<PAGE>

                                                                     EXHIBIT 3.1
                                                                     -----------

                             AMENDED AND RESTATED

                         CERTIFICATE OF INCORPORATION

                                      OF

                          VIRTUAL ENTERTAINMENT, INC.

                                  * * * * * *

We, the undersigned, the President and Secretary, respectively, of Virtual
Entertainment, Inc. (the "Corporation"), hereby certify:

1. The name of the Corporation is Virtual Entertainment, Inc.

2. The Certificate of Incorporation of the Corporation was filed with the
   Secretary of State of Delaware on March 28, 1994.

3. The Certificate of Incorporation of the Corporation is hereby amended by
   amending Articles 1 through 10 as set forth in the Restated Certificate of
   Incorporation hereinafter provided for.

4. The provisions of the Certificate of Incorporation, as herein amended, are
   hereby restated and integrated into the single instrument which is
   hereinafter set forth, and which is entitled the Restated Certificate of
   Incorporation of Virtual Entertainment, Inc.

5.
   The amendment and the restatement of the Certificate of Incorporation have
   been authorized by a majority of the outstanding shares entitled to vote
   thereon pursuant to a written consent of stockholders executed on or as of
   October 30, 1995 in accordance with Sections 228, 242 and 245 of the General
   Corporation Law of the State of Delaware.

6. The Certificate of Incorporation of the Corporation, as amended and restated
   herein, shall, upon the effective date of this Restated Certificate of
   Incorporation, read as follows:

   FIRST.   The name of the corporation is Virtual Entertainment, Inc. (the
"Corporation").

   SECOND.  The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle County,
Delaware 19801.  The name of its registered agent at such address is The
Corporation Trust Company.

   THIRD.   The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.

   FOURTH.  The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 10,010,000 shares, consisting
of 10,000,000 shares of Common Stock with a par value of $.01 per share (the
"Common Stock") and 10,000 shares of Preferred Stock with a par value of $.01
per share (the "Preferred Stock"), of which 687 shares have been designated
"Series A Convertible Preferred Stock" and the balance of which may be
designated from time to time by additional amendments hereto.

   A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Common Stock and Series A
Convertible Preferred Stock are as follows:

   A. SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE>

  1. Number of Shares.  The series of Preferred Stock designated and known as
"Series A Convertible Preferred Stock" shall consist of 687 shares.

  2. Voting.

     2A.      General.  Except as may be otherwise provided in these terms of
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation.  Each share of Series A Convertible Preferred
Stock shall entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of Series A Convertible Preferred
Stock is then convertible.

     2B.      Board Size.  The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series,  increase the maximum number of directors constituting the Board of
Directors to a number in excess of nine.

  3. Dividends.  The holders of the Series A Convertible Preferred Stock shall
be entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends at the rate per annum of
$387.56 per share (the "Accruing Dividends").  Accruing Dividends shall accrue
from day to day, whether or not earned or declared, and shall be cumulative.

  4. Liquidation.  Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series A
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$4,732.00 per share plus, in the case of each share, an amount equal to all
Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, or (ii) such amount per share as would have been payable had
each such share been converted to Common Stock pursuant to paragraph 6
immediately prior to such liquidation, dissolution or winding up, and the
holders of Series A Convertible Preferred Stock shall not be entitled to any
further payment, such amount payable with respect to one share of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation Preference
Payments".  If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Convertible Preferred Stock shall be insufficient
to permit payment to the holders of Series A Convertible Preferred Stock of the
amount distributable as aforesaid, then the entire assets of the Corporation to
be so distributed shall be distributed ratably among the holders of Series A
Convertible Preferred Stock.  Upon any such liquidation, dissolution or winding
up of the Corporation, after the holders of Series A Convertible Preferred Stock
shall have been paid in full the amounts to which they shall be entitled, the
remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Series A Convertible Preferred Stock.
Written notice of such liquidation, dissolution or winding up, stating a payment
date, the amount of the Liquidation Preference Payments and the place where said
Liquidation Preference Payments shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Series A Convertible Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation.  The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof (other than a merger to reincorporate the Corporation in a different
jurisdiction), and the sale, lease, abandonment, transfer or other disposition
by the Corporation of all or substantially all its assets, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of the provisions of this paragraph 4.  For purposes hereof, the Common Stock
shall rank on liquidation junior to the Series A Convertible Preferred Stock.
<PAGE>

  5. Conversions.  The holders of shares of Series A Convertible Preferred Stock
shall have the following conversion rights:

     5A.      Right to Convert.  Subject to the terms and conditions of this
paragraph 5, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option at any time, to convert any such whole
or fractional shares of Series A Convertible Preferred Stock (except that upon
any liquidation of the Corporation the right of conversion shall terminate at
the close of business on the business day fixed for payment of the amount
distributable on the Series A Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock (initially 1,000 shares of
Common Stock for each share of Series A Convertible Preferred Stock) as is
obtained by (i) multiplying the number of shares of Series A Convertible
Preferred Stock so to be converted by $4,732,000 and (ii) dividing the result by
the conversion price of $4,732.00 per share or, in case an adjustment of such
price has taken place pursuant to the further provisions of this paragraph 5,
then by the conversion price as last adjusted and in effect at the date any
share or shares of Series A Convertible Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred to as the
"Conversion Price").  Such rights of conversion shall be exercised by the holder
thereof by giving written notice that the holder elects to convert a stated
number of shares of Series A Convertible Preferred Stock into Common Stock and
by surrender of a certificate or certificates for the shares so to be converted
to the Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of the Series A Convertible Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.

     5B.      Issuance of Certificates; Time Conversion Effected.  Promptly
after the receipt of the written notice referred to in subparagraph 5A and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Series A Convertible Preferred Stock.  To the extent
permitted by law, such conversion shall be deemed to have been effected and the
Conversion Price shall be determined as of the close of business on the date on
which such written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been surrendered
as aforesaid, and at such time the rights of the holder of such share or shares
of Series A Convertible Preferred Stock shall cease, and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.

     5C.      Fractional Shares; Dividends; Partial Conversion.  No fractional
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion.  At the time of each conversion, the Corporation shall pay in cash
an amount equal to all dividends, excluding Accruing Dividends, accrued and
unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 5B.  In case the number of shares of Series A
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 5A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted.  If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 5C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series A Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.

     5D.      Subdivision or Combination of Common Stock.  In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common
<PAGE>

Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.

     5E.      Reorganization or Reclassification.  If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series A
Convertible Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Series A Convertible Preferred Stock, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.

     5F.      Notice of Adjustment.  Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give written notice
thereof, by delivery in person, certified or registered mail, return receipt
requested, telecopier or telex, addressed to each holder of shares of Series A
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.

     5G.      Other Notices.  In case at any time:

     (1)      the Corporation shall declare any dividend upon its Common Stock
   payable in cash or stock or make any other distribution to the holders of its
   Common Stock;

     (2)      the Corporation shall offer for subscription pro rata to the
   holders of its Common Stock any additional shares of stock of any class or
   other rights;

     (3)      there shall be any capital reorganization or reclassification of
   the capital stock of the Corporation, or a consolidation or merger of the
   Corporation with or into another entity or entities, or a sale, lease,
   abandonment, transfer or other disposition of all or substantially all its
   assets; or

     (4)      there shall be a voluntary or involuntary dissolution, liquidation
   or winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Convertible Preferred
Stock at the address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place.  Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such
<PAGE>

reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, as the case may be.

     5H.      Stock to be Reserved.  The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock.  The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Conversion Price in effect at the time.  The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed.  The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Restated Certificate of Incorporation.

     5I.      No Reissuance of Series A Convertible Preferred Stock.  Shares of
Series A Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.

     5J.      Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.

     5K.      Closing of Books.  The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Series A Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.

     5L.      Definition of Common Stock.  As used in this paragraph 5, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted herein and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series A Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 5F.

     5M.      Mandatory Conversion.  If at any time the Corporation shall effect
a firm commitment underwritten public offering of shares of Common Stock in
which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $6.92 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 5E), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock on the basis set forth in this paragraph 5.
Holders of shares of Series A Convertible Preferred Stock so converted may
deliver to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to such holders) during its usual business hours, the certificate or
certificates for the shares so converted.  As
<PAGE>

promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any cash dividends
and payment in lieu of fractional shares to which such holder may be entitled
pursuant to subparagraph 5C. Until such time as a holder of shares of Series A
Convertible Preferred Stock shall surrender his or its certificates therefor as
provided above, such certificates shall be deemed to represent the shares of
Common Stock to which such holder shall be entitled upon the surrender thereof.

  B. COMMON STOCK

     1.      Relative Rights of Preferred Stock and Common Stock.  All
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations, or restrictions of the
Common Stock are expressly made subject and subordinated to those that may be
fixed with respect to any shares of the Preferred Stock.

     2.      Voting Rights.  Except as otherwise required by law or this
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each shares of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation.  The number of authorized shares of Common
Stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation, with each such share
being entitled to such number of votes per shares as is provided in this Article
FOURTH.

     3.      Dividends.  Subject to the preferential rights of the Preferred
Stock, if any, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock.

     4.      Dissolution, Liquidation or Winding Up.  In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Certificate of Incorporation,
to receive all of the remaining assets of the Corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively.

  FIFTH.   The Corporation is to have perpetual existence.

  SIXTH.   In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:

  A. The Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.

  B. Elections of directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.

  C. The books of the Corporation may be kept at such place within or without
the State of Delaware as the By-Laws of the Corporation may provide or as may be
designated from time to time by the Board of Directors of the Corporation.

  SEVENTH. The Corporation eliminates the personal liability of each
member of its Board of Directors to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided, however,
that, to the extent provided by applicable law, the foregoing shall not
eliminate the liability of a director (i) for any breach of such director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit.  No
amendment to or repeal of this
<PAGE>

provision shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.

     EIGHTH.   The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.

<PAGE>

  IN WITNESS WHEREOF, Virtual Entertainment, Inc. has caused this certificate to
be signed by David Blohm, its President, and attested by Gordon H. Hayes, Jr.,
its Secretary, as of this ____ day of October, 1995.


                              VIRTUAL ENTERTAINMENT, INC.



                              By: /s/ David Blohm
                                  -------------------------
                                  David Blohm, President

ATTEST:


/s/ Gordon H. Hayes, Jr.
-------------------------------
Gordon H. Hayes, Jr., Secretary
<PAGE>

                          CERTIFICATE OF AMENDMENT TO
                         CERTIFICATE OF INCORPORATION
                                      OF
                          VIRTUAL ENTERTAINMENT, INC.

                            Pursuant to Section 242

            of the General Corporation Law of the State of Delaware

     Virtual Entertainment, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:

    By written consent of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Sections 141(f) and 242 of the General Corporation
Law of the State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
unanimous written consent in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware.  The resolution setting forth the
amendment is as follows:

RESOLVED:  That Article FOURTH of the Certificate of Incorporation of the
---------
           Corporation be and hereby is amended in its entirety to read as set
           forth in Exhibit A.
                    ---------

    IN WITNESS WHERFOF, Virtual Entertainment, Inc. has caused this Certificate
to be signed by its President and attested by its Secretary this day of May 14,
1997.


                              By: /s/ David Blohm
                                 -------------------------
                                   David Blohm, President

ATTEST:


/s/ Jeff Pucci
-------------------------------
Jeff Pucci, Assistant Secretary

[Corporate Seal]
<PAGE>

                                                                       Exhibit A
                                                                       ---------

     FOURTH.  The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 10,011,000 shares, consisting
of 10,000,000 shares of Common Stock with a par value of $.01 per share (the
"Common Stock") and 11,000 shares of Preferred Stock with a par value of $.01
per share (the "Preferred Stock"), of which 687 shares have been designated
"Series A Convertible Preferred Stock," and 1,000 shares have been designated as
"Series B Convertible Preferred Stock" and the balance of which may be
designated from time to time by additional amendments hereto.

     A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Common Stock and the
Preferred Stock are as follows:

     A.   PREFERRED STOCK
          ---------------

     1.   Voting.
          -------

     1A.  General.  Except as may be otherwise provided in these terms of the
          -------
Preferred Stock or by law, the Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class on all
actions to be taken by the stockholders of the Corporation.  Each share of
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible.

     1B.  Board Size.  The Corporation shall not, without the written consent or
          ----------
affirmative vote of the holders of at least two-thirds of the then outstanding
shares of Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a series, increase the maximum
number of directors constituting the Board of Directors to a number in excess of
nine.

     2.   Dividends.  The holders of the Series A Convertible Preferred Stock
          ---------
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of $387.56 per share (the "Series A Accruing Dividends").  The holders of the
Series B Convertible Preferred Stock shall be entitled to receive, out of funds
legally available therefor, when and if declared by the Board of Directors,
quarterly dividends at the rate per annum of $160.00 per share (the "Series B
Accruing Dividends").  The Series A Accruing Dividends and the Series B Accruing
Dividends are referred to collectively herein as the "Accruing Dividends".
Accruing Dividends shall accrue from day to day, whether or not earned or
declared, and shall be cumulative.

     3.   Liquidation.  Upon any liquidation, dissolution or winding up of the
          -----------
Corporation, whether voluntary or involuntary, the holders of shares of
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to

<PAGE>

its stockholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to such series
of Preferred Stock (collectively referred to as "Senior Preferred Stock"), but,
before any distribution or payment shall be made to the holders of Common Stock
or before any other class or series of stock ranking on liquidation junior to
such Preferred Stock (such Common Stock and other stock being collectively
referred to as "Junior Stock") by reason of their ownership thereof, an amount
equal to the greater of: (i) (A) $4,732.00 per share of Series A Convertible
Preferred Stock plus, in the case of each share, an amount equal to all Series A
Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, and (B) $2,000.00 per share of Series B Convertible Preferred
Stock plus, in the case of each share, an amount equal to all Series B Accruing
Dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available or (ii) such amount per share as would have been payable had each such
share been converted to Common Stock pursuant to paragraph 4 immediately prior
to such liquidation, dissolution or winding up, and the holders of Preferred
Stock shall not be entitled to any further payment, such amount payable with
respect to one share of Preferred Stock being sometimes referred to as the
"Liquidation Preference Payment" and with respect to all shares of Preferred
Stock being sometimes referred to as the "Liquidation Preference Payments". If
upon such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Preferred Stock shall be insufficient to permit payment to the holders of
Preferred Stock of the amount distributable as aforesaid, then the entire assets
of the Corporation to be so distributed shall be distributed ratably among the
holders of Preferred Stock, in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full. Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Senior Preferred Stock, Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Preferred Stock shall have been paid in full the amounts to
which they shall be entitled, the remaining net assets of the Corporation may be
distributed to the holders of shares of Junior Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the Liquidation Preference Payments and the place where said Liquidation
Preference Payments shall be payable, shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, not less than 20 days prior to the payment date stated therein, to the
holders of record of Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation. The
consolidation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the Corporation
for securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof (other than a merger to
reincorporate the Corporation in a different jurisdiction), and the sale, lease,
abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4.

<PAGE>

     4.  Conversions.  The holders of shares of Preferred Stock shall have the
         -----------
following conversion rights:

     4A. Right to Convert.
         ----------------

     (1) Subject to the terms and conditions of this paragraph 4, the holder of
any share or shares of Series A Convertible Preferred Stock shall have the
right, at its option at any time, to convert any such whole or fractional shares
of Series A Convertible Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series A
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Common Stock (initially 1,000 shares of Common Stock for each share of
Series A Convertible Preferred Stock) as is obtained by (i) multiplying the
number of shares of Series A Convertible Preferred Stock so to be converted by
$4,732,000 and (ii) dividing the result by the conversion price of $4,732.00 per
share or, in case an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 4, then by the conversion price as last
adjusted and in effect at the date any share or shares of Series A Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Series A Conversion Price",  Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series A
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.

     (2) Subject to the terms and conditions of this paragraph 4, the holder of
any share or shares of Series B Convertible Preferred Stock shall have the
right, at its option at any time, to convert any such whole or fractional shares
of Series B Convertible Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series B
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Common Stock (initially 1,000 shares of Common Stock for each share of
Series B Convertible Preferred Stock) as is obtained by (i) multiplying the
number of shares of Series B Convertible Preferred Stock so to be converted by
$2,000,000 and (ii) dividing the result by the conversion price of $2,000.00 per
share or, in case an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 4, then by the conversion price as last
adjusted and in effect at the date any share or shares of Series B Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Series B Conversion Price").  Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series B
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other Office or agency of the Corporation as the
Corporation
<PAGE>

may designate by notice in writing to the holders of the Series B Convertible
Preferred Stock) at any time during its usual business hours on the date set
forth in such notice, together with a statement of the name or names (with
address) in which the certificate or certificates for shares of Common Stock
shall be issued.

     4B.  Issuance of Certificates: Time Conversion Effected.  Promptly after
          --------------------------------------------------
the receipt of the written notice referred to in subparagraph 4A and surrender
of the certificate or certificates for the share or shares of Preferred Stock to
be converted, the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such share or shares of Preferred Stock.
To the extent permitted by law, such conversion shall be deemed to have been
effected and the Series A Conversion Price or the Series B Conversion Price, as
applicable, shall be determined as of the close of business on the date on which
such written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been surrendered
as aforesaid, and at such time the rights of the holder of such share or shares
of Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.

     4C.  Fractional Shares: Dividends: Partial Conversion.  No fractional
          ------------------------------------------------
shares shall be issued upon conversion of Preferred Stock into Common Stock and
no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion.  At the time of
each conversion, the Corporation shall pay in cash an amount equal to all
dividends, excluding Accruing Dividends, accrued and unpaid on the shares of
Preferred Stock, surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph 4B.  In case the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 4A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted.  If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 4C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation.

     4D.  Subdivision or Combination of Common Stock.  In case the Corporation
          ------------------------------------------
shall at any time subdivide (by any stock split, stock dividend or otherwise)
its outstanding shares of Common Stock into a greater number of shares, the
Series A Conversion Price and the Series B Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Series A Conversion Price and the Series B
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
<PAGE>

     4E.  Reorganization or Reclassification.  If any capital reorganization or
          ----------------------------------
reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of preferred
Stock shall thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Preferred Stock, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of such holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Series A Conversion Price and the Series B Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.

      4F.  Notice of Adjustment.  Upon any adjustment of the Series A Conversion
           --------------------
 Price or the Series B Conversion Price, then and in each such case the
 Corporation shall give written notice thereof, by delivery in person, certified
 or registered mail, return receipt requested, telecopier or telex, addressed to
 each holder of shares of such series of Preferred Stock at the address of such
 holder as shown on the books of the Corporation, which notice shall state the
 Series A Conversion Price or the Series B Conversion Price, as the case may be,
 resulting from such adjustment, setting forth in reasonable detail the method
 upon which such calculation is based.

      4G.  Other Notices.  In case at any time:
           -------------

      (1) the Corporation shall declare any dividend upon its Common Stock
 payable in cash or stock or make any other distribution to the holders of its
 Common Stock;

      (2) the Corporation shall offer for subscription pro rata to the holders
 of its Common Stock any additional shares of stock of any class or other
 rights;

      (3) there shall be any capital reorganization or reclassification of the
 capital stock of the Corporation, or a consolidation or merger of the
 Corporation with or into another entity or entities, or a sale, lease,
 abandonment, transfer or other disposition of all or substantially all its
 assets; or

      (4) there shall be a voluntary or involuntary dissolution, liquidation or
 winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each
<PAGE>

holder of any shares of Preferred Stock at the address of such holder as shown
on the books of the Corporation, (a) at least 20 days' prior written notice of
the date on which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up and
(b) in the case of any such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, at least 20 days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and such notice in accordance
with the foregoing clause (b) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, as
the case may be.

     4H.  Stock to be Reserved.  The Corporation will at all times reserve and
          --------------------
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of the Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Preferred Stock.  The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the lesser of the Series
A Conversion Price or the Series B Conversion Price in effect at the time.  The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed.  The Corporation will not take any
action which results in any adjustment of the Series A Conversion Price or the
Series B Conversion Price if the total number of shares of Common Stock issued
and issuable after such action upon conversion of the Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Restated Certificate of Incorporation,

     4I.  No Reissuance of Preferred Stock.  Shares of Preferred Stock which are
          --------------------------------
converted into shares of Common Stock as provided herein shall not be reissued.

     4J.  Issue Tax.  The issuance of certificates for shares of Common Stock
          ---------
upon conversion of Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Preferred Stock which is being converted.

     4K.  Closing of Books.  The Corporation will at no time close its transfer
          ----------------
books against the transfer of any Preferred Stock or of any shares of Common
Stock issued or
<PAGE>

issuable upon the conversion of any shares of Preferred Stock in any manner
which interferes with the timely conversion of such Preferred Stock, except as
may otherwise be required to comply with applicable securities laws.

     4L.  Definition of Common Stock.  As used in this paragraph 4, the term
          ---------------------------
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted herein and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Preferred Stock shall include only shares designated as Common
Stock of the Corporation on the date of filing of this instrument, or in case of
any reorganization or reclassification of the outstanding shares thereof, the
stock, securities or assets provided for in subparagraph 4F.
<PAGE>

                           CERTIFICATE OF AMENDMENT

                                      OF

                         CERTIFICATE OF INCORPORATION

                                   * * * * *

       Virtual Entertainment, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,

          DOES HEREBY CERTIFY:

FIRST:    That the Board of Directors of said corporation, adopted a resolution
          proposing and declaring advisable the following amendment to the
          Certificate of Incorporation of said corporation:

RESOLVED: That Article FIRST of the Certificate of Incorporation be deleted in
          its entirety and the following Article FIRST be inserted in lieu
          thereof:
               "FIRST.  The name of the Corporation is Virtual Knowledge, Inc.

SECOND:   That in lieu of a meeting and vote of stockholders, the stockholders
          have given written consent to said amendment in accordance with the
          provisions of Section 228 of the General Corporation Law of the State
          of Delaware.

THIRD:    That the aforesaid amendment has been duly adopted in accordance with
          the applicable provisions of Section 242 and 228 of the General
          Corporation Law of the State of Delaware.

          IN WITNESS WHEREOF, said Virtual Entertainment, Inc., has caused this
          certificate to be signed by David Blohm, its President this 31/st/ day
          of July, 1997.
                              Virtual Entertainment, Inc.

                              By /s/ David Blohm
                                ------------------------------------
                              David Blohm, President
<PAGE>

                          CERTIFICATE OF AMENDMENT TO

                         CERTIFICATE OF INCORPORATION

                                      OF

                            VIRTUAL KNOWLEDGE, INC.

                            Pursuant to Section 242
            of the General Corporation Law of the State of Delaware

     Virtual Knowledge, Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:

       By written consent of the Board of Directors of the Corporation,
resolutions were duly adopted, pursuant to Sections 141(f) and 242 of the
General Corporation Law of the State of Delaware, setting forth amendments to
the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") and declaring said amendments to be advisable. The stockholders
duly approved said proposed amendments by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendments. The resolutions setting forth the
amendments are as follows:

RESOLVED: That Article FIRST of the Certificate of Incorporation be deleted in
          its entirety and the following Article FIRST be inserted in lieu
          thereof:

               "FIRST.  The name of the Corporation is SmarterKids.com, Inc."

RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
          Incorporation be and hereby is amended to read as follows:

<PAGE>

       "FOURTH.  The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 10,011,000 shares,
consisting of 10,000,000 shares of Common Stock with a par value of $.01 per
share (the "Common Stock") and 11,000 shares of Preferred Stock with a par value
of $.01 per share (the "Preferred Stock"), of which 687 shares have been
designated "Series A Convertible Preferred Stock" and 1,018 shares have been
designated "Series B Convertible Preferred Stock" and the balance of which may
be designated from time to time by additional amendments thereto."

       IN WITNESS WHEREOF, Virtual Knowledge, Inc. has caused this Certificate
to be signed by its President and attested by its Assistant Secretary this 1/st/
day of September, 1998.

                              By: /s/ David Blohm
                                 ----------------------------
                                  David Blohm, President

ATTEST:


/s/ Jeff Pucci
---------------------------------
Jeff Pucci, Assistant Secretary
<PAGE>

                           CERTIFICATE OF AMENDMENT

                                      OF

                         CERTIFICATE OF INCORPORATION

                                      OF

                            SMARTERKIDS.COM, INC.


                           Pursuant to Section 242
                      of the General Corporation Law of
                             the State of Delaware



          SmarterKids.com (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:

          By written consent of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Section 242 of the General Corporation
Law of the State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
written consent in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware, and written notice of such consent has
been given to all stockholders who have not consented in writing to said
amendment.  The resolution setting forth the amendment is as follows:

RESOLVED:  That Article FOURTH of the Certificate of Incorporation of the
--------
Corporation be and hereby is deleted in its entirety and Article FOURTH in the
form attached as Exhibit A (the "Charter Amendment") is inserted in lieu
                 ------- -
thereof.

     Exhibit A referred to in such resolution is as follows:
     ------- -


                                   Exhibit A
<PAGE>

          FOURTH:  The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 10,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock") and (ii) 4,205 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock").

     The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.

     COMMON STOCK.

     1.   General. The voting, dividend and liquidation rights of the holders of
          -------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.

     2.   Voting.  The holders of the Common Stock are entitled to one vote for
          ------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.

          The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.

     3.   Dividends. Dividends may be declared and paid on the Common Stock from
          ---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.

     4.   Liquidation.  Upon the dissolution or liquidation of the Corporation,
          -----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.

     A.        PREFERRED STOCK.
               ---------------

     Six Hundred Eighty-Seven (687) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series A Convertible
Preferred Stock" (the "Series A Preferred Stock") and Three Thousand Five
Hundred and Eighteen (3,518) shares of the authorized and unissued Preferred
Stock of the Corporation are hereby designated "Series B Convertible Preferred
Stock" (the "Series B Preferred Stock"), with the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations. The Series
A Preferred Stock and the Series B Preferred Stock are collectively referred to
herein as the "Series Preferred Stock."

     1.   Dividends.
          ---------
<PAGE>

          (a)  The Corporation shall not declare or pay any dividends or
distributions on shares of Common Stock (other than dividends or distributions
consisting of securities of the Corporation) until the holders of the Series
Preferred Stock then outstanding shall have first received a dividend or
distribution on each outstanding share of Series Preferred Stock in an amount at
least equal to the product of (i) the per share amount, if any, of the dividends
or other distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series Preferred Stock is then convertible.

          (b)  The Corporation shall not declare or pay any dividends or
distributions on shares of Series A Preferred Stock until the holders of the
Series B Preferred Stock then outstanding shall have first received a dividend
or distribution on each outstanding share of Series B Preferred Stock in an
amount at least equal to the product of (i) the per share amount, if any, of (x)
the dividends or other distributions to be declared, paid or set aside for the
Series A Preferred Stock, divided by (y) the number of whole shares of Common
Stock into which each such share of Series A Preferred Stock is then convertible
multiplied by (ii) the number of whole shares of Common Stock into which each
share of Series B Preferred Stock is then convertible.

          (c)  Any and all accrued but unpaid dividends or other distributions
with respect to the Series A Preferred Stock and/or the Series B Preferred Stock
which accrued prior to the filing of this Certificate of Amendment are hereby
waived and of no further force or effect.

     2.   Liquidation, Dissolution or Winding Up; Certain Mergers,
          --------------------------------------------------------
          Consolidations and Asset Sales.
          ------------------------------

          (a)  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of Series A Preferred Stock, Common Stock
or any other class or series of stock ranking on liquidation junior to the
Series B Preferred Stock by reason of their ownership thereof, an amount equal
to the greater of (i) $2,000.00 per share (subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
thereon, or (ii) such amount per share as would have been payable had each such
share (and each share of Series A Preferred Stock) been converted into Common
Stock pursuant to Section 4 immediately prior to such liquidation, dissolution
or winding up, and after such payment in full all rights of the holders of
shares of Series B Preferred Stock, and all obligations of the Corporation with
respect thereto, shall be automatically terminated.  If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series B Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in
<PAGE>

proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.

          (b)  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after payment
to the holders of Series B Preferred Stock (and any other class or series of
stock ranking on liquidation senior to the Series A Preferred Stock) but before
any payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock
(such Common Stock and other stock ranking Junior on any liquidation being
collectively referred to as "Junior Stock") by reason of their ownership
thereof, an amount equal to the greater of (i) $4,732.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid thereon, or (ii) such amount per share as would
have been payable had each such share (and each share of Series B Preferred
Stock) been converted into Common Stock pursuant to Section 4 immediately prior
to such liquidation, dissolution or winding up, and after such payment in full
all rights of the holders of shares of Series A Preferred Stock, and all
obligations of the Corporation with respect thereto, shall be automatically
terminated. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series A Preferred Stock and any class or series of stock ranking
on liquidation on a parity with the Series A Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.

          (c)  After the payment of all preferential amounts required to be paid
to the holders of Series Preferred Stock and any other class or series of stock
of the Corporation ranking on liquidation on a parity with the Series Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation, the
holders of shares of Junior Stock then outstanding shall be entitled to receive
the remaining assets and funds of the Corporation available for distribution to
its stockholders.

          (d)  Any merger or consolidation of the Corporation or a subsidiary of
the Corporation into or with another corporation (except one in which the
holders of capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least 51% by voting power of the capital stock
of the surviving or acquiring corporation), or sale of all or substantially all
the assets of the Corporation, shall be deemed to be a liquidation of the
Corporation for purposes of this Section 2, and the agreement or plan of merger
or consolidation with respect to such merger, consolidation or sale shall
provide that the consideration payable to the stockholders of the Corporation
(in the case of a merger or consolidation), or consideration payable to the
Corporation, together with all other available assets of the Corporation (in the
case of an
<PAGE>

asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) through 2(c) above. The amount
deemed distributed to the holders of Series Preferred Stock upon any such
merger, consolidation or sale shall be the cash or the value of the property,
rights or securities distributed to such holders by the Corporation or the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation.

     3.   Voting.
          ------

          (a)  Each holder of outstanding shares of Series Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 4 hereof),
at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b) through 3(d) below or
by the provisions establishing any other series of Preferred Stock, holders of
Series Preferred Stock and of any other outstanding series of Preferred Stock
shall vote together with the holders of Common Stock as a single class.

          (b)  The holders of record of the shares of Series B Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two directors of
the Corporation, and the holders of record of the shares of Common Stock and of
any other class or series of voting stock (including the Series Preferred
Stock), exclusively and as a separate class, shall be entitled to elect the
balance of the total number of directors of the Corporation. At any meeting held
for the purpose of electing directors, the presence in person or by proxy of the
holders of a majority of the shares of Series B Preferred Stock then outstanding
shall constitute a quorum of the Series B Preferred Stock for the purpose of
electing directors by holders of the Series B Preferred Stock. A vacancy in any
directorship filled by the holders of Series B Preferred Stock shall be filled
only by vote or written consent in lieu of a meeting of the holders of the
Series B Preferred Stock or by any remaining director or directors elected by
the holders of Series B Preferred Stock pursuant to this Subsection 3(b). The
rights of the holders of the Series B Preferred Stock under this Subsection 3(b)
shall terminate on the first date on which there are issued and outstanding less
than 1,375 shares of Series B Preferred Stock (subject to appropriate adjustment
in the event of any dividend, stock split, combination or other similar
recapitalization affecting such shares).

          (c)  The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series Preferred Stock so as to affect
adversely the Series Preferred Stock, without the written consent or affirmative
vote of the holders of a majority of the then outstanding shares of Series
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a single class.  For this purpose, without
limiting the generality of the foregoing, (i) the authorization of any shares of
capital stock with preference or priority over, or on a parity with, the Series
B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be
<PAGE>

deemed to affect adversely the Series B Preferred Stock, and (ii) the
authorization of any shares of capital stock with preference or priority over,
or on a parity with, Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall not be deemed to affect adversely the Series A
Preferred Stock. The number of authorized shares of Series Preferred Stock may
be increased or decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the then outstanding
shares of the Common Stock, Series Preferred Stock and all other classes or
series of stock of the Corporation entitled to vote thereon, voting as a single
class, irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware.

          (d)  In addition to any other rights provided by law, so long as at
least 1,375 shares of Series B Preferred Stock (subject to appropriate
adjustment in the event of any dividend, stock split, combination or similar
recapitalization affecting such shares shall be outstanding, the Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than 60% of the then outstanding shares of Series B
Preferred Stock:

               (i)   Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation;

               (ii)  Merge or consolidate into or with any other corporation or
other entity or sell all, substantially all or any substantial portion of the
Corporation's assets; or

               (iii) dissolve, liquidate or wind up it affairs.

     4.   Optional Conversion.  The holders of the Series Preferred Stock shall
          -------------------
have conversion rights as follows (the "Conversion Rights"):

          (a)  Right to Convert.  Each share of Series Preferred Stock shall be
               ----------------
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by (i) for Series A Preferred Stock by dividing $4,732.00 by the
Series A Conversion Price (as defined below) in effect at the time of conversion
and (ii) for the Series B Preferred Stock by dividing $2,000.00 by the Series B
Conversion Price (as defined below) in effect at the time of conversion. The
"Series A Conversion Price" shall initially be $4.732 and the "Series B
Conversion Price" shall initially be $2.00. Such initial Series A Conversion
Price and Series B Conversion Price, and the rate at which shares of Series A
Preferred Stock and Series B Preferred Stock, respectively, may be converted
into shares of Common Stock, shall be subject to adjustment as provided below.

          In the event of a notice of redemption of any shares of Series B
Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the
shares of Series B Preferred Stock designated for redemption shall terminate at
the close of business on the fifth full day preceding the date fixed for
redemption, unless the redemption price is not paid when
<PAGE>

due, in which case the Conversion Rights for such shares of Series B Preferred
Stock shall continue until such price is paid in full. In the event of a
liquidation of the Corporation, the Conversion Rights for the Series Preferred
Stock shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series Preferred Stock.

          (b)  Fractional Shares. No fractional shares of Common Stock shall be
               -----------------
issued upon conversion of the Series Preferred Stock.  In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Series A
Conversion Price or Series B Conversion Price, as the case may be.

          (c)  Mechanics of Conversion.
               -----------------------

               (i)  In order for a holder of Series Preferred Stock to convert
shares of Series Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series Preferred
Stock, at the office of the transfer agent for the Series Preferred Stock (or at
the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series Preferred Stock represented by
such certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.

               (ii) The Corporation shall at all times when any shares of Series
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Series Preferred Stock. Before taking any action which would cause
an adjustment reducing the Series A Conversion Price or Series B Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock or Series B Preferred Stock,
respectively, the Corporation will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price or Series B Conversion Price, as the case may
be.
<PAGE>

               (iii) Upon any such conversion, no adjustment to the Series A
Conversion Price or Series B Conversion Price shall be made for any declared but
unpaid dividends on the Series Preferred Stock surrendered for conversion or on
the Common Stock delivered upon conversion.

               (iv)  All shares of Series Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Series Preferred Stock accordingly.

               (v)   The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Series Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.

          (d)  Adjustments to Series B Conversion Price for Diluting Issues:
               ------------------------------------------------------------

               (i)  Special Definitions. For purposes of this Subsection 4(d),
                    -------------------
the following definitions shall apply:

                    (A)  "Option" shall mean rights, options or warrants to
                          ------
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.

                    (B)  "Series B Original Issue Date" shall mean October 23,
                          ----------------------------
1998.

                    (C)  "Convertible Securities" shall mean any evidences of
                          ----------------------
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.

                    (D)  "Additional Shares of Common Stock" shall mean all
                          ---------------------------------
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Series B Original Issue Date,
other than:

                          (I)   shares of Common Stock issued or issuable
                                upon conversion of any Convertible
                                Securities or exercise of
<PAGE>

                                                 any warrants outstanding on the
                                                 Series B Original Issue Date;

                          (II)  shares of Common Stock issued or issuable as a
                                dividend or distribution on Series B Preferred
                                Stock;

                          (III) shares of Common Stock issued or issuable by
                                reason of a dividend, stock split, split-up or
                                other distribution on shares of Common Stock
                                that is covered by Subsection 4(e) or 4(f)
                                below; or

                          (IV)  up to 2,871,100 shares of Common Stock (subject
                                to appropriate adjustment in the event of any
                                stock dividend, stock split, combination or
                                other similar recapitalization affecting such
                                shares), issued or issuable to employees or
                                directors of, or consultants to, the Corporation
                                pursuant to a plan or arrangement approved by
                                the Board of Directors of the Corporation and by
                                a majority of the members of the Board of
                                Directors who are not employees of the Company
                                or any of its subsidiaries (provided that any
                                Options for such shares that expire or terminate
                                unexercised shall not be counted toward such
                                maximum number);

                          (V)   250,000 shares issuable to Education Products,
                                Inc. or its parent, Sylvan Learning Systems,
                                Inc. ("Sylvan") pursuant to that certain letter
                                agreement, dated July 23, 1997, between Sylvan
                                and the Corporation;

                          (VI)  warrants to purchase up to 95,000 shares, or
                                shares of Common Stock issuable upon exercise of
                                such warrants, issued or issuable to
                                EduVentures; and

                          (VII) warrants to purchase up to 38,000 shares, or
                                up to 38,000 shares of Common Stock issuable
                                upon exercise of any warrants, issuable to J. L.
                                Hammett Co. pursuant to
<PAGE>

                                that Contract for Services and Term Sheet dated
                                September 29, 1998.

               (ii)  No Adjustment of Series B Conversion Price. No adjustment
                     ------------------------------------------
in the number of shares of Common Stock into which the Series B Preferred Stock
is convertible shall be made, by adjustment in the applicable Series B
Conversion Price thereof: (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series B
Conversion Price in effect immediately prior to the issue of such Additional
Shares, or (b) if the Corporation receives written notice from the holders of at
least 66 2/3% of the then outstanding shares of Series B Preferred Stock
agreeing that no such adjustment shall be made as the result of any particular
issuance of Additional Shares of Common Stock or generally as the result of any
issuance of Additional Shares of Common Stock.

               (iii) Issue of Securities Deemed Issue of Additional Shares of
                     --------------------------------------------------------
Common Stock.
------------

     If the Corporation at any time or from time to time after the Series B
Original Issue Date shall issue any Options (excluding Options covered by
Subsection 4(d)(i)(D)(IV) above) or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares of Common Stock (as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series B Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:

                     (A) No further adjustment in the Series B Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;

                     (B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be
<PAGE>

recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;

                     (C) Upon the expiration or termination of any such
unexercised Option, the Series B Conversion Price shall be recomputed to reflect
such expiration or termination;

                     (D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any such
Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Series B Conversion
Price then in effect shall forthwith be readjusted to such Series B Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and

                     (E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Series B Conversion Price to an
amount which exceeds the lower of (i) the Series B Conversion Price on the
original adjustment date, or (ii) the Series B Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.

     In the event the Corporation, after the Series B Original Issue Date,
amends the terms of any such Options or Convertible Securities (whether such
Options or Convertible Securities were outstanding on the Series B Original
Issue Date or were issued after the Series B Original Issue Date), then such
Options or Convertible Securities, as so amended, shall be deemed to have been
issued after the Series B Original Issue Date and the provisions of this
Subsection 4(d)(iii) shall apply.

               (iv)  Adjustment of Series B Conversion Price Upon Issuance of
                     --------------------------------------------------------
Additional Shares of Common Stock.
---------------------------------

     In the event the Corporation shall at any time after the Series B Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a stock split or combination as provided in
Subsection 4(e) or upon a dividend or distribution as provided in Subsection
4(f)), without consideration or for a consideration per share less than the
applicable Series B Conversion Price in effect immediately prior to such issue,
then and in such event, such Series B Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Series B Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received or to be received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Series B Conversion Price; and (B) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
provided that, (i) for the purpose of this
-------- ----
<PAGE>

Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding immediately prior to
such issue and all shares issuable as set forth in clauses (V), (VI) and (VII)
of subsection 4(d)(i)(D) above shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon exercise or conversion of
such outstanding Options and Convertible Securities shall not give effect to any
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.

               (v)   Determination of Consideration. For purposes of this
                     ------------------------------
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:

                     (A) Cash and Property:  Such consideration shall:
                         -----------------

                         (I)   insofar as it consists of cash, be computed at
                               the aggregate of cash received by the
                               Corporation, excluding amounts paid or payable
                               for accrued interest;

                         (II)  insofar as it consists of property other than
                               cash, be computed at the fair market value
                               thereof at the time of such issue, as determined
                               in good faith by the Board of Directors; and

                         (III) in the event Additional Shares of Common Stock
                               are issued together with other shares or
                               securities or other assets of the Corporation for
                               consideration which covers both, be the
                               proportion of such consideration so received,
                               computed as provided in clauses (I) and (II)
                               above, as determined in good faith by the Board
                               of Directors.

                     (B) Options and Convertible Securities. The consideration
                         ----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing

                         (x)  the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such
<PAGE>

Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by

                         (y)  the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.

                    (vi) Multiple Closing Dates. In the event the Corporation
                         ----------------------
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then, upon the
final such issuance, the Series B Conversion Price shall be adjusted to give
effect to all such issuances as if they occurred on the date of the final such
issuance (and without giving effect to any adjustments as a result of such prior
issuances within such period).

          (e)  Adjustment for Stock Splits and Combinations.  If the Corporation
               --------------------------------------------
shall at any time or from time to time after the Series B Original Issue Date
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price and Series B Conversion Price then in effect immediately before that
subdivision shall each be proportionately decreased. If the Corporation shall at
any time or from time to time after the Series B Original Issue Date combine the
outstanding shares of Common Stock, the Series A Conversion Price and Series B
Conversion Price then in effect immediately before the combination shall each be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

          (f)  Adjustment for Certain Dividends and Distributions.  In the event
               --------------------------------------------------
the Corporation at any time, or from time to time after the Series B Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Series A Conversion Price and Series B Conversion Price then in effect
immediately before such event shall each be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying each such Conversion Price
then in effect by a fraction:

               (1)  the numerator of which shall be the total number of shares
          of Common Stock issued and outstanding immediately prior to the time
          of such issuance or the close of business on such record date, and

               (2)  the denominator of which shall be the total number of shares
          of Common Stock issued and outstanding immediately prior to the time
          of such issuance or the close of business on such record date plus the
          number of shares of Common Stock issuable in payment of such dividend
          or distribution;
<PAGE>

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and Series B Conversion Price shall each
be recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and Series B Conversion Price shall
each be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock or Series B
Preferred Stock, respectively, simultaneously receive (i) a dividend or other
distribution of shares of Common Stock in a number equal to the number of shares
of Common Stock as they would have received if all outstanding shares of Series
A Preferred Stock or Series B Preferred Stock, respectively, had been converted
into Common Stock on the date of such event or (ii) a dividend or other
distribution of shares of Series A Preferred Stock or Series B Preferred Stock,
respectively, which are convertible, as of the date of such event, into such
number of shares of Common Stock as is equal to the number of additional shares
of Common Stock being issued with respect to each share of Common Stock in such
dividend or distribution.

          (g)  Adjustments for Other Dividends and Distributions.  In the event
               -------------------------------------------------
the Corporation at any time or from time to time after the Series B Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of the Series
A Preferred Stock and Series B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had the Series A Preferred Stock and Series B Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this paragraph with respect to the respective rights of the holders of the
Series A Preferred Stock and Series B Preferred Stock; and provided further,
however, that no such adjustment shall be made if the holders of Series A
Preferred Stock and Series B Preferred Stock simultaneously receive a dividend
or other distribution of such securities in an amount equal to the amount of
such securities as they would have received if all outstanding shares of Series
A Preferred Stock and Series B Preferred Stock had been converted into Common
Stock on the date of such event.

          (h)  Adjustment for Reclassification, Exchange, or Substitution.  If
               ----------------------------------------------------------
the Common Stock issuable upon the conversion of the Series A Preferred Stock
and Series B Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
merger, consolidation, or sale of assets provided for below), then and in each
such event the holder of each such share of Series A Preferred Stock and Series
B Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable,
<PAGE>

upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock and Series B Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.

          (i)  Adjustment for Merger or Reorganization, etc.  In case of any
               --------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(d)), each share of Series A Preferred Stock and Series B Preferred
Stock shall thereafter be convertible (or shall be converted into a security
which shall be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred Stock
and Series B Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock and Series B Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price or Series B Conversion Price, as the case may be) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series A Preferred Stock and Series B Preferred Stock.

          (j)  No Impairment.  The Corporation will not, by amendment of its
               -------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series Preferred Stock against impairment.

          (k)  Certificate as to Adjustments.  Upon the occurrence of each
               -----------------------------
adjustment or readjustment of the Series A Conversion Price or Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock and Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock or Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price and Series B
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A Preferred Stock and Series B Preferred Stock.

          (l)  Notice of Record Date.  In the event:
               ---------------------
<PAGE>

               (i)   that the Corporation declares a dividend (or any other
                     distribution) on its Common Stock payable in Common Stock
                     or other securities of the Corporation;

               (ii)  that the Corporation subdivides or combines its outstanding
                     shares of Common Stock;

               (iii) of any reclassification of the Common Stock of the
                     Corporation (other than a subdivision or combination of its
                     outstanding shares of Common Stock or a stock dividend or
                     stock distribution thereon), or of any consolidation or
                     merger of the Corporation into or with another corporation,
                     or of the sale of all or substantially all of the assets of
                     the Corporation; or

               (iv)  of the involuntary or voluntary dissolution, liquidation or
                     winding up of the Corporation;

then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series Preferred Stock, and (unless waived
by the holders of a majority of the shares of the Series Preferred Stock) shall
cause to be mailed to the holders of the Series Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating

                     (A) the record date of such dividend, distribution,
                         subdivision or combination, or, if a record is not to
                         be taken, the date as of which the holders of Common
                         Stock of record to be entitled to such dividend,
                         distribution, subdivision or combination are to be
                         determined, or

                     (B) the date on which such reclassification, consolidation,
                         merger, sale, dissolution, liquidation or winding up is
                         expected to become effective, and the date as of which
                         it is expected that holders of Common Stock of record
                         shall be entitled to exchange their shares of Common
                         Stock for securities or other property deliverable upon
                         such reclassification, consolidation, merger, sale,
                         dissolution or winding up.

     5.   Mandatory Conversion.
          --------------------

          (a)  Upon the closing of the sale of shares of Common Stock, at a
price to the public of at least $10.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such
<PAGE>

shares), in a public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, resulting in at least $15,000,000
of gross proceeds to the Corporation (the "Mandatory Conversion Date"), (i) all
outstanding shares of Series Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective conversion rates and (ii) the
number of authorized shares of Preferred Stock shall be automatically reduced by
the number of shares of Preferred Stock that had been designated as Series A
Preferred Stock or Series B Preferred Stock, and all provisions included under
the caption "Preferred Stock", and all references to the Series Preferred Stock,
shall be deleted and shall be of no further force or effect.

          (b) All holders of record of shares of Series Preferred Stock shall be
given written notice of the Mandatory Conversion Date and the place designated
for mandatory conversion of all such shares of Series Preferred Stock pursuant
to this Section 5. Such notice need not be given in advance of the occurrence of
the Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series Preferred Stock (or the records of the Corporation, if it serves
as its own transfer agent). Upon receipt of such notice, each holder of shares
of Series Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Series Preferred Stock
so converted, including the rights, if any, to receive notices and vote (other
than as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.

          (c) All certificates evidencing shares of Series Preferred Stock which
are required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the Mandatory Conversion Date, be deemed to have
been retired and cancelled and the shares of Series Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date.  Such converted Series Preferred Stock may not be reissued,
and the Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized number
of shares of Series Preferred Stock accordingly.
<PAGE>

     6.   Series B Preferred Stock Redemption.
          -----------------------------------

          (a)  The Corporation will, subject to the conditions set forth below,
on October 31, 2003 and on each of the first and second anniversaries thereof
(each such date being referred to hereinafter as a "Series B Mandatory
Redemption Date"), upon receipt not less than 60 nor more than 120 days prior to
the applicable Series B Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series B
Preferred Stock then outstanding (an "Initial Redemption Request"), redeem from
each holder of shares of Series B Preferred Stock that requests redemption
pursuant to the Initial Redemption Request or pursuant to a subsequent election
made in accordance with Section 6(b) below (a "Series B Requesting Holder"), at
a price equal to $2,000.00 per share, plus any dividends declared but unpaid
thereon, subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such shares
(the "Mandatory Redemption Price"), the number of shares of Series B Preferred
Stock requested to be redeemed by each Series B Requesting Holder, but not more
than the following respective portions of the number of shares of Series B
Preferred Stock held by such Series B Requesting Holder on the applicable Series
B Mandatory Redemption Date.

                                                            Maximum
          Series B Mandatory                    Portion of Shares of Series B
          Redemption Date                      Preferred Stock To Be Redeemed
          ---------------                      ------------------------------

          October 31, 2003                                 33%
          October 31, 2004                                 50%
          October 31, 2005                          All outstanding shares of
                                                    Series B Preferred Stock

          (b)  The Corporation shall provide notice of its receipt of an Initial
Redemption Request, specifying the time, manner and place of redemption and the
Series B Mandatory Redemption Price (a "Redemption Notice"), by first class or
registered mail, postage prepaid, to each holder of record of Series B Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 45 days prior to the applicable Series B
Mandatory Redemption Date. Each holder of Series B Preferred Stock (other than a
holder who has made the Initial Redemption Request) may elect to become a Series
B Requesting Holder on such Series B Mandatory Redemption Date by so indicating
in a written notice mailed to the Company, by first class or registered mail,
postage prepaid, at least 30 days prior to the applicable Series B Mandatory
Redemption Date. Except as provided in Section 6(c) below, each Series B
Requesting Holder shall surrender to the Corporation on the applicable Series B
Mandatory Redemption Date the certificate(s) representing the shares to be
redeemed on such date, in the manner and at the place designated in the
Redemption Notice. Thereupon, the Mandatory Redemption Price shall be paid to
the order of each such Series B Requesting Holder and each certificate
surrendered for redemption shall be cancelled.
<PAGE>

          (c)  If the funds of the Corporation legally available for redemption
of Series B Preferred Stock on any Series B Mandatory Redemption Date are
insufficient to redeem the number of shares of Series B Preferred Stock required
under this Section 6 to be redeemed on such date from Series B Requesting
Holders, those funds which are legally available will be used to redeem the
maximum possible number of such shares of Series B Preferred Stock ratably on
the basis of the number of shares of Series B Preferred Stock which would be
redeemed on such date if the funds of the Corporation legally available therefor
had been sufficient to redeem all shares of Series B Preferred Stock required to
be redeemed on such date. At any time thereafter when additional funds of the
Corporation become legally available for the redemption of Series B Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of the shares which the Corporation was
theretofore obligated to redeem, ratably on the basis set forth in the preceding
sentence.

          (d)  Unless there shall have been a default in payment of the
Mandatory Redemption Price, on the Series B Mandatory Redemption Date all rights
of the holder of each share redeemed on such date as a stockholder of the
Corporation by reason of the ownership of such share will cease, except the
right to receive the Mandatory Redemption Price of such share, without interest,
upon presentation and surrender of the certificate representing such share, and
such share will not from and after such Series B Mandatory Redemption Date be
deemed to be outstanding.

          (e)  Any Series B Preferred Stock redeemed pursuant to this Section 6
will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
<PAGE>

          IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 5th day of November, 1998.

                                                  SmarterKids.com, Inc.


                                             By: /s/ David Blohm
                                                ------------------------
                                                David Blohm, President
<PAGE>

                           CERTIFICATE OF AMENDMENT

                                      OF
                         CERTIFICATE OF INCORPORATION

                                      OF

                             SMARTERKIDS.COM, INC.

                            Pursuant to Section 242
                       of the General Corporation Law of
                             the State of Delaware

     SmarterKids.com, Inc. (hereinafter called the "Corporation") organized and
 existing under and by virtue of the General Corporation Law of the State of
 Delaware, does hereby certify as follows:

     By written consent of the Board of Directors of the Corporation a
 resolution was duly adopted pursuant to Section 242 of the General Corporation
 Law of the State of Delaware, setting forth an amendment to the Certificate of
 Incorporation of the Corporation and declaring said amendment to be advisable.
 The stockholders of the Corporation duly approved said proposed amendment by
 written consent in accordance with Sections 228 and 242 of the General
 Corporation Law of the State of Delaware, and written notice of such consent
 has been given to all stockholders who have not consented in writing to said
 amendment. The resolution setting forth the amendment as follows:

 RESOLVED:  That Article FOURTH of the Certificate of Incorporation of the
 ---------               ------
 Corporation be and hereby is deleted in its entirety and Article FOURTH in the
 form attached as Exhibit A (the "Charter Amendment") is inserted in lieu
                  ---------
 thereof.

          Exhibit A referred to in such resolution is as follows:
          ---------
                                   Exhibit A

     FOURTH:  The total number of shares of all classes of stock which the
 Corporation shall have authority to issue is (i) 13,000,000 shares of Common
 Stock, $.01 par value per share ("Common Stock") and (ii) 4,401,323 shares of
 Preferred Stock, $.01 par value per share ("Preferred Stock").

     The following is a statement of the designations and powers, privileges and
 rights, and the qualifications, limitations or restrictions thereof in respect
 of each class of capital stock of the Corporation.
<PAGE>

     A.   COMMON STOCK

          1.   General. The voting, dividend and liquidation rights of the
               -------
     holders of the Common Stock are subject to and qualified by the rights of
     the holders of the Preferred Stock of any series as may be designated by
     the Board of Directors upon any issuance of the Preferred Stock of any
     series.

          2.   Voting. The holders of the Common Stock are entitled to one vote
               ------
     for each share held at all meetings of stockholders (and written actions in
     lieu of meetings). There shall be no cumulative voting.

          The number of authorized shares of Common Stock may be increased or
     decreased (but not below the number of shares thereof then outstanding) by
     the affirmative vote of the holders of a majority of the stock of the
     Corporation entitled to vote, irrespective of the provisions of Section 242
     (b) (2) of the General Corporation Law of Delaware.

          3.   Dividends. Dividends may be declared and paid on the Common Stock
     from funds lawfully available therefor as and when determined by the Board
     of Directors and subject to any preferential dividend rights of any then
     outstanding Preferred Stock.

          4.   Liquidation. Upon the dissolution or liquidation of the
     Corporation, whether voluntary or involuntary, holders of Common Stock will
     be entitled to receive all assets of the Corporation available for
     distribution to its stockholders, subject to any preferential rights of any
     then outstanding Preferred Stock.

     B.   PREFERRED STOCK.

          Six Hundred Eighty Seven (687) shares of the authorized and unissued
     Preferred Stock of the Corporation are hereby designated "Series A
     Convertible Preferred Stock" (the 'Series A Preferred Stock"); Three
     Thousand Five Hundred Eighteen (3,518) shares of the authorized and
     unissued Preferred Stock of the Corporation are hereby designated, "Series
     B Convertible Preferred Stock" (the "Series B Preferred Stock") and Four
     Million Three Hundred Ninety Seven Thousand One Hundred Eighteen
     (4,397,118) shares of the authorized and unissued Preferred Stock of the
     Corporation are hereby designated, "Series C Convertible Preferred Stock"
     (the "Series C Preferred Stock"), with the following rights, preferences,
     powers, privileges and restrictions, qualifications and limitations. The
     Series A Preferred Stock, the Series B Preferred Stock and the Series C
     Preferred Stock are collectively referred to herein as the "Series
     Preferred Stock." The Series B Preferred Stock and the Series C Preferred
     Stock are collectively referred to herein as the "Series B and C Preferred
     Stock."

          1.   Dividends.
               ---------
<PAGE>

          (a)  The Corporation shall not declare or pay any dividends or
distributions on shares of Common Stock (other than dividends or distributions
consisting of securities of the Corporation) until the holders of the Series
Preferred Stock then outstanding shall have first received a dividend or
distribution on each outstanding share of Series Preferred Stock in an amount at
least equal to the product of (i) the per share amount, if any, of the dividends
or other distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series Preferred Stock is then convertible.

          (b)  The Corporation shall not declare or pay any dividends or
distributions on shares of Series A Preferred Stock unless the holders of the
Series B and C Preferred Stock then outstanding shall have first or concurrently
received a dividend or distribution on each outstanding share calculated as
follows:

               (1)  For each share of Series B Preferred Stock in an amount at
     least equal to the product of (i) the per share amount, if any, of (x) the
     dividends or other distributions to be declared, paid or set aside for
     Series A Preferred Stock, divided by (y) the number of whole shares of
     Common Stock into which each such share of Series A Preferred Stock is then
     convertible multiplied by (ii) the number of whole shares of Common Stock
     into which each share of Series B Preferred Stock is then convertible and

               (2)  For each share of Series C Preferred Stock in an amount at
     least equal to the product of (i) the per share amount, if any, of (x) the
     dividends or other distributions to be declared, paid or set aside for
     Series A Preferred Stock, divided by (y) the number of whole shares of
     Common Stock into which each such share of Series A Preferred Stock is then
     convertible multiplied by (ii) the number of whole shares of Common Stock
     into which each share of Series C Preferred Stock is then convertible.

          (c)  Any and all accrued but unpaid dividends or other distributions
with respect to any Series Preferred Stock which accrued prior to the filing of
this Certificate of Amendment are hereby waived and are of no further force or
effect.

     2.   Liquidation, Dissolution or Winding Up, Certain Mergers,
          --------------------------------------------------------
          Consolidations and Asset Sales.
          ------------------------------

          (a)  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
and C Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders, before
any payment shall be made to the holders of Series A Preferred Stock, Common
Stock or an other class or series of stock ranking on liquidation junior to the
Series B and C Preferred Stock by reason of their ownership thereof, an amount
equal to:

                         (i)  For each share of Series B Preferred Stock an
                   amount equal to the greater of (1) $2,000.00 per share
                   (subject to appropriate adjustment in the event of any stock
<PAGE>

                   dividend, stock split, combination or other similar
                   recapitalization affecting such shares), plus any dividends
                   declared but unpaid thereon, or (2) such amount per share as
                   would have been payable had each such share (and each share
                   of Series A Preferred Stock and, if the amount that the
                   holders of shares of Series C Preferred Stock would be
                   entitled to receive upon such event would be the amount
                   specified in clause (ii)(2) below, the Series C Preferred
                   Stock) been converted into Common Stock pursuant to Section 4
                   immediately prior to such liquidation, dissolution or winding
                   up; and

                         (ii) For each share of Series C Preferred Stock an
                   amount equal to the greater of (1) $6.269 per share (subject
                   to appropriate adjustment in the event of any stock dividend,
                   stock split, combination or other similar recapitalization
                   affecting such shares), plus any dividends declared but
                   unpaid thereon, or (2) such amount per share as would have
                   been payable had each such share (and each share of Series A
                   Preferred Stock and, if the amount that the holders of shares
                   of Series B Preferred Stock would be entitled to receive upon
                   such event would be the amount specified in clause (i)(2)
                   above, the Series B Preferred Stock) been converted into
                   Common Stock pursuant to Section 4 immediately prior to such
                   liquidation, dissolution or winding up

and after such payment in full all rights of the holders of shares of Series B
and C Preferred Stock, and all obligations of the Corporation with respect
thereto, shall be automatically terminated. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series B and C Preferred the full amount to
which they shall be entitled, the holders of shares of Series B and C Preferred
Stock and any class or series of stock ranking on a parity with the Series B and
C Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.

          (b)  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after payment
to the holders of Series B and C Preferred Stock (and any other class or series
of stock ranking on liquidation senior to the Series A Preferred Stock) but
before any payment shall be made to the holders of Common Stock or any other
class or series of stock ranking on liquidation junior to the Series A Preferred
Stock (such Common Stock and other stock ranking Junior on any liquidation being
collectively referred to as "Junior Stock") by reason of their ownership
thereof, an
<PAGE>

amount equal to the greater of (i) $4,732.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared,
but unpaid thereof, or (ii) such amount per share as would have been payable had
each such share (and each share of Series B and C Preferred Stock) been
converted into Common Stock pursuant to Section 4 immediately prior to such
liquidation, dissolution or winding up, and after such payment in full all
rights of the holders of shares of Series A Preferred Stock and all obligations
of the Corporation with respect thereto, shall be automatically terminated. If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Series A Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution is all amounts payable on or
with respect to such shares were paid in full.

         (c)   After the payment of all preferential amounts required to be paid
to the holders of Series Preferred Stock and any other class or series of stock
of the Corporation ranking on liquidation on a parity with the Series Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation the
holders of shares of Junior Stock then outstanding shall be entitled to receive
the remaining assets and funds of the Corporation available for distribution to
its stockholders.

         (d)   Any merger or consolidation of the Corporation or a subsidiary of
the Corporation into or with another corporation, or other reorganization of the
Corporation, (except one in which the holders of capital stock of the
Corporation immediately prior to such merger, consolidation or reorganization
continue to hold at least 51% by voting power of the capital stock of the
surviving or acquiring corporation), or sale of all or substantially all the
assets of the Corporation shall be deemed to be liquidation of the Corporation
for purposes of this Section 2, and the agreement or plan of merger,
consolidation or reorganization with respect to such merger, consolidation,
reorganization or sale shall provide that the consideration payable to the
Corporation, together with all other available assets of the Corporation (in the
case of an asset sale), shall be distributed to the holders of capital stock of
the Corporation in accordance with Subsections 2(a) through 2(c) above. The
amount deemed distributed to the holders of Series Preferred Stock upon any such
merger, consolidation, reorganization or sale shall be the cash or the value of
the property, rights or securities distributed to such holders by the
corporation or the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.

     3.  Voting.
         ------

         (a)   Each holder of outstanding shares of Series Preferred stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series Preferred Stock held by such holder are
then convertible
<PAGE>

(as adjusted from time to time pursuant to Section 4 hereof), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law, by
the provisions of Subsection 3(b) through 3(d) below or by the provisions
establishing any other series of Preferred Stock, holders of Series Preferred
Stock and of any other outstanding series of Preferred Stock shall vote together
with the holders of Common Stock as a single class.

          (b)  The holders of record of (i) the shares of Series B Preferred
Stock, exclusively and as a separate class shall be entitled to elect two
directors of the Corporation, (ii) the shares of Series C Preferred Stock,
exclusively and as a separate class shall be entitled to elect one director of
the Corporation and (iii) the holders of record of the shares of Common Stock
and of any other class or series of voting (including the Series A Preferred
Stock and the Series B and C Preferred Stock), voting together as a single class
in which each holder of outstanding shares of Series Preferred Stock is entitled
to the number of votes equal to the number of whole shares of Common Stock into
which the shares of Series Preferred Stock held by such holder are then
convertible (as adjusted from time to time pursuant to Section 4 hereof), shall
be entitled to elect the balance of the total number of directors of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of (i) the shares of
Series B Preferred Stock then outstanding shall constitute a quorum of the
Series B Preferred Stock for the purpose of electing directors by holders of the
Series B Preferred Stock and (ii) the shares of Series C Preferred Stock then
outstanding shall constitute a quorum of the Series C Preferred Stock for the
purpose of electing directors by holders of the Series C Preferred Stock. A
vacancy in any directorship filled by the holders of Series B Preferred Stock
shall be filled only by vote or written consent in lieu of a meeting of the
holders of the Series B Preferred Stock or by any remaining director or
directors elected by the holders of Series B Preferred Stock pursuant to this
Subsection 3(b). A vacancy in any directorship filled by the holders of Series C
Preferred Stock shall be filled only by vote or written consent in lieu of a
meeting of the holders of the Series C Preferred Stock. The rights of the
holders of the Series B Preferred Stock under this Subsection 3(b) shall
terminate on the first date on which there are issued and outstanding less than
1,375 shares of Series B Preferred Stock (subject to appropriate adjustment in
the event of any dividend, stock split, combination or other similar
recapitalization affecting such shares). The rights of the holders of the Series
C Preferred Stock under this Subsection 3(b) shall terminate on the first date
on which there are issued and outstanding less than 1,000,000 shares of Series C
Preferred Stock (subject to appropriate adjustment in the event of any dividend,
stock split, combination or other similar recapitalization affecting such
shares).

          (c)  The Corporation, shall not amend, alter or repeal the
preferences, special rights or other powers of the Series Preferred Stock so as
to affect adversely the Series Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a single class. For this purpose,
without limiting the generality of the foregoing, (i) the authorization of any
shares of capital stock with preference or priority over, or on a parity with,
the Series B Preferred Stock or the Series C Preferred Stock as to the right to
receive either
<PAGE>

dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series B Preferred
Stock and the Series C Preferred Stock, and (ii) the authorization of any shares
of capital stock with preference or priority over, or on a parity with Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall not be deemed to affect adversely the Series A Preferred Stock. The number
of authorized shares of Series Preferred Stock may be increased or decreased
(but not below the number of shares then outstanding) by the affirmative vote of
the holders of a majority of the then outstanding shares of the Common Stock,
Series Preferred Stock and all other classes or series of stock of the
Corporation entitled to vote thereon, voting as a single class, irrespective of
the provisions of the Section 242(b)(2) of the General Corporation Law of
Delaware.

          (d)  In addition to any other rights provided by law, so long as no
less than 1,375 shares of Series B Preferred Stock (the "Minimum Series B
Shares") remain outstanding, or no less than 1,000,000 shares of Series C
Preferred Stock (the "Minimum Series C Shares") remain outstanding (in each case
subject to appropriate adjustment in the event of any dividend, stock split,
combination or similar recapitalization affecting such shares), the Corporation
shall not without the affirmative vote or written consent of (A) the holders of
a majority of the then outstanding shares (treating each share of Preferred
Stock as being equal to the number of shares of Common Stock into which such
share is then convertible) of the Series B and C Preferred Stock if the Minimum
Series B Shares and the Minimum Series C Shares remain outstanding, (B) the
holders of a majority of the then outstanding shares of Series B- Preferred
Stock, if the Minimum Series B Shares but less than the Minimum Series C Shares
remain outstanding, or (C) the holders of a majority of the then outstanding
shares of Series C Preferred Stock, if the Minimum Series C Shares but less than
the Minimum Series B Shares remain outstanding:

               (i)    amend or repeal any provision of, or add any provision to
 the Corporation's Certificate of Incorporation;

               (ii)   merge or consolidate into or with any other corporation or
 other entity or sell all, substantially all or any substantial portion of the
 Corporation's assets;

               (iii)  dissolve liquidate or wind up its affairs;

               (iv)   declare or pay any dividends or distributions on Common
  Stock; or

               (v)    reclassify any outstanding shares into shares having
preferences or priority as to dividends or assets senior to or on a parity with
the preference of the Series B and C Preferred Stock.

     4.   Original Conversion.  The holders of the Series Preferred Stock shall
          -------------------
have conversion rights as follows (the "Conversion Rights"):
<PAGE>

          (a)  Right to Convert.  Each share of Series Preferred Stock shall be
               ----------------
convertible, at the option of the holder thereof, at any time and from time to
time, and without payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by (i) for Series A Preferred Stock by dividing $4,732.00 by the
Series A Conversion Price (as defined below) in effect at the time of
conversion; (ii) for the Series B Preferred Stock by dividing $2,000.00 by the
Series B Conversion Price (as defined below) in effect at the time of conversion
and (iii) for the Series C Preferred Stock by dividing $6.269 by the Series C
Conversion Price (as defined below) in effect at the time of conversion.  The
"Series A Conversion Price" shall initially be $4.732; the "Series B Conversion
Price" shall initially be $2.00; and the "Series C Conversion Price" shall
initially be $6.269. Such initial Series A Conversion Price, Series B Conversion
Price and Series C Conversion Price, and the rate at which shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
respectively, may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.

     In the event of a notice of redemption of any shares of Series B and C
Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the
shares of Series B and C Preferred Stock designated for redemption shall
terminate at the close of business on the fifth full day preceding the date
fixed for redemption, unless the redemption price is not paid when due, in which
case the Conversion Rights for such shares of Series B and C Preferred Stock
shall continue until such price is paid in full.  In the event of a liquidation
of the Corporation, the Conversion Rights for the Series Preferred Stock shall
terminate at the close of business on the first full day preceding the date
fixed for the payment of any amounts distributable on liquidation to the holders
of Series Preferred Stock.

          (b)  Fractional Shares.  No fractional shares of Common Stock shall be
               -----------------
issued upon conversion of the Series Preferred Stock.  In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Series A
Conversion Price, Series B Conversion Price or Series C Conversion Price, as the
case may be.

          (c)  Mechanics of Conversion.
               -----------------------

               (i)  In order for a holder of Series Preferred Stock to convert
shares of Series Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series Preferred
Stock, at the office of the transfer agent for the Series Preferred Stock (or at
the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of shares of the Series Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificate and notice by the transfer agent (or by the corporation if the
Corporation serves as its own transfer agent) shall be the conversion
<PAGE>

date ("Conversion Date"). The Corporation shall, as soon as practicable after
the Conversion Date, issue and deliver at such office to such holder of Series
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled
together with cash in lieu of any fraction of a share.

          (ii)   The Corporation shall at all times when any shares of Series
 Preferred Stock shall be outstanding, reserve and keep available out of its
 authorized but unissued stock, for the purpose of effecting the conversion of
 the Series Preferred Stock, such number of its duly authorized shares of Common
 Stock as shall from time to time be sufficient to effect the conversion of all
 outstanding Series Preferred Stock.  Before taking any action which would cause
 an adjustment reducing the Series A Conversion Price, Series B Conversion Price
 or Series C Conversion Price below the then par value of the shares of Common
 Stock issuable upon conversion of the Series A Preferred Stock, Series B
 Preferred Stock or Series C Conversion Price, respectively, the Corporation
 will take any corporate action which may, in the opinion of its counsel, be
 necessary in order that the Corporation may validly and legally issue fully
 paid and nonassessable shares of Common Stock at such adjusted Series A
 Conversion Price, Series B Conversion Price or Series C Conversion Price, as
 the case may be.

          (iii)  Upon any such conversion, no adjustment to the Series A
 Conversion Price, Series B Conversion Price or Series C Conversion Price shall
 be made for any declared but unpaid dividends on the Series Preferred Stock
 surrendered for conversion or on the Common Stock delivered upon conversion.

          (iv)   All shares of Series Preferred Stock which shall have been
 surrendered for conversion as herein provided shall no longer be deemed to be
 outstanding and all rights with respect to such shares, including the rights,
 if any, to receive notices and to vote, shall immediately cease and terminate
 on the Conversion Date, except only the right of the holders thereof to receive
 shares of Common Stock in exchange therefor and payment of any dividends
 declared but unpaid thereon.  Any shares of Series Preferred Stock so converted
 shall be retired and cancelled and shall not be reissued, and the Corporation
 (without the need for stockholder action) may from time to time take such
 appropriate action as may be necessary to reduce the authorized number of
 shares of Series Preferred Stock accordingly.

          (v)    The Corporation shall pay any and all issue and other taxes
 that may be payable in respect of any issuance or delivery of shares of Common
 Stock upon conversion of shares of Series Preferred Stock pursuant to this
 Section 4. The Corporation shall not, however, be required to pay any tax which
 may be payable in respect of any transfer involved in the issuance and delivery
 of shares of Common Stock in a name other than that in which the shares of
 Series Preferred Stock so converted were registered, and no such issuance or
 delivery shall be made unless and until the person or entity requesting such
 issuance has paid to the Corporation the amount of any such tax or has
 established, to the satisfaction of the Corporation, that such tax has been
 paid.
<PAGE>

          (d)  Adjustments to Series B Conversion Price and Series C Conversion
               ----------------------------------------------------------------
Price - Diluting Issues:
-----------------------

               (i)  Special Definitions. For purposes of this Subsection 4(d),
the following definitions shall apply:

                    (A)  "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.

                    (B)  "Series C Original Issue Date" shall mean July 12,
1999.

                    (C)  "Convertible Securities" shall mean any evidences or
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.

                    (D)  "Additional Shares of Common Stock" shall mean all
                          ---------------------------------
 shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
 deemed to be issued) by the Corporation after the Series C Original Issue Date,
 other than:

                         (I)    shares of Common Stock issued or issuable upon
                                conversion of any Convertible Securities or
                                exercise of any warrants outstanding on the
                                Series C Original Issue Date;

                         (II)   shares of Common Stock issued or issuable as a
                                dividend or distribution on Series B Preferred
                                Stock or Series C Preferred Stock;


                         (III)  shares of Common Stock issued or issuable by
                                reason of a dividend, stock split, split up or
                                other distribution on shares of Common Stock
                                that is covered by Subsection 4(e) or 4(f)
                                below;

                         (IV)   up to 2,548,000 shares of Common Stock (subject
                                to appropriate adjustment in the event of any
                                stock dividend, stock split, combination or
                                other similar recapitalization affecting such
                                shares), issued or issuable to employees or
                                directors of, or consultants to the Corporation
                                pursuant to a plan or arrangement approved by
                                the Board of Directors of the Corporation and by
                                a majority of the members of the Board of
                                Directors who are not employees of the Company
                                or any of its subsidiaries (provided that any
                                Options for such shares
<PAGE>

                                that expire or terminate unexercised shall not
                                be counted toward such maximum number);

                         (V)    up to 125 Series B Shares, or shares of Common
                                Stock issuable upon conversion of such Series B
                                Shares, issuable to Education Products, Inc. or
                                its parent, Sylvan Learning Systems, Inc.
                                ("Sylvan") pursuant to that certain letter
                                agreement, dated July 23, 1997, between Sylvan
                                and the Corporation;

                         (VI)   warrants to purchase up to 105,700 shares, or
                                shares of Common Stock issuable upon exercise of
                                such warrants, issued or issuable to Edu
                                Ventures;

                         (VII)  warrants to purchase up to 38,000 shares, or up
                                to 38,000 shares of Common Stock issuable upon
                                exercise of any warrants, issuable to J.L.
                                Hammett Co. pursuant to that Contract for
                                Services and Term Sheet dated September 29,
                                1998;

                         (VIII) warrants to purchase up to 75,000 shares, or up
                                to 75,000 shares of Common Stock issuable upon
                                exercise of any warrants, issuable to National
                                Computer Systems, Inc.; and

                         (IX)   warrants to purchase Series C Preferred Stock,
                                or shares of Series C Preferred Stock issuable
                                upon exercise of any warrants, or shares of
                                Common Stock issuable upon conversion of Series
                                C Preferred Stock, issuable pursuant to that
                                certain letter agreement, dated March 19, 1999,
                                between Thomas Weisel Partners LLC and the
                                Corporation.

               (ii)   No Adjustment of Series B Conversion Price or Series C
                      ------------------------------------------------------
Conversion Price. No adjustment in the number of shares of Common Stock into
----------------
which the Series B Preferred Stock or Series C Preferred Stock, respectively, is
convertible shall be made, by adjustment in the applicable Series B Conversion
Price or Series C Conversion Price respectively (a) unless the consideration per
share (determined pursuant to Subsection 4(d)(v)) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
applicable Series B Conversion Price or Series C Conversion Price, respectively,
in effect immediately prior to the issue of such
<PAGE>

Additional Shares, or (b) if the Corporation receives written notice from the
holders of at least 66 2/3% of the then outstanding shares of Series B and C
Preferred Stock, voting as a single class, that no such adjustment shall be made
as the result of any particular issuance of Additional Shares of Common Stock or
generally as the result of any issuance of Additional Shares of Common Stock.

               (iii)  Issue of Securities Deemed Issue of Additional Shares of
                      --------------------------------------------------------
Common Stock.
------------

     If the Corporation at any time or from time to time after the Series C
Original Issue Date shall issue any Options (excluding Options covered by
Subsection 4(d)(i)(D)(IV) above) or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares of Common Stock (as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
for the purpose of the adjustment to the Series B Conversion Price or Series C
Conversion Price, respectively, issued as of the time of such issue or, in case
such a record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not be deemed
to have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series B Conversion Price or Series C Conversion Price,
respectively, in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:

                    (A)  No further adjustment in the Series B Conversion Price
or Series C Conversion Price shall be made upon the subsequent issuance of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;

                    (B)  If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation upon the exercise,
conversion or exchange thereof, the Series B Conversion Price or Series C
Conversion Price, as the case may be, computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;

                    (C)  Upon the expiration or termination of any such
unexercised Option, the Series B Conversion Price or Series C Conversion Price,
as the case may be, shall be recomputed to reflect such expiration or
termination;
<PAGE>

                    (D)  In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any such
Option or Convertible Security, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Series B Conversion
Price or Series C Conversion Price, respectively, then in effect shall forthwith
be readjusted to such Series B Conversion Price or Series C Conversion Price,
respectively, as would have obtained had the adjustment which was made upon the
issuance of such Option or Convertible Security not exercised or converted prior
to such change been made upon the basis of such change; and

                    (E)  No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Series B Conversion Price or
Series C Conversion Price, respectively, to an amount which exceeds the lower of
(i) the Series B Conversion Price or Series C Conversion Price, respectively, on
the original adjustment date, or (ii) the Series B Conversion Price or Series C
Conversion Price, respectively, that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.

     In the event the Corporation, after the Series C Original Issue Date,
amends the terms of any such Options or Convertible Securities (whether such
Options or Convertible Securities were outstanding on the Series C Original
Issue Date or were issued after the Series C Original Issue Date), than such
Options or Convertible Securities, as so amended, shall be deemed to have been
issued after the Series C Original Issue Date and the provisions of this
Subsection 4(d)(iii) shall apply.

               (iv)  Adjustment of Series B Conversion Price and Series C
                     ----------------------------------------------------
Conversion Price Upon Issuance of Additional Shares of Common Stock.
-------------------------------------------------------------------

     In the event the Corporation shall at any time after the Series C Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a stock split or combination as provided in
Subsection 4(e) or upon a dividend or distribution as provided in Subsection
4(f)), without consideration or for a consideration per share less than the
applicable Series B Conversion Price or Series C Conversion Price, respectively,
in effect immediately prior to such issue, then and in such event, such Series B
Conversion Price and Series C Conversion Price, respectively, shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Series B Conversion Price or Series C Conversion
Price, respectively, by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
                    ------
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price or Series C Conversion Price, respectively; and (B) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided that (i) for the purpose of this Subsection 4(d)(iv), all
        -------- ----
shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to
<PAGE>

such issue and all shares issuable as set forth in clauses (V), (VI) and (VII)
of subsection 4(d)(i)(D) above shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon exercise or conversion of
such outstanding Options and Convertible Securities shall not give effect to any
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.

               (v)  Determination of Consideration. For purposes of this
                    ------------------------------
Subsection 4 (d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:

                    (A)  Cash and Property: Such consideration shall:

                         (I)   insofar as it consists of cash, be computed at
                               the aggregate of cash received by the
                               Corporation, excluding amounts paid or payable
                               for accrued interest;

                         (II)  insofar as it consists of property other than
                               cash, be computed at the fair market value
                               thereof at the time of such issue, as determined
                               in good faith by the Board of Directors; and

                         (III) in the event Additional Shares of Common Stock
                               are issued together with other shares or
                               securities or other assets of the Corporation for
                               consideration which covers both, be the
                               proportion of such consideration so received
                               computed as provided in clauses (1) and (II
                               above, as determined in good faith by the Board
                               of Directors.

                    (B)  Options and Convertible Securities. The consideration
                         ----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities shall be determined by dividing

                         (x)  the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible
<PAGE>

Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, by

                         (y)  the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.

               (vi)  Multiple Closing-Dates. In the event the Corporation shall
                     ----------------------
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then, upon the
final such issuance, the Series B Conversion Price and Series C Conversion
Price, respectively, shall be adjusted to give effect to all such issuances as
if they occurred on the date of the final such issuance (and without giving
effect to any adjustments as a result of such prior issuances within such
period).

          (e)  Adjustments for Stock Splits and Combinations. If the Corporation
               ---------------------------------------------
shall at any time or from time to time after the Series C Original Issue Date
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price, Series B Conversion Price and Series C Conversion Price then in effect
immediately before that subdivision shall each be proportionately decreased. If
the Corporation shall at any time or from time to time after the Series C
Original Issue Date combine the outstanding shares of Common Stock, the Series A
Conversion Price, Series B Conversion Price and Series C Conversion Price then
in effect immediately before the combination shall each be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.

          (f)  Adjustment for Certain Dividends and Distributions.  In the event
               --------------------------------------------------
the Corporation at any time, or from time to time after the Series C Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Series A Conversion Price, Series B Conversion Price and Series C Conversion
Price then in effect immediately before such event shall each be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the closed business on such record date, by multiplying each such
Conversion Price then in effect by a fraction;

                    (1)  the numerator of which shall be the total number of
               shares of Common Stock issued and outstanding immediately prior
               to the time of such issuance or the close of business on such
               record date; and

                    (2)  the denominator of which shall be the total number of
               shares of Common Stock issued and outstanding immediately prior
               to the time of such issuance or the close of business on such
<PAGE>

               record date plus the number of shares of Common stock issuable in
               payment of such dividend or distribution;

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price and Series C
Conversion Price shall each be recomputed accordingly as of the close of
business on such record date and thereafter the Series A Conversion Price,
Series B Conversion Price and Series C Conversion Price shall each be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Series Preferred Stock simultaneously receive (i) a
dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if all
outstanding shares of Series Preferred Stock had been converted into Common
Stock on the date of such event or (ii) a dividend or other distribution of
shares of the such kind of Series Preferred Stock, which are convertible, as of
the date of such event, into such number of shares of Common Stock as is equal
to the number of additional shares of Common Stock being issued with respect to
each share of Common Stock in such dividend or distribution.

          (g)  Adjustments for Other Dividends and Distributions.  In the event
               -------------------------------------------------
the Corporation at any time or from time to time after the Series C Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of the Series
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
paragraph with respect to the respective rights of the holders of the Series
Preferred Stock; and provided further, however, that no such adjustment shall be
made if the holders of Series Preferred Stock simultaneously receive a dividend
or other distribution of such securities in an amount equal to the amount of
such securities as they would have received if all outstanding shares of Series
Preferred Stock had been converted into Common Stock on the date of such event.

          (h)  Adjustment for Reclassification, Exchange, or Substitution. If
               ----------------------------------------------------------
the Common Stock issuable upon the conversion of the Series Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series Preferred Stock have the right thereafter to convert such share
into the kind and amount of shares of stock and other securities and property
receivable, upon such reorganization, reclassification, or other change, by
holders of the number of shares of Common Stock into which such shares of Series
<PAGE>

Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.

          (i)  Adjustment for Merger or Reorganization, etc.  In case of any
               --------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(d)), each share of Series Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series Preferred Stock,
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Series A Conversion
Price, Series B Conversion Price or Series C Conversion Price, as the case may
be) shall thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon the
conversion of the Series Preferred Stock.

          (j)  No Impairment.  The Corporation will not, by amendment of its
               -------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provision of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series Preferred Stock against impairment.

          (k)  Certificate as to Adjustments.  Upon the occurrence of each
               -----------------------------
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price or Series C Conversion Price pursuant to this Section 4, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of Series Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.  The
Corporation shall, upon the written request at any time of any holder of Series
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price, Series B Conversion Price and Series C Conversion
Price then in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which then would be received upon the
conversion of Series Preferred Stock.

          (l)  Notice of Record Date.  In the event:
               ---------------------

               (i)  that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
<PAGE>

               (ii)   that the Corporation subdivides or combines its
outstanding shares of Common Stock;

               (iii)  of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or

               (iv)   of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;

then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series Preferred Stock, and (unless waived
by the holders of a majority of the shares of the Series Preferred Stock) shall
cause to be mailed to the holders of the Series Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating

                    (A)  the record date of such dividend, distribution,
                    subdivision or combination, or, if a record is not to be
                    taken, the date as of which the holders of Common Stock of
                    record to be entitled to such dividend, distribution,
                    subdivision or combination are to be determined, or

                    (B)  the date on which such reclassification, consolidation,
                    merger, sale, dissolution, liquidation or winding up is
                    expected to become effective, and the date as of which it is
                    expected that holders of Common Stock of record shall be
                    entitled to exchange their shares of Common Stock for
                    securities or other property deliverable upon such
                    reclassification, consolidation, merger, sale, dissolution
                    or winding up.

     5.   Mandatory Conversion.
          --------------------

          (a)  Upon the closing of the sale of shares of Common Stock, at a
price to the public of at least $10.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $15,000,000 of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective conversion rates and (ii) the number of authorized shares of Preferred
Stock shall be automatically reduced by the number of shares of Preferred Stock
that had been designated as Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock, and all provisions included under the caption
"Preferred Stock," and all
<PAGE>

references to the Series Preferred Stock shall be deleted and shall be of no
further force or effect.

          (b)  All holders of record shares of Series Preferred Stock shall be
given written notice of the Mandatory Conversion Date and the place designated
for mandatory conversion of all such shares of Series Preferred Stock pursuant
to this Section 5. Such notice need not be given in advance of the occurrence of
the Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series Preferred Sock (or the records of the Corporation, if it serves
as its own transfer agent). Upon receipt of such notice, each holder of shares
of Series Preferred Stock shall surrender his or its certificate or certificates
for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date all rights with respect to the Series Preferred Stock
so converted, including the rights, if any, to receive notices and vote (other
than as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.

          (c)  All certificates evidencing shares of Series Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. Such converted Series Preferred Stock may
not be reissued, and the Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the
authorized number of shares of Series Preferred Stock accordingly.

     6.   Series B and C Preferred Stock Redemption
          -----------------------------------------

          (a)  The Corporation will, subject to the conditions set forth below,
on June 30, 2004 and on each of the first and second anniversaries thereof (each
such date being referred to hereinafter as a "Series B and C Mandatory
Redemption Date"), upon receipt not less than 60 nor more than 120 days prior to
the applicable Series B and C Mandatory Redemption Date of written request(s)
for redemption from holders of at least
<PAGE>

a majority of the shares of Series B and C Preferred Stock then outstanding,
voting together as a single class on an "as converted" basis (an "Initial
Redemption Request"), redeem from each holder of shares of Series B and C
Preferred Stock that requests redemption pursuant to the Initial Redemption
Request or pursuant to a subsequent election made in accordance with Section
6(b) below (a "Series B and C Requesting Holder"), at price equal to the greater
of, in the case of the Series B Preferred Stock, $2,000.00 per share, and in the
case of the Series C Preferred Stock, $6.269 per share, plus in each case any
dividends declared but unpaid thereon, subject to appropriate adjustment in the
event of any stock dividend stock split, combination or other similar
recapitalization affecting such shares and fair market value as determined in
good faith by the Board of Directors (the "Mandatory Redemption Price"), the
number of shares of Series B and C Preferred Stock requested to be redeemed by
each Series B and C Requesting Holder, but not more than the following
respective portion of the number of shares of Series B and C Preferred Stock
held by such Series B and C Requesting Holder on the applicable Series B and C
Mandatory Redemption Date.

     Series B and C Mandatory     Maximum Portion of Shares of Series B and C
         Redemption Date                Preferred Stock to Be Redeemed
         ---------------                ------------------------------
         June 30, 2004                              33%
         June 30, 2005                              50%
         June 30, 2006                     All outstanding shares of
                                        Series B and C Preferred Stock

          (b)  The Corporation shall provide notice of its receipt of an Initial
Redemption Request, specifying the time, manner and place of redemption and the
Series B and C Mandatory Redemption Price ("Redemption Notice"), by first class
or registered mail, postage prepaid, to each holder of record of Series B and C
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 45 days prior to the applicable Series B and
C Mandatory Redemption Date.  Each holder of Series B and C Preferred Stock
(other than a holder who has made the Initial Redemption Request) may elect to
become a Series B and C Requesting Holder on such Series B and C Mandatory
Redemption Date by so indicating in a written notice mailed to the Company, by
first class or registered mail, postage prepaid, at least 30 days prior to the
applicable Series B and C Mandatory Redemption Date.  Except as provided in
Section 6(c) below, each Series B and C Requesting Holder shall surrender to the
Corporation on the applicable Series B and C Mandatory Redemption Date the
certificate(s) representing the shares to be redeemed on such date, in the
manner and at the place designated in the Redemption Notice.  Thereupon, the
Mandatory Redemption Price shall be paid to the order of each such Series B and
C Requesting Holder and each certificate surrendered for redemption shall be
cancelled.

          (c)  If the funds of the Corporation legally available for redemption
of Series B and C Preferred Stock on any Series B and C Mandatory Redemption
Date are insufficient to redeem the number shares of Series B and C Preferred
Stock required under this Section 6 to be redeemed on such date from Series B
and C Requesting Holders, those funds which are legally available will be used
to redeem the maximum possible number of such shares of Series B and C Preferred
Stock ratably in proportion to
<PAGE>

the respective amounts which would be payable in respect of such shares if the
funds of the Corporation legally available therefor had been sufficient to
redeem all shares of Series B and C Preferred Stock required to be redeemed on
such date. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series B and C Preferred Stock,
such funds will be used, at the end of next succeeding fiscal quarter, to redeem
the balance of the shares which the Corporation was therefore obligated to
redeem, ratably on the basis set forth in the preceding sentence.

          (d)  Unless there shall have been a default in payment of the
Mandatory Redemption Price, on the Series B and C Mandatory Redemption Date all
rights of theholder of the share redeemed on such date as a stockholder of the
Corporation by reasonof the ownership of such share will cease, except the right
to receive the Mandatory Redemption Price of such share, without interest upon
presentation and surrender of the certificate representing such share and such
share will not from and after such Series B and C Mandatory Redemption Date be
redeemed to be outstanding.

          (e)  Any Series B and C Preferred Stock redeemed pursuant to this
Section 6 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series B and C
Preferred Stock accordingly.

     IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 9th day of July, 1999.


                              SmartKids.com, Inc.

                              By: /s/ David Blohm
                                 ------------------------
                                 David Blohm, President