Securities are convertible into or exchangeable for Common Stock change at 
     any time, the Fixed Conversion Price in effect at the time of such change 
     shall be readjusted to the Fixed Conversion Price which would have been in 
     effect at such time had such Options or Convertible Securities still 
     outstanding provided for such changed purchase price, additional 
     consideration or changed conversion rate, as the case may be, at the time 
     initially granted, issued or sold; provided that no adjustment shall be 
     made if such adjustment would result in an increase of the Fixed 
     Conversion Price then in effect.

                           (D)  CERTAIN DEFINITIONS. For purposes of determining
     the adjusted Fixed Conversion Price under this Section 2(d)(i), the 
     following terms have meanings set forth below:

                                (I)  "APPROVED STOCK PLAN" shall mean any 
     contract, plan or agreement which has been approved by the Board of 
     Directors of the Company, pursuant to which the Company's securities may 
     be issued to any employee, officer, director, consultant or other service 
     provider.

                                (II) "COMMON STOCK DEEMED OUTSTANDING" 
     means, at any given time, the number of shares of Common Stock actually 
     outstanding at such time, plus the number of shares of Common Stock deemed 
     to be outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof 
     regardless of whether the Options or Convertible Securities are actually 
     exercisable at such time, but excluding any shares of Common Stock 
     issuable upon conversion of the Preferred Shares.


                                        -6-
<PAGE>

                           (E)  EFFECT ON FIXED CONVERSION PRICE OF CERTAIN 
     EVENTS. For purposes of determining the adjusted Fixed Conversion Price 
     under this Section 2(d)(i), the following shall be applicable:

                                (I)    CALCULATION OF CONSIDERATION RECEIVED. 
     If any Common Stock, Options or Convertible Securities are issued or sold 
     or deemed to have been issued or sold for cash, the consideration received 
     therefor will be deemed to be the net amount received by the Company 
     therefor. In case any Common Stock, Options or Convertible Securities are 
     issued or sold for a consideration other than cash, the amount of the 
     consideration other than cash received by the Company will be the fair 
     value of such consideration, except where such consideration consists of 
     securities, in which case the amount of consideration received by the 
     Company will be the Market Price of such securities for the twenty (20) 
     consecutive trading days immediately preceding the date of receipt. In 
     case any Common Stock, Options or Convertible Securities are issued to the 
     owners of the non-surviving entity in connection with any merger in which 
     the Company is the surviving entity the amount of consideration therefor 
     will be deemed to be the fair value of such portion of the net assets and 
     business of the non-surviving entity as is attributable to such Common 
     Stock, Options or Convertible Securities, as the case may be. The fair 
     value of any consideration other than cash or securities will be 
     determined jointly by the Company and the holders of a majority of the 
     Preferred Shares then outstanding. If such parties are unable to reach 
     agreement within ten (10) days after the occurrence of an event requiring 
     valuation (The "VALUATION EVENT"), the fair value of such consideration 
     will be determined within forty-eight (48) hours of the tenth (10th) day 
     following the Valuation Event by an independent, reputable appraiser 
     selected by the Company. The determination of such appraiser shall be 
     deemed binding upon all parties absent manifest error.

                                (II)   INTEGRATED TRANSACTIONS. In case any 
     Option is issued in connection with the issue or sale of other securities 
     of the Company, together comprising one integrated transaction in which no 
     specific consideration is allocated to such Options by the parties 
     thereto, the Options will be deemed to have been issued for a 
     consideration of $.01.

                                (III)  TREASURY SHARES. The number of shares 
     of Common Stock outstanding at any given time does not include shares 
     owned or held by or for the account of the Company, and the disposition of 
     any shares so owned or held will be considered an issue or sale of Common 
     Stock.

                                (IV)   RECORD DATE. If the Company takes a 
     record of the holders of Common Stock for the purpose of entitling them 
     (1) to receive a dividend or other distribution payable in Common Stock, 
     Options or in Convertible Securities or (2) to subscribe for or purchase 
     Common Stock, Options or Convertible Securities, then such record date 
     will be deemed to be the date of the issue or sale of the shares of Common 
     Stock deemed to have been issued or sold upon the declaration of such 
     dividend or the making of such other distribution or the date of the 
     granting of such right of subscription or purchase, as the case may be.


                                         -7-
<PAGE>

                    (ii)   ADJUSTMENT OF FIXED CONVERSION PRICE UPON 
     SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time 
     subdivides (by any stock split, stock dividend, recapitalization or 
     otherwise) one or more classes of its outstanding shares of Common Stock 
     into a greater number of shares, the Fixed Conversion Price in effect 
     immediately prior to such subdivision will be proportionately reduced. If 
     the Company at any time combines (by combination, reverse stock split or 
     otherwise) one or more classes of its outstanding shares of Common Stock 
     into smaller number of shares, the Fixed Conversion Price in effect 
     immediately prior to such combination will be proportionately increased.

                    (iii)  ADJUSTMENT OF FLOATING CONVERSION PRICE UPON 
     ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or 
     sells Convertible Securities that are convertible into Common Stock at a 
     price which varies with the market price of the Common Stock (the 
     formulation for such variable price being herein referred to as the 
     "VARIABLE PRICE") and such Variable Price is not calculated using the same 
     formula used to calculate the Floating Conversion Price in effect 
     immediately prior to the time of such issue or sale, the Company shall 
     provide written notice thereof via facsimile and overnight courier to each 
     holder of the Preferred Shares ("VARIABLE NOTICE") on the date of issuance 
     of such Convertible Securities. If the holders of Preferred Shares 
     representing at least two-thirds (2/3) of the Preferred Shares then 
     outstanding provide written notice via facsimile and overnight courier 
     (the "VARIABLE PRICE ELECTION NOTICE") to the Company within five (5) 
     business days of receiving a Variable Notice that such holders desire to 
     replace the Floating Conversion Price then in effect with the Variable 
     Price described in such Variable Notice, the Company shall prepare and 
     deliver to each holder of the Preferred Shares via facsimile and overnight 
     courier a copy of an amendment to this Certificate of Designations (the 
     "VARIABLE PRICE AMENDMENT") that substitutes the Variable Price for the 
     Floating Conversion Price (together with such modifications to this 
     Certificate of Designations as may be required to give full effect to the 
     substitution of the Variable Price for the Floating Conversion Price) 
     within five (5) business days after receipt of the requisite number of 
     Variable Price Election Notices set forth above. The Company shall file 
     such Variable Price Amendment with the Secretary of State of the State of 
     Delaware within five (5) business days after delivery of the Variable 
     Price Amendment to the holders of the Preferred Shares; provided that in 
     the event that the Company receives a notice prior to the filing of the 
     Variable Price Amendment from any holder who has delivered a Variable 
     Price Election Notice in connection with such Variable Price Amendment 
     that such holder objects to the form of the Variable Price Amendment, the 
     Company shall not file such Variable Price Amendment until such time as 
     the Variable Price Amendment has been revised to the reasonable 
     satisfaction of such holder and approved in writing by the holders of the 
     Preferred Shares representing at least two-thirds (2/3) of the Preferred 
     Shares then outstanding. Except as provided in the preceding proviso, a 
     holder's delivery of a Variable Price Election Notice shall serve as the 
     consent required to amend this Certificate of Designations pursuant to 
     Section 14 below.

                    (iv)   REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, 
     MERGER OR SALE. Any recapitalization, reorganization, reclassification, 
     consolidation, merger, sale


                                        -8-
<PAGE>

     of all or substantially all of the Company's assets to another Person (as 
     defined below) or other transaction which is effected in such a way that 
     holders of Common Stock are entitled to receive (either directly or upon 
     subsequent liquidation) stock, securities or assets with respect to or in 
     exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior 
     to the consummation of any Organic Change, the Company will make 
     appropriate provision (in form and substance satisfactory to the holders 
     of a majority of the Preferred Shares then outstanding) to insure that 
     each of the holders of the Preferred Shares will thereafter have the right 
     to acquire and receive in lieu of or addition to (as the case may be) the 
     shares of Common Stock immediately theretofore acquirable and receivable 
     upon the conversion of such holder's Preferred Shares, such shares of 
     stock, securities or assets as may be issued or payable with respect to or 
     in exchange for the number of shares of Common Stock immediately 
     theretofore acquirable and receivable upon the conversion of such holder's 
     Preferred Shares had such Organic Change not taken place (without taking 
     into account any limitations or restrictions on the timing or amount of 
     conversions). In any such case, the Company will make appropriate provision
     (in form and substance satisfactory to the holders of a majority of the 
     Preferred Shares then outstanding) with respect to such holders' rights and
     interests to insure that the provisions of this Section 2(d) and 
     Section 2(e) below will thereafter be applicable to the Preferred Shares 
     (including, in the case of any such consolidation, merger or sale in which 
     the successor entity or purchasing entity is other than the Company, an 
     immediate adjustment of the Fixed Conversion Price to the value for the 
     Common Stock reflected by the terms of such consolidation, merger or sale, 
     if the value so reflected is less than the Fixed Conversion Price in effect
     immediately prior to such consolidation, merger or sale). The Company will 
     not effect any such consolidation, merger or sale, unless prior to the 
     consummation thereof, the successor entity (if other than the Company) 
     resulting from consolidation or merger or the entity purchasing such assets
     assumes, by written instrument (in form and substance satisfactory to the 
     holders of a majority of the Preferred Shares then outstanding), the 
     obligation to deliver to each holder of Preferred Shares such shares of 
     stock, securities or assets as, in accordance with the foregoing 
     provisions, such holder may be entitled to acquire. "PERSON" shall mean an 
     individual, a limited liability company, a partnership, a joint venture, a 
     corporation, a trust, an unincorporated organization and a government or 
     any department or agency thereof.

                    (v)    CERTAIN EVENTS. If any event occurs of the 
     type contemplated by the provisions of this Section 2(d) but not expressly 
     provided for by such provisions (including, without limitation, the 
     granting of stock appreciation rights, phantom stock rights or other 
     rights with equity features), then the Company's Board of Directors will 
     make an appropriate adjustment in the Conversion Price so as to protect 
     the rights of the holders of the Preferred Shares; provided that no such 
     adjustment will increase the Conversion Price as otherwise determined 
     pursuant to this Section 2(d).


                                        -9-
<PAGE>

                    (vi)   NOTICES.

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

                           (B)  The Company will give written notice to each 
     holder of Preferred Shares at least twenty (20) days prior to the date on 
     which the Company closes its books or takes a record (I) with respect to 
     any dividend or distribution upon the Common Stock, (II) with respect to 
     any pro rata subscription offer to holders of Common Stock or (III) for 
     determining rights to vote with respect to any Organic Change, dissolution 
     or liquidation; provided that in no event shall such notice be provided to 
     such holder prior to such information being made known to the public.

                           (C)  The Company will also give written notice to 
     each holder of Preferred Shares at least twenty (20) days prior to the 
     date on which any Organic Change, dissolution or liquidation will take 
     place; provided that in no event shall such notice be provided to such 
     holder prior to such information being made known to the public.

               (e)  PURCHASE RIGHTS. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d) above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the timing or amount of conversions)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

               (f)  MECHANICS OF CONVERSION. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 6 below:

                    (i)    HOLDER'S DELIVERY REQUIREMENTS. To convert
     Preferred Shares into full shares of Common Stock on any date (the
     "CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile (or
     otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on
     such date, a copy of a fully executed notice of conversion in the form
     attached hereto as Exhibit I (the "CONVERSION NOTICE"), to the Company or
     its designated transfer agent (the "TRANSFER AGENT"), and (B) surrender to
     a common carrier for delivery to the Company or the Transfer Agent as soon
     as practicable following such date, the original certificates representing
     the Preferred Shares being converted (or an indemnification undertaking
     with respect to such shares in the


                                        -10-
<PAGE>

     case of their loss, theft or destruction) (the "PREFERRED STOCK
     CERTIFICATES") and the originally executed Conversion Notice.

                    (ii)   COMPANY'S RESPONSE. Upon receipt by the Company of
     a facsimile copy of a Conversion Notice, the company shall immediately 
     send, via facsimile, a confirmation of receipt of such Conversion Notice to
     such holder. Upon receipt by the Company or the Transfer Agent of the 
     Preferred Stock Certificates to be converted pursuant to a Conversion 
     Notice, together with the originally executed Conversion Notice, the 
     Company or the Transfer Agent (as applicable) shall, on the next business 
     day following the date of receipt (or the second business day following the
     date of receipt if received after 11:00 a.m. local time of the Company or 
     Transfer Agent, as applicable), (I) issue and surrender to a common carrier
     for overnight delivery to the address as specified in the Conversion 
     Notice, a certificate, registered in the name of the holder or its 
     designee, for the number of shares of Common Stock to which the holder 
     shall be entitled, or (II) credit such aggregate number of shares of Common
     Stock to which the holder shall be entitled to the holder's or its 
     designee's balance account with The Depository Trust Company. If the number
     of Preferred Shares represented by the Preferred Stock Certificate(s) 
     submitted for conversion is greater than the number of Preferred Shares 
     being converted, then the Company or Transfer Agent, as the case may be, 
     shall, as soon as practicable and in no event later than two business days 
     after receipt of the Preferred Stock Certificate(s) and at its own expense,
     issue and deliver to the holder a new Preferred Stock Certificate 
     representing the number of Preferred Shares not converted.

                    (iii)  DISPUTE RESOLUTION. In the case of a dispute as to
     the determination of the Market Price or the arithmetic calculation of the
     Conversion Rate, the Company shall promptly issue to the holder the number
     of shares of Common Stock that is not disputed and shall submit the
     disputed determinations or arithmetic calculations to the holder via
     facsimile as soon as possible, but in no event later than two (2) business
     days after receipt of such holder's Conversion Notice. If such holder and
     the Company are unable to agree upon the determination of the Market Price
     or arithmetic calculation of the Conversion Rate within one (1) business
     day of such disputed determination or arithmetic calculation being
     submitted to the holder, then the Company shall within one (1) business day
     submit via facsimile (A) the disputed determination of the Market Price to
     an independent, reputable investment bank or (B) the disputed arithmetic
     calculation of the Conversion Rate to its independent, outside accountant.
     The Company shall cause the investment bank or the accountant, as the case
     may be, to perform the determinations or calculations and notify the
     Company and the holder of the results no later than forty-eight (48) hours
     from the time it receives the disputed determinations or calculations. Such
     investment bank's or accountant's determination or calculation, as the case
     may be, shall be binding upon all parties absent manifest error.

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

                                         -11-
<PAGE>

                    (v)    COMPANY'S FAILURE TO TIMELY CONVERT. If within ten
     (10) business days of the Company's or the Transfer Agent's receipt of the
     Preferred Stock Certificates to be converted and the originally executed
     Conversion Notice the Company shall fail to issue a certificate to a holder
     or credit the holder's balance account with The Depository Trust Company
     for the number of shares of Common Stock to which such holder is entitled
     upon such holder's conversion of Preferred Shares or to issue a new
     Preferred Stock Certificate representing the number of Preferred Shares to
     which such holder is entitled pursuant to Section 2(f)(ii), in addition to
     all other available remedies which such holder may pursue hereunder and
     under the Securities Purchase Agreement between the Company and the initial
     holders of the Preferred Shares (the "SECURITIES PURCHASE AGREEMENT")
     (including indemnification pursuant to Section 8 thereof), the Company
     shall pay additional damages to such holder on each date after such tenth
     (10th) business day that such conversion is not timely effected in an
     amount equal to 1.0% of the product of (A) the number of shares of
     Common Stock not issued to the holder on a timely basis pursuant to Section
     2(f)(ii) and to which such holder is entitled and, in the event the Company
     has failed to deliver a Preferred Stock Certificate to the holder on a
     timely basis pursuant to Section 2(f)(ii), the number of shares of Common
     Stock issuable upon conversion of the Preferred Shares represented by such
     Preferred Stock Certificate, as of the last possible date which the Company
     could have issued such Preferred Stock Certificate to such holder without
     violating Section 2(f)(ii) and (B) the Closing Bid Price of the Common
     Stock on the last possible date which the Company could have issued such
     Common Stock and such Preferred Stock Certificate, as the case may be, to
     such holder without violating Section 2(f)(ii).

               (g)  MANDATORY CONVERSION. If any Preferred Shares remain
     outstanding on the Mandatory Conversion Date (as defined below), then all
     such Preferred Shares shall be converted as of such date in accordance with
     this Section 2 as if the holders of such Preferred Shares had given the
     Conversion Notice on the Mandatory Conversion Date. All holders of
     Preferred Shares shall thereupon surrender all Preferred Stock
     Certificates, duly endorsed for cancellation, to the Company or the
     Transfer Agent and on the Mandatory Conversion Date all Preferred Shares,
     whether or not the Preferred Stock Certificates therefor are surrendered,
     shall be cancelled and deemed null and void provided that the Company has
     complied with its obligations under this Section 2(g). "MANDATORY 
     CONVERSION DATE" means the date which is five years after the applicable 
     Issuance Date.

               (h)  CONVERSION AT THE OPTION OF THE COMPANY. At any time or
     times on or after the Issuance Date, the Company shall have the right, in
     its sole discretion, to require that any or all of the outstanding
     Preferred Shares be converted ("CONVERSION AT COMPANY'S ELECTION") at the
     Conversion Rate; provided that the Conditions to Conversion at the Option
     of the Company (as set forth below) are satisfied. The Company shall
     exercise its right to Conversion at Company's Election by providing each
     holder of Preferred Shares written notice ("NOTICE OF CONVERSION AT
     COMPANY'S ELECTION") at least 30 days prior to the date selected by the
     Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the
     Company elects to require conversion of some, but not all, of the Preferred
     Shares, the Company shall convert an amount from


                                        -12-
<PAGE>

     each holder of Preferred Shares equal to such holder's pro rata amount
     (based on the number of Preferred Shares held by such holder relative to
     the number of Preferred Shares outstanding on Company's Election Conversion
     Date) of all Preferred Shares the Company is requiring to be converted. The
     Notice of Conversion at Company's Election shall indicate (x) the number
     of Preferred Shares the Company has selected for conversion, (y) the
     Company's Election Conversion Date, which date shall be not less than 30 or
     more than 40 days after each holder's receipt of such notice, and (z) each
     holder's pro rata share of outstanding Preferred Shares. All Preferred
     Shares selected for conversion in accordance with the provision of this
     Section 2(h) shall be converted as of the Company's Election Conversion
     Date in accordance with this Section 2 as if the holders of such Preferred
     Shares selected by the Company to be converted had given the Conversion
     Notice on the Company's Election Conversion Date. All holders of Preferred
     Shares shall thereupon and within two business days the Company's Election
     Conversion Date surrender all Preferred Stock Certificates selected for
     conversion, duly endorsed for cancellation, to the Company or the Transfer
     Agent. "CONDITIONS TO CONVERSION AT THE COMPANY'S ELECTION" means the
     following conditions: (i) on each day during the 20 consecutive trading
     days immediately preceding the date of the Company's Notice of Conversion
     at the Company's Election, the last reported sale price (as reported by
     Bloomberg) of the Common Stock is at least 200% of the last reported sale
     price (as reported by Bloomberg) as of the applicable Issuance Date of the
     Preferred Shares being converted; (ii) on each day during the period
     beginning on the date of the Notice of Conversion at the Company's Election
     and ending on and including the Company's Election Conversion Date, the
     last reported sale price (as reported by Bloomberg) of the Common Stock is
     at least 170% of the last reported sale price (as reported by Bloomberg)
     as of the applicable Issuance Date of the Preferred Shares being converted;
     (iii) the Company shall not have previously given Notice of Conversion at
     Company's Election; (iv) the Company's stockholders shall have approved the
     issuance of the Securities (as defined below) on or prior to the date of
     the Company's Notice of Conversion at Company's Election; (v) on each day
     during the period beginning 20 days prior to the Notice of Conversion at
     the Company's Election and ending on and including the Company's Election
     Conversion Date, the Registration Statement shall be effective and
     available for the sale of no less than 125% of the sum of (A) the number of
     Conversion Shares then issuable upon the conversion of all outstanding
     Preferred Shares, including the Conversion Shares to be issued pursuant to
     this Conversion at the Company's Election, (B) the number of Warrant Shares
     (as defined in the Securities Purchase Agreement) then issuable upon
     exercise of all outstanding Warrants and (C) the number of Conversion
     Shares and Warrant Shares that are then held by the holders of the
     Preferred Shares, (vi) on each day during the period beginning 20 days
     prior to the date of the Company's Notice of Conversion at Company's
     Election and ending on and including the Company's Election Conversion
     Date, the Common Stock is designated for quotation on The Nasdaq SmallCap
     Market or the Nasdaq National Market or a national securities exchange and
     is not suspended from trading; (vii) during the period beginning 20 days
     prior to the date of the Company's Notice of Conversion at Company's
     Election and ending on and including the Company's Election Conversion
     Date, the Average Daily Trading Dollar Volume (as defined below) is not
     less than $250,000; (viii) during the period beginning on the Initial
     Issuance Date and ending on and including the


                                        -13-
<PAGE>

     Company's Election Conversion Date, the Company shall have delivered
     Conversion Shares upon conversion of the Preferred Shares and Warrant
     Shares upon exercise of the Warrants to the Buyers on a timely basis as set
     forth in Section 2(f)(ii) of this Certificate of Designations and
     Sections 2(a) and 2(b) of the Warrants, respectively; and (ix) the
     Company otherwise has satisfied its obligations and is not in default under
     this Certificate of Designations, the Securities Purchase Agreement and the
     Registration Rights Agreement. For purposes of this Section 2(h), "AVERAGE
     DAILY TRADING DOLLAR VOLUME" means the average during any period of the
     number of shares of Common Stock sold on each trading day multiplied by
     such day's weighted-average trading price as reported by Bloomberg;
     provided, however, that for purposes of determining the Average Daily
     Trading Dollar Volume, block trades in excess of 30,000 shares of Common
     Stock shall be counted as the sale of only 30,000 shares of Common Stock.
     Notwithstanding the above, any holder of Preferred Shares may convert such
     shares (including Preferred Shares selected for conversion) into Common
     Stock pursuant to Section 2(a) on or prior to the date immediately
     preceding the Company's Election Conversion Date (and, after such holder's
     receipt of the Notice of Conversion at Company's Election, without regard
     to the conversion limitations set forth in Section 2(k) below).

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

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

               (k)  CONVERSION RESTRICTIONS. Other than a conversion pursuant to
     Section 2(g) or 2(h), the right of a holder of Preferred Shares to convert
     Preferred Shares pursuant to this Section 2 shall be limited as set forth
     below. Without the prior consent of the Company, a holder of Preferred
     Shares shall not be entitled convert an aggregate number of Preferred
     Shares from the Issuance Date of such Preferred Shares through the date of
     this determination in excess of the number of Preferred Shares which when
     divided by the number of Preferred Shares purchased by such holder on such
     Issuance Date would exceed (i) 0.20 for the period beginning on the date
     which is 46 days after the Issuance Date and ending on and including the
     date which is 90 days after the Issuance Date, (ii) 0.40 for the period
     beginning on and including the date which is 91 days after the Issuance
     Date and ending on and including the date which is 135 days after the
     Issuance Date, (iii) 0.60 for the period beginning on the date which is 136
     days after the Issuance Date and ending on and including the date which is
     180 days after the Issuance Date, (iv) 0.80 for the period beginning on and
     including the date which is 181

                                         -14-

<PAGE>

     days after the Issuance Date and ending on and including the date which is
     225 days after the Issuance Date and (v) 1.00 for the period beginning on
     and including the date which is 226 days after the Issuance Date and ending
     on and including the date which is five years after the Issuance Date.
     Notwithstanding the foregoing, the conversion restriction set forth in this
     Section 2(k) shall not apply (x) if there shall have occurred a Material
     Adverse Change (as defined below), (y) with respect to any conversion of
     Preferred Shares at a Conversion Price which is equal to the Fixed
     Conversion Price then in effect or (z) the Company has delivered a Put
     Share Notice (as defined under the Securities Purchase Agreement). For
     purposes of this Section 2(k), "MATERIAL ADVERSE CHANGE" means any change,
     event, result or happening involving, directly or indirectly, the Company
     or any of its subsidiaries resulting in a material adverse effect on the
     business, prospects, financial condition or results or operations of the
     Company and its subsidiaries, taken as a whole, including, without
     limitation, an event constituting a Major Business Event (as defined in the
     Securities Purchase Agreement) or a Triggering Event shall have occurred.

               (l)  ADJUSTMENT OF CONVERSION RESTRICTIONS UPON ISSUANCE OF
     CONVERTIBLE SECURITIES. If the Company in any manner issues or sells
     Convertible Securities that are convertible into Common Stock and are
     subject to restrictions on the amount of shares that can be converted (the
     restriction on conversions being herein referred to as, the "CONVERSION
     RESTRICTIONS") and such Conversion Restriction is not formulated with using
     the same time periods and percentages used in Section 2(k), the Company
     shall provide written notice thereof via facsimile and overnight courier to
     each holder of the Preferred Shares ("CONVERSION RESTRICTION NOTICE") on
     the date of issuance of such Convertible Securities. If the holders of
     Preferred Shares representing at least two-thirds (2/3) of the Preferred
     Shares then outstanding which remain subject to the restrictions in Section
     2(k) provide written notice via facsimile and overnight courier (the
     "CONVERSION RESTRICTION ELECTION NOTICE") to the Company within five (5)
     business days of receiving a Conversion Restriction Notice that such
     holders desire to replace the conversion restrictions set forth in Section
     2(k) then in effect with the Conversion Restriction described in such
     Conversion Restriction Notice, the Company shall prepare and deliver to
     each holder of the Preferred Shares via facsimile and overnight courier a
     copy of an amendment to this Certificate of Designations (the "CONVERSION
     RESTRICTION AMENDMENT") that substitutes the Conversion Restriction for
     conversion restrictions set forth in Section 2(k) (together with such
     modifications to this Certificate of Designations as may be required to
     give full effect to the substitution of the Conversion Restriction for the
     conversion restrictions set forth in Section 2(k)) within five (5) business
     days after receipt of the requisite number of Conversion Restriction
     Election Notices set forth above. The Company shall file such Conversion
     Restriction Amendment with the Secretary of State of the State of Delaware
     within five (5) business days after delivery of the Conversion Restriction
     Amendment to the holders of the Preferred Shares; provided that in the
     event that the Company receives a notice prior to the filing of the
     Conversion Restriction Amendment from any holder who has delivered a
     Conversion Restriction Election Notice in connection with such Conversion
     Restriction Amendment that such holder objects to the form of the
     Conversion Restriction Amendment, the Company shall not file such
     Conversion Restriction Amendment until such time as the


                                        -15-
<PAGE>

     Conversion Restriction Amendment has been revised to the reasonable
     satisfaction of such holder and approved in writing by the holders of the
     Preferred Shares representing at least two-thirds (2/3) of the Preferred
     Shares then outstanding. Except as provided in the preceding proviso, a
     holder's delivery of a Conversion Restriction Election Notice shall serve
     as the consent required to amend this Certificate of Designations pursuant
     to Section 14 below.

          (3)  REDEMPTION AT OPTION OF HOLDERS.

               (a)  REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all
     other rights of the holders of Preferred Shares contained herein,
     simultaneous with the occurrence of a Major Transaction (as defined below),
     each holder of Preferred Shares shall have the right, at such holder's
     option, to require the Company to redeem all or a portion of such holder's
     Preferred Shares at a price per Preferred Share equal to greater of (i)
     Liquidation Value (as defined in Section 10 below) and (ii) the product of
     (A) the Conversion Rate at such time and (B) the Closing Bid Price on the
     date of the public announcement of such Major Transaction or the next date
     on which the exchange or market on which the Common Stock is traded is open
     if such public announcement is made (X) after 12:00 p.m., Central Time,
     time on such date or (Y) on a date on which the exchange or market on which
     the Common Stock is traded is closed ("MAJOR TRANSACTION REDEMPTION
     PRICE").

               (b)  REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all
     other rights of the holders of Preferred Shares contained herein, after a
     Triggering Event (as defined below), each holder of Preferred Shares shall
     have the right, at such holder's option, to require the Company to redeem
     all or a portion of such holder's Preferred Shares at a price per Preferred
     Share equal to the greater of (i) $12,500 and (ii) the product of (A) the
     Conversion Rate at such time and (B) the Closing Did Price calculated as of
     the date immediately preceding such Triggering Event on which the exchange
     or market on which the Common Stock is traded is open ("TRIGGERING EVENT
     REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION
     PRICE," the "REDEMPTION PRICE"); provided, however, that in the case of
     Triggering Event described in Section 3(d)(iii) below, the Triggering
     Event Redemption Price shall equal the greater of (i) the Liquidation Value
     and (ii) the product of (A) the Conversion Rate at such time and (B) the
     Closing Bid Price calculated as of the date immediately preceding such
     Triggering Event on which the exchange or market on which the Common Stock
     is traded is open. The Company hereby warrants and agrees that the Fixed
     Conversion Price for any Preferred Shares that are not redeemed after the
     occurrence of a Triggering Event described in Section 3(d)(iii) below shall
     be reset to equal the lesser of (x) 150% of the Market Price on the date of
     issuance of the applicable Preferred Shares, subject to adjustment, and (y)
     150% of the Market Price on the date immediately following such Triggering
     Event on which the exchange or market on which the Common Stock is traded
     is open.


                                        -16-
<PAGE>

               (c)  "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed
     to have occurred at such time as any of the following event:

                    (i)    the consolidation, merger or other business
     combination of the Company with or into another Person (other than pursuant
     to a migratory merger effected solely for the purpose of changing the
     jurisdiction of incorporation of the Company) pursuant to which either (x)
     the continuing or surviving entity is not a public company or (y) the
     stockholders of the Company existing at the time of such consolidation,
     merger or other business combination cannot elect a majority of the
     directors of the continuing or surviving entity immediately following such
     consolidation, merger or business combination.

                    (ii)   the sale or transfer of all or substantially 
     all of the Company's assets pursuant to which either (x) the purchasing 
     entity is not a public company or (y) the stockholders of the Company 
     existing at the time of such sale cannot elect a majority of the directors 
     of the purchasing entity immediately following such sale; or

                    (iii)  a purchase, tender or exchange offer made to 
     and accepted by the holders of more than 10% of the outstanding shares of
     Common Stock which requires or receives the consent of the Company's Board
     of Directors.

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

                    (i)    the failure of the Registration Statement to be
     declared effective by the SEC on or prior to the date that is 240 days
     after the Initial Issuance Date;

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

                    (iii)  the failure of the Common Stock to be listed on
     the Nasdaq National Market, The Nasdaq SmallCap Market, The New York Stock
     Exchange, Inc. or The American Stock Exchange, Inc. for a period of seven
     consecutive days (provided that such failure shall not constitute a
     Triggering Event if the Company delists the Common Stock at the election of
     the holders of Preferred Shares pursuant to Section 3(g) below); or

                                        -17-
<PAGE>

                    (iv)   the Company's notice to any holder of Preferred
     Shares, including by way of public announcement, at any time, of its
     intention not to comply with proper requests for conversion of any
     Preferred Shares into shares of Common Stock, including due to any of the
     reasons set forth in Section 6(a) below.

               (e)  MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
     TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
     consummation of a Major Transaction, but not prior to the public
     announcement of such Major Transaction, the Company shall deliver
     written notice thereof via facsimile and overnight courier ("NOTICE OF
     MAJOR TRANSACTION") to each holder of Preferred Shares. At any time after
     receipt of a Notice of Major Transaction, the holders of at least
     two-thirds (2/3) of the Preferred Shares then outstanding may require the
     Company to redeem all of the holder's Preferred Shares then outstanding by
     delivering written notice thereof via facsimile and overnight courier
     ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the
     Company, which Notice of Redemption at Option of Buyer Upon Major
     Transaction shall indicate (i) the number of Preferred Shares that such
     holders are voting in favor of redemption and (ii) the applicable Major
     Transaction Redemption Price, as calculated pursuant to Section 3(a) above.

               (f)  MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING
     EVENT. Within one (1) day after the occurrence of a Triggering Event, the
     Company shall deliver written notice thereof via facsimile and overnight
     courier ("NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares.
     At any time after receipt of a Notice of Triggering Event, the holders of
     at least two-thirds (2/3) of the Preferred Shares then outstanding may
     require the Company to redeem all of the Preferred Shares by delivering
     written notice thereof via facsimile and overnight courier ("NOTICE OF
     REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which
     Notice of Redemption at Option of Buyer Upon Triggering Event shall
     indicate (i) the number of Preferred Shares that such holders are voting
     in favor of redemption and (ii) the applicable Triggering Event Redemption
     Price, as calculated pursuant to Section 3(b) above.

               (g)  PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a
     Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
     Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
     case may be, from the holders of at least two-thirds (2/3) of the Preferred
     Shares then outstanding, the Company shall immediately notify each holder
     by facsimile of the Company's receipt of such requisite notices necessary
     to affect a redemption and each holder of Preferred Shares shall thereafter
     promptly send such holder's Preferred Stock Certificates to be redeemed to
     the Company or its Transfer Agent. The Company shall deliver the applicable
     Redemption Price to such holder within five days after the Company's
     receipt of the requisite notices required to affect a redemption; provided,
     however, that the Major Transaction Redemption Price must be delivered to
     such holder prior to, or simultaneously with, the occurrence of a Major
     Transaction; provided further that a holder's Preferred Stock Certificates
     shall have been so delivered to the Company or its Transfer Agent; provided
     further that if the Company is unable to redeem all of the


                                         -18-
<PAGE>

     Preferred Shares, the Company shall redeem an amount from each holder of
     Preferred Shares equal to such holder's pro-rata amount (based on the
     number of Preferred Shares held by such holder relative to the number of
     Preferred Shares outstanding) of all Preferred Shares being redeemed. The
     Company hereby covenants and agrees that a Major Transaction shall not be
     consummated until the Company redeems all of the Preferred Shares submitted
     for redemption pursuant to a Major Transaction. If the Company shall fail
     to redeem all of the Preferred Shares submitted for redemption pursuant to
     a Triggering Event (other than pursuant to a dispute as to the arithmetic
     calculation of the Triggering Event Redemption Price), in addition to any
     remedy such holder of Preferred Shares may have under this Certificate of
     Designations and the Securities Purchase Agreement, the Triggering Event
     Redemption Price payable in respect of such unredeemed Preferred Shares
     shall bear interest at the rate of 1.0% per month (prorated for partial
     months) until paid in full. Until the Company pays any unpaid applicable
     Redemption Price in full to each holder, holders of at least two-thirds
     (2/3) of the Preferred Shares then outstanding, including shares of
     Preferred Shares submitted for redemption pursuant to this Section 3 and
     for which the applicable Redemption Price has not been paid, shall have the
     option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
     require the Company to promptly return to each holder all of the Preferred
     Shares that were submitted for redemption by such holder under this Section
     3 and for which the applicable Redemption Price has not been paid, by
     sending written notice thereof to the Company via facsimile (the "VOID
     OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void
     Optional Redemption Notice(s) and prior to payment of the full applicable
     Redemption Price to each holder, (i) the Notice(s) of Redemption at Option
     of Buyer Upon Triggering Event or the Notice(s) of Redemption at Option of
     Buyer Upon Major Transaction, as the case may be, shall be null and void
     with respect to those Preferred Shares submitted for redemption and for
     which the applicable Redemption Price has not been paid, (ii) the Company
     shall immediately return any Preferred Shares submitted to the Company by
     each holder for redemption under this Section 3(i) and for which the
     applicable Redemption Price has not been paid, (iii) the Fixed Conversion
     Price of such returned Preferred Shares shall be adjusted to the lesser of
     (A) the Fixed Conversion Price as in effect on the date on which the Void
     Optional Redemption Notice(s) is delivered to the Company and (B) the
     lowest Closing Bid Price during the period beginning on the date on which
     the Notice(s) of Redemption of Option of Buyer Upon Major Transaction or
     the Notice(s) of Redemption at Option of Buyer Upon Triggering event, as
     the case may be, is delivered to the Company and ending on the date on
     which the Void Optional Redemption Notice(s) is delivered to the Company;
     provided that no adjustment shall be made if such adjustment would result
     in an increase of the Fixed Conversion Price then in effect, and (iv) the
     Conversion Percentage in effect at such time shall be reduced by a number
     of percentage points equal to the product of (A) .25 and (B) the number of
     days in the period beginning on the date on which the Notice(s) of
     Redemption at Option of Buyer Upon Major Transaction or the Notice(s) of
     Redemption at Option of Buyer Upon Triggering Event, as the case may be,
     is delivered to the Company and ending on the date on which the Void
     Optional Redemption Notice(s) is delivered to the Company.  In addition, if
     a redemption voided pursuant to this Section 3(i) was caused by a
     Triggering Event involving the Company's inability to issue Conversion
     Shares because


                                     -19-
<PAGE>

     of the Exchange Cap (as defined in Section 13), and if so directed by the
     holders of at least two-thirds (2/3) of the Preferred Shares then
     outstanding, including shares of Preferred Shares submitted for redemption
     pursuant to this Section 3 with respect to which the applicable Redemption
     Price has not been paid, in a Void Mandatory Redemption Notice, the Company
     shall immediately delist the Common Stock from such exchange and have the
     Common Stock, at such holders' option, listed on The Nasdaq SmallCap Market
     or traded on the electronic bulletin board or the "pink sheets".
     Notwithstanding the foregoing, in the event of a dispute as to the
     determination of the Closing Bid Price or the arithmetic calculation of the
     Redemption Price, such dispute shall be resolved pursuant to Section
     2(f)(iii) above with the term "Closing Bid Price" being substituted for the
     term "Market Price" and the term "Redemption Price" being substituted for
     the term "Conversion Rate". Payments provided for in this Section 3 shall
     have priority to payments to other stockholders in connection with a Major
     Transaction.

          (4)  COMPANY'S RIGHT TO REDEEM AT ITS ELECTION. Notwithstanding
     Section 2(g) or anything herein to the contrary but subject to Sections
     4(d) and 4(e) below, on the date which is two years after the Issuance
     Date, but only on such date, the Company shall have the right, in its sole
     discretion, to redeem ("REDEMPTION AT THE COMPANY'S ELECTION"), from time
     to time, any or all of the Preferred Shares at the Redemption Price at the
     Company's Election (as defined below). If the Company elects to redeem
     some, but not all, of the Preferred Shares, the Company shall redeem an
     amount from each holder of Preferred Shares equal to such holder's pro-rata
     amount (based on the number of Preferred Shares held by such holder
     relative to the number of Preferred Shares outstanding) of all Preferred
     Shares being redeemed.

               (a)  REDEMPTION PRICE AT THE COMPANY'S ELECTION. The "REDEMPTION
     PRICE AT THE COMPANY'S ELECTION" shall be an amount per Preferred Share
     equal to the product of (i) 1.1 multiplied by (ii) the sum of (A)
     (.06)(P/365)(10,000) plus (B) 10,000; where "P" means the number of days
     from, but excluding, the Issuance Date through and including the Date of
     Redemption at the Company's Election (as defined in Section 4(b)).

               (b)  MECHANICS OF REDEMPTION AT THE COMPANY'S ELECTION. The
     Company shall effect each such redemption no sooner than 20 trading days
     nor later than 40 trading days after delivering written notice of its
     Redemption at the Company's Election via facsimile and overnight courier
     ("NOTICE OF REDEMPTION AT THE COMPANY'S ELECTION") to (i) each holder of
     the Preferred Shares and (ii) the Transfer Agent. Such Notice of Redemption
     at the Company's Election shall indicate (A) the number of shares of
     Preferred Shares that have been selected for redemption, (B) the date that
     such redemption is to become effective (the "DATE OF REDEMPTION AT THE
     COMPANY'S ELECTION") AND (C) the applicable Redemption Price at the
     Company's Election. Notwithstanding the above, any holder may convert into
     Common Stock pursuant to Section (2)(a) above, on or prior to the date
     immediately preceding the Date of Redemption at the Company's Election, any
     Preferred Shares that such holder is otherwise entitled to convert (and,
     after such holder's receipt of the Notice of Redemption at the Company's
     Election, without regard to the conversion limitations set


                                        -20-
<PAGE>

     forth in Section 2(k)), including Preferred Shares that have been selected
     for Redemption at the Company's Election pursuant to this Section 4.

               (c)  PAYMENT OF REDEMPTION PRICE. Each holder submitting
     Preferred Shares being redeemed under this Section 4 shall send such
     holder's Preferred Stock Certificates so redeemed to the Company or its
     Transfer Agent within five (5) business days after the Date of Redemption
     at the Company's Election, and the Company shall pay the applicable
     Redemption Price at the Company's Election to that holder in cash within
     three business days after such holder's Preferred Stock Certificates are so
     delivered to the Company or its Transfer Agent. If the Company shall fail
     to pay the applicable Redemption Price at the Company's Election to such
     holder on a timely basis as described in this Section 4(c), in addition to
     any remedy such holder of Preferred Shares may have under this Certificate
     of Designations and the Securities Purchase Agreement, such unpaid amount
     shall bear interest at the rate of 2.5% per month until paid in full.
     Notwithstanding the foregoing, if the Company fails to pay the applicable
     Redemption Price at the Company's Election to a holder within the time
     period described in this Section 4 due to a dispute as to the arithmetic
     calculation of the Redemption Price at the Company's Election, such dispute
     shall be resolved pursuant to Section 2(f)(iii) above with the term
     "Redemption Price at the Company's Election" being substituted for the term
     "Conversion Rate."

               (d)  COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
     FACILITIES. The Company shall not be entitled to send any Notice of
     Redemption at the Company's Election pursuant to Section 4(b) above and 
     begin the redemption procedure under this Section 4, unless it has:

                    (i)    the full amount of the Redemption Price at the
     Company's Election in cash, available in a demand or other immediately
     available account in a bank or similar financial institution;

                    (ii)   credit facilities, with a bank or similar
     financial institutions that are immediately available and unrestricted for
     use in redeeming the Preferred Shares, in the full amount of the Redemption
     Price at the Company's Election;

                    (iii)  a written agreement with a standby underwriter or
     qualified buyer ready, willing and able to purchase from the Company a
     sufficient number of shares of stock to provide proceeds necessary to
     redeem any stock that is not converted prior to a Redemption at the
     Company's Election; or

                    (iv)   a combination of the items set forth in the
     preceding clauses (i), (ii) and (iii), aggregating the full amount of the
     Redemption Price at the Company's Election.

               (e)  CERTAIN CONDITIONS DURING NOTICE PERIOD. The Company shall
     not be entitled to redeem the Preferred Shares on a Date of Redemption at
     the Election of the Company. unless each of the following conditions are
     satisfied as of the date of the


                                        -21-
<PAGE>

     Notice of Redemption at the Company's Election and on each day from such
     date until and including the later of the Date of Redemption at the
     Company's Election and the date on which the Company pays the applicable
     Redemption Price:

                    (i)    The Company's stockholders shall have approved the
     issuance of the Securities (as defined below) on or prior to the Date of
     Redemption at the Company's Election;

                    (ii)   The Registration Statement shall be effective and
     available for the sale of no less than 125% of the sum of (A) the number of
     Conversion Shares then issuable upon the conversion of all outstanding
     Preferred Shares, including the Conversion Shares to be issued pursuant
     to this Conversion at the Company's Election, (B) the number of Warrant
     Shares then issuable upon exercise of all outstanding Warrants and (C) the
     number of Conversion Shares and Warrant Shares that are then held by the
     holders of the Preferred Shares;

                    (iii)  The Common Stock is designated for quotation on
     the Nasdaq National Market or a national securities exchange and is not
     suspended from trading;

                    (iv)   The Average Daily Trading Dollar Volume (as
     defined in Section 2(h)) is not less than $250,000;

                    (v)    The Company shall have delivered Conversion Shares
     upon conversion of the Preferred Shares and Warrant Shares upon exercise of
     the Warrants to the Buyers on a timely basis as set forth in Section
     2(f)(ii) of this Certificate of Designations and Sections 2(a) and 2(b) of
     the Warrants, respectively; and

                    (vi)   the Company otherwise has satisfied its
     obligations and is not in default under this Certificate of Designations,
     the Securities Purchase Agreement and the Registration Rights Agreement.

          (5)  COMPANY'S RIGHT TO REDEEM IN LIEU OF CONVERSION.  (a)
     Notwithstanding Section 2 or anything herein to the contrary but subject to
     Section 5(e) below, at any time after the Issuance Date, the Company may
     elect to redeem Preferred Shares submitted for conversion in lieu of
     converting such Preferred Shares, provided that the Conversion Rate for
     such Preferred Shares on the date submitted for conversion is less than
     $5.00 per share (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If the
     Company elects to redeem some, but not all, of the Preferred Shares
     submitted for conversion, the Company shall redeem an amount from each
     holder of Preferred Shares submitted for conversion on the applicable date
     a number of Preferred Shares equal to such holder's pro-rata amount (based
     on the number of Preferred Shares held by such holder relative to the
     number of Preferred Shares outstanding) of all Preferred Shares submitted
     for conversion which the Company elects to redeem,


                                        -22-
<PAGE>

               (b)  REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF
     CONVERSION. The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF
     CONVERSION" shall be an amount per Preferred Share equal to the product of
     (i) the Conversion Rate of the Preferred Shares on the date such Preferred
     Shares are submitted for conversion and (ii) the last reported sale price
     of the Common Stock (as reported by Bloomberg) on the date the applicable
     Preferred Shares are submitted for conversion.

               (e)  MECHANICS OF COMPANY REDEMPTION IN LIEU OF CONVERSION. The
     Company shall exercise its right to redeem by delivering written notice by
     facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF
     CONVERSION") to (i) each holder of the Preferred Shares and (ii) the
     Transfer Agent. Such Notice of Company Redemption in Lieu of Conversion at
     the Company's Election shall indicate (A) the maximum, if any, aggregate
     Redemption Price of Company Redemption in Lieu of Conversion which the
     Company is willing to expend for Company Redemption in Lieu of Conversion,
     (B) confirm the time period during which the Company may effect Company
     Redemption in Lieu of conversion, which period shall begin on and include
     the date which is five business days after the date of receipt by all of
     the holders' of the Notice of Redemption in Lieu of Conversion and shall
     end on and include the date which is 30 calendar days after the fifth
     business day following the date of receipt by all of the holders of the
     Notice of Redemption in Lieu of Conversion (the "REDEMPTION IN LIEU OF
     CONVERSION PERIOD"). The Company may terminate a Redemption in Lieu of
     Conversion Period at any time with respect to Preferred Shares which have
     not been submitted for conversion by delivering written notice of such
     termination to each holder of Preferred Shares by facsimile and overnight
     courier. Any Preferred Shares submitted for conversion after the
     termination of the Redemption in Lieu of Conversion Period or the
     redemption price of which is in excess of the maximum aggregate Redemption
     Price of Company Redemption in Lieu of Conversion shall be converted in
     accordance with Section 2.

               (d)  PAYMENT OF REDEMPTION PRICE. The Company shall pay the
     applicable Redemption Price of Company Redemption in Lieu of Conversion to
     the holder of the Preferred Shares being redeemed in cash within a number
     of days after the termination or expiration of the Redemption in Lieu of
     Conversion Period equal to (i) five days if the number of Preferred Shares
     presented for conversion and subject to redemption is less than or equal to
     200 Preferred Shares, (ii) 10 days if the number of Preferred Shares
     presented for conversion and subject to redemption is greater than 200 but
     less than or equal to 400 Preferred Shares, (iii) 15 days if the number of
     Preferred Shares presented for conversion and subject to redemption is
     greater than 400 but less than or equal to 600 Preferred Shares, (iv) 25
     days if the number of Preferred Shares presented for conversion and subject
     to redemption is greater than 600 but less than or equal to 800 Preferred
     Shares and (v) 35 days if the number of Preferred Shares presented for
     conversion and subject to redemption is greater than 800. If the Company
     shall fail to pay the applicable Redemption Price of Company Redemption in
     Lieu of Conversion to such holder on a timely basis as described in this
     Section 5(d), in addition to any remedy such holder of Preferred Shares
     may have under this Certificate of Designations and the Securities
     Purchase Agreement, such unpaid amount shall bear


                                        -23-
<PAGE>

     interest at the rate of 2.5% per month until paid in full. Until the
     Company pays such unpaid applicable Redemption Price of Company Redemption
     in Lieu of Conversion full to each holder, each holder of Preferred Shares
     submitted for redemption pursuant to this Section 5 and for which the
     applicable Redemption Price of Company Redemption in Lieu of Conversion has
     not been paid, shall have the option (the "VOID COMPANY REDEMPTION OPTION")
     to, in lieu of redemption, require the Company to promptly return to each
     holder all of the Preferred Shares that were submitted for redemption by
     such holder under this Section 5 and for which the applicable Redemption
     Price of Company Redemption in Lieu of Conversion has not been paid, by
     sending written notice thereof to the Company via facsimile (the "VOID
     COMPANY REDEMPTION NOTICE"). Upon the Company's receipt of such Void
     Company Redemption Notice(s) and prior to payment of the full applicable
     redemption price to each holder, (i) the Company's Redemption in Lieu of
     Conversion shall be null and void with respect to those Preferred Shares
     submitted for redemption and for which the applicable redemption price has
     not been paid, (ii) the Company shall immediately return any Preferred
     Shares submitted to the Company by each holder for redemption under this
     Section 5 and for which the applicable Redemption Price of Company
     Redemption in Lieu of Conversion has not been paid and (iii) the Fixed
     Conversion Price of such returned Preferred Shares shall be adjusted to the
     lesser of (A) the Conversion Rate applicable to such conversion on the date
     on which such Preferred Shares were originally presented for conversion and
     (B) the Conversion Rate which would have been effect if such Preferred
     Shares were presented for conversion on the business day immediately
     following the last day on which the Company could have effected a timely
     Company Redemption in Lieu of Conversion. Notwithstanding the foregoing, if
     the Company fails to pay the applicable Redemption Price of Company
     Redemption in Lieu of Conversion to a holder within the time period
     described in this Section 5(d) due to a dispute as to the arithmetic
     calculation of the Redemption Price of Company Redemption in Lieu of
     Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii)
     above with the term "Redemption Price of Company Redemption in Lieu of
     Conversion" being substituted for the term "Conversion Rate." If the
     Company fails to timely effect a Company Redemption in Lieu of Conversion
     in accordance with this Section 5, the Company shall not be allowed to
     submit another Notice of Company Redemption in Lieu of Conversion without
     the prior written consent of the holders of at least two-thirds (2/3) of
     the Preferred Shares then outstanding.

               (e)  COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
     FACILITIES. The Company shall not be entitled to send any Notice of Company
     Redemption in Lieu of Conversion pursuant to Section 5(b) above and begin
     the redemption procedure under this Section 5, unless it has:

                    (i)    the full amount of the Redemption Price of Company
     Redemption in Lieu of Conversion in cash, available in a demand or other
     immediately available account in a bank or similar financial institution;

                    (ii)   credit facilities, with a bank or similar
     financial institutions that are immediately available and unrestricted for
     use in redeeming the Preferred Shares, in the full amount of the Redemption
     Price of Company Redemption in Lieu of Conversion;


                                        -24-
<PAGE>

                    (iii)  a written agreement with a standby underwriter or
     qualified buyer ready, willing and able to purchase from the Company a
     sufficient number of shares of stock to provide proceeds necessary to
     redeem any stock that is not converted prior to a Company Redemption in
     Lieu of Conversion; or

                    (iv)   a combination of the items set forth in the
     preceding clauses (i), (ii) and (iii), aggregating the full amount of the
     Redemption Price of Company Redemption in Lieu of Conversion.

          (6)  INABILITY TO FULLY CONVERT.

               (a)  HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If, upon
     the Company's receipt of a Conversion Notice, the Company can not issue
     shares of Common Stock registered for resale under the Registration
     Statement for any reason, including, without limitation, because the
     Company (x) does not have a sufficient number of shares of Common Stock
     authorized and available, (y) is otherwise prohibited by applicable law or
     by the rules or regulations of any stock exchange, interdealer quotation
     system or other self-regulatory organization with jurisdiction over the
     Company or its Securities, including without limitation the Exchange Cap,
     from issuing all of the Common Stock which is to be issued to a holder of
     Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
     sufficient number of shares of Common Stock registered for resale under the
     Registration Statement, then the Company shall issue as many shares of
     Common Stock as it is able to issue in accordance with such holder's
     Conversion Notice and pursuant to Section 2(f) above and, with respect to
     the unconverted Preferred Shares, the holder, solely at such holder's
     option, can elect to:

                    (i)    require the Company to redeem from such holder
     those Preferred Shares for which the Company is unable to issue Common
     Stock in accordance with such holder's Conversion Notice ("MANDATORY
     REDEMPTION") at a price per Preferred Share (the "MANDATORY REDEMPTION
     PRICE") equal to the Redemption Price as of such Conversion Date;

                    (ii)   if the Company's inability to fully convert
     Preferred Shares is pursuant to Section 6(a)(z) above, require the Company
     to issue restricted shares of Common Stock in accordance with such holder's
     Conversion Notice and pursuant to Section 2(f) above;

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

                    (iv)   if the Company's inability to fully convert
     Preferred Shares is pursuant to the Exchange Cap described in Section
     6(a)(y) above, require the Company to issue shares of Common Stock in
     accordance with such holder's Conversion Notice and pursuant to Section
     2(f) above at a Conversion Price equal to the Market Price of the


                                        -25-
<PAGE>

     Common Stock for the five consecutive trading days preceding such holder's
     Notice in Response to Inability to Convert (as defined below).

               (b) MECHANICS OF FULFILLING HOLDER'S ELECTION.  The Company shall
     immediately send via facsimile to a holder of Preferred Shares, upon
     receipt of a facsimile copy of a Conversion Notice from such holder which
     cannot be fully satisfied as described in Section 6(a) above, a notice of
     the Company's inability to fully satisfy such holder's Conversion Notice
     (the "INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully Convert
     Notice shall indicate (i) the reason why the Company is unable to fully
     satisfy such holder's Conversion Notice, (ii) the number of Preferred
     Shares which cannot be converted and (iii) the applicable Mandatory
     Redemption Price. Such holder must within five (5) business days of receipt
     of such Inability to Fully Convert Notice deliver written notice via
     facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of
     its election pursuant to Section 6(a) above.

               (c)  PAYMENT OF REDEMPTION PRICE. If such holder shall elect to
     have its shares redeemed pursuant to Section 6(a)(i) above, the Company
     shall pay the Mandatory Redemption Price in cash to such holder within
     thirty (30) days of the Company's receipt of the holder's Notice in
     Response to Inability to Convert. If the Company shall fail to pay the
     applicable Mandatory Redemption Price to such holder on a timely basis as
     described in this Section 6(c) (other than pursuant to a dispute as to the
     determination of the arithmetic calculation of the Redemption Price), in
     addition to any remedy such holder of Preferred Shares may have under this
     Certificate of Designations and the Securities Purchase Agreement, such
     unpaid amount shall bear interest at the rate of 2.5% per month (prorated
     for partial months) until paid in full. Until the full Mandatory Redemption
     Price is paid in full to such holder, such holder may void the Mandatory
     Redemption with respect to those Preferred Shares for which the full
     Mandatory Redemption Price has not been paid and receive back such
     Preferred Shares. Notwithstanding the foregoing, if the Company fails to
     pay the applicable Mandatory Redemption Price within such thirty (30) days
     time period due to a dispute as to the determination of the arithmetic
     calculation of the Redemption Rate, such dispute shall be resolved pursuant
     to Section 2(f)(iii) above with the term "Redemption Price" being
     substituted for the term "Conversion Rate".

               (d)  PRO-RATA CONVERSION AND REDEMPTION. In the event the Company
     receives a Conversion Notice from more than one holder of Preferred Shares
     on the same day and the Company can convert and redeem some, but not all,
     of the Preferred Shares pursuant to this Section 6, the Company shall
     convert and redeem from each holder of Preferred Shares electing to have
     Preferred Shares converted and redeemed at such time an amount equal to
     such holder's pro-rata amount (based on the number of Preferred Shares held
     by such holder relative to the number of Preferred Shares outstanding) of
     all Preferred Shares being converted and redeemed at such time.

          (7)  REISSUANCE OF CERTIFICATES. In the event of a conversion or
     redemption pursuant to this Certificate of Designations of less than all of
     the Preferred Shares represented by a particular Preferred Stock
     Certificate, the Company shall promptly


                                         -26-
<PAGE>

     cause to be issued and delivered to the holder of such Preferred Shares a
     preferred stock certificate representing the remaining Preferred Shares
     which have not been so converted or redeemed.

          (8) RESERVATION OF SHARES. The Company shall, so long as any of the
     Preferred Shares are outstanding, reserve and keep available out of its
     authorized and unissued Common Stock, solely for the purpose of effecting
     the conversion of the Preferred Shares, such number of shares of Common
     Stock as shall from time to time be sufficient to effect the conversion of
     all of the Preferred Shares then outstanding; provided that the number of
     shares of Common Stock so reserved shall at no time be less than 150% of
     the number of shares of Common Stock for which the Preferred Shares are at
     any time convertible; provided further that such shares of Common Stock so
     reserved shall be allocated for issuance upon conversion of Preferred
     Shares pro rata among the holders of Preferred Shares based on the number
     of Preferred Shares held by such holder relative to the total number of
     authorized Preferred Shares.

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

          (10) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
     voluntary or involuntary liquidation, dissolution or winding up of the
     Company, the holders of the Preferred Shares shall be entitled to receive
     in cash out of the assets of the Company, whether from capital or from
     earnings available for distribution to its stockholders (the "PREFERRED
     FUNDS"), before any amount shall be paid to the holders of any of the
     capital stock of the Company of any class junior in rank to the Preferred
     Shares in respect of the preferences as to the distributions and payments
     on the liquidation, dissolution and winding up of the Company, an amount
     per Preferred Share equal to the sum of (i) $10,000 and (ii) an amount
     equal to the product of (.06) (N/365) ($10,000) (such sum being referred
     to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
     insufficient to pay the full amount due to the holders of Preferred Shares
     and holders of shares of other classes or series of preferred stock of the
     Company that are of equal rank with the Preferred Shares as to payments of
     Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred
     Shares and Pari Passu Shares shall receive a percentage of the Preferred
     Funds equal to the full amount of Preferred Funds payable to such holder
     as a liquidation preference, in accordance with their respective
     Certificate of Designations, Preferences and Rights, as a percentage of the
     full amount of Preferred Funds payable to all holders of Preferred Shares
     and Pari Passu Shares. The purchase or redemption by the Company of stock
     of any class, in any manner permitted by law, shall not, for the purposes
     hereof, be regarded as a liquidation, dissolution or winding up of the
     Company. Neither the consolidation or merger of the Company with or into
     any other Person, nor the sale or transfer by the Company of less than
     substantially all of its assets, shall, for the purposes hereof, be deemed
     to be a liquidation, dissolution or winding up of the Company. No holder
     of Preferred Shares shall be entitled to receive any amounts with respect
     thereto upon any liquidation, dissolution or winding up of the Company
     other than the amounts provided for herein.


                                        -27-
<PAGE>

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

          (12) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
     OTHER CAPITAL STOCK. Until all of the Preferred Shares have been converted
     or redeemed as provided herein, the Company shall not, directly or
     indirectly, redeem, or declare or pay any cash dividend or distribution on,
     its Common Stock without the prior express written consent of the holders
     of not less than two-thirds (2/3) of the then outstanding Preferred Shares.

          (13) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not
     be obligated to issue, in the aggregate, more than 1,975,120 shares of
     Common Stock (such amount to be proportionately and equitably adjusted from
     time to time in the event of stock splits, stock dividends, combinations,
     reverse stock splits, reclassification, capital reorganizations and similar
     events relating to the Common Stock) (the "EXCHANGE CAP") upon conversion
     of the Preferred Shares, if issuance of a larger number of shares of Common
     Stock would constitute a breach of the Company's obligations under the
     rules or regulations of The Nasdaq Stock Market, Inc. or any other
     principal securities exchange or market upon which the Common Stock is or
     becomes traded. The Exchange Cap shall be allocated among the Preferred
     Shares pro rata based on the total number of authorized Preferred Shares.

          (14) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative 
     vote at a meeting duly called for such purpose or the written consent 
     without a meeting, of the holders of not less than two-thirds (2/3) of 
     the then outstanding Preferred Shares, shall be required for any change 
     to this Certificate of Designations or the Company's Certificate of 
     Incorporation which would amend, alter, change or repeal any of the 
     powers, designations, preferences and rights of the Preferred Shares.

                                        -28-
<PAGE>

          (15) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
     evidence satisfactory to the Company of the loss, theft, destruction or
     mutilation of any Preferred Stock Certificates representing the Preferred
     Shares, and, in the case of loss, theft or destruction, of any
     indemnification undertaking by the bolder to the Company and, in the case
     of mutilation, upon surrender and cancellation of the Preferred Stock
     Certificate(s), the Company shall execute and deliver new preferred stock
     certificate(s) of like tenor and date; provided, however, the Company shall
     not be obligated to re-issue preferred stock certificates if the holder
     contemporaneously requests the Company to convert such Preferred Shares
     into Common Stock.


                                        -29-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Dr. Edward W. Savarese, its Chief Executive Officer as of the 
21st day of August, 1997.

                                        IMAGING TECHNOLOGIES CORPORATION

                                        By:    /s/ Edward W. Savarese
                                              ------------------------------
                                        Name: Dr. Edward W. Savarese
                                        Its:  Chief Executive Officer