CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS

                                       of

                      SERIES K CONVERTIBLE PREFERRED STOCK

                                       of

                           NETWORK IMAGING CORPORATION

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)




         Network Imaging Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that the
following  resolutions were adopted by the Board of Directors of the Corporation
pursuant to  authority  of the Board of  Directors as required by Section 151 of
the Delaware General Corporation Law.

         RESOLVED,  that pursuant to the authority  granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in  accordance  with the  provisions of its  Certificate  of  Incorporation  and
Bylaws,  each as amended  and  restated  through the date  hereof,  the Board of
Directors hereby authorizes a series of the Corporation's  previously authorized
Preferred Stock, par value $.0001 per share (the "Preferred Stock"),  and hereby
states the  designation  and number of shares,  and fixes the  relative  rights,
preferences, privileges, powers and restrictions thereof as follows:

         Series K Convertible Preferred Stock:


                            I. DESIGNATION AND AMOUNT

         The  designation  of this series,  which  consists of 11,000  shares of
Preferred  Stock,  is the Series K  Convertible  Preferred  Stock (the "Series K
Preferred Stock") and the face amount shall be One Thousand U.S.
Dollars ($1000.00) per share (the "Face Amount").


                                II. NO DIVIDENDS

         The Series K Preferred Stock will bear no dividends, and the holders of
the Series K Preferred  Stock shall not be entitled to receive  dividends on the
Series K Preferred Stock.


                            III. CERTAIN DEFINITIONS

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

         A.  "Closing  Price" means,  for any security as of any date,  the last
sale price of such  security  on the  principal  securities  exchange or trading
market  where  such  security  is  listed or traded  as  reported  by  Bloomberg

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Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the Corporation  and reasonably  acceptable to holders of a majority
of the then  outstanding  shares  of  Series  K  Preferred  Stock  if  Bloomberg
Financial  Markets  is not  then  reporting  Closing  Prices  of  such  security
(collectively,  "Bloomberg"),  or if the  foregoing  does  not  apply,  the last
reported  sale  price of such  security  in the  over-the-counter  market on the
electronic bulletin board for such security as reported by Bloomberg,  or, if no
sale price is reported for such  security by  Bloomberg,  the average of the bid
prices of any market  makers for such  security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date on any of the foregoing  bases, the Closing Price
of such  security  on such date  shall be the fair  market  value as  reasonably
determined  by an  investment  banking  firm  selected  by the  Corporation  and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series K Preferred  Stock,  with the costs of such  appraisal to be borne by the
Corporation.

         B.  "Conversion  Date"  means,  for any Optional  Conversion,  the date
specified in the notice of conversion  in the form attached  hereto (the "Notice
of  Conversion"),  so long as the copy of the Notice of  Conversion is faxed (or
delivered  by  other  means  resulting  in  notice)  to the  Corporation  before
Midnight,  New York City time, on the Conversion Date indicated in the Notice of
Conversion.  If the Notice of Conversion is not so faxed or otherwise  delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise  delivers the Notice of Conversion to the Corporation.  The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Article IV).

         C.  "Conversion  Percentage" shall initially have the meaning set forth
below  during  each  of  the  periods  set  forth  below.  In  the  event,   the
Corporation's  Common Stock is no longer  designated for quotation on the Nasdaq
National  Market  ("Nasdaq") and is designated for quotation on the Nasdaq Small
Cap Market,  the  Conversion  Percentage for each of the periods set forth below
shall be permanently  reduced by two percent (2%).  The  Conversion  Percentages
also  shall be subject to  adjustment  as  provided  herein and as  provided  in
Section 2(c) of the Registration Rights Agreement (as defined herein):

If the Conversion Date is:                   Then the Conversion Percentage is:

Prior to the 61st day following                          105%
the First Closing Date

On or after the 61st day following                        96%
the First Closing Date and prior to
the 91st day following the First Closing Date

On or after the 91st day following                        85%
the First Closing Date and prior to
the 181st day following the First Closing Date

On or after the 181st day following                       81%
the First Closing Date

         D.  "Conversion  Price" means the lower of the Fixed  Conversion  Price
and the  Variable  Conversion Price, each in effect as of such date and  subject
to adjustment as provided herein.

         E.  "First Closing Date" means the date of the first closing under that
certain  Securities  Purchase  Agreement  by and among the  Corporation  and the
purchasers  named  therein with respect to the initial  issuance of the Series K
Preferred Stock (the "Securities Purchase Agreement").

         F.  "Fixed  Conversion  Price"  means  $2.00  and  shall  be subject to

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adjustment as provided herein.

         G.  "N" means  the  number of days from,  but  excluding,  the  date of
original issuance of such share of Series K Preferred Stock.

         H.  "Premium" means an amount equal to (.07)x(N/365)x(1,000).

         I.  "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying  the Conversion  Percentage then in effect by
the lowest Closing Price for the  Corporation's  Common Stock,  par value $.0001
per share  ("Common  Stock")  on any  single  trading  day  during  the ten (10)
consecutive  trading days ending on the trading day  immediately  preceding such
date of  determination  (subject to equitable  adjustment  for any stock splits,
stock  dividends,  reclassifications  or  similar  events  during  such ten (10)
trading day period), and shall be subject to adjustment as provided herein.


                                 IV. CONVERSION

         A.  Conversion  at  the  Option  of  the  Holder.  (i)  Subject  to the
limitations  on  conversions  contained  in Paragraph C of this Article IV, each
holder of shares of Series K  Preferred  Stock may, at any time and from time to
time,  convert  (an  "Optional  Conversion")  each of its  shares  of  Series  K
Preferred Stock into a number of fully paid and  nonassessable  shares of Common
Stock  determined in accordance  with the following  formula if the  Corporation
timely redeems the Premium thereon in cash in accordance with  subparagraph (ii)
below:

                                     1,000
                                ----------------
                                Conversion Price

or in accordance with the following  formula if the Corporation  does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:

                               1,000 + the Premium
                               -------------------
                                Conversion Price

                  (ii) (a)  The  Corporation  shall have the right,  in its sole
discretion, upon receipt of a Notice of Conversion or in the event of a Required
Conversion  at  Maturity,  to redeem any portion of the Premium  subject to such
conversion  for a sum of cash  equal  to the  amount  of the  Premium  being  so
redeemed.  All cash redemption  payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the  Corporation  (or at such other address as such holder shall
hereafter  give  to  the  Corporation  by  written  notice).  In the  event  the
Corporation  so elects to redeem all or any  portion of the  Premium in cash and
fails to pay such holder the applicable  redemption  amount to which such holder
is entitled by  depositing a check in the U.S.  Mail to such holder within three
(3) business days of receipt by the  Corporation  of a notice of Conversion  (in
the case of a  redemption  in  connection  with an Optional  Conversion)  or the
Maturity  Date  (in the  case of a  redemption  in  connection  with a  Required
Conversion at Maturity),  the Corporation shall thereafter  forfeit its right to
redeem such Premium in cash and such Premium shall  thereafter be converted into
shares of Common Stock in accordance with Article IV.A(i).

                           (b)  Each holder of Series K  Preferred  Stock  shall
have the right to require  the  Corporation  to provide  advance  notice to such
holder stating whether the  Corporation  will elect to redeem all or any portion
of the Premium in cash pursuant to the Corporation's redemption rights discussed
in subparagraph (a) of this Article  IV.A(ii).  A holder may exercise such right
from time to time by sending notice (an "Election  Notice") to the  Corporation,

                                      -3-
<PAGE>

by facsimile,  requesting that the  Corporation  disclose to such holder whether
the  Corporation  would  elect to redeem any  portion of the Premium for cash in
lieu of issuing  Common Stock therefor if such holder were to exercise its right
of conversion  pursuant to this Article IV.A. The  Corporation  shall,  no later
than the close of  business on the next  business  day  following  receipt of an
Election Notice,  disclose to such holder whether the Corporation would elect to
redeem any portion of a Premium in  connection  with a conversion  pursuant to a
Notice of Conversion delivered over the subsequent five (5) business day period.
If the Corporation  does not respond to such holder within such one (1) business
day period via facsimile,  the Corporation shall, with respect to any conversion
pursuant  to a  Conversion  Notice  delivered  within  the  subsequent  five (5)
business day period, forfeit its right to redeem such Premium in accordance with
subparagraph  (a) of this Article IV.A(ii) and shall be required to convert such
Premium into shares of Common Stock.

         B.  Mechanics of Conversion. In order to effect an Optional Conversion,
a holder  shall:  (x) fax (or  otherwise  deliver) a copy of the fully  executed
Notice of Conversion  to the  Corporation  or the transfer  agent for the Common
Stock and (y)  surrender or cause to be  surrendered  the original  certificates
representing  the Series K Preferred Stock being converted (the "Preferred Stock
Certificates"),  duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable  thereafter to the Corporation or the transfer  agent.  Upon
receipt by the  Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a confirmation to
such holder stating that the Notice of Conversion  has been  received,  the date
upon which the  Corporation  expects to deliver the Common Stock  issuable  upon
such  conversion  and the name and telephone  number of a contact  person at the
Corporation regarding the conversion.  The Corporation shall not be obligated to
issue shares of Common Stock upon a conversion unless either the Preferred Stock
Certificates  are delivered to the Corporation or the transfer agent as provided
above,  or the holder  notifies the  Corporation or the transfer agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
Article XIV.B).

                  (i)  Delivery  of  Common  Stock  Upon  Conversion.  Upon  the
surrender of Preferred  Stock  Certificates  from a holder of Series K Preferred
Stock  accompanied by a Notice of Conversion,  the  Corporation  shall, no later
than the second  business day following the later of (a) the Conversion Date and
(b) the date of such  surrender  (or, in the case of lost,  stolen or  destroyed
certificates,  after  provision  of  indemnity  pursuant to Article  XIV.B) (the
"Delivery Period"), issue and deliver to the holder (x) that number of shares of
Common Stock issuable upon conversion of such shares of Series K Preferred Stock
being  converted  and (y) a  certificate  representing  the  number of shares of
Series K Preferred  Stock not being  converted,  if any.  In lieu of  delivering
physical  certificates  representing  the Common Stock issuable upon conversion,
provided the Borrower's  transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program,  upon request of the
holder and its compliance with the provisions  contained in this  paragraph,  so
long as the certificates therefor do not bear a legend and the holder thereof is
not obligated to return such  certificate for the placement of a legend thereon,
the  Corporation  shall  use its best  efforts  to cause its  transfer  agent to
electronically  transmit the Common Stock issuable upon conversion to the holder
by crediting  the account of holder's  Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.

                  (ii) Taxes. The Corporation  shall pay any and all taxes which
may be imposed  upon it with  respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series K Preferred Stock.

                  (iii) No  Fractional  Shares.  If any  conversion  of Series K
Preferred  Stock would result in the  issuance of a  fractional  share of Common
Stock,  such  fractional  share shall be disregarded and the number of shares of

                                      -4-
<PAGE>

Common Stock issuable upon  conversion of the Series K Preferred  Stock shall be
the next higher whole number of shares.

                  (iv)  Conversion  Disputes.  In the case of any  dispute  with
respect to a conversion,  the  Corporation  shall  promptly issue such number of
shares of Common Stock as are not disputed in accordance with  subparagraph  (i)
above.  If such dispute  involves the calculation of the Conversion  Price,  the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile  within two (2) business days of receipt of the Notice of  Conversion.
The accountant  shall audit the  calculations and notify the Corporation and the
holder  of the  results  no later  than two (2)  business  days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive,  absent  manifest  error.  The  Corporation  shall  then  issue  the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.

         C.  Limitations on Conversions.  The conversion of  shares  of Series K
Preferred  Stock shall be subject to the  following  limitations  (each of which
limitations shall be applied independently):

                  (i) Cap Amount.  Unless  permitted by the applicable rules and
regulations  of the  principal  securities  market on which the Common  Stock is
listed or traded,  in no event shall the total  number of shares of Common Stock
issued upon conversion of the Series K Preferred Stock exceed the maximum number
of shares of Common  Stock that the  Corporation  can so issue  pursuant to Rule
4460(i) of the Nasdaq (or any successor rule) (the "Cap Amount"). The Cap Amount
shall be  allocated  pro-rata  to the  holders  of Series K  Preferred  Stock as
provided in Article  XIV.C.  In the event the  Corporation  is  prohibited  from
issuing shares of Common Stock as a result of the operation of this subparagraph
(i), the Corporation shall comply with Article VII.

                  (ii) No Five Percent Holders.  Except in a Required Conversion
at Maturity, in no event shall a holder of shares of Series K Preferred Stock be
entitled to receive  shares of Common Stock upon a conversion to the extent that
the sum of (x) the number of shares of Common  Stock  beneficially  owned by the
holder and its affiliates  (exclusive of shares  issuable upon conversion of the
unconverted portion of the shares of Series K Preferred Stock or the unexercised
or unconverted  portion of any other securities of the Corporation  subject to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (y) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the shares of Series K Preferred  Stock with respect to which the
determination  of this  subparagraph  is being made,  would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the  outstanding
shares of Common Stock. For purposes of this subparagraph,  beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities  Exchange
Act of 1934, as amended,  and Regulation 13 D-G thereunder,  except as otherwise
provided in clause (x) above.  The  restriction  contained in this  subparagraph
(ii) shall not be altered,  amended, deleted or changed in any manner whatsoever
unless the holders of a majority of the Common Stock and each holder of Series K
Preferred Stock shall approve such alteration, amendment, deletion or change.

         D.  Required  Conversion  at Maturity.  Subject to the limitations  set
forth in  Paragraph  C(i) of this  Article IV and  provided all shares of Common
Stock issuable upon conversion of all  outstanding  shares of Series K Preferred
Stock are then (i) authorized and reserved for issuance,  (ii) registered  under
the Securities Act of 1933, as amended (the "Securities  Act") for resale by the
holders of such  shares of Series K  Preferred  Stock and (iii)  eligible  to be
traded on either the Nasdaq,  the New York Stock  Exchange or the American Stock
Exchange,  each share of Series K Preferred  Stock issued and outstanding on the
fourth   anniversary   of  the  First  Closing  Date  (the   "Maturity   Date"),
automatically  shall be  converted  into shares of Common  Stock on such date in
accordance with the conversion formulas set forth in Paragraph A of this Article

                                      -5-
<PAGE>

IV (the  "Required  Conversion  at  Maturity").  If the Required  Conversion  at
Maturity  occurs,  the  Corporation  and the holders of Series K Preferred Stock
shall follow the  applicable  conversion  procedures set forth in Paragraph B of
this Article IV; provided, however, that the holders of Series K Preferred Stock
are not required to deliver a Notice of  Conversion  to the  Corporation  or its
transfer agent.


                    V. RESERVATION OF SHARES OF COMMON STOCK

         A.  Reserved Amount. Upon the initial issuance of  the shares of Series
K Preferred  Stock,  the  Corporation  shall  reserve  12,500,000  shares of the
authorized but unissued  shares of Common Stock for issuance upon  conversion of
the  Series K  Preferred  Stock and  thereafter  the  number of  authorized  but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the  conversion of
the Series K Preferred Stock  outstanding at the then current  Conversion Price.
The  Reserved  Amount  shall be  allocated  to the holders of Series K Preferred
Stock as provided in Article XIV.C.

         B.  Increases to Reserved Amount.  If the Reserved Amount for any three
(3) consecutive  trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock  issuable upon  conversion of the Series K Preferred  Stock on such
trading days, the Corporation shall  immediately  notify the holders of Series K
Preferred Stock of such occurrence and shall take immediate  action  (including,
if  necessary,  seeking  shareholder  approval  to  authorize  the  issuance  of
additional  shares of Common  Stock) to increase the Reserved  Amount to 200% of
the  number of shares of Common  Stock  then  issuable  upon  conversion  of the
outstanding  Series K Preferred Stock. In the event the Corporation  fails to so
increase  the Reserved  Amount  within  ninety (90) days after an  Authorization
Trigger Date, each holder of Series K Preferred Stock shall  thereafter have the
option,  exercisable  in whole  or in part at any time and from  time to time by
delivery  of  a  Redemption  Notice  (as  defined  in  Article  VIII.C)  to  the
Corporation,  to require the  Corporation to purchase for cash, at an amount per
share equal to the Redemption  Amount (as defined in Article VIII.B),  a portion
of the holder's Series K Preferred Stock such that,  after giving effect to such
purchase,  the holder's allocated portion of the Reserved Amount exceeds 135% of
the  total  number  of  shares of Common  Stock  issuable  to such  holder  upon
conversion of its Series K Preferred  Stock. If the Corporation  fails to redeem
any of such  shares  within  ten (10)  business  days  after  its  receipt  of a
Redemption  Notice,  then such holder shall be entitled to the remedies provided
in Article VIII.C.


                       VI. FAILURE TO SATISFY CONVERSIONS

         A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series K Preferred  Stock submits a Notice of Conversion and the  Corporation
fails for any reason  (other  than  because  such  issuance  would  exceed  such
holder's  allocated  portion of the  Reserved  Amount or Cap  Amount,  for which
failures the holders shall have the remedies set forth in Articles V and VII) to
deliver,  on or prior to the fourth business day following the expiration of the
Delivery Period for such  conversion,  such number of freely tradeable shares of
Common Stock to which such holder is entitled upon such  conversion,  or (y) the
Corporation  provides  notice to any holder of Series K  Preferred  Stock at any
time of its intention not to issue freely  tradeable shares of Common Stock upon
exercise by any holder of its conversion  rights in accordance with the terms of
this  Certificate of Designation  (other than because such issuance would exceed
such holder's  allocated  portion of the Reserved Amount or Cap Amount) (each of
(x) and (y) being a "Conversion Default"), then the Corporation shall pay to the
affected  holder,  in the case of a Conversion  Default  described in clause (x)

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above,  and to all  holders,  in the case of a Conversion  Default  described in
clause (y) above,  payments for the first ten (10) business  days  following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business  days  following a Conversion
Default   described   in  clause  (y),   an  amount   equal  to  $500  per  day.
Notwithstanding  the foregoing,  in no event shall the Company be deemed to have
committed a Conversion Default at any time prior to the Registration Deadline or
during an Excluded Period (as such terms are defined in the Registration  Rights
Agreement (as defined  herein)) solely because the shares of Common Stock issued
upon a conversion of Series K Preferred Stock were not freely tradeable.  In the
event any Conversion Default continues beyond such ten (10) business day period,
the Corporation shall pay to the holder an additional amount equal to:

                     (.24) x (D/365) x (the Default Amount)

where:

         "D" means  the  number of days  after  the  expiration  of the ten (10)
business day period described above through and including the Default Cure Date;

         "Default  Amount"  means (i) the  total  Face  Amount of all  shares of
Series K Preferred Stock held by such holder plus (ii) the total accrued Premium
as of the  first  day of the  Conversion  Default  on all  shares  of  Series  K
Preferred Stock included in clause (i) of this definition; and

         "Default  Cure Date"  means (i) with  respect to a  Conversion  Default
described in clause (x) of its definition,  the date the Corporation effects the
conversion  of the full  number of shares of Series K  Preferred  Stock and (ii)
with respect to a Conversion  Default described in clause (y) of its definition,
the date the  Corporation  begins  to issue  freely  tradeable  Common  Stock in
satisfaction  of all  conversions of Series K Preferred Stock in accordance with
Article IV.A.

         The  payments  to which a holder  shall be  entitled  pursuant  to this
Paragraph A are referred to herein as  "Conversion  Default  Payments." A holder
may elect to receive accrued  Conversion  Default Payments in cash or to convert
all or any portion of such accrued  Conversion  Default  Payments,  at any time,
into Common  Stock at the lowest  Conversion  Price in effect  during the period
beginning on the date of the Conversion  Default through the Conversion Date for
such conversion.  In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the  Corporation  in writing.  Such payment
shall be made in  accordance  with and be subject to the  provisions  of Article
XIV.E.  In the  event a holder  elects  to  convert  all or any  portion  of the
Conversion  Default  Payments into Common Stock,  the holder shall indicate on a
Notice of Conversion such portion of the Conversion  Default Payments which such
holder elects to so convert and such  conversion  shall otherwise be effected in
accordance with the provisions of Article IV.

         B.  Adjustment  to  Conversion  Price.  If a  holder  has not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the expiration of the Delivery  Period with respect to a conversion of
Series K Preferred  Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which  failures the holders  shall have the remedies set forth in Articles V and
VII),  then the Fixed  Conversion  Price in  respect  of any  shares of Series K
Preferred  Stock held by such holder shall  thereafter  be the lesser of (i) the
Fixed  Conversion  Price on the  Conversion  Date  specified  in the  Notice  of
Conversion  which  resulted  in the  Conversion  Default  and  (ii)  the  lowest
Conversion Price in effect during the period  beginning on, and including,  such
Conversion  Date through and  including  the day such shares of Common Stock are
delivered to the holder.  If there shall occur a Conversion  Default of the type
described in clause (y) of Article VI.A,  then the Fixed  Conversion  Price with

                                      -7-
<PAGE>

respect to any conversion  thereafter  shall be the lowest  Conversion  Price in
effect at any time during the period  beginning on, and  including,  the date of
the occurrence of such Conversion Default through and including the Default Cure
Date.  The Fixed  Conversion  Price  shall  thereafter  be  subject  to  further
adjustment for any events described in Article XI.

         C.  Buy-In Cure.  Unless the Corporation  has  notified the  applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the  Corporation  is unable to honor  conversions,  if (i) the  Corporation
fails for any reason to  deliver  during the  Delivery  Period  shares of Common
Stock to a holder upon a  conversion  of shares of Series K Preferred  Stock and
(ii) after the applicable Delivery Period with respect to such conversion,  such
holder purchases (in an open market  transaction or otherwise)  shares of Common
Stock to make delivery in satisfaction of a sale by such holder of the shares of
Common Stock (the "Sold  Shares") which such holder  anticipated  receiving upon
such conversion (a "Buy-In"), the Corporation shall pay such holder (in addition
to any other  remedies  available  to the  holder)  the amount by which (x) such
holder's total purchase price (including brokerage commissions,  if any) for the
shares of Common  Stock so purchased  exceeds (y) the net  proceeds  received by
such holder from the sale of the Sold Shares. For example, if a holder purchases
shares of Common  Stock  having a total  purchase  price of  $11,000  to cover a
Buy-In  with  respect  to  shares  of  Common  Stock  it sold for  $10,000,  the
Corporation  will be required to pay the holder  $1,000.  A holder shall provide
the  Corporation  written  notification  indicating any amounts  payable to such
holder  pursuant to this  Paragraph C. The  Corporation  shall make any payments
required  pursuant  to this  Paragraph C in  accordance  with and subject to the
provisions of Article XIV.E.

         D.  Redemption  Right.  If the  Corporation  fails,  and  such  failure
continues  uncured for five (5)  business  days after the  Corporation  has been
notified  thereof in writing by the holder,  for any reason  (other than because
such  issuance  would  exceed such  holder's  allocated  portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in  Articles V and VII) to issue  shares of Common  Stock  within ten (10)
business days after the  expiration  of the Delivery  Period with respect to any
conversion  of Series K Preferred  Stock,  then the holder may elect at any time
and  from  time to time  prior to the  Default  Cure  Date  for such  Conversion
Default,  by delivery of a Redemption  Notice (as defined in Article  VIII.C) to
the Corporation,  to have all or any portion of such holder's outstanding shares
of Series K Preferred  Stock purchased by the Corporation for cash, at an amount
per share equal to the Redemption Amount (as defined in Article VIII.B).  If the
Corporation  fails to redeem any of such shares  within five (5)  business  days
after its receipt of a Redemption Notice,  then such holder shall be entitled to
the remedies provided in Article VIII.C.


 VII. INABILITY TO CONVERT SHARES OF SERIES K PREFERRED STOCK DUE TO CAP AMOUNT

         A.  Obligation to Cure. If at any time the then unissued portion of any
holder's  Cap Amount is less than 135% of the  number of shares of Common  Stock
then  issuable upon  conversion  of such  holder's  shares of Series K Preferred
Stock (a "Trading  Market Trigger  Event"),  the Corporation  shall  immediately
notify the holders of Series K Preferred Stock of such occurrence and shall take
immediate  action  (including,  if  necessary,   seeking  the  approval  of  its
shareholders  to  authorize  the issuance of the full number of shares of Common
Stock which would be issuable upon the  conversion  of Series K Preferred  Stock
but for the Cap Amount) to eliminate any  prohibitions  under  applicable law or
the rules or regulations of any stock exchange,  interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the  Corporation's  ability to issue shares of Common Stock
in excess of the Cap Amount. In the event the Corporation fails to eliminate all

                                      -8-
<PAGE>

such  prohibitions  within  ninety  (90) days after the Trading  Market  Trigger
Event, each holder of Series K Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a  Redemption  Notice  (as  defined in Article  VIII.C) to the  Corporation,  to
require the  Corporation  to purchase for cash,  at an amount per share equal to
the Redemption Amount (as defined in Article VIII.B),  a portion of the holder's
Series K Preferred  Stock such that,  after giving effect to such purchase,  the
then unissued portion of such holder's Cap Amount on the date of such Redemption
Notice  exceeds 135% of the total number of shares of Common Stock then issuable
to  such  holder  upon  conversion  of its  Series  K  Preferred  Stock.  If the
Corporation  fails to redeem any of such shares  within five (5)  business  days
after its receipt of a Redemption Notice,  then such holder shall be entitled to
the remedies provided in Article VIII.C.

         B.  Remedies.  If the  Corporation  fails  to  eliminate the applicable
prohibitions  within the ninety (90) day cure period  referred to in Paragraph A
of this Article VII and thereafter the  Corporation is prohibited,  at any time,
from issuing shares of Common Stock upon  conversion of Series K Preferred Stock
to any holder  because such issuance  would exceed the then unissued  portion of
such holder's Cap Amount  because of applicable  law or the rules or regulations
of any stock exchange,  interdealer  quotation  system or other  self-regulatory
organization  with  jurisdiction  over the  Corporation or its  securities,  any
holder who is so prohibited  from  converting  its Series K Preferred  Stock may
elect any or both of the following additional remedies:

                  (i) to require,  with the consent of holders of at least fifty
percent (50%) of the outstanding  shares of Series K Preferred Stock  (including
any shares of Series K  Preferred  Stock  held by the  requesting  holder),  the
Corporation  to terminate  the listing of its Common Stock on the Nasdaq (or any
other stock  exchange,  interdealer  quotation  system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq  SmallCap Market
or on the  over-the-counter  electronic  bulletin  board,  at the  option of the
requesting holder; or

                  (ii) to  require  the  Corporation  to issue  shares of Common
Stock in  accordance  with such  holder's  Notice of  Conversion at a conversion
price  equal to the average of the  Closing  Prices of the Common  Stock for the
five (5) consecutive trading days (subject to equitable adjustment for any stock
splits,  stock dividends,  reclassifications  or similar events during such five
(5) trading day period) preceding the date of the holder's written notice to the
Corporation  of its election to receive  shares of Common Stock pursuant to this
subparagraph (ii).


                     VIII. REDEMPTION DUE TO CERTAIN EVENTS

         A.  Redemption by Holder. In  the  event  (each of the events described
in clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):

                  (i) the Common  Stock  (including  any of the shares of Common
Stock  issuable upon  conversion  of the Series K Preferred  Stock) is suspended
from  trading on any of, or is not listed  (and  authorized)  for  trading on at
least one of, the New York Stock  Exchange,  the American  Stock  Exchange,  the
Nasdaq  Small Cap Market or Nasdaq for an  aggregate of ten (10) trading days in
any nine (9) month period;

                  (ii) the  Registration  Statement  required to be filed by the
Corporation  pursuant  to  Section  2(a) of the  Registration  Rights  Agreement
entered  into  in  connection  with  and  pursuant  to the  Securities  Purchase
Agreement (the "Registration Rights Agreement"), has not been declared effective
by  January  31,  1998 or such  Registration  Statement,  after  being  declared
effective, cannot be utilized by the holders of Series K Preferred Stock for the
resale of all of their  Registrable  Securities (as defined in the  Registration

                                      -9-
<PAGE>

Rights  Agreement) for an aggregate of more than thirty (30) days after June 30,
1998;

                  (iii) the Corporation  fails,  and any such failure  continues
uncured  for five (5)  business  days after the  Corporation  has been  notified
thereof in  writing  by the  holder,  to remove  any  restrictive  legend on any
certificate  or any  shares of Common  Stock  issued to the  holders of Series K
Preferred  Stock upon  conversion  of the Series K  Preferred  Stock as and when
required  by  the  Securities  Purchase  Agreement  or the  Registration  Rights
Agreement;

                  (iv) the Corporation provides notice to any holder of Series K
Preferred Stock,  including by way of public  announcement,  at any time, of its
intention  not to issue  shares  of  Common  Stock  to any  holder  of  Series K
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation  (other than due to the circumstances  contemplated by Articles V
or VII for  which  the  holders  shall  have  the  remedies  set  forth  in such
Articles);

                  (v)      the Corporation shall:

                           (a)   sell, convey or dispose of all or substantially
all of its assets;

                           (b)   merge,  consolidate  or  engage  in  any  other
business  combination  with any other entity (other than pursuant to a migratory
merger  effected  solely  for  the  purpose  of  changing  the  jurisdiction  of
incorporation of the Corporation); or

                           (c)   have fifty  percent (50%) or more of the voting
power of its capital stock owned  beneficially by one person,  entity or "group"
(as such term is used under  Section  13(d) of the  Securities  Exchange  Act of
1934, as amended);

then, upon the occurrence of any such Redemption Event, each holder of shares of
Series K Preferred Stock shall thereafter have the option,  exercisable in whole
or in part at any time and from time to time by delivery of a Redemption  Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues,  to require the  Corporation  to purchase  for cash any or all of the
then  outstanding  shares of Series K Preferred Stock held by such holder for an
amount per share  equal to the  Redemption  Amount (as  defined in  Paragraph  B
below) in effect at the time of the redemption  hereunder.  For the avoidance of
doubt,  the occurrence of any event  described in clauses (i), (ii), (iv) or (v)
above shall immediately constitute a Redemption Event and there shall be no cure
period.

         B.  Definition  of  Redemption  Amount.  The  "Redemption  Amount" with
respect to a share of Series K Preferred Stock means an amount equal to:

                                 V               X       M
                          --------------- 
                                C P

where:

         "V" means the face amount thereof plus the accrued  Premium thereon and
all Conversion  Default  Payments (if any) with respect thereto through the date
of redemption;

         "CP" means the Conversion Price in effect on the date of the Redemption
Notice; and

         "M" means the highest Closing Price of the  Corporation's  Common Stock

                                      -10-
<PAGE>

during the period  beginning on the date of the Redemption  Notice and ending on
the date of the redemption.

         C. Redemption Defaults.  If the Corporation fails to pay any holder the
Redemption  Amount with respect to any share of Series K Preferred  Stock within
ten (10) business days of its receipt of a notice  requiring such  redemption (a
"Redemption  Notice"),  then the holder of Series K Preferred  Stock  delivering
such  Redemption  Notice (i) shall be entitled  to  interest  on the  Redemption
Amount at a per annum rate equal to the lower of  twenty-four  percent (24%) and
the highest  interest  rate  permitted  by  applicable  law from the date of the
Redemption  Notice until the date of redemption  hereunder,  and (ii) shall have
the right, at any time and from time to time, to require the  Corporation,  upon
written  notice,  to  immediately  convert  (in  accordance  with  the  terms of
Paragraph  A of Article IV) all or any portion of the  Redemption  Amount,  plus
interest  as  aforesaid,  into shares of Common  Stock at the lowest  Conversion
Price in effect during the period beginning on the date of the Redemption Notice
and  ending  on the  Conversion  Date with  respect  to the  conversion  of such
Redemption Amount. In the event the Corporation is not able to redeem all of the
shares  of  Series  K  Preferred  Stock  subject  to  Redemption  Notices,   the
Corporation shall redeem shares of Series K Preferred Stock from each holder pro
rata,  based on the total number of shares of Series K Preferred  Stock included
by such holder in the Redemption  Notice  relative to the total number of shares
of Series K Preferred Stock in all of the Redemption Notices.

         D.  Redemption by Corporation.

                  (i) The  Corporation  shall  have the  right,  at any time and
provided the Corporation is not in material  violation of any of its obligations
under this Certificate of Designation,  the Securities Purchase Agreement or the
Registration Rights Agreement, to redeem (an "Optional Redemption") all (but not
less than all) of the then  outstanding  Series K  Preferred  Stock  (other than
Series  K  Preferred  Stock  which is the  subject  of a  Notice  of  Conversion
delivered  prior to the  delivery  date of the  Optional  Redemption  Notice (as
defined  in  subparagraph  (iii)  below))  for a price  per  share  equal to the
Optional  Redemption  Amount (as defined below) which right shall be exercisable
only  one time  while  any  Series  K  Preferred  Stock  is  outstanding  by the
Corporation in its sole discretion by delivery of an Optional  Redemption Notice
in accordance with the redemption  procedures set forth below. Holders of Series
K  Preferred  Stock may not  convert  any  shares of  Series K  Preferred  Stock
selected for  redemption  hereunder into Common Stock at any time or on prior to
the Effective  Date of Redemption  designated by the  Corporation in the Optimal
Redemption  Notice  pursuant to  subparagraph  (iii).  The "Optional  Redemption
Amount" with respect to each share of Series K Preferred Stock means the greater
of (a) 100%  multiplied by the sum of (I) the Face Amount  thereof plus (II) the
accrued  Premium  thereon  and all  Conversion  Default  Payments  (if any) with
respect  thereto  through  the date of  redemption,  and (b) the  Benefit of the
Bargain (as defined below).

                  (ii) The "Benefit of the  Bargain"  with respect to a share of
Series K Preferred Stock means an amount equal to:

                                 V               X       M
                          ---------------
                                C P


where:

         "V" means the face amount thereof plus the accrued  Premium thereon and
all Conversion  Default  Payments (if any) with respect thereto through the date
of redemption;

         "CP" means the Conversion Price in effect on the  date of the  Optional
Redemption Notice; and


                                      -11-
<PAGE>

         "M" means the volume weighted average sales price of the  Corporation's
Common Stock on the trading day  immediately  preceding the date of the Optional
Redemption Notice.

                  (iii) The Corporation  shall effect each redemption under this
Section  VIII.D by giving at least five (5) business  days but not more than ten
(10) business days prior written  notice (the "Optional  Redemption  Notice") of
the date which such  redemption is to become  effective (the  "Effective Date of
Redemption"), the shares of Series K Preferred Stock selected for redemption and
the Optional  Redemption  Amount to (i) the holders of Series K Preferred  Stock
selected  for  redemption  at the  address and  facsimile  number of such holder
appearing in the  Corporation's  register  for the Series K Preferred  Stock and
(ii) the transfer agent for the Common Stock,  which Optional  Redemption Notice
shall  be  deemed  to  have  been  delivered  on  the  business  day  after  the
Corporation's  fax (with a copy sent by  overnight  courier  to the  holders  of
Series K  Preferred  Stock) of such  notice to the holders of Series K Preferred
Stock.

                  (iv)  The  Optional  Redemption  Amount  shall  be paid to the
holder of the Series K Preferred  Stock being redeemed within three (3) business
days  of  the  Effective  Date  of  Redemption;   provided,  however,  that  the
Corporation  shall not be  obligated  to deliver  any  portion  of the  Optional
Redemption  Amount  until  either  the  certificates  evidencing  the  Series  K
Preferred Stock being redeemed are delivered to the office of the Corporation or
the transfer agent, or the holder notifies the Corporation or the transfer agent
that such  certificates  have been lost,  stolen or  destroyed  and delivers the
documentation in accordance with Article XIV.B hereof.  Notwithstanding anything
herein to the contrary, in the event that the certificates evidencing the Series
K Preferred  Stock being  redeemed are not delivered to the  Corporation  or the
transfer  agent prior to the third  business day following the Effective Date of
Redemption,  the  redemption  of the Series K Preferred  Stock  pursuant to this
Article  VIII.D  shall still be deemed  effective  as of the  Effective  Date of
Redemption  and the  Optional  Redemption  Amount shall be paid to the holder of
Series K Preferred  Stock being  redeemed  within five (5) business  days of the
date the certificates evidencing the Series K Preferred Stock being redeemed are
actually delivered to the Corporation or the transfer agent.

                  (v) If the Corporation  fails to pay, when due and owing,  any
Optional Redemption Amount, then the holder of Series K Preferred Stock entitled
to receive such Optional Redemption Amount shall have the right, at any time and
from time to time  during the twenty  (20)  trading  day  period  following  the
Effective  Date  of  Redemption  (the  "Optional  Redemption  Amount  Conversion
Period"),  to require the  Corporation,  upon  written  notice,  to  immediately
convert (in  accordance  with the terms of paragraph A of Article IV) any or all
of the  shares  of  Series K  Preferred  Stock  which  are the  subject  of such
redemption, into shares of Common Stock at the lowest Conversion Price in effect
during the period  beginning on the date the Corporation  elected to redeem such
shares of Series K  Preferred  Stock and ending on  expiration  of the  Optional
Redemption  Amount  Conversion  Period.  From and  after the  expiration  of the
Optional  Redemption Amount Conversion  Period, the holders may convert Series K
Preferred  Stock at the Conversion  Price then in effect and in accordance  with
Article IV. In addition,  if the Corporation fails to pay an Optional Redemption
Amount when due and owing, the Corporation shall pay the holder interest on such
Optional Redemption Amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by applicable law from the
date the  Corporation  elected to redeem such shares of Series K Preferred Stock
until the later of the Effective Date of Redemption or the date the  Corporation
notifies  the holder  that it will not redeem the shares the Series K  Preferred
Stock  selected for  redemption by the  Corporation.  If a holder is entitled to
interest  pursuant to this  subparagraph (v), the holder will not be entitled to
interest  under  Article XIV.E for the  Corporation's  failure to timely pay any

                                      -12-
<PAGE>

Optional Redemption Amount hereunder.


                                    IX. RANK

         All shares of the Series K Preferred  Stock shall rank (i) prior to the
Corporation's  Common Stock;  (ii) prior to any class or series of capital stock
of the Corporation hereafter created (unless, with the consent of the holders of
Series K Preferred Stock obtained in accordance  with Article XIII hereof,  such
class or series of capital stock specifically,  by its terms, ranks senior to or
pari passu  with the Series K  Preferred  Stock)  (collectively  with the Common
Stock,  "Junior  Securities");  (iii)  pari  passu  with any  class or series of
capital  stock of the  Corporation  hereafter  created  (with the consent of the
holders of Series K Preferred  Stock  obtained in  accordance  with Article XIII
hereof)  specifically  ranking,  by its  terms,  on  parity  with  the  Series K
Preferred Stock (the "Pari Passu  Securities");  (iv) junior to the Corporations
Series A Cumulative Convertible Preferred Stock, par value $.0001 per share, the
Series F-1, F-2, F-3 and F-4 Convertible  Preferred  Stock, par value $.0001 per
share and the  Corporation's  Series H Convertible  Preferred  Stock,  par value
$.0001 per share (collectively the "Existing Preferred Stock") and (v) junior to
any class or series of capital stock of the Corporation  hereafter created (with
the consent of the holders of Series K Preferred  Stock  obtained in  accordance
with Article  XIII hereof)  specifically  ranking,  by its terms,  senior to the
Series K Preferred Stock  (collectively,  with the Existing Preferred Stock, the
"Senior   Securities"),   in  each  case  as  to  distribution  of  assets  upon
liquidation,  dissolution or winding up of the Corporation, whether voluntary or
involuntary.


                            X. LIQUIDATION PREFERENCE

         A. If the  Corporation  shall  commence a voluntary case under the U.S.
Federal  bankruptcy  laws or any  other  applicable  bankruptcy,  insolvency  or
similar  law,  or consent to the entry of an order for relief in an  involuntary
case under any law or to the  appointment of a receiver,  liquidator,  assignee,
custodian,  trustee, sequestrator (or other similar official) of the Corporation
or of any  substantial  part of its  property,  or make  an  assignment  for the
benefit of its  creditors,  or admit in writing its  inability  to pay its debts
generally  as they  become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having  jurisdiction in the premises
in an  involuntary  case  under the U.S.  Federal  bankruptcy  laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver,  liquidator,  assignee,  custodian,  trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order  shall be  unstayed  and in effect for a period of sixty (60)  consecutive
days and,  on  account  of any such  event,  the  Corporation  shall  liquidate,
dissolve or wind up, or if the Corporation shall otherwise  liquidate,  dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation,  dissolution or winding up unless prior thereto the holders of
shares  of  Series  K  Preferred  Stock  shall  have  received  the  Liquidation
Preference with respect to each share.  If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution  among the holders of the
Series  K  Preferred  Stock  and  holders  of Pari  Passu  Securities  shall  be
insufficient to permit the payment to such holders of the  preferential  amounts
payable  thereon,  then the entire assets and funds of the  Corporation  legally
available for  distribution  to the Series K Preferred  Stock and the Pari Passu
Securities  shall be distributed  ratably among such shares in proportion to the
ratio that the  Liquidation  Preference  payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.

         B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof,  be regarded
as a  liquidation,  dissolution  or winding up of the  Corporation.  Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall,  for the purposes hereof,  be deemed to be a liquidation,  dissolution or

                                      -13-
<PAGE>

winding up of the Corporation.

         C. The  "Liquidation  Preference"  with  respect to a share of Series K
Preferred  Stock  means an  amount  equal to the Face  Amount  thereof  plus the
accrued Premium thereon through the date of final distribution.  The Liquidation
Preference  with respect to any Pari Passu  Securities  shall be as set forth in
the Certificate of Designation filed in respect thereof.


                     XI. ADJUSTMENTS TO THE CONVERSION PRICE

         The Conversion  Price shall be subject to adjustment  from time to time
as follows:

         A. Stock Splits,  Stock Dividends,  Etc. If at any time on or after the
First  Closing  Date,  the  number of  outstanding  shares  of  Common  Stock is
increased by a stock split,  stock dividend,  combination,  reclassification  or
other  similar  event,  the  Fixed  Conversion  Price  shall be  proportionately
reduced,  or if the number of outstanding shares of Common Stock is decreased by
a reverse  stock split,  combination  or  reclassification  of shares,  or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event,  the Corporation  shall notify the  Corporation's  transfer agent of
such change on or before the effective date thereof.

         B. Adjustment Due to Merger, Consolidation,  Etc. If, at any time after
the First Closing Date, there shall be (i) any reclassification or change of the
outstanding  shares of Common Stock  (other than a change in par value,  or from
par value to no par value,  or from no par value to par value, or as a result of
a  subdivision  or  combination),  (ii)  any  consolidation  or  merger  of  the
Corporation  with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any  sale  or  transfer  of  all or  substantially  all  of  the  assets  of the
Corporation or (iv) any share exchange  pursuant to which all of the outstanding
shares of Common Stock are converted into other  securities or property (each of
(i) - (iv) above  being a  "Fundamental  Change"),  then the holders of Series K
Preferred Stock shall thereafter have the right to receive upon  conversion,  in
lieu of the shares of Common  Stock  otherwise  issuable,  such shares of stock,
securities  and/or  other  property as would have been issued or payable in such
Fundamental  Change with  respect to or in exchange  for the number of shares of
Common Stock which would have been  issuable  upon  conversion  (without  giving
effect to the limitations contained in Article IV.C) had such Fundamental Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and  interests  of the  holders of the Series K  Preferred
Stock to the end that the  provisions  hereof  (including,  without  limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock  issuable upon  conversion  of the Series K Preferred  Stock) shall
thereafter be  applicable,  as nearly as may be  practicable  in relation to any
shares  of stock  or  securities  thereafter  deliverable  upon  the  conversion
thereof.  The  Corporation  shall not effect any  transaction  described in this
Paragraph  B unless (i) each  holder of Series K  Preferred  Stock has  received
written notice of such transaction at least thirty (30) days prior thereto,  but
in no  event  later  than  ten  (10)  days  prior  to the  record  date  for the
determination of shareholders  entitled to vote with respect  thereto,  and (ii)
the resulting successor or acquiring entity (if not the Corporation)  assumes by
written  instrument the  obligations  of this Paragraph B. The above  provisions
shall  apply  regardless  of whether or not there  would have been a  sufficient
number of shares of Common Stock  authorized  and  available  for issuance  upon
conversion of the shares of Series K Preferred Stock  outstanding as of the date
of such transaction, and shall similarly apply to successive  reclassifications,
consolidations,  mergers,  sales, transfers or share exchanges.  For purposes of
this  Paragraph B, the sale of the capital stock or assets of Dorotech,  S.A. as
contemplated by that certain  Purchase  Agreement dated December 31, 1996 by and
between the Company and CDR  Enterprises  shall not  constitute a sale of all or
substantially all of the Company's assets.

         C.  Adjustment  Due to  Distribution.  If at any time  after  the First

                                      -14-
<PAGE>

Closing  Date the  Corporation  shall  declare or make any  distribution  of its
assets (or rights to acquire its assets) to holders of Common Stock as a partial
liquidating  dividend,  by way of return of capital or otherwise  (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series K Preferred Stock shall be entitled,
upon any  conversion  of shares of Series K  Preferred  Stock  after the date of
record for determining  shareholders  entitled to such Distribution,  to receive
the  amount of such  assets  which  would have been  payable to the holder  with
respect to the shares of Common Stock  issuable  upon such  conversion  (without
giving effect to the limitations contained in Article IV.C) had such holder been
the  holder  of  such  shares  of  Common  Stock  on the  record  date  for  the
determination of shareholders entitled to such Distribution.

         D.  Purchase Rights. If  at  any  time  after  the  Closing  Date,  the
Corporation  issues any  Convertible  Securities  or rights to  purchase  stock,
warrants,  securities or other property (the "Purchase  Rights") pro rata to the
record  holders  of any  class of Common  Stock,  then the  holders  of Series K
Preferred Stock will be entitled to acquire,  upon the terms  applicable to such
Purchase  Rights,  the  aggregate  Purchase  Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete  conversion of the Series K Preferred Stock (without giving effect
to the  limitations  contained in Article IV.C)  immediately  before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such  record is taken,  the date as of which  the  record  holders  of
Common Stock are to be determined for the grant,  issue or sale of such Purchase
Rights.

         E.  Notice of  Adjustments.  Upon the occurrence of each  adjustment or
readjustment  of  the  Conversion   Price  pursuant  to  this  Article  XI,  the
Corporation,   at  its  expense,  shall  promptly  compute  such  adjustment  or
readjustment  and prepare and furnish to each holder of Series K 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
K Preferred Stock,  furnish to such holder a like certificate  setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount,  if any, of other
securities or property which at the time would be received upon  conversion of a
share of Series K Preferred Stock.


                               XII. VOTING RIGHTS

         The  holders  of the  Series K  Preferred  Stock  have no voting  power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "Business Corporation Law"), in this Article XII and in Article XIII below.

         Notwithstanding the above, the Corporation shall provide each holder of
Series  K  Preferred  Stock  with  prior  notification  of  any  meeting  of the
shareholders  (and  copies  of proxy  materials  and other  information  sent to
shareholders).  If the Corporation  takes a record of its  shareholders  for the
purpose of  determining  shareholders  entitled  to (a)  receive  payment of any
dividend  or  other  distribution,  any  right to  subscribe  for,  purchase  or
otherwise   acquire   (including   by   way   of   merger,    consolidation   or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease  or  conveyance  of  all  or  substantially  all  of  the  assets  of  the
Corporation, or any proposed merger, consolidation,  liquidation, dissolution or
winding  up of the  Corporation,  the  Corporation  shall  mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty  (30)  days  prior  to the  consummation  of the  transaction  or  event,
whichever is earlier,  but in no event earlier than public  announcement of such
proposed  transaction),  of the date on which any such record is to be taken for
the purpose of such vote,  dividend,  distribution,  right or other event, and a
brief  statement  regarding  the amount and  character  of such vote,  dividend,
distribution, right or other event to the extent known at such time.

                                      -15-
<PAGE>

         To the extent that under the Business  Corporation  Law the vote of the
holders of the Series K Preferred Stock, voting separately as a class or series,
as applicable,  is required to authorize a given action of the Corporation,  the
affirmative  vote or consent of the holders of at least a majority of the shares
of the Series K Preferred  Stock  represented  at a duly held meeting at which a
quorum is present or by written  consent of a majority of the shares of Series K
Preferred  Stock  (except  as  otherwise  may be  required  under  the  Business
Corporation  Law) shall  constitute the approval of such action by the class. To
the  extent  that under the  Business  Corporation  Law  holders of the Series K
Preferred  Stock are entitled to vote on a matter with holders of Common  Stock,
voting  together as one class,  each share of Series K Preferred  Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (without giving effect to the limitations contained
in  Article  IV.C)  using  the  record  date  for the  taking  of  such  vote of
shareholders as the date as of which the Conversion Price is calculated.


                           XIII. PROTECTION PROVISIONS

         So long as any shares of Series K Preferred Stock are outstanding,  the
Corporation  shall not, without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of at least
a majority of the then outstanding shares of Series K Preferred Stock:

                           (a)      alter  or  change  the  rights,  preferences
or privileges of the Series K Preferred Stock;

                           (b)      alter or change the rights,  preferences  or
privileges of any capital stock of the Corporation so as to affect adversely the
Series K Preferred Stock;

                           (c)      create any new  class or series  of  capital
stock having a preference  over the Series K Preferred  Stock as to distribution
of assets upon  liquidation,  dissolution or winding up of the  Corporation  (as
previously defined in Article IX hereof, "Senior Securities");

                           (d)      create any  new  class or series of  capital
stock ranking pari passu with the Series K Preferred Stock as to distribution of
assets  upon  liquidation,  dissolution  or  winding up of the  Corporation  (as
previously defined in Article IX hereof, "Pari Passu Securities");

                           (e)      increase the authorized number  of shares of
Series K Preferred Stock;

                           (f)      issue  any  shares  of  Series  K  Preferred
Stock  other  than  pursuant  to the Securities Purchase Agreement;

                           (g)      issue  any  additional  shares   of   Senior
Securities; or

                           (h)      redeem, or declare or pay any cash  dividend
or  distribution  on, any Junior Securities.

If  holders of at least a majority  of the then  outstanding  shares of Series K
Preferred  Stock agree to allow the  Corporation  to alter or change the rights,
preferences or privileges of the shares of Series K Preferred  Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series K Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right,  for a period of thirty  (30) days,  to convert  pursuant to the
terms  of  this  Certificate  of  Designation  as  they  existed  prior  to such
alteration  or change or to continue to hold their  shares of Series K Preferred
Stock.

                                      -16-
<PAGE>

                               XIV. MISCELLANEOUS

         A.  Cancellation of Series K Preferred Stock. If any shares of Series K
Preferred  Stock are  converted  pursuant to Article IV, the shares so converted
shall be  canceled,  shall  return to the  status of  authorized,  but  unissued
preferred  stock of no  designated  series,  and  shall not be  issuable  by the
Corporation as Series K Preferred Stock.

         B. Lost or Stolen Certificates.  Upon receipt by the Corporation of (i)
evidence of the loss,  theft,  destruction or mutilation of any Preferred  Stock
Certificate(s)  and  (ii) (y) in the case of  loss,  theft  or  destruction,  of
indemnity  reasonably  satisfactory  to the  Corporation,  or (z) in the case of
mutilation,   upon   surrender  and   cancellation   of  the   Preferred   Stock
Certificate(s),  the  Corporation  shall execute and deliver new Preferred Stock
Certificate(s)  of like tenor and date.  However,  the Corporation  shall not be
obligated to reissue such lost or stolen Preferred Stock  Certificate(s)  if the
holder  contemporaneously  requests  the  Corporation  to convert  such Series K
Preferred Stock.

         C.  Allocations  of Cap Amount and  Reserved  Amount.  The  initial Cap
Amount and  Reserved  Amount  shall be  allocated  pro rata among the holders of
Series K  Preferred  Stock  based on the number of shares of Series K  Preferred
Stock issued to each holder. Each increase to the Cap Amount and Reserved Amount
shall be allocated pro rata among the holders of Series K Preferred  Stock based
on the number of shares of Series K  Preferred  Stock held by each holder at the
time of the increase in the Cap Amount or Reserved  Amount,  as the case may be.
In the event a holder  shall sell or  otherwise  transfer  any of such  holder's
shares of Series K Preferred  Stock,  each  transferee  shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of
the Cap Amount or  Reserved  Amount  which  remains  allocated  to any person or
entity  which does not hold any Series K Preferred  Stock shall be  allocated to
the remaining  holders of shares of Series K Preferred  Stock, pro rata based on
the number of shares of Series K Preferred Stock then held by such holders.

         D.  [Intentionally Omitted]

         E.  Payment of Cash; Defaults.  Whenever the Corporation is required to
make any cash payment to a holder under this  Certificate of  Designation  (as a
Conversion  Default  Payment,  upon redemption or otherwise),  such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice  specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made.  If such  payment is not  delivered  within such five (5)  business day
period,  such  holder  shall  thereafter  be  entitled to interest on the unpaid
amount at a per annum rate equal to the lower of  twenty-four  percent (24%) and
the highest  interest rate permitted by applicable law until such amount is paid
in full to the holder.

         F.  Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series K Preferred Stock, the shares covered thereby shall be deemed
converted  into shares of Common  Stock and the  holder's  rights as a holder of
such  converted  shares of Series K Preferred  Stock shall cease and  terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies  provided herein or otherwise  available at law or in equity
to such holder because of a failure by the  Corporation to comply with the terms
of this Certificate of Designation.  Notwithstanding the foregoing,  if a holder
has not received  certificates for all shares of Common Stock prior to the tenth
(10th)  business day after the expiration of the Delivery Period with respect to
a conversion of Series K Preferred Stock for any reason, then (unless the holder
otherwise  elects to retain its  status as a holder of Common  Stock) the holder
shall regain the rights of a holder of Series K Preferred  Stock with respect to

                                      -17-
<PAGE>

such unconverted  shares of Series K Preferred Stock and the Corporation  shall,
as soon as practicable,  return such  unconverted  shares to the holder.  In all
cases,  the holder  shall  retain all of its  rights  and  remedies  (including,
without  limitation,  (i) the  right  to  receive  Conversion  Default  Payments
pursuant to Article  VI.A to the extent  required  thereby  for such  Conversion
Default  and any  subsequent  Conversion  Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.B) for the  Corporation's  failure to convert Series K Preferred
Stock.

         G.  Remedies Cumulative.  The remedies  provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies  available
under this Certificate of Designation,  at law or in equity  (including a decree
of specific  performance  and/or other  injunctive  relief),  and nothing herein
shall  limit a holder's  right to pursue  actual  damages for any failure by the
Corporation  to comply with the terms of this  Certificate of  Designation.  The
Corporation  acknowledges that a breach by it of its obligations  hereunder will
cause  irreparable  harm to the holders of Series K Preferred Stock and that the
remedy at law for any such breach may be inadequate.  The Corporation  therefore
agrees,  in the event of any such breach or  threatened  breach,  the holders of
Series K Preferred  Stock shall be entitled,  in addition to all other available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.


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                                      -18-
<PAGE>


         IN WITNESS  WHEREOF,  this Certificate of  Designation  is  executed on
behalf of the Corporation this    day of July, 1997.
                               --

                                           NETWORK IMAGING CORPORATION



                                           By:
                                              ------------------------



















 






























                                      -19-
<PAGE>






                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
                in order to Convert the Series K Preferred Stock)

The undersigned  hereby  irrevocably  elects to convert                shares of
                                                        --------------  
Series K Preferred Stock (the  "Conversion"),  represented by stock  certificate
Nos(s).              (the "Preferred Stock  Certificates") into shares of common
         ----------- 
stock  ("Common  Stock")  of Network  Imaging  Corporation  (the  "Corporation")
according to the conditions of the Certificate of Designations,  Preferences and
Rights  of  Series  K  Convertible   Preferred   Stock  (the   "Certificate   of
Designation"),  as of the date written below.  If securities are to be issued in
the name of a person other than the  undersigned,  the undersigned  will pay all
transfer  taxes  payable  with  respect  thereto.  No fee will be charged to the
holder for any  conversion,  except for transfer  taxes,  if any. A copy of each
Preferred Stock  Certificate is attached  hereto (or evidence of loss,  theft or
destruction thereof).

The  undersigned  represents  and  warrants  that all  offers  and  sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series K Preferred  Stock shall be made pursuant to  registration  of the Common
Stock under the Securities  Act of 1933, as amended (the "Act"),  or pursuant to
an exemption from registration under the Act.

 --      The undersigned  hereby  requests that the  Corporation  electronically
         transmit  the  Common  Stock  issuable   pursuant  to  this  Notice  of
         Conversion to the account of the  undersigned's  Prime Broker (which is
                   )  with DTC through its Deposit  Withdrawal  Agent Commission
         ----------
         System.


                            Date of Conversion:
                                               -------------------------
                            Applicable Conversion Price:
                                                        ----------------       
                            Amount of Conversion Default Payments
                            to be Converted, if any:
                                                    --------------------
                            Number of Shares of
                            Common Stock to be Issued:
                                                      ------------------
                            Signature:
                                      ----------------------------------
                            Name:
                                 --------------------------------------- 
                            Address:
                                    ------------------------------------

* The  Corporation  is not  required to issue  shares of Common  Stock until the
original  Preferred  Stock   Certificate(s)  (or  evidence  of  loss,  theft  or
destruction  thereof) to be  converted  are received by the  Corporation  or its
transfer agent.  The Corporation  shall issue and deliver shares of Common Stock
to an overnight  courier not later than the later of (a) two (2)  business  days
following  receipt of this Notice of Conversion and (b) delivery of the original
Preferred Stock Certificates (or evidence of loss, theft or destruction thereof)
and shall make  payments  pursuant to the  Certificate  of  Designation  for the
failure to make timely delivery.