EXHIBIT 4.1


                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   CERTIFICATE OF DESIGNATION OF PREFERENCES,
                             RIGHTS AND LIMITATIONS
                                       OF
                 SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

                   PURSUANT TO SECTION 78.1955 OF THE GENERAL
                     CORPORATION LAW OF THE STATE OF NEVADA

     The  undersigned,  Theodore S. Li and Hui "Cynthia"  Lee, do hereby certify
that:

          1. They are the  President  and  Secretary,  respectively,  of PACIFIC
MAGTRON INTERNATIONAL CORP., a Nevada corporation (the "CORPORATION").

          2.  The  Corporation  is  authorized  to  issue  5,000,000  shares  of
preferred stock, none of which have been issued.

          3.  The  following  resolutions  were  duly  adopted  by the  Board of
Directors:

     WHEREAS, the Certificate of Incorporation of the Corporation provides for a
class of its authorized stock known as preferred  stock,  comprised of 5,000,000
shares, $0.001 par value, issuable from time to time in one or more series;

     WHEREAS, the Board of Directors of the Corporation is authorized to fix the
dividend rights,  dividend rate, voting rights,  conversion  rights,  rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred  stock and the  number  of  shares  constituting  any  series  and the
designation thereof, of any of them; and

     WHEREAS,  it is the desire of the Board of  Directors  of the  Corporation,
pursuant  to its  authority  as  aforesaid,  to  fix  the  rights,  preferences,
restrictions and other matters relating to an additional series of the preferred
stock,  which shall  consist of up to 1,000  shares of the  5,000,000  shares of
preferred stock which the corporation has the authority to issue, as follows:

     NOW,  THEREFORE,  BE IT RESOLVED,  that the Board of Directors  does hereby
provide for the issuance of an additional  series of preferred stock for cash or
exchange  of other  securities,  rights  or  property  and does  hereby  fix and
determine the rights,  references,  restrictions  and other matters  relating to
such additional series of preferred stock as follows:
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                            TERMS OF PREFERRED STOCK

     Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of preferred stock
shall  be  designated  as its 4%  Series  A  Convertible  Preferred  Stock  (the
"PREFERRED  STOCK") and the number of shares so designated shall be 1,000 (which
shall not be subject  to  increase  without  the  consent of the  holders of the
Preferred Stock (each, a "HOLDER" and collectively,  the "HOLDERS")). Each share
of Preferred Stock shall have a par value of $0.001 per share and a stated value
equal to the sum of $1,000 plus all accrued and unpaid  dividends to the date of
determination  to the extent not previously  paid in cash in accordance with the
terms hereof (the "STATED Value").

     Section 2. DIVIDENDS.

          (a)  Holders  shall be  entitled  to  receive,  out of  funds  legally
     available therefor,  and the Company shall pay, cumulative dividends at the
     rate per share (as a  percentage  of the Stated  Value per share) of 4% per
     annum,  payable on each Conversion Date (as defined herein) for such share,
     in cash or by  accretion  of the Stated  Value or, at the  election  of the
     Company,  from time to time if and as the  Company may  declare,  in Common
     Stock of the Company that is registered  under the  Securities Act of 1933,
     as  amended,  for  resale by the holder  thereof.  Subject to the terms and
     conditions herein,  the decision whether to accrete dividends  hereunder to
     the Stated Value or to pay for dividends in cash shall be at the discretion
     of the Company. The Company shall provide the Holders written notice of its
     intention  to  accrete  dividends  hereunder  to the  Stated  Value  or pay
     dividends in cash not less than ten days prior to each  Conversion Date for
     so long as shares of  Preferred  Stock are  outstanding  (the  Company  may
     indicate in such notice that the  election  contained  in such notice shall
     continue for later periods until  revised).  Failure to timely provide such
     written notice shall be deemed (if permitted  hereunder) an election by the
     Company to accrete  dividends  hereunder to the Stated Value.  Dividends on
     the  Preferred  Stock shall be  calculated  on the basis of a 360-day year,
     shall accrue  daily  commencing  on the Original  Issue Date (as defined in
     Section  8),  and shall be deemed to accrue  from such date  whether or not
     earned or declared and whether or not there are  profits,  surplus or other
     funds of the Company legally available for the payment of dividends. Except
     as otherwise provided herein, if at any time the Company pays less than the
     total amount of dividends  then accrued on account of the Preferred  Stock,
     such payment shall be distributed  ratably among the Holders based upon the
     number of shares of Preferred  Stock held by each Holder.  Any dividends to
     be paid in cash  hereunder  that are not paid within three Trading Days (as
     defined in Section 8) following a Conversion  Date shall continue to accrue
     and shall entail a late fee, which must be paid in cash, at the rate of 18%
     per annum or the lesser  rate  permitted  by  applicable  law (such fees to
     accrue  daily,  from the date such  dividend is due  hereunder  through and
     including the date of payment).

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

               (i) the number of shares of Common  Stock (as  defined in Section
          8) at the time authorized, unissued and unreserved for all purposes is

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<PAGE>
          insufficient  to accrete such dividends to the Stated Value and permit
          conversion in full of all outstanding Stated Value;

               (ii) after the Dividend Effectiveness Date (as defined in Section
          8),  the  Underlying  Shares  (as  defined  in  Section 8) (x) are not
          registered  for resale  pursuant  to an  effective  Underlying  Shares
          Registration  Statement  (as  defined in Section 8) and (y) may not be
          sold  without  volume  restrictions  pursuant to Rule 144  promulgated
          under the  Securities  Act (as defined in Section 8), as determined by
          counsel to the Company pursuant to a written opinion letter, addressed
          to the Company's  transfer agent in the form and substance  acceptable
          to the  applicable  Holder and such transfer  agent (if the Company is
          permitted  and elects to pay dividends in shares of Common Stock under
          this  clause  (ii)  prior  to  the  Dividend  Effectiveness  Date  and
          thereafter  an  Underlying  Shares  Registration  Statement  shall  be
          declared  effective by the  Commission  (as defined in Section 8), the
          Company  shall,  within  three  Trading  Days  after  the date of such
          declaration  of  effectiveness,  exchange such  Underlying  Shares for
          shares of Common  Stock  that are free of  restrictive  legends of any
          kind);

               (iii) the Common Stock is not then listed or quoted on the Nasdaq
          Small-Cap  Market ("NSM") or on the New York Stock Exchange,  American
          Stock  Exchange  or  Nasdaq   National  Market  (each,  a  "SUBSEQUENT
          MARKET"); or

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

          (c) So long as any Preferred Stock shall remain  outstanding,  neither
     the Company nor any subsidiary thereof shall redeem,  purchase or otherwise
     acquire directly or indirectly any Junior Securities (as defined in Section
     8),  nor shall the  Company  directly  or  indirectly  pay or  declare  any
     dividend or make any  distribution  (other than a dividend or  distribution
     described in Section 5 or dividends due and paid in the ordinary  course on
     preferred  stock  of the  Company  at such  times  when the  Company  is in
     compliance  with its payment and other  obligations  hereunder)  upon,  nor
     shall any  distribution be made in respect of, any Junior  Securities,  nor
     shall any monies be set aside for or applied to the purchase or  redemption
     (through a sinking fund or  otherwise)  of any Junior  Securities or shares
     pari passu with the  Preferred  Stock,  unless (i) the  Company  shall have
     previously paid all cumulative  dividends accrued on the Preferred Stock as
     of such date and (ii) the Holders shall own less than 20% of the originally
     issued Preferred Stock.

     Section  3.  VOTING  RIGHTS.  Except as  otherwise  provided  herein and as
otherwise  required by law,  the  Preferred  Stock shall have no voting  rights.
However,  so long as any shares of Preferred Stock are outstanding,  the Company
shall not,  without  the  affirmative  vote of the  Holders of a majority of the
shares of the Preferred Stock then  outstanding,  (a) alter or change  adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this  Certificate  of  Designation,  (b)  authorize or create any class of stock

                                      -3-
<PAGE>
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise  pari passu with the Preferred  Stock,  (c)
amend its certificate or articles of incorporation or other charter documents so
as to affect  adversely any rights of the Holders,  (d) increase the  authorized
number of shares of  Preferred  Stock,  or (e)  enter  into any  agreement  with
respect to the foregoing.

     Section 4. LIQUIDATION. Upon any liquidation,  dissolution or winding-up of
the Company,  whether  voluntary or involuntary (a  "LIQUIDATION"),  the Holders
shall be  entitled  to receive out of the assets of the  Company,  whether  such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value per share before any  distribution  or payment shall be made
to the holders of any Junior Securities,  and if the assets of the Company shall
be  insufficient  to pay in full  such  amounts,  then the  entire  assets to be
distributed  to the Holders shall be  distributed  among the Holders  ratably in
accordance  with the respective  amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of 50% or more of the assets of the Company or the  effectuation  by the Company
of a transaction or series of related transactions in which more than 33% of the
voting power of the Company is disposed of, or a consolidation  or merger of the
Company with or into any other company or companies  into one or more  companies
not  wholly-owned  by the  Company  shall not be treated as a  Liquidation,  but
instead shall be subject to the  provisions of Section 5. The Company shall mail
written  notice  of any such  Liquidation,  not less  than 45 days  prior to the
payment date stated therein, to each record Holder.

     Section 5. CONVERSION.

          (a)  (i)  CONVERSIONS  AT OPTION OF HOLDER.  Each  share of  Preferred
          Stock shall be convertible into shares of Common Stock (subject to the
          limitations  set forth in Section  5(a)(iv) and (v)) at the Conversion
          Ratio (as defined in Section  8), at the option of the Holder,  at any
          time and from time to time from and after  the  Original  Issue  Date.
          Holders  shall effect  conversions  by providing  the Company with the
          form of conversion  notice  attached  hereto as ANNEX A (a "CONVERSION
          NOTICE"). Each Conversion Notice shall specify the number of shares of
          Preferred  Stock to be  converted,  the number of shares of  Preferred
          Stock  owned  prior to the  conversion  at issue,  number of shares of
          Preferred  Stock owned  subsequent to the  conversion at issue and the
          date on which such conversion is to be effected, which date may not be
          prior  to the date the  Holder  delivers  such  Conversion  Notice  by
          facsimile (the "CONVERSION  DATE"). If no Conversion Date is specified
          in a Conversion  Notice,  the  Conversion  Date shall be the date that
          such  Conversion  Notice  is  deemed  delivered  hereunder.  To effect
          conversions  of  shares  of  Preferred  Stock,  a Holder  shall not be
          required to surrender the  certificate(s)  representing such shares of
          Preferred  Stock to the Company  unless all of the shares of Preferred
          Stock represented  thereby are so converted,  in which case the Holder
          shall  deliver the  certificate  representing  such share of Preferred
          Stock   promptly   following  the  Conversion   Date  at  issue.   The
          calculations

                                      -4-
<PAGE>
          and entries set forth in the  Conversion  Notice shall  control in the
          absence of manifest or mathematical error.

               (ii) [RESERVED]

               (iii) [RESERVED]

               (iv) BENEFICIAL  OWNERSHIP CONVERSION  RESTRICTION.  A Holder may
          not  convert  shares of  Preferred  Stock or receive  shares of Common
          Stock as payment of dividends  hereunder to the extent such conversion
          or  receipt  of such  dividend  payment  would  result in the  Holder,
          together  with  any  affiliate   thereof,   beneficially   owning  (as
          determined  in  accordance  with Section 13(d) of the Exchange Act (as
          defined in Section 8) and the rules promulgated  thereunder) in excess
          of 4.999% of the then issued and  outstanding  shares of Common Stock,
          including shares issuable upon conversion of, and payment of dividends
          on,  the  shares  of  Preferred   Stock  held  by  such  Holder  after
          application of this Section. Since the Holder will not be obligated to
          report to the Company the number of shares of Common Stock it may hold
          at the time of a conversion hereunder,  unless the conversion at issue
          would  result in the  issuance of shares of Common  Stock in excess of
          4.999% of the then  outstanding  shares of Common Stock without regard
          to any other shares which may be  beneficially  owned by the Holder or
          an  affiliate  thereof,  the  Holder  shall  have  the  authority  and
          obligation  to  determine  whether the  restriction  contained in this
          Section  will limit any  particular  conversion  hereunder  and to the
          extent that the Holder  determines  that the  limitation  contained in
          this Section applies, the determination of which portion of the shares
          of Preferred Stock are  convertible  shall be the  responsibility  and
          obligation  of the Holder.  If the Holder has  delivered a  Conversion
          Notice for shares of Preferred Stock that, without regard to any other
          shares that the Holder or its affiliates may  beneficially  own, would
          result in the issuance in excess of the  permitted  amount  hereunder,
          the Company  shall  notify the Holder of this fact and shall honor the
          conversion  for the  maximum  number  of  shares  of  Preferred  Stock
          permitted to be converted on such  Conversion  Date in accordance with
          the  periods  described  in  Section  5(b) and,  at the  option of the
          Holder,   either  retain  shares  of  Preferred   Stock  tendered  for
          conversion  in excess of the  permitted  amount  hereunder  for future
          conversions or return such excess shares of Preferred  Stock permitted
          to the  Holder.  The  provisions  of this  Section  may be waived by a
          Holder  (but only as to itself and not to any other  Holder)  upon not
          less than 61 days prior notice to the Company.  Other Holders shall be
          unaffected by any such waiver.

               (v)  LIMITATION  ON NUMBER OF  SHARES  ISSUABLE.  Notwithstanding
          anything herein to the contrary,  the Company shall not be required to
          issue to the Holder  and any other  holders  of the  Preferred  Stock,
          Common Stock in excess of 19.999% of the Company's  outstanding Common

                                      -5-
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          Stock on the First  Closing  Date at a price below the market price of
          the Common Stock on the First Closing Date, or such greater  number of
          shares of Common Stock permitted  pursuant to Nasdaq Rule 4350(i),  or
          where such  issuance  would  otherwise  require  shareholder  approval
          pursuant to Nasdaq Rule 4350(i), as confirmed in writing by counsel to
          the Company,  upon  conversion  of the  Preferred  Stock (the "MAXIMUM
          AGGREGATE SHARE AMOUNT"), unless the Company first obtains shareholder
          approval permitting such issuances in accordance with Nasdaq rules. If
          the number of shares of Common Stock which would,  notwithstanding the
          limitation set forth herein, be issuable and sold to the Holder equals
          or exceeds the Maximum Aggregate Share Amount, then, at any time, from
          time to time  thereafter at the sole election of the Holder,  in whole
          or in part,  the  Company  shall:  (i)  honor  the  conversion  of the
          Preferred Stock by the Holder at the lowest possible  conversion price
          which  would  permit such  conversion  without  violating  Nasdaq Rule
          4350(i),  and (ii) redeem the portion of the Preferred Stock submitted
          to the  Company,  the  conversion  of which  would  exceed the Maximum
          Aggregate  Share Amount,  otherwise in  accordance  with Section 6(a).
          This  limitation  on  conversion  shall be applied  ratably  among the
          Holders  based  upon the number of shares of  Preferred  Stock held by
          each Holder.

               (vi)  Notwithstanding  anything to the contrary contained herein,
          if on any Conversion Date:

                    (A) the Common  Stock is not listed or quoted on a Principal
               Market;

                    (B) the Company has failed to timely  satisfy its conversion
               obligations   hereunder  with  respect  to  the  Preferred  Stock
               submitted for conversion on such conversion date; or

                    (C) the issuance of such shares of Common Stock would result
               in a violation of Section 5(a)(v).

               then,  at the  option  of the  Holder,  the  Company,  in lieu of
          delivering Conversion Shares, shall deliver,  within three (3) Trading
          Days of each  applicable  Conversion  Date, an amount in cash equal to
          the product of the number of Conversion  Shares otherwise  deliverable
          to the Holder in connection  with such Conversion Date and the highest
          VWAP during the period commencing on the Conversion Date and ending on
          the Trading Day prior to the date such payment is made.

          (b)  (i) Not later than three Trading Days after each Conversion Date,
          the  Company  will  deliver  to  the  Holder  (A)  a  certificate   or
          certificates  which,  after  the  Effective  Date,  shall  be  free of
          restrictive  legends  and  trading   restrictions  (other  than  those
          required by Section 3.1(b) of the Purchase Agreement) representing the
          number of shares of Common Stock being acquired upon the conversion of

                                      -6-
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          shares  of  Preferred  Stock,  and (B) a bank  check in the  amount of
          accrued  and  unpaid  dividends  (if the  Company  has  elected  or is
          required to pay accrued  dividends in cash).  The Company shall,  upon
          request of the Holder,  if available,  use its best efforts to deliver
          any  certificate  or  certificates  required  to be  delivered  by the
          Company under this Section electronically through the Depository Trust
          Corporation or another  established  clearing  corporation  performing
          similar  functions.  If in the  case  of any  Conversion  Notice  such
          certificate or certificates are not delivered to or as directed by the
          applicable  Holder by the third Trading Day after the Conversion Date,
          the Holder shall be entitled to elect by written notice to the Company
          at  any  time  on  or  before  its  receipt  of  such  certificate  or
          certificates  thereafter,  to rescind such conversion,  in which event
          the Company shall immediately return the certificates representing the
          shares of Preferred Stock tendered for conversion.

               (ii)  If  the  Company  fails  to  deliver  to  the  Holder  such
          certificate or certificates  pursuant to Section 5(b)(i), by the third
          Trading Day after the  Conversion  Date, the Company shall pay to such
          Holder, in cash, as liquidated damages and not as a penalty,  for each
          $5,000 of Stated Value of  Preferred  Stock being  converted,  $50 per
          Trading Day  (increasing  to $100 per Trading Day after 3 Trading Days
          and  increasing  to $200 per  Trading  Day 6 Trading  Days  after such
          damages begin to accrue) for each Trading Day after such third Trading
          Day until such certificates are delivered.  Nothing herein shall limit
          a Holder's right to pursue actual damages for the Company's failure to
          deliver   certificates   representing  shares  of  Common  Stock  upon
          conversion  within the period  specified  herein and such Holder shall
          have the right to pursue all remedies  available to it  hereunder,  at
          law or in equity including,  without limitation,  a decree of specific
          performance and/or injunctive relief.

               (iii) In addition to any other rights available to the Holder, if
          the  Company  fails to  deliver  to the  Holder  such  certificate  or
          certificates  pursuant to Section  5(b)(i),  by the third  Trading Day
          after the  Conversion  Date,  and if after such third  Trading Day the
          Holder purchases (in an open market  transaction or otherwise)  Common
          Stock to  deliver  in  satisfaction  of a sale by such  Holder  of the
          Underlying  Shares  which the Holder was entitled to receive upon such
          conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the
          Holder  the  amount by which (x) the  Holder's  total  purchase  price
          (including  brokerage  commissions,  if any) for the  Common  Stock so
          purchased  exceeds  (y) the  product  of (1) the  aggregate  number of
          shares of Common  Stock that such Holder was  entitled to receive from
          the  conversion  at issue  multiplied  by (2) the market  price of the
          Common  Stock  at the time of the sale  giving  rise to such  purchase
          obligation  and (B) at the  option of the  Holder,  either  return the
          shares of Preferred Stock for which such conversion was not honored or

                                      -7-
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          deliver to such Holder the number of shares of Common Stock that would
          have been issued had the Company  timely  complied with its conversion
          and delivery  obligations under Section 5(b)(i).  For example,  if the
          Holder purchases Common Stock having a total purchase price of $11,000
          to cover a Buy-In with respect to an attempted conversion of shares of
          Preferred  Stock  with  respect  to  which  the  market  price  of the
          Underlying  Shares on the date of conversion  totaled  $10,000,  under
          clause (A) of the immediately  preceding sentence the Company shall be
          required  to pay the Holder  $1,000.  The  Holder  shall  provide  the
          Company written notice indicating the amounts payable to the Holder in
          respect of the Buy-In.  Nothing herein shall limit a Holder's right to
          pursue any other  remedies  available  to it  hereunder,  at law or in
          equity including, without limitation, a decree of specific performance
          and/or  injunctive  relief with  respect to the  Company's  failure to
          timely deliver  certificates  representing shares of Common Stock upon
          conversion  of the shares of Preferred  Stock as required  pursuant to
          the terms hereof.

          (c)  (i) The conversion  price for each share of Preferred  Stock (the
          "CONVERSION  PRICE") shall equal the lesser of (A) 120% of the average
          of the 5 Closing Prices immediately prior to the Closing Date on which
          such  Preferred  Stock  was  issued  (the  "SET  PRICE"),  subject  to
          adjustment  herein,  and (B) 85% of the average of the 5 lowest  VWAPs
          during  the 30  Trading  Days  immediately  prior  to  the  applicable
          Conversion Date; PROVIDED,  HOWEVER, the Conversion Price shall not be
          less  than  $0.75  ("FLOOR  PRICE"),  subject  to  adjustment  herein.
          Notwithstanding  the Floor  Price,  if the  Conversion  price  then in
          effect is less than the Floor Price, the Conversion Price at such time
          shall equal the Floor Price.

               (ii) If the  Company,  at any time while any shares of  Preferred
          Stock are  outstanding,  shall (a) pay a stock  dividend or  otherwise
          make  a  distribution  or   distributions  on  shares  of  its  Junior
          Securities or pari passu securities payable in shares of Common Stock,
          (b) subdivide  outstanding shares of Common Stock into a larger number
          of shares,  (c)  combine  (including  by way of reverse  stock  split)
          outstanding shares of Common Stock into a smaller number of shares, or
          (d) issue by  reclassification  and  exchange of the Common  Stock any
          shares of capital  stock of the Company,  then the Set Price and Floor
          Price shall be multiplied  by a fraction of which the numerator  shall
          be the number of shares of Common Stock (excluding treasury shares, if
          any) outstanding  before such event and of which the denominator shall
          be the number of shares of Common Stock  outstanding after such event.
          Any  adjustment  made pursuant to this Section  5(c)(ii)  shall become
          effective  immediately  after the record date for the determination of
          stockholders  entitled to receive such  dividend or  distribution  and
          shall become  effective  immediately  after the effective  date in the
          case of a subdivision, combination or re-classification.

                                      -8-
<PAGE>
               (iii)  If at  any  time  while  shares  of  Preferred  Stock  are
          outstanding  the  Company or any  Subsidiary  (with  respect to Common
          Stock Equivalents) shall offer, sell, grant any option to purchase, or
          otherwise dispose of (or announce any offer, sale, grant or any option
          to purchase  or other  disposition)  any of shares of Common  Stock or
          Common Stock  Equivalents at a price that is, at the issuance thereof,
          or at any later time due to adjustment, reset, additional issuances or
          otherwise,  less than the Set Price, then, at the option of the Holder
          for such  conversions  as such Holder shall indicate in its Conversion
          Notices  (including  on  conversion  pursuant to section  5(a)(ii) and
          (iii)),  the Set Price and Floor Price shall be adjusted to mirror the
          conversion, exchange or purchase price for such Common Stock or Common
          Stock Equivalents  (including any reset provisions  thereof) at issue.
          Such  adjustment  shall be made  whenever  such Common Stock or Common
          Stock  Equivalents  are issued.  If the holder of the Common  Stock or
          Common  Stock  Equivalent  so  issued  shall at any time,  whether  by
          operation of purchase price  adjustments,  reset provisions,  floating
          conversion,  exercise  or  exchange  prices  or  otherwise,  or due to
          warrants,  options or rights issued in connection  with such issuance,
          be entitled to receive shares of Common Stock at a price less than the
          Set Price,  such  issuance  shall be deemed to have  occurred for less
          than the Set Price.  A "COMMON STOCK  EQUIVALENT"  means any equity or
          equity equivalent  securities  (including debt or any other instrument
          that  is at any  time  over  the  life  thereof  convertible  into  or
          exchangeable  for Common  Stock) issued by the Company or a subsidiary
          thereof  that provide the holder  thereof to receive  shares of Common
          Stock.  The Company shall notify the Holder in writing,  no later than
          the Trading Day  following  the issuance of any Common Stock or Common
          Stock  Equivalent  subject to this  section,  indicating  therein  the
          applicable  issuance  price,  or of applicable  reset price,  exchange
          price, conversion price and other pricing terms.

               (iv) If the Company,  at any time while shares of Preferred Stock
          are outstanding,  shall distribute to all holders of Common Stock (and
          not to Holders)  evidences of its  indebtedness or assets or rights or
          warrants to subscribe  for or purchase any security  (excluding  those
          referred to in Sections  5(c)(ii)-(iii) above), then in each such case
          the Set Price and Floor Price at which each share of  Preferred  Stock
          shall thereafter be convertible shall be determined by multiplying the
          Set Price and Floor  Price in effect  immediately  prior to the record
          date fixed for determination of stockholders  entitled to receive such
          distribution by a fraction of which the  denominator  shall be the Per
          Share Market Value  determined as of the record date mentioned  above,
          and of which the  numerator  shall be such Per Share  Market  Value on
          such record  date less the then fair market  value at such record date
          of  the  portion  of  such  assets  or  evidence  of  indebtedness  so
          distributed  applicable  to one  outstanding  share of Common Stock as
          determined by the Board of Directors in good faith. In either case the

                                      -9-
<PAGE>
          adjustments shall be described in a statement  provided to the Holders
          of the portion of assets or evidences of  indebtedness  so distributed
          or such  subscription  rights applicable to one share of Common Stock.
          Such adjustment  shall be made whenever any such  distribution is made
          and shall become effective immediately after the record date mentioned
          above.

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

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

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

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

                                      -10-
<PAGE>
          prior to such merger,  consolidation or sales would have been entitled
          or (B) in the case of a  merger  or  consolidation,  (x)  require  the
          surviving  entity to issue shares of  convertible  preferred  stock or
          convertible  debentures  with such  aggregate  stated value or in such
          face  amount,  as the case may be,  equal to the  Stated  Value of the
          shares of Preferred  Stock then held by such Holder,  plus all accrued
          and unpaid  dividends  and other amounts  owing  thereon,  which newly
          issued  shares of  preferred  stock or  debentures  shall  have  terms
          identical  (including  with respect to conversion) to the terms of the
          Preferred Stock (except, in the case of debentures, as may be required
          to reflect  the  differences  between  debt and  equity)  and shall be
          entitled to all of the rights and  privileges of a Holder of Preferred
          Stock  set  forth  herein  and the  agreements  pursuant  to which the
          Preferred Stock was issued  (including,  without  limitation,  as such
          rights relate to the  acquisition,  transferability,  registration and
          listing  of such  shares  of  stock  other  securities  issuable  upon
          conversion thereof),  and (y) simultaneously with the issuance of such
          convertible preferred stock or convertible debentures,  shall have the
          right to convert such  instrument  only into shares of stock and other
          securities,  cash and property receivable upon or deemed to be held by
          holders of Common Stock following such merger,  consolidation or sale.
          In the case of clause (B), the  conversion  price  applicable  for the
          newly issued  shares of  convertible  preferred  stock or  convertible
          debentures  shall be based  upon the  amount of  securities,  cash and
          property  that  each  share of  Common  Stock  would  receive  in such
          transaction,   the   Conversion   Ratio   immediately   prior  to  the
          effectiveness  or closing date for such  transaction and the Set Price
          and Floor Price stated herein.  The terms of any such merger,  sale or
          consolidation  shall  include  such terms so as  continue  to give the
          Holders the right to receive the  securities,  cash and  property  set
          forth in this Section upon any conversion or redemption following such
          event. This provision shall similarly apply to successive such events.
          The rights set forth in this  Section  5(c)(viii)  shall not alter the
          rights of a Holder set forth in Section 7,  provided,  that,  a Holder
          may only  exercise the rights set forth in this Section  5(c)(viii) or
          the  rights  set forth in  Section 7 with  respect  to a single  event
          giving rise to such rights.

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

                                      -11-
<PAGE>
          authorize the voluntary or  involuntary  dissolution,  liquidation  or
          winding  up of the  affairs of the  Company;  then the  Company  shall
          notify the Holders at their last  addresses  as they shall appear upon
          the stock books of the Company, at least 20 calendar days prior to the
          applicable  record or effective date hereinafter  specified,  a notice
          stating  (x) the date on which a record is to be taken for the purpose
          of such dividend, distribution,  redemption, rights or warrants, or if
          a record  is not to be  taken,  the date as of which  the  holders  of
          Common Stock of record to be entitled to such dividend, distributions,
          redemption, rights or warrants are to be determined or (y) the date on
          which such reclassification,  consolidation, merger, sale, transfer or
          share exchange is expected to become  effective or close, and the date
          as of which it is  expected  that  holders  of Common  Stock of record
          shall be entitled to exchange their Common Stock for securities,  cash
          or   other   property   deliverable   upon   such    reclassification,
          consolidation,  merger, sale, transfer or share exchange.  Holders are
          entitled to convert shares of Preferred Stock during the 20-day period
          commencing  the date of such notice to the effective date of the event
          triggering such notice.

               (x)  EXCEPTIONS TO  ADJUSTMENT  OF SET PRICE AND FLOOR PRICE.  No
          adjustment  to the Set Price and Floor Price will be made (i) upon the
          conversion of any other Preferred Stock of this series or of any other
          securities issued by the Company in connection with the offer and sale
          of  this  Company's  securities  pursuant  to the  Purchase  Agreement
          including the Warrant;  (ii) upon the exercise of or conversion of any
          convertible securities,  options or warrants issued and outstanding on
          the Closing  Date;  (iii) upon the grant or exercise of any options to
          employees,  directors  or key  consultants  of the  Company  which may
          hereafter be granted or exercised  under any employee  benefit plan or
          other stock option, stock purchase or stock bonus plan or agreement of
          the Company now existing or to be implemented  in the future,  so long
          as the  issuance  of such  options is  approved  by a majority  of the
          non-employee  members of the Board of  Directors  of the  Company or a
          majority  of the  members of a  committee  of  non-employee  directors
          established  for such purpose;  (iv) upon the issuance of Common Stock
          or  convertible  securities  in any  acquisition  of another  business
          entity or segment  (whether through a purchase of assets or stock or a
          merger) or any  transaction  of the nature  contemplated  by Rule 145,
          promulgated  under the Securities  Act; or (v) in connection  with any
          strategic   partnership   or  joint  venture  or  acquisition  or  key
          consulting  agreements  (the primary  purpose of which is not to raise
          equity capital for the Company).

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

                                      -12-
<PAGE>
          (e) Upon a conversion  hereunder  the Company shall not be required to
     issue stock certificates  representing fractions of shares of Common Stock,
     but may if otherwise permitted, make a cash payment in respect of any final
     fraction of a share based on the Per Share  Market  Value at such time.  If
     any fraction of an  Underlying  Share would,  except for the  provisions of
     this Section,  be issuable upon a conversion  hereunder,  the Company shall
     pay an amount in cash  equal to the  Conversion  Ratio  multiplied  by such
     fraction.

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

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

          (h) Any and all notices or other  communications  or  deliveries to be
     provided  by the  Holders  of the  Preferred  Stock  hereunder,  including,
     without  limitation,  any  Conversion  Notice,  shall  be  in  writing  and
     delivered  personally,  by  facsimile  or sent by a  nationally  recognized
     overnight  courier  service,  addressed  to  the  attention  of  the  Chief
     Executive  Officer of the  Company  addressed  to 1600  California  Circle,
     Milpitas,  California 95035, fax: (408) 956-5777,  or to such other address
     or  facsimile  number as shall be  specified  in writing by the Company for
     such purpose.  Any and all notices or other communications or deliveries to
     be  provided  by the Company  hereunder  shall be in writing and  delivered
     personally,  by  facsimile  or sent by a  nationally  recognized  overnight
     courier service, addressed to each Holder at the facsimile telephone number
     or address of such Holder  appearing on the books of the Company,  or if no
     such facsimile  telephone number or address appears, at the principal place
     of business of the Holder. Any notice or other  communication or deliveries
     hereunder  shall be deemed  given and  effective on the earliest of (i) the
     date of  transmission,  if such notice or  communication  is delivered  via
     facsimile at the facsimile telephone number specified in this Section prior
     to 6:30 p.m. (New York City time) (with confirmation of transmission), (ii)
     the date after the date of transmission, if such notice or communication is
     delivered via facsimile at the facsimile telephone number specified in this
     Section  later than 6:30 p.m.  (New York City time) on any date and earlier
     than 11:59 p.m.  (New York City  time) on such date (with  confirmation  of
     transmission),  (iii)  upon  receipt,  if sent by a  nationally  recognized
     overnight courier service, or (iv) upon actual receipt by the party to whom
     such notice is required to be given.

                                      -13-
<PAGE>
     Section 6. REDEMPTION.

          (a)  OPTIONAL REDEMPTION BY COMPANY.

               (i) After the Effective  Date,  the Company shall have the right,
          upon at  least  10  Trading  Days'  notice  to the  Holder  (a "TYPE A
          OPTIONAL  REDEMPTION  NOTICE"  and the date such notice is received by
          the Holder, the "TYPE A NOTICE DATE"), to redeem for cash no less than
          all of the  outstanding  Preferred  Stock  at a  price  per  share  of
          Preferred  Stock equal to 115% of the Stated  Value of such  Preferred
          Stock plus all accrued and unpaid  dividends  and other  amounts owing
          thereon (the "TYPE A OPTIONAL REDEMPTION PRICE");  PROVIDED,  HOWEVER,
          during the period  beginning  on the Type A Notice  Date and ending on
          the date the Type A Optional Redemption Price is paid in full, (A) the
          Registration  Statement  must  be  maintained  effective,  and (B) the
          Common  Stock  must  have  been  listed  for  trading  on the NSM or a
          Subsequent  Market;  PROVIDED,  FURTHER,  that the Conversion Price in
          effect  during  the 5  Trading  Days  immediately  prior to the Type A
          Optional  Redemption Notice must have been less than $1.00 (subject to
          reverse and forward stock splits and the like) per  Conversion  Share.
          Nothing in this  Section 6 shall be deemed to  restrict  or  otherwise
          limit the  Holder's  right to convert  any of the shares of  Preferred
          Stock  pursuant  to Section  5(a)(i) at any time prior to the date the
          Type A Optional Redemption Price is paid in full.

               (ii) After the Effective  Date, the Company shall have the right,
          upon at  least  30  Trading  Days'  notice  to the  Holder  (a "TYPE B
          OPTIONAL  REDEMPTION  NOTICE",  and  together  with a Type A  Optional
          Redemption Notice,  each an "OPTIONAL  REDEMPTION NOTICE" and the date
          such notice is received  by the Holder,  the "TYPE B NOTICE  DATE" and
          together  with a Type A Notice Date, a "NOTICE  DATE"),  to redeem for
          cash no less than all of the  outstanding  Preferred  Stock at a price
          per share of Preferred Stock equal to 115% of the Stated Value of such
          Preferred  Stock  plus all  accrued  and  unpaid  dividends  and other
          amounts  owing  thereon  (the "TYPE B OPTIONAL  REDEMPTION  PRICE" and
          together with a Type A Optional Redemption Price, "OPTIONAL REDEMPTION
          PRICES"); PROVIDED, HOWEVER, during the period beginning on the Type B
          Notice  Date and  ending  on the date the Type B  Optional  Redemption
          Price  is  paid  in  full,  (A)  the  Registration  Statement  must be
          maintained  effective,  and (B) the Common Stock must have been listed
          for trading on the NSM or a Subsequent Market; PROVIDED, FURTHER, that
          the  Conversion  Price in effect  during  each of the 20 Trading  Days
          immediately  prior to the Type B Optional  Redemption Notice must have
          been  greater  than 175% of the Set Price.  Nothing in this  Section 6
          shall be deemed to restrict or otherwise  limit the Holder's  right to
          convert  any of the  shares of  Preferred  Stock  pursuant  to Section

                                      -14-
<PAGE>
          5(a)(i) at any time  prior to the date the Type B Optional  Redemption
          Price is paid in full.

          (b)  REDEMPTION  PROCEDURE.  The  payment  of  cash  pursuant  to  any
     redemption  hereunder shall be made on the date set forth in the applicable
     Optional  Redemption Notice,  which shall be at least 10 Trading Days after
     the  applicable  Notice  Date.  If any  portion of the cash  payment for an
     Optional Redemption shall not be paid by the Company by such date, interest
     shall  accrue  thereon  at the rate of 18% per annum (or the  maximum  rate
     permitted by applicable law,  whichever is less) until the cash payment for
     such Optional Redemption Price is paid in full. In addition, if any portion
     of an Optional Redemption Price remains unpaid after such date, the Holders
     subject to such  redemption  may elect,  by written  notice to the  Company
     given at any time  thereafter,  to  invalidate  AB INITIO such  redemption,
     notwithstanding  anything  herein  contained to the  contrary.  If a Holder
     elects to invalidate such  redemption the Company shall  promptly,  and, in
     any event,  not later  than 3 Trading  Days from  receipt of such  Holder's
     notice of such election,  return to such Holder all of the Preferred  Stock
     for which  the  redemption  price  shall not have been paid in full and the
     Company  shall  have  no  further  right  to  redeem  the  Preferred  Stock
     hereunder.  For purposes of this  Section,  a share of  Preferred  Stock is
     outstanding  until such date as the Holder shall have  received  Underlying
     Shares upon a conversion (or attempted  conversion)  thereof that meets the
     requirements hereof.

     Section 7. REDEMPTION UPON TRIGGERING EVENTS.

          (a) Upon the occurrence of a Triggering  Event,  each Holder shall (in
     addition  to all other  rights it may have  hereunder  or under  applicable
     law),  have the right,  exercisable  at the sole option of such Holder,  to
     require the Company to redeem all or a portion of the  Preferred  Stock and
     such shares of Common Stock as described below then held by such Holder for
     a redemption  price, in cash, equal to the sum of (i) the Redemption Amount
     (as  defined  in  Section  8) plus (ii) the  product  of (A) the  number of
     Underlying  Shares issued in respect of  conversions of shares of Preferred
     Stock  hereunder not more than thirty Trading Days prior to the date of the
     Holder's demand for redemption pursuant to this Section 7, and then held by
     the Holder and (B) the Per Share Market  Value on the date such  redemption
     is demanded or the date the  redemption  price  hereunder  is paid in full,
     whichever is greater (such sum, the "REDEMPTION PRICE"); PROVIDED, HOWEVER,
     that the  Redemption  Price due and payable upon the  Triggering  Event set
     forth in Section  7(b)(ix) shall be equal to 100% of the Stated Value.  The
     Redemption  Price shall be due and payable  within five Trading Days of the
     date on which the notice for the payment  therefor is provided by a Holder.
     If the Company fails to pay the Redemption Price hereunder in full pursuant
     to this  Section  on the date such  amount is due in  accordance  with this
     Section,  the Company will pay interest  thereon at a rate of 18% per annum
     (or the lesser amount  permitted by applicable  law),  accruing  daily from
     such date until the Redemption Price,  plus all such interest  thereon,  is

                                      -15-
<PAGE>
     paid in full. For purposes of this Section,  a share of Preferred  Stock is
     outstanding  until such date as the Holder shall have  received  Underlying
     Shares upon a conversion (or attempted  conversion)  thereof that meets the
     requirements hereof.

          (b) "TRIGGERING  EVENT" means any one or more of the following  events
     (whatever  the reason and whether it shall be voluntary or  involuntary  or
     effected by operation of law or pursuant to any  judgment,  decree or order
     of any court,  or any order,  rule or regulation of any  administrative  or
     governmental body):

               (i) the failure of an Underlying Shares Registration Statement to
          be declared  effective by the  Commission on or prior to the 180th day
          after the Original Issue Date;

               (ii) if, during the  Effectiveness  Period,  the effectiveness of
          the Underlying Shares Registration Statement lapses for any reason for
          more  than  an  aggregate  of 20  calendar  days  (which  need  not be
          consecutive  days),  or the Holder  shall not be  permitted  to resell
          Registrable   Securities  under  the  Underlying  Shares  Registration
          Statement  for more than an aggregate of 20 calendar  days (which need
          not be  consecutive  days);  PROVIDED,  HOWEVER,  that,  upon 30 days'
          written  notification  to the  Holder,  the Company may exceed such 20
          Calendar days without constituting a Triggering Event if:

                    (A) The Board of Directors of the Company determines, in its
               good faith judgment, that the use of any prospectus would require
               the disclosure of important  information  which the Company has a
               bona fide business  purpose for preserving as confidential or the
               disclosure  of  which  would  impede  the  Company's  ability  to
               consummate a significant transaction,  in which event such period
               may be  extended  for up to  sixty  (60)  additional  days in any
               twelve (12) month period;

                    (B) The Company  consummates  any business  combination  for
               purposes of Rule 3-05 or Article 11 of  Regulation  S-X under the
               Securities  Act,  in which  event such  restricted  period may be
               extended  until the date on which  the  Company  has  filed  such
               reports or obtained the  financial  information  required by Rule
               3-05  or  Article  11 of  Regulation  S-X to be  included  in the
               Registration   Statement,   but  in  no  event  more  sixty  (60)
               additional days in any twelve (12) month period;

                    (C) After one year from the Closing Date,  the Company files
               or proposes to file a registration  statement in an  underwritten
               primary equity offering  initiated by the Company (other than any
               registration by the Company on Form S-8), which  underwriters are

                                      -16-
<PAGE>
               reasonably  acceptable  to a majority in interest of the Holders,
               or a successor or substantially  similar form, of (1) an employee
               stock  option,   stock  purchase  or  compensation   plan  or  of
               securities issued or issuable pursuant to any such plan, or (2) a
               dividend  reinvestment  plan),  in which  event  such  restricted
               period may be extended for 30 days prior to the effective date of
               the registration  statement  covering such  underwritten  primary
               equity offering and ending on the date specified by such managing
               underwriter  in such written  request to each Holder,  which date
               shall be no more than 30 days after such effective  date,  during
               which the Holder agrees,  if requested in writing by the managing
               underwriter or underwriters  administering such offering,  not to
               effect any offer, sale or distribution of Company  securities (or
               any option or right to acquire Company securities;

               notwithstanding  the  foregoing,  the  aggregate  number  of days
          (whether or not consecutive)  during which the Company may preclude or
          prevent offerings, sales or distribution by the Holder pursuant to the
          conditions  set forth  herein  shall in no event  exceed  one  hundred
          twenty (120) days during any 12-month period;

               (iii) the Company shall fail to deliver certificates representing
          Underlying  Shares  issuable upon a conversion  hereunder  that comply
          with the  provisions  hereof  prior to the 7th  Trading  Day after the
          Conversion  Date or the Company  shall  provide  notice to any Holder,
          including by way of public announcement, at any time, of its intention
          not to comply with requests for  conversion of any shares of Preferred
          Stock in accordance with the terms hereof;

               (iv)  the  Company  shall  be a party to any  Change  of  Control
          Transaction,  shall  agree  to sell  (in one or a  series  of  related
          transactions)  all or substantially  all of its assets or shall redeem
          more  than a de  minimis  number  of  Common  Stock  or  other  Junior
          Securities (other than redemptions of Underlying Shares);

               (v) an Event (as defined in the  Registration  Rights  Agreement)
          shall not have been cured to the  satisfaction of the Holders prior to
          the  expiration  of 60 days from the  Event  Date (as  defined  in the
          Registration  Rights Agreement)  relating thereto (other than an Event
          resulting  from  a  failure  of  an  Underlying  Shares   Registration
          Statement to be declared  effective by the  Commission  on or prior to
          the 180th day after the Original Issue Date, which shall be covered by
          Section 7(a)(i));

               (vi) the  Company  shall  fail for any  reason to pay in full the
          amount of cash due pursuant to a Buy-In within 7 days after

                                      -17-
<PAGE>
          notice  therefor  is  delivered  hereunder  or  shall  fail to pay all
          amounts owed on account of an Event within seven days of the date due;

               (vii) the  Company  shall  fail to have  available  a  sufficient
          number of authorized and unreserved shares of Common Stock to issue to
          such Holder upon a conversion hereunder; or

               (viii) the  Company  shall  fail to observe or perform  any other
          covenant,  agreement or warranty contained in, or otherwise commit any
          breach of the  Transaction  Documents  (as  defined in Section 8), and
          such failure or breach shall not, if subject to the  possibility  of a
          cure by the Company, have been remedied within ten calendar days after
          the date on which written  notice of such failure or breach shall have
          been given, or if such failure or breach cannot reasonably be cured or
          remedied  in such  period,  if the Company  has not  commenced  taking
          actions to cure or remedy such failure or breach within such period or
          is not diligently pursuing such cure or remedy.

     Section 8 DEFINITIONS.  For the purposes hereof,  the following terms shall
have the following meanings:

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

          "CLOSINGS"  means  closings of the purchase and sale of the  Preferred
     Stock.

          "CLOSING  PRICE" means on any  particular  date (a) the last  reported
     closing  price  per share of  Common  Stock on such  date on the  Principal
     Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if

                                      -18-
<PAGE>
     there is no such price on such date,  then the closing price on such market
     or  exchange  on the date  nearest  preceding  such  date (as  reported  by
     Bloomberg  L.P.  at 4:15 PM (New York time) for the  closing  bid price for
     regular  session trading on such day), or (c) if the shares of Common Stock
     are not then  reported  on the  Principal  Market,  then the average of the
     "OTCBB" quotes for the relevant  conversion  period,  as determined in good
     faith by the  Holders,  or (c) if the  shares of Common  Stock are not then
     publicly  traded  the  fair  market  value of a share  of  Common  Stock as
     determined  by an  appraiser  selected  in good  faith by the  Holders of a
     majority  in  interest  of  the  Stated  Value  of  Preferred   Stock  then
     outstanding.

          "COMMISSION" means the Securities and Exchange Commission.

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

          "CONVERSION  RATIO" means,  at any time, a fraction,  the numerator of
     which is Stated Value (or Excess Stated Value,  as the case may be) and the
     denominator of which is the Conversion Price at such time.

          "CONVERSION  SHARE"  means  shares  issuable  upon  conversion  of the
     Preferred Stock.

          "DIVIDEND  EFFECTIVENESS  DATE"  means the earlier to occur of (x) the
     Effectiveness  Date (as defined in the Registration  Rights  Agreement) and
     (y) the Effective Date.

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

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

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

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

          "PER SHARE MARKET VALUE" means on any  particular  date (a) the lowest
     sale  price  for a share  of the  Common  Stock  (other  than a sale by the
     Holder) on such date on the Subsequent  Market on which the Common Stock is
     then listed or quoted,  or if there is no such price on such date, then the
     lowest sale price of the Common  Stock (other than a sale by the Holder) on

                                      -19-
<PAGE>
     the  Subsequent  Market on the date nearest  preceding such date, or (b) if
     the Common Stock is not then listed or quoted on a Subsequent  Market,  the
     lowest sale price of the Common  Stock (other than a sale by the Holder) in
     the NSM, as reported  by the  National  Quotation  Bureau  Incorporated  or
     similar  organization  or agency  succeeding  to its functions of reporting
     prices) at the close of business on such date,  or (c) if the Common  Stock
     is not then  reported by the National  Quotation  Bureau  Incorporated  (or
     similar  organization  or agency  succeeding  to its functions of reporting
     prices),  then the lowest "Pink Sheet"  quotes for the relevant  conversion
     period,  as  determined  in good faith by the Holder,  or (d) if the Common
     Stock are not then  publicly  traded  the fair  market  value of a share of
     Common Stock as  determined  by an Appraiser  selected in good faith by the
     Holders of a majority of the shares of the Preferred Stock.

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

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

          "REDEMPTION AMOUNT" for each share of Preferred Stock means the sum of
     (i) the greater of (A) 150% of the Stated  Value and (B) the product of (a)
     the Per Share Market Value on the Trading Day immediately preceding (x) the
     date of the Triggering Event or the Conversion Date, as the case may be, or
     (y) the date of payment in full by the Company of the applicable redemption
     price,  whichever is greater,  and (b) the Conversion Ratio (without regard
     to the limitation set forth in Section 5(a)(iv)(C))  calculated on the date
     of the Triggering  Event,  or the Conversion  Date, as the case may be, and
     (ii) all other  amounts,  costs,  expenses  and  liquidated  damages due in
     respect of such share of Preferred Stock.

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

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

          "TRADING DAY" means (a) a day on which the Common Stock is traded on a
     Subsequent  Market on which the Common  Stock is then listed or quoted,  as
     the case may be, or (b) if the Common  Stock is not listed on a  Subsequent
     Market,  a day on which the Common Stock is traded in the  over-the-counter
     market, as reported by the NSM, or (c) if the Common Stock is not quoted on
     the NSM, a day on which the Common Stock is quoted in the  over-the-counter
     market as reported by the National  Quotation  Bureau  Incorporated (or any
     similar  organization  or agency  succeeding  its  functions  of  reporting
     prices); provided,  however, that in the event that the Common Stock is not
     listed or quoted as set forth in (a), (b) and (c) hereof,  then Trading Day

                                      -20-
<PAGE>
     shall mean any day  except  Saturday,  Sunday and any day which  shall be a
     legal  holiday or a day on which banking  institutions  in the State of New
     York are authorized or required by law or other government action to close.

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

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

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

          "VWAP" means,  for any date, the price  determined by the first of the
     following  clauses that applies:  (a) if the Common Stock is then listed or
     quoted on an Trading Market, the daily volume weighted average price of the
     Common Stock for such date (or the nearest  preceding  date) on the primary
     Trading  Market  on which  the  Common  Stock is then  listed  or quoted as
     reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m.
     ET to 4:02 p.m.  Eastern  Time) using the VAP  function;  (b) if the Common
     Stock is not then  listed or quoted on an Trading  Market and if prices for
     the Common  Stock are then  quoted on the OTC  Bulletin  Board,  the volume
     weighted  average  price of the Common  Stock for such date (or the nearest
     preceding date) on the OTC Bulletin  Board;  (c) if the Common Stock is not
     then  listed  or  quoted on the OTC  Bulletin  Board and if prices  for the
     Common  Stock are then  reported  in the  "Pink  Sheets"  published  by the
     National Quotation Bureau Incorporated (or a similar organization or agency
     succeeding to its functions of reporting prices), the most recent bid price
     per share of the Common Stock so reported;  or (d) in all other cases,  the
     fair  market  value  of a  share  of  Common  Stock  as  determined  by  an
     independent appraiser selected in good faith by the Holders.

                                      -21-
<PAGE>
     RESOLVED,  FURTHER, that the Chairman, the president or any vice-president,
and the secretary or any assistant  secretary,  of the  Corporation  be and they
hereby  are  authorized  and  directed  to  prepare  and file a  Certificate  of
Designation  of  Preferences,  Rights and  Limitations  in  accordance  with the
foregoing resolution and the provisions of Nevada law.

     IN WITNESS  WHEREOF,  the undersigned  have executed this  Certificate this
31st day of May, 2002.


/s/ Theodore S. Li                           /s/ Hui "Cynthia" Lee
---------------------------------            -----------------------------------
Theodore S. Li, President                    Hui "Cynthia" Lee, Secretary

                                      -22-
<PAGE>
                                     ANNEX A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert shares of Preferred
Stock)

The  undersigned  hereby  elects to convert  the number of shares of 4% Series D
Convertible  Preferred Stock indicated  below,  into shares of common stock, par
value $.001 per share (the "COMMON  STOCK"),  of Pacific  Magtron  International
Corp., a Nevada corporation (the "COMPANY"), according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect  thereto and is delivering  herewith such  certificates  and opinions as
reasonably  requested  by the Company in  accordance  therewith.  No fee will be
charged to the Holder for any  conversion,  except for such transfer  taxes,  if
any.

THE UNDERSIGNED REPRESENTS TO THE COMPANY THAT IT HAS SOLD OR WILL PROMPTLY SELL
UPON  RECEIPT,  SUCH SHARES OF COMMON  STOCK.  [REQUIRED  TO RECEIVE  UNLEGENDED
SHARES IMMEDIATELY PURSUANT TO THE REGISTRATION STATEMENT]

Conversion calculations:

Date to Effect Conversion

--------------------------------------------------------------------------------
Number of shares of Preferred Stock owned prior to Conversion

--------------------------------------------------------------------------------
Number of shares of Preferred Stock to be Converted

--------------------------------------------------------------------------------
Stated Value of shares of Preferred Stock to be Converted

--------------------------------------------------------------------------------
Number of shares of Common Stock to be Issued

--------------------------------------------------------------------------------
Applicable Conversion Price

--------------------------------------------------------------------------------
Number of shares of Preferred Stock subsequent to Conversion

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

                                    [HOLDER]

                                    By:
                                        ----------------------------------------
                                        Name:
                                        Title: