EXECUTION COPY

                            TERMS OF PREFERRED STOCK

                  SECTION 1.  DESIGNATION,  AMOUNT AND PAR VALUE.  The series of
preferred  stock  shall be  designated  as its  Secured 6% Series a  Convertible
Preferred Stock (the  "Preferred  Stock") and the number of shares so designated
shall be 350 (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 $.001 per
share and a stated value equal to the sum of $10,000 plus all unpaid and accrued
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 6% per  annum,
payable on each  Conversion  Date (as defined herein) for such share, in cash or
by accretion of the Stated Value.  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 H    Any dividends to be paid in cash hereunder
that are not paid within three  Trading Days (as defined in Section 8) following
a Dividend  Payment  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:

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                           (i)  the number of shares of Common Stock (as defined
in Section 8)  at the time authorized,  unissued and unreserved for all purposes
is insufficient  to  accrete  such  dividends  to  the  Stated  Value  to permit
conversion in full of all outstanding Stated Value;


                            (ii)   after  the  Dividend  Effectiveness  Date (as
defined in Section 8), 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 eligible for
quotation on the  OTC Bulletin Board  (the "OTC")  or  listed for trading on the
Nasdaq National Market, the New York Stock Exchange, the American Stock Exchange
or the Nasdaq SmallCap 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  any  rules  and regulations governing any Subsequent
Market on which the Common Stock is then listed or quoted for trading.

                  (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.

                  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

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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
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,  (i) increase the  authorized
number of shares of Preferred Stock, (e) enter into modifications,  replacements
or new  credit  facilities  with  terms more  restrictive  on the  Company as to
payments and fulfillment of
obligations  hereunder or with respect to  subordination,  or (f) 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 a (subject to
the limitations set forth in Section 5(a)(ii)), 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  first to  occur  of (i) the  date  the  Underlying  Shares
Registration  Statement (as defined in Section 8) is first declared effective by
the  Commission  (as defined in Section 8) (the  "EFFECTIVE  DATE") and (ii) the
Effectiveness  Date (as defined in Section 8). Holders shall effect  conversions
by  surrendering  the  certificate or  certificates  representing  the shares of
Preferred  Stock  to be  converted  to the  Company,  together  with the form of
conversion  notice  attached hereto as Exhibit A (a "CONVERSION  NOTICE").  Each
Conversion  Notice shall  specify the number of shares of Preferred  Stock to be
converted 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.  If the Holder is converting less than all
shares  of  Preferred  Stock  represented  by the  certificate  or  certificates

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tendered by the Holder with the Conversion Notice, or if a conversion  hereunder
cannot be effected in full for any reason, the Company shall promptly deliver to
such  Holder (in the  manner  and  within the time set forth in Section  5(b)) a
certificate  representing  the number of shares of  Preferred  Stock as have not
been converted.

                           (II) CERTAIN CONVERSION RESTRICTIONS.

                           (A) 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.

                           (B)      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 and the rules  promulgated
thereunder)  in excess of 9.999% 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


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issuance of shares of Common  Stock in excess of 9.999% 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.

                  (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 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 shares of
Preferred Stock, (B) one or more certificates  representing the number of shares
of Preferred  Stock not  converted and (C) 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).  Notwithstanding  the  foregoing or anything to the contrary
contained  herein,  the Company  shall not be  obligated  to issue  certificates
evidencing the shares of Common Stock issuable upon  conversion of any shares of
Preferred Stock until one Trading Day after certificates  evidencing such shares
of Preferred Stock are delivered for conversion to the Company, or the Holder of
such Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security)  reasonably
satisfactory  to the Company to indemnify  the Company from any loss incurred by
it in connection  therewith.  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.

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                  (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,  $5,000 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 (3rd) Trading Day after the Conversion
Date, and if after such third (3rd) 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
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
in effect on any Conversion Date (the "CONVERSION PRICE") shall be the lesser of
(i) the Per Share  Market  Value on the Trading Day  immediately  preceding  the
Original Issue Date (the "INITIAL CONVERSION PRICE") and (ii) 80% of the average
of the Per Share Market Values for the five Trading Days  immediately  preceding
the applicable conversion date, provided,  that (1) such five Trading Day period
shall be extended for the number of Trading Days during such period in which (A)
trading in the Common Stock is  suspended  by a  Subsequent  Market on which the

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Common Stock is then  listed,  or (B) after the date  declared  effective by the
Commission,   the  Underlying  Shares  Registration   Statement  is  either  not
effective,  or (C) after the date  declared  effective  by the  Commission,  the
Prospectus included in the Underlying Shares  Registration  Statement may not be
used by the Holder for the resale of Underlying Shares and (2) any or all of the
Trading  Days  comprising  such five  Trading  Day period  may be  Trading  Days
preceding the date that  Conversion  Notices may first be delivered  pursuant to
Section 5(a)(i).

                           (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  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 Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock 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.

                           (iii)    If the Company, at any time while any shares
of Preferred Stock are outstanding,  shall issue rights,  warrants or options to
all holders of Common Stock  entitling them to subscribe for or purchase  shares
of Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below,  then the Conversion Price shall be multiplied by a
fraction,  the  numerator of which shall be the number of shares of Common Stock
outstanding  immediately  prior to the  issuance  of such  rights,  warrants  or
options,  plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would  purchase at such Per Share
Market  Value,  and the  denominator  of which shall be the sum of the number of
shares of Common Stock  outstanding  immediately prior to such issuance plus the
number of shares of Common Stock  offered for  subscription  or  purchase.  Such
adjustment shall be made whenever such rights or warrants are issued,  and shall
become  effective  immediately  after the record date for the  determination  of
stockholders  entitled to receive  such rights or  warrants.  However,  upon the
expiration  of any right,  warrant or option to purchase  shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised,  the Conversion Price shall immediately upon such
expiration  shall be recomputed and effective  immediately  upon such expiration
shall be  increased  to the price which it would have been (but  reflecting  any
other  adjustments  in the  Conversion  Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the  Conversion  Price made upon the  issuance of such rights,  warrants,  or
options been made on the basis of offering  for  subscription  or purchase  only
that number of shares of Common Stock  actually  purchased  upon the exercise of
such rights, warrants or options actually exercised.

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                           (iv)     If the Company or any subsidiary thereof, as
applicable with respect to Common Stock  Equivalents (as defined below),  at any
time while any shares of Preferred Stock are outstanding,  shall issue shares of
Common Stock or rights,  warrants,  options or other  securities or debt that is
convertible  into or  exchangeable  for shares of Common  Stock  ("COMMON  STOCK
EQUIVALENTS"), entitling any Person to acquire shares of Common Stock at a price
per share less than the  Conversion  Price (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  Conversion  Price,  such issuance shall be deemed to have
occurred for less than the Conversion Price), then the Conversion Price shall be
multiplied  by a fraction,  the numerator of which shall be the number of shares
of Common  Stock  outstanding  immediately  prior to the issuance of such Common
Stock or such Common Stock Equivalents plus the number of shares of Common Stock
which the  offering  price  for such  shares  of  Common  Stock or Common  Stock
Equivalents would purchase at the Conversion Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such  issuance  plus the number of shares of Common  Stock so issued or
issuable,  provided,  that for purposes hereof,  all shares of Common Stock that
are issuable upon conversion,  exercise or exchange of Common Stock  Equivalents
shall be deemed outstanding  immediately after the issuance of such Common Stock
Equivalents.  Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued.  However,  upon the expiration of any Common Stock
Equivalents  the issuance of which  resulted in an adjustment in the  Conversion
Price  pursuant to this  Section,  if any such Common  Stock  Equivalents  shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon  such  expiration  be  recomputed  and  effective   immediately  upon  such
expiration  be increased  to the price which it would have been (but  reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this  Section  after the  issuance of such  Common  Stock  Equivalents)  had the
adjustment of the  Conversion  Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock  actually  purchased upon the exercise
of  such  Common  Stock  Equivalents  actually  exercised.  Notwithstanding  the
foregoing, the following shall not be deemed to be Common Stock Equivalents: (i)
issuances  pursuant  to a grant  or  exercise  of  stock or  options  which  may
hereafter be granted or exercised under any employee benefit plan of the Company
now  existing or to be  implemented  in the future,  (ii) shares of Common Stock
issued in connection  with a Strategic  Transaction  (as defined  below),  (iii)
issuances of shares of Common Stock for an  acquisition of assets or stock of an
unaffiliated  Person,  and (iv) shares of Common  Stock issued as payment of the
purchase price in connection with a Strategic Transaction.  For purposes of this
section,  a "STRATEGIC  TRANSACTION" shall mean a transaction or relationship in
which the Company issues shares of Common Stock to an entity which is, itself or
through its  subsidiaries,  an  operating  company in a business  related to the
business of the Company and in which the Company receives  material  benefits in
addition to the  investment  of funds,  but shall not include a  transaction  in
which the  Company is issuing  securities  primarily  for the purpose of raising
capital.

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                           (v)       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)-(iv) above), then in each such case the Conversion Price at
which each share of Preferred  Stock shall  thereafter be  convertible  shall be
determined by multiplying the Conversion  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
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.

                           (vi)   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.

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

                           (viii)  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.

                                       -9-


<PAGE>

                           (ix)    In case of any (1) merger or consolidation of
the Company with or into another Person, or (2) 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  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 or  consolidation.  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  Conversion  Price
stated herein. The terms of any such merger, sale or consolidation shall include
such terms so as continue to give the  Holders of  Preferred  Stock 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)(ix)
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)(ix) or the
rights set forth in Section 7 with respect to a single event giving rise to such
rights.

                           (x)       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)

                                      -10-


<PAGE>
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 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.

                  (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 and
payment of dividends  on 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,
nonassessable.

                  (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.

                                      -11-


<PAGE>
                  (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  Financial  Officer  of the
Company  addressed  to 7251 West  Palmetto  Park Road,  Suite 208,  Boca  Raton,
Florida  33433,  Facsimile  No.:  (561)  395-1975,  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), (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, (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.

                  SECTION 6.        OPTIONAL REDEMPTION.

                  (a)      Subject to the provisions of this Section 6, from and
after the Original Issue Date, the Company shall have the right, upon 30 trading
days' notice (an "OPTIONAL  REDEMPTION NOTICE") to the Holders, to redeem all or
any  portion of the shares of  Preferred  Stock which have not  previously  been
redeemed or for which  Conversion  Notices shall not have been  delivered,  at a
price equal to the Optional Redemption Price (as defined below). The Company may
only  deliver  an  Optional  Redemption  Notice  if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes is
sufficient  to satisfy the  Company's  conversion  obligations  of all shares of
Preferred Stock then  outstanding,  (ii) the Underlying  Shares then outstanding
are  registered  for  resale   pursuant  to  an  effective   Underlying   Shares
Registration  Statement  pursuant  to which the Holders  are  permitted  to sell
Underlying  Shares  or the  Underlying  Shares  may  be  resold  without  volume
restrictions  pursuant to Rule 144(k)  promulgated under the Securities Act, and
(iii) the  Common  Stock is listed  for  trading  on the OTC or on a  Subsequent
Market.  Each of clauses (i) - (iii) of the immediately  preceding sentence must

                                      -12-


<PAGE>

be true  during the entire 30 Trading  Days  between  the date of delivery of an
Optional  Redemption  Notice and the date of payment of the Optional  Redemption
Price. The entire Optional Redemption Price shall be paid in cash. A Holder may,
subject to Section  5(a)(i)  hereof,  convert (and the Company  shall honor such
conversions  in  accordance  with the terms  hereof) any or all of the shares of
Preferred  Stock  subject to an Optional  Redemption  Notice,  provided that the
Conversion  Notice for such shares is  delivered  prior to the 28th  Trading Day
following the receipt by such Holder of such an Optional Redemption Notice.

                  (b) Failure by the Company to pay any portion of the  Optional
Redemption  Price by the 30th  Trading  Day  following  the date of an  Optional
Redemption  Notice  shall  result IN THE  INVALIDATION  AB INITIO of the  unpaid
portion of such optional redemption, and, notwithstanding anything herein to the
contrary,  the Company  shall  thereafter  have no further  rights to optionally
redeem any shares of Preferred  Stock. In such event,  the Company shall, at the
option of the Holder, either, (i) not later than three Trading Days from receipt
of  Holder's  request  therefor,  return  to the  Holder  all of the  shares  of
Preferred  Stock for which such Optional  REDEMPTION  PRICE HAS NOT BEEN PAID IN
FULL (THE "UNPAID REDEMPTION  SHARES") or (ii) convert all or any portion of the
Unpaid  Redemption  Shares in which  event the Per Share  Market  Value for such
shares shall be the lower of the Per Share Market Value  calculated  on the date
the Optional  Redemption Price was originally due and the Per Share Market Value
as of the Holder's  written demand for  conversion.  If the Holder elects option
(ii) above,  the Company  shall within three Trading Days of its receipt of such
election  deliver  to the  Holder  the  shares of  Common  Stock  issuable  upon
conversion of the Unpaid  Redemption  Shares  subject to such Holder  conversion
demand and otherwise perform its obligations hereunder with respect thereto.

                  (C) THE  "OPTIONAL  REDEMPTION  PRICE" shall be the sum of (i)
125% of the principal  amount of shares of Preferred  Stock to be redeemed,  and
(ii) all accrued and unpaid  dividends  thereon  and all other  amounts,  costs,
expenses  and  liquidated  damages  due in respect of such  shares of  Preferred
Stock.

         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 then held by such
Holder for a redemption  price,  in cash,  equal to the sum of (i) the Mandatory
Redemption  Amount (as  defined  in Section 8) plus (ii) the  product of (A) the
number of Underlying Shares issued in respect of conversions  hereunder 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").  The Redemption
Price shall be due and payable within five (5) Trading Days of the date on which
the notice for the payment  therefor  is  provided  by a Holder.  If the Company

                                      -13-


<PAGE>

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 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.

                  A  "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 25  Trading  Days  (which  need not be
consecutive  Trading  Days),  or the  Holder  shall not be  permitted  to resell
Registrable  Securities under the Underlying Shares  Registration  Statement for
more than an aggregate of 25 Trading Days (which need not be consecutive Trading
Days);

                           (iii)    the  Common Stock  is not  then eligible for
quotation on the OTC Bulletin Board or listed for trading on Subsequent Market;

                           (iv)     the  Company  shall  fail  for any reason to
deliver certificates  representing  Underlying Shares issuable upon a conversion
hereunder  that comply with the  provisions  hereof prior to the tenth 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;

                           (v)     the Company shall be a party to any Change of
Control  Transaction,  shall  agree  to sell  (in  one or a  series  of  related
transactions) more than 33% 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);

                           (vi)  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 the
failure of an Underlying Shares Registration Statement to be declared  effective

                                      -14-


<PAGE>


by  the  Commission on or prior to the  180th day after the Original Issue Date,
which shall be covered by Section 7(a)(i));

                           (vii)    the Company shall fail for any reason to pay
in full the amount of cash due pursuant to a Buy-In  within seven  Business Days
after notice  therefor is delivered  hereunder  or shall fail to pay all amounts
owed on account of an Event within seven Business Days of the date due);

                           (viii)   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

                           (ix)     the Company shall fail to observe or perform
any other material  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 Business  Days after the date on which
written notice of such failure or breach shall have been given.

                           (x)      an  Event of Default shall have occurred and
be continuing under the Security Agreement or IP Security Agreement.

                  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 33% 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
50% or  more  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).

                  "COMMISSION" means the Securities and Exchange Commission.
                   ----------
                                      -15-


<PAGE>
                  "COMMON  STOCK" means the Company's  common  stock,  $.001 par
value 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  and the  denominator  of  which  is the
Conversion Price at such time.

                  "DIVIDEND  EFFECTIVENESS  DATE"  means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the date  that an  Underlying  Shares  Registration  Statement  is  declared
effective by the Commission.

                  "EFFECTIVENESS  DATE"  shall have the meaning set forth in the
Registration Rights Agreement.

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

                  "IP  SECURITY  AGREEMENT"  shall have the meaning set forth in
the Purchase Agreement.

                  "JUNIOR  SECURITIES"  means  the  Common  Stock  and all other
equity   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.

                  "MANDATORY  REDEMPTION  AMOUNT"  for each  share of  Preferred
Stock means the sum of (i) the  greater of (A) 125% 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 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.

                  "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 means on any particular date (a) the closing
bid price per share of  Common  Stock 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  closing  bid price on 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  closing  bid price for a shares of Common
Stock in the OTC, as reported by the National  Quotation Bureau  Incorporated or

                                      -16-


<PAGE>

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 average of
the "Pink Sheet"  quotes for the relevant  conversion  period,  as determined in
good faith by the Holder, or (d) if the Common Stock is 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  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 Secured Convertible  Preferred
Stock  Purchase  Agreement,  dated as of the Original  Issue Date,  to which the
Company  and  the  original  Holder  are  parties,   as  amended,   modified  or
supplemented from time to time in accordance with its terms.

                  "REGISTRATION  RIGHTS AGREEMENT" means the Registration Rights
Agreement,  dated as of the  Original  Issue Date,  to which the Company and the
original Holder 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.

                  "SECURITY  AGREEMENT"  shall have the meaning set forth in the
Purchase Agreement.

                  "STOCK PLEDGE  AGREEMENTS" shall have the meaning set forth in
the Purchase Agreement.

                  "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 OTC, or (c) if the Common Stock is
not  quoted  on the OTC,  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
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.

                                      -17-


<PAGE>

                  "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.

                  SECTION 9.        SECURED OBLIGATION.   The payment obligation

under the terms of the  shares of  Preferred  Stock and the  obligations  of the
Company to the Holder arising upon the conversion of all or any of the shares of
Preferred Stock in accordance with the provisions hereof are secured pursuant to
the  Security  Agreement,  the  IP  Security  Agreement  and  the  Stock  Pledge
Agreements.


                                       18
<PAGE>

                                    EXHIBIT 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 6% Series A
Convertible  Preferred Stock indicated below, into shares of Common Stock, $.001
par  value per share  (the  "COMMON  STOCK"),  OF CELEXX  CORPORATION,  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.

Conversion calculations:
                       Date to Effect 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

                       Signature

                       Name

                       Address