STATE OF DELAWARE
                                                       SECRETARY OF STATE
                                                       DIVISION OF CORPORATIONS
                                                       FILED 03:35 PM 07/07/1997
                                                       971217070 -- 2632701

                    CERTIFICATE OF DESIGNATION OF
                      SERIES A PREFERRED STOCK
    
                                OF
    
                     MEDCARE TECHNOLOGIES, INC.
    
It is hereby certified that:
    
    1.  The name of the Company (hereinafter called the "Company") is Medcare 
Technologies, Inc., a Delaware corporation.
    
    2.  The certificate of incorporation of the Company authorizes the 
issuance of one million (1,000,000) shares of preferred stock, $.25 par value 
per share, and expressly vests in the Board of Directors of the Company the 
authority provided therein to issue any or all of said shares in one (l) or more
series and by resolution or resolutions to establish the designation and number 
and to fix the relative rights and preferences of each series to be issued.
    
    3.  The Board of Directors of the Company, pursuant to the authority 
expressly vested in it as aforesaid, has adopted the following resolutions 
creating a Series A issue of Preferred Stock:
    
    RESOLVED, that one thousand (1,000) of the one million (1,000,000) 
authorized shares of Preferred Stock of the Company shall be designated Series 
A Preferred Stock, $.25 par value per share, and shall possess the rights and 
preferences set forth below:
    
    Section 1.   DESIGNATION AND AMOUNT. The shares of such series shall have a
par value  of $.25 per share and shall be designated as Series A Preferred Stock
(the "Series A  Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be one thousand (1,000). The Series A Preferred 
Stock shall be offered at a purchase price of Ten Thousand Dollars ($10,000) per
share (the "Original Series A Issue Price"), with an eight percent (8%) per 
annum accretion rate as set forth herein.
    
    Section 2.   RANK. The Series A Preferred Stock shall rank: (i) junior to 
any other class or series of capital stock of the Company hereafter created 
specifically ranking by its terms senior to the Series A Preferred Stock 
(collectively, the "Senior Securities"); (ii) prior to all of the Company's 
Common Stock, $.001 par value per share ("Common Stock"); (iii) prior to any 
class or series of capital stock of the Company hereafter created not 
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock, 
"Junior Securities"); and (iv) on parity with any class or series of capital 
stock of the Company hereafter created specifically ranking by its terms on 
parity with the Series A Preferred Stock ("Parity Securities") in each case as 
to distributions of assets upon liquidation, dissolution or winding up of the 
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
    
    Section 3.   DIVIDENDS. The Series A Preferred Stock will bear no dividends,
and the holders of the Series A Preferred Stock ("Holders") shall not be 
entitled to receive dividends on the Series A Preferred Stock.
    
    Section 4.   LIQUIDATION PREFERENCE.
    
       (a)  In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series A Preferred Stock shall be entitled to receive, immediately 
after any distributions to Senior Securities required by the Company's 
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of 
(i) the Original Series A Issue Price for each outstanding share of Series A 
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original 
Series A Issue Price per annum for the period that has passed since the date 
that, in connection with the consummation of the purchase by Holder of shares 
of Series A Preferred Stock from the Company, 

<PAGE>

the escrow agent (or the Company, in the case of exercise of warrants to 
acquire, the Series A Preferred Stock (the "Preferred Warrants")) first had in 
its possession funds representing full payment for the shares of Series A 
Preferred Stock (such amount being referred to herein as the "Premium"). If 
upon the occurrence of such event, and after payment in full of the preferential
amounts with respect to the Senior Securities, the assets and funds available to
be distributed among the Holders of the Series A Preferred Stock and Parity 
Securities shall be insufficient to permit the payment to such Holders of the 
full preferential amounts due to the Holders of the Series A Preferred Stock and
the Parity Secunties, respectively, then the entire assets and funds of the 
Company legally available for distribution shall be distributed among the 
Holders of the Series A Preferred Stock and the Parity Securities, pro rata, 
based on the respective liquidation amounts to which each such series of stock 
is entitled by the Company's Certificate of Incorporation and any certificate(s)
of designation relating thereto.
    
       (b)   Upon the completion of the distribution required by subsection 
4(a), if assets remain in this Company, they shall be distributed to holders of 
Junior Securities in accordance with the Company's Certificate of Incorporation 
including any duly adopted certificate(s) of designation.
    
       (c)    At each Holder's option, a sale, conveyance or disposition of 
all or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than 
fifty percent (50%) of the voting power of the Company is disposed of shall be 
deemed to be a Liquidation Event as defined in Section 4(a); provided further 
that (i) a consolidation, merger, acquisition, or other business combination of 
the Company with or into any other publicly traded company or companies shall 
not be treated as a Liquidation Event as defined in Section 4(a) but instead 
stroll be treated pursuant to Section 5(d) hereof, and (ii) a consolidation, 
merger, acquisition, or other business combination of the Company with or into 
any other non-publicly traded company or companies shad be treated as a 
Liquidation Event as defined in Section 4(a). The Company shall not effect any 
transaction described in subsection 4(c)(ii) unless it first gives thirty (30) 
business days prior notice of such transaction (during which time the Holder 
shall be entitled to immediately convert any or all of its shares of Series A 
Preferred Stock into Common Stock at the Conversion Price, as defined below, 
then in effect, which conversion shall not be subject to the conversion 
restrictions set forth in Section 5(a); provided however, that, if such 
conversion takes place prior to the end of the four (4) month holding period set
forth in Section 5(a), for purposes of calculating the Variable Conversion Price
(as defined in Section 5(a)), "X" shall equal eighty-five percent (85%)).
    
       (d) In the event that, immediately prior to the closing of a 
transaction described in Section 4(c) which would constitute a liquidation 
event, the cash distributions required by Section 4(a) or Section 6 have not 
been made, the Company shall either (i) cause such closing to be postponed until
such cash distributions have been made, or (ii) cancel such transaction, in 
which event the rights of the Holders of Series A Preferred Stock shall be the 
same as existing immediately prior to such proposed transaction.
    
    Section 5.   CONVERSION. Subject to Section 4(c) herein, the record Holders 
of this Series A Preferred Stock shall have conversion rights as follows (the 
"Conversion Rights"):
    
       (a)  RIGHT TO CONVERT. The record Holder of the Series A Preferred 
Stock shall be entitled to convert, subject to the Company's right of redemption
set forth in Section 6(a), any or all the shares of the Series A Preferred Stock
on or after the date that is four (4) months after the Last Closing Date, as 
defined below, at the office of the Company or its designated transfer agent 
(the "Transfer Agent"), into that number of fully-paid and non-assessable 
shares of Common Stock calculated in accordance with the following formula (the 
"Conversion Rate"): 
    
    Number of shares issued upon conversion of one (1) share of Series A 
Preferred Stock =
    
                    (.08) (N/365) (10,000) + 10,000
                    -------------------------------
                           Conversion Price

<PAGE>
                                   
    where,
    
N=the number of days between (i) the date that, in connection with the 
consummation of the initial purchase by Holder of shares of Series A Preferred 
Stock from the Company, the escrow agent (or the Company, in the case of 
exercise of the Preferred Warrants) first had in its possession funds 
representing full payment for the shares of Series A Preferred Stock for which 
conversion is being elected, and (ii) the applicable Date of Conversion (as 
defined in Section 5(b)(iv) below) for the shares of Series A Preferred Stock 
for which conversion is being elected, and
    
Conversion Price = the lesser of (x) 115% of the average Closing Bid Price, as 
defined below, for the five (5) trading days ending on June 6, 1997, which is 
$7.346 (the "Fixed Conversion Price"), or (y) X9to of the average Closing Bid 
Price, as that term is defined below, of the Company's Common Stock for the five
(5) trading days immediately preceding the Date of Conversion, as defined below 
(the "Variable Conversion Price"), where X is determined as follows;
    
     No. Months Between Last
     Closing and Date of Conversion                 "X"
     --------------------------------                -----
     4 months-6 months                               90%
     6 months and 1 day-9 months                     87.5%
     9 months and 1 day-12 months                    85%
     more than 12 months                             80%
    
provided, however, that, unless otherwise indicated herein, beginning on the 
date that is four (4) months following the Last Closing Date, as defined below, 
the right of the Holder to convert into Common Stock using the Variable 
Conversion Price initially shall be limited to a maximum of fifteen percent 
(15%) of the aggregate number of shares of the Series A Preferred Stock issued 
to such Holder, including, if applicable, Series A Preferred Stock issued upon 
exercise of the Preferred Warrants, and for each one (1) month period which 
expires thereafter, the Holder shah accrue the right to convert into Common 
Stock an additional fifteen percent (1S%) of the aggregate number of shares of 
the Series A Preferred Stock issued to such Holder, including, if applicable, 
Series A Preferred Stock issued upon exercise of the Preferred Warrants (the 
number of shares that may be converted at any given time using the Variable 
Conversion Price, in the aggregate, is referred to hereinafter as the 
"Conversion Quota"); and provided, further, in the event that the Holder elects 
not to convert its full Conversion Quota during any one (1) month period, the 
unconverted amount shall be earned forward and added to the Conversion Quota, 
and thereafter the Holder may, from time to time, convert any portion of the 
Conversion Quota at the Variable Conversion Price; and provided further, that 
subsequent to the date that is ten (10) months following the Last Closing Date, 
there shall be no restrictions on the number of shares of Series A Preferred 
Stock that may be converted into Common Stock using the Variable Conversion 
Price; and provided, further, that a Holder can convert one hundred percent 
(100%) of the Series A Preferred Stock or any portion thereof, into Common Stock
using the Fixed Conversion Price on or after the date that is four (4) months 
after the Last Closing Date whether or not the Fixed Conversion Price is less 
than the Variable Conversion Price.
    
    As used herein, "Last Closing Date" shall mean the date of the last closing 
of a purchase and sale of the Series A Preferred Stock that occurs pursuant to 
the offering of the Series A Preferred Stock by the Company and accompanying 
warrants (for purposes of this definition, the Series A Preferred Stock 
obtained upon exercise of the Preferred Warrants shall be deemed to be acquired 
at the closing when such Preferred Warrants were issued).
    
    For purposes hereof, any Holder which acquires shares of Series A Preferred 
Stock and/or Preferred Warrants from another Holder (the "Transferor") and not 
upon original issuance from the Company shall be entitled to exercise its 
conversion right as to the percentages of such shares specified under Section 
5(a) in such amounts and at such times such that the number of shares eligible 
for conversion by such Holder at any time shall be in the same proportion that 
the number of shares of Series A Preferred Stock (assuming all Preferred 
Warrants are exercised) acquired by such Holder from its Transferor bears to the
total number of shares of Series A Preferred Stock (assuming 

<PAGE>

all Preferred Warrants are exercised) originally issued by the Company to such 
Transferor (or its predecessor Transferor).

    For purposes hereof, the term "Closing Bid Price" shall mean the closing bid
price of the Company's Common Stock on the OTC Bulletin Board, or if no longer 
traded on the OTC Bulletin Board, the closing bid price on the principal 
national securities exchange or the National Market System on which the Common 
Stock is so traded and if not available, the mean of the high and low prices on 
the principal national securities exchange or the National Market System on 
which the Common Stock is so traded.
    
       (b)   MECHANICS OF CONVERSION. In order to convert Series A Preferred 
Stock into full shares of Common Stock, the Holder shall (i) send via facsimile,
on or prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline")
on the Date of Conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company and to its 
designated transfer agent (the "Transfer Agent") for the Series A Preferred 
Stock stating that the Holder elects to convert, which notice shall specify the 
Date of Conversion, the  number of shares of Series A Preferred Stock to be 
converted, the applicable conversion price and a calculation of the number of 
shares of Common Stock issuable upon such conversion (together with a copy of 
the front page of each certificate to be converted) and (ii) surrender to a c
ommon courier for delivery to the office of the Company or the Transfer Agent, 
the original certificates representing the Series A Preferred Stock being 
converted (the "Preferred Stock Certificates"), duly endorsed for transfer 
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless 
either the Preferred Stock Certificates are delivered to the Company or its 
Transfer Agent as provided above, or the Holder notifies the Company or its 
Transfer Agent that such certificates have been lost, stolen or destroyed 
(subject to the requirements of subparagraph (i) below). Upon receipt by Company
of a facsimile copy of a Notice of Conversion, Company shall immediately send, 
via facsimile, a confirmation of receipt of the Notice of Conversion to Holder 
which shall specify that the Notice of Conversion has been received and the name
and telephone number of a contact person at the Company whom the Holder should 
contact regarding information related to the Conversion. In the case of a 
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue to the Holder the number of Shares that are not disputed and shall submit 
the disputed calculations to its outside accountant via facsimile within three 
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause 
the accountant to perform the calculations and notify Company and Holder of the 
results no later than forty-eight (48) hours from the time it receives the 
disputed calculations. Accountant's calculation shall be deemed conclusive 
absent manifest error.
    
           (i)   LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of 
evidence of the loss, theft, destruction or mutilation of any Preferred Stock 
Certificates representing shares of Series A Preferred Stock, and (in the case 
of loss, theft or destruction) of indemnity or security reasonably satisfactory 
to the Company, and upon surrender and cancellation of the Preferred Stock 
Certificate(s), if mutilated, the Company shall execute and deliver new 
Preferred Stock Certificate(s) of like tenor and date. However, Company shall 
not eve obligated to re-issue such lost or stolen Preferred Stock Certificates 
if Holder contemporaneously requests Company to convert such Series A Preferred 
Stock into Common Stock.
    
            (ii)   DELIVERY OF COMMON STOCK UPON CONVERSION. The Company shall 
or shall cause the Transfer Agent to, no later than the close of business on
the second (2nd) business day (the "Deadline") after receipt by the Company or 
the Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by 
Company or the Transfer Agent of all necessary documentation duly executed and 
in proper form required for conversion, including the original Preferred Stock 
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if  delivery is outside the United 
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company a certificate for the number of shares of 
Common Stock to which the Holder shall be entitled as aforesaid.

             (iii)   NO FRACTIONAL SHARES. If any conversion of the Series A
Preferred Stock would create a fractional share of Common Stock or a right to 
acquire a fractional share of 

<PAGE>

Common Stock, such fractional share shall be disregarded and the number of 
shares of Common Stock issuable upon conversion, in the aggregate, shall be the 
next higher number of shares.
    
             (iv)   DATE OF CONVERSION. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is 
sent via facsimile to the Company before 11:59 p.m., New York City time, on the 
Date of Conversion, and (ii) that the original Preferred Stock Certificates 
representing the shares of Series A Preferred Stock to be converted are 
surrendered by depositing such certificates with a common courier, for delivery 
to the Company or the Transfer Agent as provided above, as soon as practicable 
after the Date of Conversion. The person or persons entitled to receive the 
shares of Common Stock issuable upon such conversion shall be treated for all 
purposes as the record Holder or Holders of such shares of Common Stock on the 
Date of Conversion.
    
       (c)   AUTOMATIC CONVERSION OR REDEMPTION. Each share of Series A 
Preferred Stock outstanding on the date which is three (3) years after the 
Last Closing Date or, if not a business day, the first business day thereafter 
("Termination Date") automatically shad, at the option of the Company, either 
(i) be converted ("Automatic Conversion") into Common Stock on such date at the 
Conversion Rate then in effect (calculated in accordance with the formula in 
Section 5(a) above), and the Termination Date shall be deemed the Date of 
Conversion with respect to such conversion for purposes of this Certificate of 
Designation, or (ii) be redeemed ("Automatic Redemption") by the Company for 
cash in an amount equal to the Stated Value (as defined in Section 6(b)(i) 
below) of the shares of Series A Preferred Stock being redeemed. If the Company 
elects to redeem, on the Termination late, the Company shall send to the Holders
of outstanding Series A Preferred Stock notice (the "Automatic Redemption 
Notice") via facsimile of its intent to effect an Automatic Redemption of the 
outstanding Series A Preferred Stocln If the Company does not send such notice 
to Holder on such date, an Automatic Conversion shall be deemed to have 
occurred. If an Automatic Conversion occurs, the Company and the Holders 
shall follow the applicable conversion procedures set forth in this Certificate 
of Designation; provided, however, that the Holders are not required to send the
Notice of Conversion contemplated by Section S(b). If the Company elects to 
redeem, each Holder of outstanding Series A Preferred Stock shall send their 
certificates representing the Series A Preferred Stock to the Company within 
five (5) days of the date of receipt of the Automatic Redemption Notice from 
the Company, and the Company shall pay the applicable redemption price to each 
respective Holder within five (5) days of the receipt of such certificates. The 
Company shall not be obligated to deliver the redemption price unless the 
certificates representing the Series A Preferred Stock are delivered to the 
Company, or, in the event one or more certificates have been lost, stolen, 
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If 
the Company elects to redeem under this Section 5(c) and the Company fails to 
pay the Holders the redemption price within five (5) days of the Termination 
Date as required by this Section 5(c), then an Automatic Conversion shall be 
deemed to have occurred and, upon receipt of the Preferred Stock Certificates, 
the Company shall immediately deliver to the Holders the certificates 
representing the number of shares of Common Stock to which the Holders would 
have been entitled upon Automatic Conversion. 
    
       (d)   ADJUSTMENT TO CONVERSION RATE.
    
          (i)   ADJUSTMENT TO FIXED CONVERSION PRICE DUE TO STOCK SPLIT, STOCK 
DIVIDEND, ETC. If, prior to the conversion of all of the Series A Preferred 
Stock, the number of outstanding shares of Common Stock is increased by a stock 
split, stock dividend, or other similar event, the Fixed Conversion Price shall 
be proportionately reduced, or if the number of outstanding shares of Common 
Stock is decreased by a combination or reclassification of shares, or other 
similar event, the Fixed Conversion Price shall be proportionately increased.
    
          (ii) ADJUSTMENT TO VARIABLE CONVERSION PRICE. If, at any time when any
shares of the Series A Preferred Stock are issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split, 
stock dividend, or other similar event, which event shall have taken place 
during the reference period for determination of the Conversion Price for any 
conversion of the Series A Preferred Stock, then the Variable Conversion Price 
shall be calculated giving appropriate effect to the stock split, stock 
dividend, combination, reclassification or other similar event for all five (5) 
trading days immediately preceding the Date of Conversion.
    
<PAGE>
           (iii)  ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If prior to the 
conversion of all Series A Preferred Stock, there shall be any merger, 
consolidation;, exchange of shares, recapitalization, reorganization, or other 
similar event, as a result of which shares of Common Stock of the Company shall 
be changed into the same or a different number of shares of the same or another 
class or classes of stock or securities of the Company or another entity or 
there is a sale of all or substantially all the Company's assets or there is a 
change of control transaction not deemed to be a liquidation pursuant to Section
4(c), then the Holders of Series A Preferred Stock shall thereafter have the 
right to receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of 
Common Stock immediately theretofore issuable upon conversion, such stock, 
securities and/or other assets which the Holder would have been entitled to 
receive in such transaction had the Series A Preferred Stock been converted 
immediately prior to such transaction, and in any such case appropriate 
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof 
(including, without limitation, provisions for the adjustment of the Conversion 
Price and of the number of shares issuable upon conversion of the Series A 
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof. 
The Company shall not effect any transaction described in this subsection 
5(d)(iii) unless (a) it first gives thirty (30) business days prior notice of 
such merger, consolidation, exchange of shares, recapitalization, 
reorganization, or other similar event (during which time the Holder shall be 
entitled to convert its shares of Series A Preferred Stock into Common Stock) 
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of 
Designation including this subsection 5(d)(iii).
    
          (iv) NO FRACTIONAL SHARES. If any adjustment under this Section 5(d) 
would create a fractional share of Common Stock or a right to acquire a 
fractional share of Common Stock, such fractional share shall be disregarded 
and the number of shares of Common Stock issuable upon conversion shall be the 
next higher number of shares.
    
     Section 6.   REDEMPTION BY COMPANY.
    
       (a)   COMPANY'S RIGHT TO REDEEM UPON RECEIPT OF NOTICE OF CONVERSION. If
the Conversion Price of the Company's Common Stock is less than the Fixed 
Conversion Price (as defined in Section 5(a)), at the time of receipt of a 
Notice of Conversion pursuant to Section 5, the Company shall have the right, 
in its sole discretion, to redeem in whole or in part any Series A Preferred 
Stock submitted for conversion at the Redemption Rate (as defined below), 
immediately prior to and in lieu of conversion ("Redemption Upon Receipt of 
Notice of Conversion"). If the Company elects to redeem some, but not all, of 
the Series A Preferred Stock submitted for conversion, the Company shall redeem 
from among the Series A Preferred Stock submitted by the various shareholders 
for conversion on the applicable date, a pro-rata amount from each such Holder
so submitting Series A Preferred Stock for conversion.
    
          (i)   REDEMPTION PRICE UPON RECEIPT OF A NOTICE OF CONVERSION. The 
redemption price of Series A Preferred Stock under this Section 6(a) shall be 
calculated as follows ("Redemption Rate"):
    
      No. Months Between Last
      Closing and Date of Conversion            Redemption Rate
      ------------------------------            ---------------
      4 months   6 months                       Stated Value x 1.10
      6 months and 1 day -- 9 months            Stated Value x 1.125
      9 months and 1 day -- 12 months           Stated Value x 1.15
      more than 12 months                       Stated Value x 1.20
    
where,
   
     "Stated Value" shall have the same meaning as defined in Section 6(b) 
below.

<PAGE>

          (ii)   MECHANICS OF REDEMPTION UPON RECEIPT OF NOTICE OF CONVERSION. 
The Company shall effect each such redemption by giving notice of its election 
to redeem, by facsimile, by 5:00 p.m. New York City time the next business day 
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or two (2) day courier, to
(A) the Holder of the Series A Preferred Stock submitted for conversion at the 
address and facsimile number of such Holder appearing in the Company's register 
for the Series A Preferred Stock and (B) the Company's Transfer Agent. Such 
redemption notice shall indicate whether the Company will redeem all or part of 
the Series A Preferred Stock submitted for conversion and the applicable 
redemption price,
    
        (b)   COMPANY'S RIGHT TO REDEEM AT ITS ELECTION. At any time, commencing
twelve (12) months and one (1) day after the Last Closing Date, the Company 
shall have the light, in its sole discretion, to redeem ("Redemption at 
Company's Election"), from time to time, any or all of the Series A Preferred 
Stock, provided (i) Company shall first provide thirty (30) business days 
advance written notice as provided in subparagraph 6(b)(ii) below (which can be 
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) that the Company 
shall only be entitled to redeem Series A Preferred Stock having an aggregate 
Stated Value (as defined below) of at least Two Hundred Fifty Thousand Dollars 
($250,000). If the Company elects to redeem some, but not all, of the Series A 
Preferred Stock, the Company shall redeem a pro-rata amount from each Holder of 
the Series A Preferred Stock.
    
          (i)   REDEMPTION PRICE AT COMPANY'S ELECTION. The "Redemption Price At
Company's Election" shall be calculated as a percentage of Stated Value, as that
term is defined below, of the Series A Preferred Stock redeemed pursuant to this
Section 6(b), which percentage shall vary depending on the date of Redemption at
Company's Election (as defined below), and shall be determined as follows: 
    
Date of Notice of Redemption at Company's Election             % of Stated Value
--------------------------------------------------             -----------------
12 months and 1 day to 18 months following Last Closing Date   130%
18 months and 1 day to 24 months following Last Closing Date   125%
24 months and 1 day to 30 months following Last Closing Date   120%
30 months and I day to 36 months following Last Closing Date   115%
    
     For purposes hereof, "Stated Value" shall mean the Original Series A Issue 
Price (as defined in Section 1)) of the shares of Series A Preferred Stock being
redeemed pursuant to this Section 6(b), together with the accreted but unpaid 
Premium (as defined in Section 4(a)).
    
           (ii) MECHANICS OF REDEMPTION AT COMPANY'S ELECTION. The Company shall
effect each such redemption by giving at least thirty (30) business days prior 
written notice ("Notice of Redemption At Company's Election") to (A) the Holders
of the Series A Preferred Stock selected for redemption, at the address and 
facsimile number of such Holder appearing in the Company's Series A Preferred 
Stock register and (B) the Transfer Agent, which Notice of Redemption At 
Company's Election shall be deemed to have been delivered three (3) business 
days after the Company's mailing (try overnight or two (2) day courier, with 
a copy by facsimile) of such Notice of Redemption At Company's Election. Such 
Notice of Redemption At Company's Election shall indicate (i) the number of 
shares of Series A Preferred Stock that have been selected for redemption, (ii) 
the date which such redemption is to become effective (the "Date of Redemption 
At Company's Election") and (iii) the applicable Redemption Price At Company's 
Election, as defined in subsection (b)(i) above. Notwithstanding the above, 
Holder may convert into Common Stock pursuant to section 5, prior to the close 
of business on the Date of Redemption at Company's Election, any Series A 
Preferred Stock which it is otherwise entitled to convert, including Series A 
Preceded Stock that has been selected for redemption at Company's election 
pursuant to this subsection 6(b), provided, however, that the Company shall 
still be entitled to exercise its right to redeem upon receipt of a Notice of 
Conversion pursuant to section 6(a).
    
*****                         (c) COMPANY MUST HAVE IMMEDIATELY AVAILABLE 
FUNDS OR CREDIT FACILITIES. The Company shall not be entitled to send 
any Redemption Notice and begin the redemption procedure under Sections 6(a) 
and 6(b) unless it has: 

<PAGE>

          (i) the full amount of the redemption price in cash, available in a 
demand or other immediately available account in a bank or similar financial 
institution; or 
    
          (ii) immediately available credit facilities, in the full amount of 
the redemption price with a bark or similar financial institution; or
    
          (iii) an agreement with a standby underwriter willing 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 redemption; or
    
          (iv) a combination of the items set forth in (i), (ii) and (iii) 
above, aggregating the full amount of the redemption price.
    
     If the foregoing conditions of this Section 6(c) are satisfied and Company
complies with Section 6(d) hereof, then any shares of Series A Preferred Stock 
called for by a Redemption at Company's Election shall cease to he outstanding 
for all purposes hereunder (including the right to convert or to accrete 
additional Premium or to exercise any other right or privilege hereunder) on the
Date of Redemption at Company's Election and shall instead represent the right 
to receive the Redemption Price at Company's Election without interest from and 
after the Date of Redemption at Company's Election.
    
       (d)  PAYMENT OF REDEMPTION PRICE.
    
          (i)  Each Holder submitting Preferred Stock being redeemed under this 
Section 6 shall send their Series A Preferred Stock Certificates so redeemed to 
the Company or its Transfer Agent, and the Company shall pay the applicable 
redemption price to that Holder within five (5) business days of the Date of 
Redemption at Company's Election. The Company shall not be obligated to deliver 
the redemption price unless the Preferred Stock Certificates so redeemed are 
delivered to the Company or its Transfer Agent, or, in the event one (1) or more
certificates have been lost, stolen, mutilated or destroyed, unless the Holder 
has complied with Section 5(b)(i).
    
          (ii)  If Company elects to redeem pursuant to Section 6(a) hereof, and
Company fails to pay Holder the redemption price within the time frame as 
required by this Section 6(d) then Company shall issue shares of Common Stock 
to any such Holder who has submitted a Notice of Conversion in compliance with 
Section 5(b) hereof. The shares to be issued to Holder pursuant to this 
provision shall be the number of shares determined using the lowest Conversion 
Price (as defined in Section 5 hereof) in effect during the period beginning on 
the date Holder sends its Notice of Conversion to Company or Transfer Agent via 
facsimile and ending on the date the Transfer Agent issues Common Stock pursuant
to this Section 6(d)(ii). Nothing in this Section 6(d) shall be construed to
limit Holder's ability to pursue Holder's rights under Section 13 hereof.
    
       (e)  BLACKOUT PERIOD. Notwithstanding the foregoing, the Company may not 
either send out a redemption notice or effect a redemption pursuant to Section 
6(b) above during a Blackout Period (defined as a period during which the 
Company's officers or directors would not be entitled to buy or sell stock 
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout 
Period; provided, however, that no redemption shall be effected until at least 
ten (10) days after the Company shall have given the Holder written notice that 
the Blackout Period has been lifted. 
    
     Section 7.  VOTING RIGHTS. The Holders of the Series A Preferred Stock 
shall have no voting power whatsoever, except as otherwise provided by the 
General Corporation Law of the State of Delaware ("Delaware Law"), and no Holder
of Series A Preferred Stock shall vote or otherwise participate in any 
proceeding in which actions shall be taken by the Company or the shareholders 
thereof or be enticed to notification as to any meeting of the shareholders.
    
     Notwithstanding the above, Company shall provide Holder with notification 
of any meeting of the shareholders regarding any major corporate events 
affecting the Company. In the event of any taking by the Company of a record of 
its shareholders for the purpose of determining shareholders 

<PAGE>

who are entitled to receive payment of any dividend or other distribution, any 
right to subscribe for, purchase or otherwise acquire any share of any class or 
any other securities or property (including by way of merger, consolidation or 
reorganization), or to receive any other right, or for the purpose of 
determining shareholders who are entitled to vote in connection with any 
proposed sale, lease or conveyance of all or substantially all of the assets of 
the Company, or any proposed liquidation, dissolution or winding up of the 
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event, 
and a brief statement regarding the amount and character of such dividend, 
distribution, right or other event to the extent known at such time.
    
     To the extent that under Delaware Law the vote of the Holders of the Series
A Preferred Stock, voting separately as a class, is required to authorize a 
given action of the Company, the affirmative vote or consent of the Holders of 
at least a majority of the shares of the Series A Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a 
majority of the shares of Series A Preferred Stock (except as otherwise may be 
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders of the Series A 
Preferred Stock are entitled to vote on a matter with holders of Common Stock, 
voting together as one (1) class, each share of Series A Preferred Stock shall 
be entitled to a number of votes equal to the number of shares of Common Stock 
into which it is then convertible using the record date for the taking of such 
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series A Preferred Stock also shall be entitled to notice of all 
shareholder meetings or written consents with respect to which they would be 
entitled to vote, which notice would be provided pursuant to the Company's 
by-laws and applicable statutes. 
    
     Section 8.   PROTECTIVE PROVISION. So long as shares of Series A Preferred 
Stock are outstanding, the Company shall not without first obtaining the 
approval (by vote or written consent, as provided by Delaware Law) of the 
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock, and at least seventy-five percent (75%) of the then 
outstanding Holders:
    
       (a)  alter or change the rights, preferences or privileges of the Series 
A Preferred Stock or any securities so as to affect adversely the Series A 
Preferred Stock;
    
       (b)  create any new class or series of stock having a preference over the
Series A Preferred Stock with respect to Distributions (as defined in Section 2 
above) or increase the size of the authorized number of Series A Preferred; or
    
       (c)  do any act or thing not authorized or contemplated by this 
Designation which would result in taxation of the holders of shares of the 
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as 
hereafter from time to time amended).
    
     In the event Holders of at least seventy-five percent (75%) of the then 
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or 
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a} above, so as to affect the Senes A Preferred 
Stock, then the Company will deliver notice of such approved change to the 
Holders of the Series A Preferred Stock that did not agree to such alteration 
or change (the "Dissenting Holders"} and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of 
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereon, or 
continue to hold shares of Series A Preferred Stock, as amended.
    
     Section 9.  STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares 
of Series A Preferred Stock shall be converted or redeemed pursuant to Section 
5 or Section 6 hereof, the shares so converted or redeemed shall be canceled, 
shall return to the status of authorized but unissued Preferred Stock of no 
designated senes, and shall not be issuable by the Company as Series A Preferred
Stock.

<PAGE>
    
     Section 10.  PREFERENCE RIGHTS.   Nothing contained herein shall be 
construed to prevent the Board of Directors of the Company from issuing one 
(1) or more series of Preferred Stock with dividend and/or liquidation 
preferences junior to the dividend and liquidation preferences of the Series A 
Preferred Stock.
    
     Section 11.  RESERVATION OF SHARES OF COMMON STOCK.
    
       (a)  RESERVED AMOUNT. The Company shall have authorized and reserved and 
keep available for issuance one million five hundred thousand (1,500,000) shares
of Common Stock (the "Reserved Amount") solely for the purpose of effecting the 
conversion of the Series A Preferred Stock, including Series A Preferred Stock 
to be issued upon exercise of the Preferred Warrants, and exercise of the 
warrants to acquire Common Stock (the "Common Warrants") issued or to be issued 
to the Holders. The Company shall at all times reserve and keep available out 
of its authorized but unissued shares of Common Stock a sufficient number of 
shares of Common Stock to provide for the full conversion of all outstanding 
Series A Preferred Stock and the full conversion of Series A Preferred Stock 
which may be issued upon exercise of the Preferred Warrants, and issuance of the
shares of Common Stock in connection therewith and the full exercise of the 
Common Warrants and issuance of the shares of Common Stock in connection 
therewith.
    
       (b)  INCREASES TO RESERVED AMOUNT. Without limiting any other provision 
of this Section 11, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Authorization Trigger 
Date") shall be less than one hundred twenty-five percent (125%) of the number 
of shares of Common Stock issuable upon conversion of this Series A Preferred 
Stock, including Series A Preferred Stock which may be issued upon exercise of 
the Preferred Warrants, and exercise of the Common Warrants on such trading days
(a "Share Authorization Failure"), the Company shall immediately notify all 
Holders of such occurrence and shall take action as soon as possible, but in 
any event within sixty (60) days after an Authorization Trigger Date (including,
if necessary, seeking shareholder approval to authorize the issuance of 
additional shares of Common Stock) to increase the Reserved Amount to one 
hundred fifty percent (150%) of the number of shares of Common Stock then 
issuable upon conversion of the Series A Preferred Stock, including Series A 
Preferred Stock which may be issued upon exercise of the Preferred Warrants, and
exercise of the Common Warrants.
    
       (c)  REDUCTION OF RESERVED AMOUNT UNDER CERTAIN CIRCUMSTANCES. Prior to 
complete conversion of all Series A Preferred Stock, including Series A 
Preferred Stock which may be issued upon exercise of the Preferred Warrants, the
Company shall not reduce the number of shares required to be reserved for 
issuance under this Section 11 without the written consent of all Holders except
for a reduction proportionate to a reverse stock split effected for a business 
purpose other than affecting the obligations of Company under this Section 11, 
which reverse stock split affects all shares of Common Stock equally. Following 
complete conversion of all the Series A Preferred Stock, including Series A 
Preferred Stock which may be issued upon exercise of the Preferred Warrants, 
the Company may, with fifteen (15) days prior written notice to Holder, reduce 
the Reserved Amount to one hundred twenty-five percent (125%) of the number of 
shares of Common Stock issuable upon the full exercise of the Common Warrants; 
provided, however, that the Reserved Amount shall continue to be subject to 
increase pursuant to Section 11 hereof.
    
       (d)  ALLOCATION OF RESERVED AMOUNT. Each increase to the Reserved Amount 
shall be allocated pro rata among the Holders based on the number of Series A 
Preferred Stock, including Series A Preferred Stock which may be issued upon 
exercise of the Preferred Warrants, and Common Warrants held by each Holder at 
the time of the establishment of or increase in the Reserved Amount.  In the 
event a Holder shall sell or otherwise transfer any of such Holder's Series A 
Preferred Stock, Preferred Warrants or Common Warrants, each transferee shall 
be allocated a pro rata portion of such transferor's Reserved Amount. Any 
portion of the Reserved Amount which remains allocated to any person or entity 
which does not hold any Series A Preferred Stock or Preferred Warrants shall be 
allocated to the remaining Holders, pro rata based on the number of Series A 
Preferred Stock, including Series A Preferred Stock which may be issued upon 
exercise of the Preferred Warrants, and Common Warrants then held by such 
Holders.
    
<PAGE>

     Section 12.  FAILURE TO SATISFY CONVERSIONS.
    
       (a)  CONVERSION FAILURE PAYMENTS. If, at any time, (x) a Holder submits a
Notice of Conversion (or is deemed to submit such notice pursuant to Section 
5(c) hereof), and the Company fails for any reason to deliver, on or prior to 
the expiration of the Deadline ("Delivery Period") for such conversion, such 
number of shares of Common Stock to which such Converting Holder is entitled 
upon such conversion, or (y) the Company provides notice to Holder at any time 
of its intention not to issue shares of Common Stock upon exercise by Holder of 
its conversion rights in accordance with the terms of this Certificate of 
Designation (each of (x) and (y) being a "Conversion Failure"), then the Company
shall pay to such Holder damages in an amount equal to the lower of: (i) the 
product of (A) the Damages Amount times (B) D times (C) .01 and (ii) the highest
interest rate permitted by applicable law, where:
    
     "D" means the number of days beginning the date of the Conversion Failure 
through and including the Cure Date with respect to such Conversion Failure;
    
     "Damages Amount" means the Original Series A Issue Price for each share 
of Series A Preferred Stock subject to conversion plus all accrued and unpaid 
accretion thereon as of the first day of the Conversion Failure.
    
     "Cure Date" means {i) with respect to a Conversion Failure described in 
clause (x) of its definition, the date the Company effects the conversion of the
shares of Series A Preferred Stock submitted for conversion and (ii) with 
respect to a Conversion Failure described in clause (y) of its definition, the 
date the Company undertakes  in writing to issue Common Stock in satisfaction of
all conversions of Series A Preferred Stock in accordance with the terms of this
Certificate of Designation.
    
     The payments to which a Holder shall be entitled pursuant to this Section 
are referred to herein as "Conversion Failure Payments." A Holder may elect to 
receive accrued Conversion Failure Payments in cash or to convert all or any 
portion of such accrued Conversion Failure Payments, at any time, into Common 
Stock at the lowest Conversion Price in effect during the period beginning on
the date of the Conversion Failure through the Cure Date for such Conversion 
Failure.  In the event a Holder elects to receive any Conversion Failure 
Payments in cash, it shall so notify the Company in writing. In the event a 
Holder elects to convert all or any portion of the Conversion Failure Payments 
such Holder shall indicate on a Notice of Conversion such portion of the 
Conversion Failure Payments which such Holder elects to so convert and such 
conversion shall otherwise be effected in accordance with provisions of Section 
5.
    
       (b)  BUY-IN CURE. Unless a Conversion Failure described in clause (y) 
of Section 12(a) hereof has occurred with respect to such a Holder, if (i) the 
Company fails for any reason to deliver during the Delivery Period shams of 
Common Stock to a Holder upon a conversion of the Series A Preferred Stock and 
(ii) after the applicable Delivery Period with respect to such conversion, a 
Holder purchases (in an open market transaction or otherwise) shares of Common 
Stock to make delivery upon a sale by a Holder of the shares of Common Stock 
(the "Sold Shares") which such Holder anticipated receiving upon such conversion
(a "Buy-In"), the Company shall pay such Holder (in addition to any other 
remedies available to Holder) the amount by which (x) such Holder's total 
purchase pace (including brokerage commission, if any) for the shares of Common 
Stock so purchased exceeds (y) the net proceeds received by such Holder from the
sale of the Sold Shares. For example, if a Holder purchases shares of Common 
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay 
such Holder $1,000. A Holder shall provide the Company written notification
indicating any amounts payable to Holder pursuant to this Section 12.
    
       (c)  ADJUSTMENT TO CONVERSION PRICE. If a Holder has not received 
certificates for all shares of Common Stock within two (2) business days 
following the expiration of the Delivery Period with respect to a conversion 
of any portion of any of such Holder's Series A Preferred Stock for any reason,
then the Fixed Conversion Price applicable upon conversion of such portion of 
the Series A Preferred Stock shall thereafter be the lesser of (i) the Fixed 
Conversion Price on the Conversion Date specified in the Notice of Conversion 
which resulted in the Conversion Failure and 

<PAGE>
    
(ii) the lowest Conversion Price in effect during the period beginning on, and 
including, such Conversion Date through and including the Cure Date. If there 
shall occur a Conversion Failure of the type described in clause (y) of Section 
12(a), then the Fixed Conversion Price with respect to a conversion thereafter 
of any Series A Preferred Stock shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of 
the occurrence of such Conversion Failure through and including the Cure Date. 
The Fixed Conversion Price shall thereafter be subject to further adjustment for
any events described in Section 5(d).
    
          Section 13. EVENTS OF DEFAULT.
    
       (a)  HOLDER'S OPTION TO DEMAND PREPAYMENT. Upon the occurrence of an 
Event of Default (as herein defined), each Holder shall have the right to elect 
at any time and from time to time prior to the cure by Company of such Event of 
Default to have all or any portion of such Holder's then outstanding Series A 
Preferred Stock prepaid by the Company for an amount equal to the Holder Demand 
Prepayment Amount (as herein defined).
    
          (i)  The right of a Holder to elect prepayment shall be exercisable 
upon the occurrence of an Event of Default by such Holder in its sole discretion
by delivery of a Demand Prepayment Notice (as herein defined) in accordance with
the procedures set forth in this Section 13.  Notwithstanding the exercise of 
such right, the Holder shall be entitled to exercise all other rights and 
remedies available under the provisions of this Certificate of Designation and 
at law or in equity.
    
          (ii)  A Holder shall effect each demand for prepayment under this 
Section 13 by giving at least two (2) business days prior to written notice (the
"Demand Prepayment Notice") of the date which such prepayment is to become 
effective (the "Effective Date of Demand of Prepayment"), the Series A Preferred
Stock selected for prepayment and the Holder Demand Prepayment Amount to the 
Company at the address and facsimile number provided in the stock records of the
Company, which Demand Prepayment Notice shall be deemed to have been delivered 
on the business day after the date of transmission of Holder's facsimile (with a
copy sent by overnight courier to the Company) of such notice.
    
          (iii)  The Holder Demand Prepayment Amount shall be paid to a Holder 
whose Series A Preferred Stock are being prepaid within one (1) business day 
following the Effective Date of Demand of Prepayment, provided, however, that 
the Company shall not be obligated to deliver any portion of the Holder Demand 
Prepayment Amount until one (1) business day following either the date on which 
the Series A Preferred Stock being prepaid are delivered to the office of the 
Company or the Transfer Agent, or the date on which the Holder notifies the 
Company or the Transfer Agent that such Series A Preferred Stock have been lost,
stolen or destroyed and delivers the documentation required in accordance with 
Section 5(b)(i) hereof. 
    
       (b)  HOLDER DEMAND PREPAYMENT AMOUNT. The "Holder Demand Prepayment 
Amount" means the greater of: (a) 1.5 times the Stated Value of the Series A 
Preferred Stock for which demand is being made, plus all accrued and unpaid 
interest thereon and accrued and unpaid Conversion Failure Payments (if any) 
through the date of prepayment and (b) the product of (1) the highest price at 
which the Common Stock is traded on the date of the Event of Default (or on the 
most recent trading date for the Common Stock if the Common Stock is not traded 
on such date) divided by the Conversion Price in effect as of the date of the 
Event of Default, and (2) the sum of the Stated Value and all accrued and unpaid
Conversion Failure Payments (if any) through the date of prepayment.
    
        (c)  EVENTS OF DEFAULT. An "Event of Default" means any one of the 
following: 
    
           (i)  a Conversion Failure described in Section 12(a) hereof;
    
           (ii)  a Share Authorization Failure described in Section ll(b) 
hereof, if such Share Authorization Failure continues uncured for ninety (90) 
days after the Authorization Trigger Date;
    
<PAGE>

           (iii)  the Company fails, and such failure continues uncured for 
three (33 business days after the Company has been notified thereof in writing 
by a Holder to satisfy the requirements of Section 11 hereof;
    
           (iv)  the Company fails to maintain an effective registration 
statement as required by Section 2 and Section 3 of the Registration Rights 
Agreement, between the Company and the Holder(s) (the "Registration Rights 
Agreement") except where such failure lasts no longer than three (3) consecutive
trading days and is caused solely by failure of the Securities and Exchange
Commission to timely review the customary submission of or respond to the 
customary requests of the Company;
    
            (v)  for three (3) consecutive trading days or for an aggregate 
of ten (10) trading days in any nine (9) month period, the Common Stock 
(including any of the shares of Common Stock issuable upon conversion of the 
Series A Preferred Stock, including Series A Preferred Stock which may be 
issued upon exercise of the Preferred Warrants, and exercise of the Common 
Warrants) is (i) suspended from trading on any of NASDAQ SmallCap, NMS, NYSE,
AMEX or the OTC Bulletin Board, or (ii) is not qualified for trading on at 
least one of NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board;
    
             (vi)  the Company fails, and such failure continues uncured for 
three (3) business days after the Company has been notified thereof in writing 
by a Holder, to remove any restrictive legend on any certificate for any shares 
of Common Stock issued to a Holder upon conversion of any Series A Preferred 
Stock, including Series A Preferred Stock which may be issued upon exercise of 
the Preferred Warrants, or exercise of any Common Warrant as and when required
by this Certificate of Designation, the Preferred Warrants, the Common Warrants,
the Subscription Agreement, between the Company and the Holder(s) (the 
"Subscription Agreement") or the Registration Rights Agreement;
    
              (vii)  the Company breaches, and such breach continues uncured for
three (3) business days after the Company has been notified thereof in writing 
by a Holder, any significant covenant or other material term or condition of 
this Certificate of Designation, the Subscription Agreement, the Preferred 
Warrants, the Common Warrants or the Registration Rights Agreement;
    
              (viii)  any representation or warranty of the Company made herein 
or in any agreement, statement or certificate given in writing pursuant hereto 
or in connection herewith (including, without limitation, the Subscription 
Agreement and Registration Rights Agreement), shall be false or misleading in 
any material respect when made; 
    
              (ix)  the Company or any subsidiary of the Company shall make 
an assignment for the benefit or creditors, or apply for or consent to the 
appointment of a receiver or trustee for it or for a substantial part of its 
property or business, or such receiver or trustee shall otherwise be appointed; 
or    
  
              (x)  bankruptcy, insolvency, reorganization or liquidation 
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company or any 
subsidiary of the Company (and such proceedings shall continue unstayed for 
thirty (30) days). 
    
       (d)  FAILURE TO PAY DAMAGES AMOUNT. If the Company fails to pay the 
Holder Demand Prepayment Amount within five (5) business days of its receipt of 
a Demand Prepayment Notice, then such Holder shall have the right, at any time 
and from time to time prior to the payment of the Holder Demand Prepayment 
Amount, to require the Company, upon written notice, to immediately convert (in 
accordance with the terms of Section 5) all or any portion of the Holder Demand 
Prepayment Amount, into shares of Common Stock at the then current Conversion 
Price, provided that if the Company has not delivered the full number of shares 
of Common Stock issuable upon such conversion within two (2) business days after
the Holder delivers written notice of such conversion, the Conversion Price with
respect to such Holder Demand Prepayment Amount shall thereafter be deemed to be
the lowest Conversion Price in effect during the period beginning on the date of
the Event of Default and ending on the date on which the Company delivers to the
Holder the     

<PAGE>

full number of freely tradable shales of Common Stock issuable upon such 
conversion. In the event the Company is not able to pay all amounts due and 
payable with respect to all Series A Preferred Stock subject to Holder Demand 
Prepayment Notices, the Company shall pay the Holders such amounts pro rata, 
based on the total amounts payable to such Holder relative to the total amounts
payable to all Holders. 


Signed on June 26, 1997


                              /s/ Harmel Rayat
                              --------------------------------
                              Harmel S. Rayat, President

Attest:
/s/ Kundan S. Rayat

------------------------------
Kundan S. Rayat, Secretary