Exhibit 10.78



                              S2 TECHNOLOGIES, INC.


                   SERIES C PREFERRED STOCK PURCHASE AGREEMENT

                                February 3, 2004




<PAGE>
                              S2 TECHNOLOGIES, INC.
                   SERIES C PREFERRED STOCK PURCHASE AGREEMENT


         THIS SERIES C PREFERRED STOCK PURCHASE  AGREEMENT (the  "Agreement") is
made and  entered  into as of February  3, 2004,  by and among S2  TECHNOLOGIES,
INC., a California  corporation (the  "Company"),  and each of those persons and
entities,  severally and not jointly,  whose names are set forth on the Schedule
of  Purchasers  attached  hereto as Exhibit A (which  persons and  entities  are
hereinafter  collectively referred to as "Purchasers" and each individually as a
"Purchaser").  Together,  the  Company  and the  Purchasers  are  referred to as
"parties" and each as a "party."

                                    RECITALS

         WHEREAS,  the  Company  has  authorized  the  sale and  issuance  of an
aggregate  of  four  million  seven  hundred   fourteen   thousand  two  hundred
eighty-five (4,714,285) shares of its Series C Preferred Stock (the "Shares");

         WHEREAS,  Purchasers  desire to  purchase  the  Shares on the terms and
conditions set forth herein; and

         WHEREAS, the Company desires to issue and sell the Shares to Purchasers
on the terms and conditions set forth herein.

                                    AGREEMENT

         NOW,  THEREFORE,  in  consideration  of the foregoing  recitals and the
mutual  promises,  representations,  warranties,  and covenants  hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

         1. AGREEMENT TO SELL AND PURCHASE.

                  1.1  Authorization  of  Shares.  On or  prior  to the  Initial
Closing (as defined in Section 2 below),  the Company shall have  authorized (a)
the sale and issuance to  Purchasers  of the Shares and (b) the issuance of such
shares  of  Common  Stock  to be  issued  upon  conversion  of the  Shares  (the
"Conversion  Shares").  The  Shares  and the  Conversion  Shares  shall have the
rights, preferences, privileges and restrictions set forth in the Second Amended
and Restated  Articles of  Incorporation  of the Company,  in the form  attached
hereto as Exhibit B (also referred to as the "Restated Charter").

                  1.2 Sale and  Purchase.  Subject  to the terms and  conditions
hereof, at the Initial Closing (as hereinafter  defined) the Company shall issue
and sell to each  Purchaser  listed  on  Exhibit  A  hereto,  severally  and not
jointly,  and each Purchaser shall purchase from the Company,  severally and not
jointly,  the number of Shares set forth opposite such  Purchaser's  name as set
forth on the Schedule of Purchasers  attached hereto as Exhibit A (the "Schedule
of  Purchasers")  under the  heading  "First  Closing,"  at a purchase  price of
seventy cents ($0.70) per share.

                                       1.
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         2. CLOSING, DELIVERY AND PAYMENT.

                  2.1 Closing. The closing of the sale and purchase of a minimum
of  2,857,142  Shares set forth under the heading  "First  Closing" on Exhibit A
(the "Initial  Closing")  shall take place at 12:00 p.m. on the date hereof,  at
the offices of Cooley Godward LLP located at 4401 Eastgate  Mall, San Diego,  CA
92121 or at such other time or place as the Company and  Purchasers may mutually
agree (such date is hereinafter referred to as the "Closing Date").

                  2.2 Second Closing. Oryx Ventures, LLC shall purchase,  within
30 days of the Initial Closing (the "Sceond Closing"),  an additional  1,285,714
Shares at a purchase price of seventy cents ($0.70).

                  2.3 Subsequent Sales of Shares. At any time after the 30th day
and on or before the 90th day  following  the  Initial  Closing or at such later
time as the Company and the holders of a majority of the Shares purchased at the
Initial  Closing  and  Second  Closing  (pursuant  to  Section  2.1 and 2.2) may
mutually agree, the Company may sell up to the balance of the authorized  shares
of Series C Preferred  Stock not sold at the Initial  Closing and Second Closing
(the "Remaining  Shares") to such persons as may be approved by the Company (the
"Additional  Purchasers")  provided,  however,  that no such sales of  Remaining
Shares may be made hereunder  unless the  Purchasers at the Initial  Closing and
Second Closing  hereunder (the "Prior  Purchasers") are first offered a right to
purchase  their pro rata  portion of the  Remaining  Shares  offered at any such
Additional  Closing  (as  defined  below).  Each  Prior  Purchaser's  "pro  rata
portion",  for the  purposes  of this  Section  2.3 only,  shall be equal to the
number of shares that such Prior  Purchaser  actually  purchased  at the Initial
Closing  or Second  Closing  divided by the total  number of Shares  sold by the
Company to all Prior  Purchasers at the Initial Closing and Second  Closing.  If
the  Company  proposes  to sell  Remaining  Shares,  it shall  give  each  Prior
Purchaser  written notice of its intention.  Each Prior Purchaser shall have ten
(10) days from the giving of such notice to agree to purchase up to its pro rata
portion of the Remaining  Shares on the terms and  conditions  specified in this
Agreement  by giving  written  notice to the  Company  and  stating  therein the
quantity of  Remaining  Shares to be  purchased  and  delivering  the  requisite
purchase  price for such  shares.  If not all of the Prior  Purchasers  elect to
purchase  their  entire pro rata  portion  of the  Remaining  Shares  then being
offered by the Company,  the Company  shall have sixty (60) days  thereafter  to
sell any such Remaining Shares to persons selected in the Company's  discretion,
on the terms and conditions of this Agreement  during the ninety (90) day period
referenced in the first sentence of this Section 2.3. All such sales made at any
additional  closings (each an "Additional  Closing",  and along with the Initial
Closing and Second  Closing,  each a "Closing"),  (i) shall be made on the terms
and  conditions  set  forth  in this  Agreement,  (ii) the  representations  and
warranties  of the Company  set forth in Section 3 hereof  (and the  Schedule of
Exceptions) shall speak as of the Initial Closing, and (iii) the representations
and warranties of the  Additional  Purchasers in Section 4 hereof shall speak as
of such Additional Closing.  This Agreement,  including without limitation,  the
Schedule of  Purchasers,  may be amended by the  Company  without the consent of
Purchasers  to  include  any  Additional  Purchasers.  Any  shares  of  Series C
Preferred Stock sold pursuant to this Section 2.3 shall be deemed to be "Shares"
for all purposes  under this  Agreement and any  Additional  Purchasers  thereof
shall be deemed to be "Purchasers" for all purposes under this Agreement.

                                       2.
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                  2.4  Delivery.  At each  Closing,  subject  to the  terms  and
conditions  hereof,  the Company  will deliver to each  Purchaser a  certificate
representing  the number of Shares  purchased at such Closing by such Purchaser,
against  payment of the purchase  price  therefor by check,  wire  transfer made
payable  to the  order  of the  Company,  cancellation  of  indebtedness  or any
combination of the foregoing.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  Except as set forth on a Schedule of Exceptions delivered by
the Company to the Purchasers at the Closing, the Company hereby represents and
warrants to each Purchaser as of the date of this Agreement as set forth below.

                  3.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California.  The Company has all requisite  corporate power
and  authority  to own and operate  its  properties  and assets,  to execute and
deliver this Agreement,  the Amended and Restated  Investor Rights  Agreement in
the form attached  hereto as Exhibit C (the "Investor  Rights  Agreement"),  the
Amended and Restated Co-Sale  Agreement in the form attached hereto as Exhibit D
(the "Co-Sale Agreement"),  and the Amended and Restated Voting Agreement in the
form attached hereto as Exhibit E (the "Voting  Agreement")  (collectively,  the
"Related  Agreements"),  to issue and sell the Shares and the Conversion Shares,
and to carry out the provisions of this  Agreement,  the Related  Agreements and
the Restated Charter and to carry on its business as presently  conducted and as
presently proposed to be conducted.

                  3.2  Subsidiaries.  The  Company  does not own or control  any
equity security or other interest of any other corporation,  limited partnership
or other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.

                  3.3 Capitalization; Voting Rights.

                           (a) The  authorized  capital  stock  of the  Company,
immediately  prior  to  the  Closing,   consists  of  (i)  forty-eight   million
(48,000,000) shares of common stock of the Company ("Common Stock"), six million
one hundred six thousand two hundred and fifty  (6,106,250)  shares of which are
issued  and  outstanding,  and (ii)  twenty  million  one  hundred  twenty-eight
thousand  three  hundred  three  (20,128,303)  shares of preferred  stock of the
Company ("Preferred  Stock"),  two million five hundred ninety-two thousand five
hundred  ninety-three  (2,592,593)  shares  of  which  are  designated  Series A
Preferred  Stock,  all  of  which  are  issued  and  outstanding,   ten  million
(10,000,000)  shares of which are  designated  Series B  Preferred  Stock,  nine
million nine hundred sixty-four thousand two hundred and eighty-six  (9,964,286)
of which are issued and  outstanding  and two million eight hundred  fifty-seven
thousand one hundred  thirty-nine  (2,857,139)  shares are designated Series B-1
Preferred  Stock, all of which are issued and outstanding  immediately  prior to
the Closing. Of the Preferred Stock four million seven hundred fourteen thousand
two hundred  eighty-five  (4,714,285)  shares are designated  Series C Preferred
Stock,  none of  which  are  issued  and  outstanding  immediately  prior to the
Closing.

                                       3.
<PAGE>

                           (b) Under the Company's  2000 Equity  Incentive  Plan
(the "Plan"),  (i) three hundred six thousand five hundred (306,500) shares have
been issued pursuant to restricted stock purchase agreements and/or the exercise
of  outstanding  options,  (ii)  options to purchase one million  eight  hundred
fifty-three  thousand five hundred  (1,853,500) shares of Common Stock have been
granted  and are  currently  outstanding,  and (iii) one  million  four  hundred
forty-seven thousand six hundred fifty-seven  (1,447,657) shares of Common Stock
remain  available  for future  issuance to officers,  directors,  employees  and
consultants of the Company.

                           (c) Other than (i) the shares  reserved  for issuance
under the Plan, (ii) warrants to purchase up to seven hundred thousand (700,000)
shares  of  Common  Stock  pursuant  to that  certain  Business  Consultant  and
Management  Agreement  dated  July  20,  2000,  between  the  Company  and  Oryx
Technologies,  Inc.,  all of which have been  exercised,  and (iii)  warrants to
purchase up to thirty five thousand seven hundred  fourteen  (35,714)  shares of
the Company's Series B Preferred Stock issued to VMR High Octane Fund and except
as may be granted pursuant to this Agreement and the Related  Agreements,  there
are no outstanding options, warrants, rights (including conversion or preemptive
rights  and  rights  of first  refusal),  proxy or  shareholder  agreements,  or
agreements of any kind for the purchase or  acquisition  from the Company of any
of its securities.

                           (d)  All  issued  and   outstanding   shares  of  the
Company's  Common Stock (i) have been duly authorized and validly issued and are
fully  paid and  nonassessable,  and (ii)  were  issued in  compliance  with all
applicable state and federal laws concerning the issuance of securities.

                           (e)   The   rights,   preferences,   privileges   and
restrictions  of the Shares are as stated in the  Restated  Charter.  Other than
Series B-1 Preferred  Stock,  each series of Preferred Stock is convertible into
Common Stock on a one-for-one basis as of the date hereof.  Each share of Series
B-1 Preferred Stock is convertible into two (2) shares of Common Stock as of the
date  hereof.  The  Conversion  Shares have been duly and validly  reserved  for
issuance.  When issued in compliance  with the  provisions of this Agreement and
the  Restated  Charter,  the Shares and the  Conversion  Shares  will be validly
issued,  fully  paid  and  nonassessable,  and  will  be free  of any  liens  or
encumbrances;  provided,  however, that the Shares and the Conversion Shares may
be subject to  restrictions  on transfer under state and/or  federal  securities
laws as set forth  herein or as  otherwise  required  by such laws at the time a
transfer is  proposed  and will be subject to the terms of the  Investor  Rights
Agreement, Co-Sale Agreement and the Company's Bylaws.

                           (f) No stock plan,  stock  purchase,  stock option or
other  agreement  or  understanding  between  the  Company and any holder of any
equity  securities  or  rights  to  purchase  equity  securities   provides  for
acceleration  or other changes in the vesting  provisions or other terms of such
agreement or understanding as the result of any merger,  consolidation,  sale of
stock or assets, change in control or any other transaction(s) by the Company.

                  3.4 Authorization;  Binding Obligations.  All corporate action
on the part of the Company, its officers,  directors and shareholders  necessary
for  the  authorization  of  this  Agreement  and the  Related  Agreements,  the
performance of all  obligations  of the Company  hereunder and thereunder at the
Closing  and the  authorization,  sale,  issuance  and  delivery  of the  Shares

                                       4.
<PAGE>

pursuant hereto and the Conversion  Shares pursuant to the Restated  Charter has
been taken or will be taken prior to the Closing.  The Agreement and the Related
Agreements,  when executed and delivered,  will be valid and binding obligations
of the Company enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency,  reorganization,  moratorium or other laws
of general application  affecting  enforcement of creditors' rights, (b) general
principles of equity that restrict the availability of equitable  remedies,  and
(c) to the extent that the enforceability of the  indemnification  provisions in
Section 2.9 of the Investor Rights  Agreement may be limited by applicable laws.
The  sale of the  Shares  and  the  subsequent  conversion  of the  Shares  into
Conversion  Shares are not and will not be subject to any  preemptive  rights or
rights of first refusal that have not been properly waived or complied with.

                  3.5 Liabilities.  The Company has no material  liabilities and
knows of no material contingent liabilities, except current liabilities incurred
in the ordinary course of business which have not been, either in any individual
case or in the aggregate, materially adverse.

                  3.6 Agreements; Action.

                           (a) Except  for  agreements  explicitly  contemplated
hereby and  agreements  between the Company and its  individual  employees  with
respect to the sale of the  Company's  Common  Stock,  there are no  agreements,
understandings  or  proposed  transactions  between  the  Company and any of its
officers, directors, affiliates or any affiliate thereof.

                           (b)   There   are  no   agreements,   understandings,
instruments,  contracts,  proposed  transactions,  judgments,  orders,  writs or
decrees  to which  the  Company  is a party or by  which it is bound  which  may
involve (i)  obligations  (contingent  or  otherwise)  of, or  payments  to, the
Company in excess of $25,000  (other than  obligations  of, or payments  to, the
Company  arising from purchase or sale  agreements  entered into in the ordinary
course of business),  or (ii) the transfer or license of any patent,  copyright,
trade  secret or other  proprietary  right to or from the  Company  (other  than
licenses  arising  from the  purchase  of "off  the  shelf"  or  other  standard
products), or (iii) indemnification by the Company with respect to infringements
of  proprietary  rights  (other than  indemnification  obligations  arising from
purchase  or sale or license  agreements  entered  into by the  Company  for the
benefit of its customers in the ordinary course of business).

                           (c) The  Company  has not (i)  declared  or paid  any
dividends,  or authorized or made any  distribution  upon or with respect to any
class or series of its capital stock,  (ii) incurred any  indebtedness for money
borrowed  or  any  other  liabilities  (other  than  with  respect  to  dividend
obligations,  distributions,  indebtedness and other obligations incurred in the
ordinary  course of business)  individually in excess of $25,000 or, in the case
of indebtedness and/or liabilities  individually less than $25,000, in excess of
$50,000 in the aggregate,  (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.

                                       5.
<PAGE>

                           (d)  For  the  purposes  of  subsections  (b) and (c)
above, all indebtedness,  liabilities, agreements, understandings,  instruments,
contracts  and  proposed  transactions  involving  the  same  person  or  entity
(including  persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.

                  3.7 Obligations to Related  Parties.  There are no obligations
of the Company to officers, directors, shareholders, or employees of the Company
other than (a) for payment of salary for services  rendered,  (b)  reimbursement
for reasonable expenses incurred on behalf of the Company,  and/or (c) for other
standard employee benefits made generally available to all employees  (including
stock option agreements  outstanding under any stock option plan approved by the
Board  of  Directors  of the  Company).  None of the  officers,  directors,  key
employees  or  shareholders  of the Company,  or any members of their  immediate
families, is indebted to the Company. None of the officers, directors or, to the
best of the Company's knowledge, key employees or shareholders of the Company or
any members of their immediate  families,  has any direct or indirect  ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship,  or any firm or corporation which
competes with the Company,  other than passive  investments  in publicly  traded
companies (representing less than 1% of such company) which may compete with the
Company. The Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.

                  3.8 Title to Properties  and Assets;  Liens,  Etc. The Company
has good and  marketable  title to its  properties  and  assets,  including  the
properties and assets reflected in the Company's most recent balance sheet dated
September  31, 2003, a copy of which has been  provided to the  Purchasers,  and
good  title to its  leasehold  estates,  in each case  subject  to no  mortgage,
pledge, lien, lease,  encumbrance or charge, other than (a) those resulting from
taxes which have not yet become  delinquent,  (b) minor  liens and  encumbrances
which do not materially  detract from the value of the property  subject thereto
or  materially  impair the  operations  of the Company,  and (c) those that have
otherwise  arisen  in  the  ordinary  course  of  business.  The  Company  is in
compliance  with all  material  terms of each lease to which it is a party or is
otherwise bound.

                  3.9 Intellectual Property.

                           (a) The Company  owns or possesses  sufficient  legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets,  licenses,  information  and other  proprietary  rights  and  processes
necessary  for its business as now  conducted  and as  presently  proposed to be
conducted,  without any known infringement of the rights of others. There are no
outstanding  options,  licenses  or  agreements  of  any  kind  relating  to the
foregoing  proprietary  rights,  nor is the  Company  bound by or a party to any
options,  licenses  or  agreements  of any kind  with  respect  to the  patents,
trademarks,  service marks, trade names,  copyrights,  trade secrets,  licenses,
information  and other  proprietary  rights and processes of any other person or
entity other than such licenses or agreements  arising from the purchase of "off
the shelf" or standard products.

                                       6.
<PAGE>

                           (b) The Company has not received  any  communications
alleging  that the  Company  has  violated  or, by  conducting  its  business as
presently  proposed in the Business  Plan (as defined in Section  3.18  hereof),
would  violate any of the  patents,  trademarks,  service  marks,  trade  names,
copyrights or trade secrets or other  proprietary  rights of any other person or
entity.

                           (c)  The  Company  is  not  aware  that  any  of  its
employees is  obligated  under any contract  (including  licenses,  covenants or
commitments  of any  nature) or other  agreement,  or  subject to any  judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company or that would  conflict with the Company's  business
as  presently  proposed to be conducted in the  Business  Plan.  Each  employee,
officer and consultant of the Company has executed a Proprietary Information and
Inventions  Agreement  in the form of Exhibit F attached  hereto.  No  employee,
officer or consultant of the Company has excluded works or inventions made prior
to his or  her  employment  with  the  Company  from  his or her  assignment  of
inventions  pursuant  to such  employee,  officer  or  consultant's  proprietary
information and inventions agreement. The Company does not believe it is or will
be necessary to utilize any inventions, trade secrets or proprietary information
of any of its employees  made prior to their  employment by the Company,  except
for inventions, trade secrets or proprietary information that have been assigned
to the Company.

                           (d)  Neither  the  execution  nor  delivery  of  this
Agreement  or the  Related  Agreements,  nor the  carrying  on of the  Company's
business by the  employees  of the  Company,  nor the  conduct of the  Company's
business will, to the Company's  knowledge,  conflict with or result in a breach
of the terms,  conditions or provisions of, or constitute a default  under,  any
contract, covenant or instrument under which any employee is now obligated.

                  3.10 Compliance with Other Instruments.  The Company is not in
violation  or default of any term of its Restated  Charter or Bylaws,  or of any
provision  of  any  mortgage,  indenture,  contract,  agreement,  instrument  or
contract  to which  it is  party  or by  which  it is bound or of any  judgment,
decree, order, writ. The execution,  delivery, and performance of and compliance
with this Agreement,  and the Related  Agreements,  and the issuance and sale of
the Shares pursuant hereto and of the Conversion Shares pursuant to the Restated
Charter,  will not,  with or  without  the  passage of time or giving of notice,
result in any such  material  violation,  or be in conflict with or constitute a
default under any such term, or result in the creation of any mortgage,  pledge,
lien,  encumbrance or charge upon any of the properties or assets of the Company
or the  suspension,  revocation,  impairment,  forfeiture  or  nonrenewal of any
permit,  license,  authorization  or approval  applicable  to the  Company,  its
business  or  operations  or any of its assets or  properties.  The  Company has
avoided every condition,  and has not performed any act, the occurrence of which
would  result in the  Company's  loss of any right  granted  under any  license,
distribution  agreement  or other  agreement  required  to be  disclosed  on the
Schedule of Exceptions.

                  3.11  Litigation.  There is no  action,  suit,  proceeding  or
investigation  pending  or, to the  Company's  knowledge,  currently  threatened
against the Company  that  questions  the  validity  of this  Agreement,  or the
Related  Agreements  or the  right  of the  Company  to  enter  into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result,  either  individually  or in the aggregate,  in any material


                                       7.
<PAGE>

adverse  change in the assets,  condition,  affairs or prospects of the Company,
financially or otherwise,  or any change in the current equity  ownership of the
Company,  nor is the  Company  aware  that  there  is any  basis  for any of the
foregoing.  The foregoing includes,  without limitation,  actions pending or, to
the Company's  knowledge,  threatened or any basis therefor known by the Company
involving the prior employment of any of the Company's  employees,  their use in
connection  with  the  Company's  business  of  any  information  or  techniques
allegedly  proprietary to any of their former  employers,  or their  obligations
under any agreements with prior employers. The Company is not a party or subject
to the  provisions  of any order,  writ,  injunction,  judgment or decree of any
court  or  government  agency  or  instrumentality.  There is no  action,  suit,
proceeding  or  investigation  by the  Company  currently  pending  or which the
Company intends to initiate.

                  3.12 Tax Returns and  Payments.  The Company has filed all tax
returns  (federal,  state and local) required to be filed by it. All taxes shown
to be due and  payable on such  returns,  any  assessments  imposed,  and to the
Company's  knowledge all other taxes due and payable by the Company on or before
the  Closing,  have  been  paid or will be paid  prior to the time  they  become
delinquent.  The  Company has no  knowledge  of any  liability  of any tax to be
imposed upon its  properties or assets as of the date of this  Agreement that is
not adequately provided for.

                  3.13  Employees.  The  Company  has no  collective  bargaining
agreements  with  any of its  employees.  There  is no  labor  union  organizing
activity pending or, to the Company's knowledge,  threatened with respect to the
Company.  The  Company  is not a party to or bound  by any  currently  effective
employment contract,  deferred compensation  arrangement,  bonus plan, incentive
plan, profit sharing plan,  retirement agreement or other employee  compensation
plan or agreement.  To the Company's knowledge,  no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any term
of any employment contract,  proprietary  information  agreement or of any other
agreement  relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company;  and to the Company's knowledge the continued  employment by the
Company of its  present  employees,  and/or  the  performance  of the  Company's
contracts  with  its  independent  contractors,  will  not  result  in any  such
violation.  The  Company  has not  received  any notice  alleging  that any such
violation has occurred. No employee of the Company has been granted the right to
continued employment by the Company or to any compensation following termination
of employment  with the Company.  The Company has no knowledge that any officer,
key  employee  or group of  employees  intends to  terminate  his,  her or their
employment  with the Company,  nor does the Company have a present  intention to
terminate the employment of any officer,  key employee,  group of employees,  or
contractor.

                  3.14 Obligations of Management.  Each officer and key employee
of the Company is currently  devoting  substantially  all of his or her business
time to the  conduct of the  business of the  Company.  The Company is not aware
that any  officer or key  employee  of the Company is planning to work less than
full time at the Company in the future.  No officer or key employee is currently
working  or,  to the  Company's  knowledge,  plans  to  work  for a  competitive
enterprise,  whether  or  not  such  officer  or  key  employee  is or  will  be
compensated by such enterprise.

                                       8.
<PAGE>

                  3.15 Registration Rights and Voting Rights. Except as required
pursuant  to the  Investor  Rights  Agreement,  the  Company  is not  under  any
obligation,  and has not granted any rights,  to register (as defined in Section
1.1 of the Investor Rights Agreement) any of the Company's presently outstanding
securities  or any of its  securities  that  may  hereafter  be  issued.  To the
Company's  knowledge,  except  as  contemplated  in  the  Voting  Agreement,  no
shareholder  of the Company has entered into any  agreement  with respect to the
voting of equity securities of the Company.

                  3.16  Compliance  with Laws;  Permits.  The  Company is not in
violation of any applicable statute, rule,  regulation,  order or restriction of
any domestic or foreign  government or any  instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties  which
violation  would   materially  and  adversely   affect  the  business,   assets,
liabilities,  financial  condition,  operations or prospects of the Company.  No
governmental  orders,  permissions,  consents,  approvals or authorizations  are
required to be obtained and no  registrations or declarations are required to be
filed in connection  with the  execution and delivery of this  Agreement and the
issuance of the Shares or the  Conversion  Shares,  except such as has been duly
and validly  obtained or filed, or with respect to any filings that must be made
after the Closing,  as will be filed in a timely manner. The Company (a) has all
franchises,  permits,  licenses  and any  similar  authority  necessary  for the
conduct of its  business as now being  conducted  by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company and (b) believes it can obtain, without undue burden or
expense,  any similar authority for the conduct of its business as planned to be
conducted in the Business Plan.

                  3.17   Offering   Valid.   Assuming   the   accuracy   of  the
representations  and  warranties  of the  Purchasers  contained  in Section  4.2
hereof,  the offer,  sale and issuance of the Shares and the  Conversion  Shares
will be exempt from the registration requirements of the Securities Act of 1933,
as amended (the  "Securities  Act"),  and will have been registered or qualified
(or are exempt from  registration  and  qualification)  under the  registration,
permit or  qualification  requirements of all applicable  state securities laws.
Neither the Company nor any agent on its behalf has  solicited  or will  solicit
any offers to sell or has  offered to sell or will offer to sell all or any part
of the Shares to any person or persons so as to bring the sale of such Shares by
the Company  within the  registration  provisions of the  Securities  Act or any
state securities laws.

                  3.18 Full Disclosure.  The Company has provided the Purchasers
with all  information  requested  by the  Purchasers  in  connection  with their
decision to purchase the Shares,  including all information the Company believes
is  reasonably  necessary  to  make  such  investment  decision.   Neither  this
Agreement,  the exhibits hereto,  the Related  Agreements nor any other document
delivered  by the  Company  to  Purchasers  or  their  attorneys  or  agents  in
connection herewith or therewith or with the transactions contemplated hereby or
thereby,  contain any untrue  statement of a material  fact nor, omit to state a
material  fact  necessary in order to make the  statements  contained  herein or
therein not  misleading.  To the Company's  knowledge,  there are no facts which
(individually  or in the aggregate)  materially  adversely  affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
that have not been set forth in the Agreement,  the exhibits hereto, the Related
Agreements or in other  documents  delivered to Purchasers or their attorneys or
agents in connection herewith.

                                       9.
<PAGE>

                  3.19 Section 83(b) Elections. To the Company's knowledge,  all
elections  and notices  permitted by Section 83(b) of the Code and any analogous
provisions of applicable  state tax laws have been timely filed by all employees
who have purchased  shares of the Company's  common stock under  agreements that
provide for the vesting of such shares.

                  3.20  Insurance.  The  Company  has or  will  obtain  promptly
following the Closing general commercial,  product liability,  fire and casualty
insurance policies with coverage  customary for companies  similarly situated to
the Company.

                  3.21  Qualified  Small  Business.  The Company  represents and
warrants to the Purchasers that, to the best of its knowledge,  the Company is a
"qualified small business" within the meaning of Section 1202(d) of the Internal
Revenue  Code of 1986,  as amended  (the  "Code") as of the date hereof and that
upon issuance the Shares should qualify as "qualified  small business  stock" as
defined in Section 1202(c) of the Code as of the date hereof.

                  3.22 U.S. Real Property  Holding  Corporation.  The Company is
not now and has never been a "United States real property  holding  corporation"
as  defined in  Section  897(c)(2)  of the Code and  Section  1.897-2(b)  of the
Regulations  promulgated by the Internal  Revenue  Service,  and the Company has
filed with the Internal Revenue Service all statements,  if any, with its United
States  income tax returns which are required  under  Section  1.897-2(h) of the
such Regulations.

                  3.23 Compliance with  Environmental  Laws. The Company has not
caused or  allowed,  or  contracted  with any party for,  the  generation,  use,
transportation,  treatment,  storage or disposal of any Hazardous Substances (as
defined below) in connection with the operation of its business or otherwise. To
its knowledge, the Company, the operation of its business, and any real property
that the Company owns, leases or otherwise occupies or uses (the "Premises") are
in compliance  with all  applicable  Environmental  Laws (as defined  below) and
orders or directives of any governmental  authorities having  jurisdiction under
such Environmental  Laws. The Company has not received any citation,  directive,
letter or other communication, written or oral, or any notice of any proceeding,
claim or lawsuit,  from any person arising out of the ownership or occupation of
the Premises,  or the conduct of its operation,  and the Company is not aware of
any basis  therefor.  For purposes of this  Agreement,  the term  "Environmental
Laws" shall mean any  Federal,  state or local law or  ordinance  or  regulation
pertaining to the protection of human health or the environment. For purposes of
this  Agreement,  the term  "Hazardous  Substances"  shall include any materials
classified as hazardous or toxic under any Environmental Laws.

                  3.24  Minute  Books.  The  minute  books of the  Company  made
available  to the  Investors  contain a  complete  summary  of all  meetings  of
directors and shareholders of the Company since the time of incorporation of the
Company.

                                      10.
<PAGE>

         4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.

                  Each Purchaser  hereby  represents and warrants to the Company
as follows  (such  representations  and  warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):

                  4.1 Requisite Power and Authority. Purchaser has all necessary
power and  authority  under all  applicable  provisions  of law to  execute  and
deliver  this  Agreement  and the  Related  Agreements  and to carry  out  their
provisions. All action on Purchaser's part required for the lawful execution and
delivery  of this  Agreement  and the  Related  Agreements  have been or will be
effectively taken prior to the Closing. Upon their execution and delivery,  this
Agreement and the Related  Agreements  will be valid and binding  obligations of
Purchaser,  enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency,  reorganization,  moratorium or other laws of
general application  affecting  enforcement of creditors' rights, (b) as limited
by general  principles  of equity that  restrict the  availability  of equitable
remedies,  and (c) to the extent that the enforceability of the  indemnification
provisions  of Section 2.9 of the Investor  Rights  Agreement  may be limited by
applicable laws.

                  4.2 Investment  Representations.  Purchaser  understands  that
neither  the Shares nor the  Conversion  Shares have been  registered  under the
Securities Act. Purchaser also understands that the Shares are being offered and
sold pursuant to an exemption from registration  contained in the Securities Act
based in part  upon  Purchaser's  representations  contained  in the  Agreement.
Purchaser hereby represents and warrants as follows:

                           (a)  Purchaser  Bears  Economic  Risk.  Purchaser has
substantial   experience  in  evaluating  and  investing  in  private  placement
transactions of securities in companies similar to the Company so that Purchaser
is capable of evaluating  the merits and risks of its  investment in the Company
and has the  capacity  to protect  its own  interests.  Purchaser  must bear the
economic  risk  of  this  investment  indefinitely  unless  the  Shares  (or the
Conversion  Shares)  are  registered  pursuant  to  the  Securities  Act,  or an
exemption from registration is available. Purchaser understands that the Company
has no present intention of registering the Shares, the Conversion Shares or any
shares  of its  Common  Stock.  Purchaser  also  understands  that  there  is no
assurance that any exemption from registration  under the Securities Act will be
available and that, even if available, such exemption may not allow Purchaser to
transfer  all or any portion of the Shares or the  Conversion  Shares  under the
circumstances, in the amounts or at the times Purchaser might propose.

                           (b)  Acquisition   for  Own  Account.   Purchaser  is
acquiring the Shares and the Conversion  Shares for  Purchaser's own account for
investment only, and not with a view towards their distribution.

                           (c)  Purchaser  Can Protect Its  Interest.  Purchaser
represents that by reason of its, or of its management's,  business or financial
experience,  Purchaser  has  the  capacity  to  protect  its  own  interests  in
connection with the transactions contemplated in this Agreement, and the Related
Agreements.  Further,  Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement.

                                      11.
<PAGE>

                           (d) Accredited Investor. Purchaser represents that it
is an  accredited  investor  within  the  meaning  of  Regulation  D  under  the
Securities Act.

                           (e) Company  Information.  Purchaser has received and
read  the  Company's  financial  statements  and  Business  Plan  and has had an
opportunity to discuss the Company's business,  management and financial affairs
with  directors,  officers  and  management  of the  Company  and  has  had  the
opportunity  to review the Company's  operations and  facilities.  Purchaser has
also had the  opportunity  to ask  questions of and receive  answers  from,  the
Company  and  its  management   regarding  the  terms  and  conditions  of  this
investment.

                           (f) Rule 144. Purchaser  acknowledges and agrees that
the Shares,  and, if issued,  the Conversion  Shares,  must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such  registration is available.  Purchaser has been advised or is aware of
the  provisions of Rule 144  promulgated  under the  Securities Act as in effect
from time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain  conditions,  including,  among
other things:  the availability of certain current public  information about the
Company,  the resale occurring  following the required holding period under Rule
144 and the  number of shares  being  sold  during  any  three-month  period not
exceeding specified limitations.

                           (g)  Residence.  If the  Purchaser is an  individual,
then the Purchaser resides in the state or province identified in the address of
the  Purchaser  set  forth on  Exhibit  A; if the  Purchaser  is a  partnership,
corporation,  limited  liability  company  or other  entity,  then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.

                  4.3 Transfer  Restrictions.  Each Purchaser  acknowledges  and
agrees that the Shares and, if issued,  the  Conversion  Shares,  are subject to
restrictions on transfer as set forth in the Investor  Rights  Agreement and are
subject to voting requirements as set forth in the Voting Agreement.

         5. CONDITIONS TO CLOSING.

                  5.1  Conditions  to  Purchasers'  Obligations  at the Closing.
Purchasers' obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:

                           (a) Representations and Warranties True;  Performance
of  Obligations.  The  representations  and  warranties  made by the  Company in
Section 3 hereof  shall be true and correct in all  material  respects as of the
Closing  Date with the same  force and effect as if they had been made as of the
Closing  Date,  and  the  Company  shall  have  performed  all  obligations  and
conditions  herein required to be performed or observed by it on or prior to the
Closing.

                           (b) Legal  Investment.  On the Closing Date, the sale
and issuance of the Shares and the proposed  issuance of the  Conversion  Shares
shall be legally  permitted by all laws and regulations to which  Purchasers and
the Company are subject.

                                      12.
<PAGE>

                           (c) Consents, Permits, and Waivers. The Company shall
have obtained any and all consents, permits and waivers necessary or appropriate
for  consummation  of the  transactions  contemplated  by the  Agreement and the
Related  Agreements  (except for such as may be properly obtained  subsequent to
the Closing).

                           (d) Filing of Restated Charter.  The Restated Charter
shall  have been  filed  with the  Secretary  of State of  California  and shall
continue to be in full force and effect as of the Closing Date.

                           (e)  Corporate  Documents.  The  Company  shall  have
delivered to Purchasers or their counsel,  copies of all corporate  documents of
the Company as Purchasers shall reasonably request.

                           (f) Reservation of Conversion  Shares. The Conversion
Shares issuable upon conversion of the Shares issuable at the Closing shall have
been duly authorized and reserved for issuance upon such conversion.

                           (g)  Compliance  Certificate.  The Company shall have
delivered to Purchasers a Compliance  Certificate,  executed by the President of
the Company, dated the Closing Date, to the effect that the conditions specified
in subsections (a), (c), (d) and (f) of this Section 5.1 have been satisfied.

                           (h)  Secretary's  Certificate.  The Purchasers  shall
have received  from the  Company's  Secretary,  a  certificate  having  attached
thereto (i) the Company's  Articles of Incorporation as in effect at the time of
the Closing,  (ii) the Company's Bylaws as in effect at the time of the Closing,
(iii)   resolutions   approved  by  the  Board  of  Directors   authorizing  the
transactions  contemplated  hereby,  (iv) resolutions  approved by the Company's
shareholders  authorizing  the  filing  of the  Restated  Charter,  and (v) good
standing certificates (including tax clearance) with respect to the Company from
the applicable  authority(ies) in California and any other jurisdiction in which
the Company is qualified to do business, dated a recent date before the Closing.

                           (i) Investor  Rights  Agreement.  The Investor Rights
Agreement shall have been executed and delivered by the parties thereto.

                           (j) Co-Sale  Agreement.  The Co-Sale  Agreement shall
have been executed and delivered by the parties thereto.  The stock certificates
representing  the  shares  subject  to the  Co-Sale  Agreement  shall  have been
delivered to the Secretary of the Company and shall have had appropriate legends
placed  upon them to  reflect  the  restrictions  on  transfer  set forth on the
Co-Sale Agreement.

                           (k) Voting Agreement. The Voting Agreement shall have
been executed and delivered by the parties thereto.

                           (l)  Board  of  Directors.   Upon  the  Closing,  the
authorized  size of the  Board of  Directors  of the  Company  shall be five (5)
members and the Board shall consist of Richard  Hubbard,  Mark  Underseth,  Phil
Wickham,  Phil  Micciche and one (1) other member,  as further  specified in the
Voting Agreement.

                                      13.
<PAGE>

                           (m)  Proceedings  and  Documents.  All  corporate and
other  proceedings  in  connection  with the  transactions  contemplated  at the
Closing hereby and all documents and instruments  incident to such  transactions
shall be reasonably  satisfactory  in substance and form to the  Purchasers  and
their special  counsel,  and the Purchasers and their special counsel shall have
received  all such  counterpart  originals  or certified or other copies of such
documents as they may reasonably request.

                           (n) Proprietary Information and Inventions Agreement.
The Company  and each of its  officers,  employees  and  consultants  shall have
entered  into  the  Company's  standard  form  of  Proprietary  Information  and
Inventions Agreement,  in substantially the form attached hereto as Exhibit F or
in other form reasonably acceptable to the Purchasers.

                  5.2  Conditions to  Purchasers'  Obligations  at an Additional
Closing.  Purchasers'  obligations  to  purchase  the  Shares at any  Additional
Closing  are  subject  to the  satisfaction,  at or  prior  to the  date  of the
Additional Closing of the following conditions:

                           (a) Legal  Investment.  The sale and  issuance of the
Shares and the  proposed  issuance  of the  Conversion  Shares  shall be legally
permitted by all laws and  regulations  to which  Purchasers and the Company are
subject.

                           (b) Filing of Restated Charter.  The Restated Charter
shall have been filed with the Secretary of State of the State of California and
shall continue to be in full force and effect.

                           (c) Reservation of Conversion  Shares. The Conversion
Shares  issuable upon  conversion of the Shares shall have been duly  authorized
and reserved for issuance upon such conversion.

                           (d)  Compliance  Certificate.  The Company shall have
delivered  to  the  Additional  Purchasers  at  such  Additional  Closing  (i) a
Compliance  Certificate,  executed by the President of the Company,  dated as of
the date of the Additional Closing, to the effect that the conditions  specified
in  subsections  (b) and (c) of this Section 5.2 have been  satisfied and (ii) a
Certificate  of the Chief  Executive  Officer  that there have been no  material
changes to representations  and warranties of the Company set forth in Section 3
herein or, if they have so changed,  then said Certificate  shall be accompanied
by a revised Schedule of Exceptions dated as of the date of the Closing.

                           (e)   Secretary's    Certificate.    The   Additional
Purchasers  at such  Additional  Closing  shall have received from the Company's
Secretary,  a certificate  having attached thereto (i) the Company's Articles of
Incorporation  as in effect at the time of the  respective  Additional  Closing,
(ii) the Company's Bylaws as in effect at the time of the respective  Additional
Closing,  (iii) resolutions  approved by the Board of Directors  authorizing the
transactions  contemplated  hereby,  (iv) resolutions  approved by the Company's
shareholders  authorizing  the  filing  of the  Restated  Charter,  and (v) good
standing certificates (including tax clearance) with respect to the Company from
the applicable  authority(ies) in California and any other jurisdiction in which
the Company is qualified  to do  business,  dated a recent date before the given
Additional Closing.

                                      14.
<PAGE>

                  5.3 Conditions to  Obligations  of the Company.  The Company's
obligation  to issue and sell the Shares at the Closing  and at each  Additional
Closing  is  subject  to the  satisfaction,  on or prior to the  Closing  or the
Additional  Closing,  as the case may be, of the  following  conditions  by each
Purchaser  participating in the Closing or the Additional  Closing,  as the case
may be (except that with respect to any  Additional  Closing,  the references to
"Closing"  shall  instead  be  deemed  to  refer to the  applicable  "Additional
Closing"):

                           (a)   Representations   and   Warranties   True.  The
representations  and warranties in Section 4 made by those Purchasers  acquiring
Shares  shall be true and  correct in all  material  respects at the date of the
Closing,  with the same  force and  effect as if they had been made on and as of
said date.

                           (b) Performance of Obligations. Such Purchasers shall
have performed and complied with all agreements and conditions  herein  required
to be performed or complied with by such Purchasers on or before the Closing.

                           (c) Filing of Restated Charter.  The Restated Charter
shall have been filed with the Secretary of State of the State of California.

                           (d) Investor  Rights  Agreement.  The Investor Rights
Agreement shall have been executed and delivered by the parties thereto.

                           (e) Co-Sale  Agreement.  The Co-Sale  Agreement shall
have been executed and delivered by the parties thereto.

                           (f) Voting Agreement. The Voting Agreement shall have
been executed and delivered by the parties thereto.

                           (g) Consents, Permits, and Waivers. The Company shall
have obtained any and all consents, permits and waivers necessary or appropriate
for  consummation  of the  transactions  contemplated  by the  Agreement and the
Related  Agreements  (except for such as may be properly obtained  subsequent to
the Closing).

         6. MISCELLANEOUS.

                  6.1  Governing  Law. This  Agreement  shall be governed in all
respects  by the laws of the State of  California  as such laws are  applied  to
agreements between  California  residents entered into and performed entirely in
California.

                  6.2 Survival. The representations,  warranties,  covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the  closing of the  transactions  contemplated  hereby.  All  statements  as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company  pursuant  hereto in connection  with the  transactions
contemplated  hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

                  6.3  Successors  and Assigns.  Except as  otherwise  expressly
provided  herein,  the  provisions  hereof shall inure to the benefit of, and be
binding upon, the successors,  assigns,  heirs,  executors and administrators of


                                      15.
<PAGE>
the parties  hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.

                  6.4  Entire  Agreement.   This  Agreement,  the  exhibits  and
schedules  hereto,  the Related  Agreements  and the other  documents  delivered
pursuant hereto constitute the full and entire understanding and agreement among
the parties with regard to the subjects hereof,  and no party shall be liable or
bound to any other in any manner by any representations,  warranties,  covenants
and agreements except as specifically set forth herein and therein.

                  6.5  Severability.  In case any  provision  of this  Agreement
shall  be  invalid,  illegal  or  unenforceable,   the  validity,  legality  and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

                  6.6 Amendment and Waiver.

                           (a) This Agreement  shall be amended or modified only
upon the  written  consent of the  Company and holders of at least a majority of
the  outstanding  Shares  (treated as if converted and including any  Conversion
Shares into which the Shares have been  converted that have not been sold to the
public).

                           (b) The  obligations of the Company and the rights of
the holders of the Shares and the  Conversion  Shares under the Agreement may be
waived  only with the  written  consent of the holders of at least a majority of
the  outstanding  Shares  (treated as if converted and including any  Conversion
Shares into which the Shares have been  converted that have not been sold to the
public).

                  6.7 Delays or Omissions.  No delay or omission to exercise any
right,  power or remedy  accruing  to any  party,  upon any  breach,  default or
noncompliance by another party under this Agreement,  the Related  Agreements or
the Restated Charter, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence  therein,  or of  any  similar  breach,  default  or  noncompliance
thereafter  occurring.  Any waiver,  permit,  consent or approval of any kind or
character on any Purchaser's part of any breach,  default or noncompliance under
this  Agreement,  the Related  Agreements  or under the Restated  Charter or any
waiver on such party's part of any  provisions or  conditions of the  Agreement,
the Related Agreements,  or the Restated Charter must be in writing and shall be
effective  only to the  extent  specifically  set  forth  in such  writing.  All
remedies,  either under this  Agreement,  the Related  Agreements,  the Restated
Charter, by law, or otherwise afforded to any party, shall be cumulative and not
alternative.

                  6.8 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed  effectively given: (a) upon personal delivery
to the party to be notified; (b) when sent by confirmed facsimile if sent during
normal  business hours of the recipient,  if not, then on the next business day,
provided that any facsimile transmission shall be followed immediately by notice
sent  registered or certified mail as provided  herein;  (c) five (5) days after
having been sent by  registered or certified  mail,  return  receipt  requested,
postage  prepaid;  or (d)  upon  delivery  to  recipient  after  deposit  with a
nationally  recognized  overnight  courier,  specifying next day delivery,  with
written verification of receipt. All communications shall be sent to the Company


                                      16.
<PAGE>

at the address as set forth on the signature page hereof and to Purchaser at the
address set forth on Exhibit A attached  hereto or at such other  address as the
Company or Purchaser  may designate by ten (10) days advance  written  notice to
the other parties hereto.

                  6.9  Expenses.  The Company  shall pay all costs and  expenses
that  it  incurs  with  respect  to the  negotiation,  execution,  delivery  and
performance  of the  Agreement.  The Company  shall,  immediately  following the
Closing,  reimburse the  reasonable  fees of and expenses of one counsel for all
Investors and shall reimburse such counsel for reasonable  expenses  incurred in
connection  with the  negotiation,  execution,  delivery and performance of this
Agreement;  provided,  however,  that the  cumulative  amount  of said  fees and
expenses to such counsel shall not exceed $5,000.

                  6.10 Attorneys'  Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement,  the prevailing  party in
such dispute shall be entitled to recover from the losing party all fees,  costs
and  expenses  of  enforcing  any right of such  prevailing  party under or with
respect to this Agreement,  including,  without limitation, such reasonable fees
and  expenses  of  attorneys  and  accountants,  which  shall  include,  without
limitation, all fees, costs and expenses of appeals.

                  6.11  Titles and  Subtitles.  The titles of the  sections  and
subsections  of the Agreement are for  convenience of reference only and are not
to be considered in construing this Agreement.

                  6.12  Counterparts.  This  Agreement  may be  executed  in any
number of  counterparts,  each of which shall be an  original,  but all of which
together  shall  constitute one  instrument.  This Agreement may be executed and
delivered by facsimile and upon such delivery the  facsimile  signature  will be
deemed to have the same effect as if the original  signature had been  delivered
to the other party.

                  6.13 Broker's  Fees.  Except for  commissions  paid to Richard
Hubbard in  connection  with the letter  agreement  between  him and the Company
dated January __, 2004, each party hereto represents and warrants that no agent,
broker,  investment  banker,  person  or firm  acting  on behalf of or under the
authority  of such  party  hereto  is or will be  entitled  to any  broker's  or
finder's fee or any other  commission  directly or indirectly in connection with
the  transactions  contemplated  herein.  Each party  hereto  further  agrees to
indemnify each other party for any claims,  losses or expenses  incurred by such
other party as a result of the representation in this Section 6.13 being untrue.

                  6.14  Confidentiality.  Each party hereto agrees that,  except
with the prior written consent of the other party or parties, as applicable,  it
shall at all times keep confidential and not divulge, furnish or make accessible
to anyone any confidential information, knowledge or data concerning or relating
to the  business or financial  affairs of the other  parties to which such party
has been or shall  become  privy by  reason  of this  Agreement  or the  Related
Agreements,  discussions  or  negotiations  relating  to this  Agreement  or the
Related  Agreements,  the  performance  of  its  obligations  hereunder  or  the
ownership of the Shares purchased hereunder. The provisions of this Section 6.14
shall be in addition  to, and not in  substitution  for, the  provisions  of any
separate nondisclosure agreement executed by the parties hereto.

                                      17.
<PAGE>

         Notwithstanding  anything  herein  to the  contrary,  any party to this
Agreement (and any employee, representative, or other agent of any party to this
Agreement) may disclose to any and all persons,  without limitation of any kind,
the tax  treatment and tax structure of the  transactions  contemplated  by this
Agreement  and all  materials  of any kind  (including  opinions  or  other  tax
analyses)  that  are  provided  to it  relating  to such tax  treatment  and tax
structure;  provided however, that such disclosure may not be made to the extent
reasonably  necessary to comply with any applicable  federal or state securities
laws. For the purposes of the foregoing  sentence,  (i) the "tax treatment" of a
transaction  means the purported or claimed  federal income tax treatment of the
transaction,  and (ii) the "tax structure" of a transaction  means any fact that
may be relevant to  understanding  the purported or claimed  federal  income tax
treatment of the transaction.

         Thus,  for the avoidance of doubt,  the parties  acknowledge  and agree
that the tax treatment and tax structure of any transaction does not include the
name  of any  party  to a  transaction  or any  sensitive  business  information
(including,  without limitation,  the name and other specific  information about
any party's  intellectual  property  or other  proprietary  assets)  unless such
information  may be related or  relevant  to the  purported  or claimed  federal
income tax treatment of the transaction.

                  6.15  Pronouns.   All  pronouns   contained  herein,  and  any
variations  thereof,  shall be deemed  to refer to the  masculine,  feminine  or
neutral,  singular  or plural,  as to the  identity  of the  parties  hereto may
require.

                  6.16  California  Corporate  Securities  Law.  THE SALE OF THE
SECURITIES  WHICH ARE THE SUBJECT OF THIS  AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE  COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH  SECURITIES  OR THE  PAYMENT OR  RECEIPT  OF ANY PART OF THE  CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION  IS UNLAWFUL.  PRIOR TO  ACCEPTANCE OF SUCH  CONSIDERATION  BY THE
COMPANY,  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY  CONDITIONED
UPON SUCH  QUALIFICATION  BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.

              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]




                                      18.
<PAGE>
         IN WITNESS  WHEREOF,  the  parties  hereto have  executed  the SERIES C
PREFERRED  STOCK  PURCHASE  AGREEMENT  as of the  date set  forth  in the  first
paragraph hereof.


COMPANY:                                   PURCHASERS:


S2 TECHNOLOGIES, INC.                      Sigma International

Signature: __________________________      Signature: __________________________

Print Name: _________________________      Print Name: _________________________

Title: ______________________________      Title: ______________________________

Address:   2031 San Elijo Avenue
           Cardiff, CA 92007
                                           High Octane Fund

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Europe Interchange BV

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________

          [SERIES C PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE]


<PAGE>
                                           Raisin Social Led Retirement Benefit
                                           Scheme

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Kanton Services Ltd

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Ashcolin SA (Cushag)

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Streamhurst Management Limited

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________

          [SERIES C PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE]


<PAGE>
                                           Moore Stevens

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Dr. James Walsch

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           Joel Ronning

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


                                           NDCA Corporation (Holding) SA

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________

          [SERIES C PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE]


<PAGE>

                                           Oryx Ventures, LLC

                                           Signature: __________________________

                                           Print Name: _________________________

                                           Title: ______________________________


          [SERIES C PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE]


<PAGE>
<TABLE>
<CAPTION>
                                                   TABLE OF CONTENTS

                                                                                                               PAGE

<S>      <C>      <C>                                                                                            <C>
1.       AGREEMENT TO SELL AND PURCHASE...........................................................................1

         1.1      Authorization of Shares.........................................................................1

         1.2      Sale and Purchase...............................................................................1

2.       CLOSING, DELIVERY AND PAYMENT............................................................................2

         2.1      Closing and Subsequent Closing..................................................................2

         2.2      Delivery........................................................................................2

         2.3      Subsequent Sale of Shares.......................................................................2

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................3

         3.1      Organization, Good Standing and Qualification...................................................3

         3.2      Subsidiaries....................................................................................3

         3.3      Capitalization; Voting Rights...................................................................3

         3.4      Authorization; Binding Obligations..............................................................4

         3.5      Liabilities.....................................................................................5

         3.6      Agreements; Action..............................................................................5

         3.7      Obligations to Related Parties..................................................................5

         3.8      Title to Properties and Assets; Liens, Etc......................................................6

         3.9      Intellectual Property...........................................................................6

         3.10     Compliance with Other Instruments...............................................................7

         3.11     Litigation......................................................................................7

         3.12     Tax Returns and Payments........................................................................8

         3.13     Employees.......................................................................................8

         3.14     Obligations of Management.......................................................................8

         3.15     Registration Rights and Voting Rights...........................................................8

         3.16     Compliance with Laws; Permits...................................................................9

         3.17     Offering Valid..................................................................................9

         3.18     Full Disclosure.................................................................................9

         3.19     Section 83(b) Elections........................................................................10

         3.20     Insurance......................................................................................10

         3.21     Qualified Small Business.......................................................................10

         3.22     U.S. Real Property Holding Corporation.........................................................10

                                                         i.
<PAGE>
                                                   TABLE OF CONTENTS

                                                                                                               PAGE

         3.23     Compliance with Environmental Laws.............................................................10

         3.24     Minute Books...................................................................................10

4.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................................................11

         4.1      Requisite Power and Authority..................................................................11

         4.2      Investment Representations.....................................................................11

         4.3      Transfer Restrictions..........................................................................12

5.       CONDITIONS TO CLOSING...................................................................................12

         5.1      Conditions to Purchasers' Obligations at the Closing...........................................12

         5.2      Conditions to Purchasers' Obligations at an Additional Closing.................................14

         5.3      Conditions to Obligations of the Company.......................................................15

6.       MISCELLANEOUS...........................................................................................15

         6.1      Governing Law..................................................................................15

         6.2      Survival.......................................................................................16

         6.3      Successors and Assigns.........................................................................16

         6.4      Entire Agreement...............................................................................16

         6.5      Severability...................................................................................16

         6.6      Amendment and Waiver...........................................................................16

         6.7      Delays or Omissions............................................................................16

         6.8      Notices........................................................................................17

         6.9      Expenses.......................................................................................17

         6.10     Attorneys' Fees................................................................................17

         6.11     Titles and Subtitles...........................................................................17

         6.12     Counterparts...................................................................................17

         6.13     Broker's Fees..................................................................................17

         6.14     Confidentiality................................................................................17

         6.15     Pronouns.......................................................................................18

         6.16     California Corporate Securities Law............................................................18

                                                        ii.
</TABLE>

<PAGE>




                                LIST OF EXHIBITS


Schedule of Purchasers                                                 Exhibit A

Amended and Restated Articles of Incorporation                         Exhibit B

Amended and Restated Investor Rights Agreement                         Exhibit C

Amended and Restated Co-Sale Agreement                                 Exhibit D

Amended and Restated Voting Agreement                                  Exhibit E

Proprietary Information and Inventions Agreement                       Exhibit F




<PAGE>

                                    EXHIBIT A

                             SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>

                                                                                   PURCHASE PRICE PAYABLE IN
                                                                                     IMMEDIATELY AVAILABLE
                          PURCHASER                                SHARES            FUNDS AT FIRST CLOSING
-----------------------------------------------------------     ------------    ---------------------------------
<S>                                                             <C>                    <C>
FIRST CLOSING
Sigma International II, L.P.                                       357,142                $250,000.00
11/12 Pall Mall
London SW 1Y 5LU

High Octane Fund                                                   357,142                $250,000.00
Akara Bldg
24 De Castro Street
Wickhams Cay 1
Road Town
Tortola, British Virgin Island
Correspondence to: PO Box 282, Victoria St.
Douglas, Isle of Man, IM99 2DR

Europe Interchange BV                                               35,714                 $25,000.00
Alastair Holbertson
1st Floor 22 Kildare Road
Newlands 7700
Cape Town, South Africa

Raisin Social Led Retirement Benefit Scheme                         35,714                 $25,000.00
40 Croham Valley Road
South Croydon, CR2 7NB

Kanton Services Ltd                                              1,428,571              $1,000,000.00
Akara Bldg
24 De Castro Street
Wickhams Cay 1
Road Town
Tortola, British Virgin Island
Correspondence to: PO Box 282, Victoria St.
Douglas, Isle of Man, IM99 2DR

Ashcolin SA (Cushag)                                                57,142                 $40,000.00
68 Woodsford Square
London W14 8DS
<PAGE>

Streamhurst Management Limited                                     128,571                 $90,000.00
Akara Bldg
24 De Castro Street
Wickhams Cay 1
Road Town
Tortola, British Virgin Island
Correspondence to: PO Box 282, Victoria St.
Douglas, Isle of Man, IM99 2DR

Voyager Group Holdings Ltd.                                        428,535                $299,975.00
P.O. Box 743, Suite 5
Watergarden 4
Waterport, Gibraltar

Dr. James Walsh                                                    142,857                 $100,000.00
16 Dogwood Lane
Ladue, MO  63124

Joel Ronning                                                        35,714                 $25,000.00
6220 Orchid Lane
Excelsior, MN  55331

NDCA Corporation (Holding) SA                                       35,714                 $25,000.00
Societe Anonyme Holding
13 avenue du Bois
L-1251 Luxembourg
R.G.S. Luxembourg B No.93.415
  C/o Mr. Andrew Reid
  95 Twyford Avenue
  West Acton
  London W3 9QG

Andrew Reid                                                         42,857                 $30,000.00
95 Twyford Avenue
West Acton
London W3 9QG

Ronan O'Caoimh                                                      35,697                 $24,988.00
Glencarrig House
Delgany
Co Wicklow
Ireland

Acomex Executive Pension Fund                                       71,392                 $49,975.00
Address: c/o Fiske PLC
Salisbury House London Wall
London EC2M 5QS

TOTAL FOR FIRST CLOSING:                                         3,192,762              $2,234,938.00
                                                                 ---------              -------------
<PAGE>

SECOND CLOSING
Oryx Ventures, LLC                                               1,285,714                $900,000.00
4340 Almaden Expwy, Suite 220
San Jose, CA  95118

TOTAL FOR SECOND CLOSING:                                        1,285,714                $900,000.00
                                                                 ---------              -------------

TOTAL FOR FINANCING:                                             4,478,479              $3,134,938.00
                                                                 ---------              -------------
</TABLE>
<PAGE>










                                    EXHIBIT B

                 AMENDED AND Restated Articles of Incorporation











                 AMENDED AND RESTATED ARTICLES OF INCORPORATION

                                       OF

                              S2 TECHNOLOGIES, INC.

<PAGE>


                 AMENDED AND RESTATED ARTICLES OF INCORPORATION

                                       OF

                              S2 TECHNOLOGIES, INC.


         Mark Underseth hereby certifies that:

         ONE: He is the duly elected and acting  President  and  Secretary of S2
Technologies, Inc., a California corporation (the "Corporation").

         TWO:  The  Amended  and  Restated  Articles  of  Incorporation  of this
Corporation are hereby amended and restated to read in full as follows:

                                       "I.

         The  name  of  the   Corporation   is  S2   TECHNOLOGIES,   INC.   (the
"Corporation").

                                       II.

         The  purpose  of the  Corporation  is to  engage in any  lawful  act or
activity for which a corporation may be organized under the General  Corporation
Law of California other than the banking business, the trust company business or
the practice of a  profession  permitted to be  incorporated  by the  California
Corporations Code.

                                      III.

         A. This  Corporation  is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the  Corporation is authorized to issue is  sixty-eight  million
two  hundred six  thousand  eight  hundred  seventy-eight  (68,206,878)  shares,
forty-eight  million  (48,000,000)  shares of which  shall be Common  Stock (the
"Common  Stock")  and twenty  million one hundred  twenty-eight  thousand  three
hundred  three  (20,128,303)  shares  of which  shall be  Preferred  Stock  (the
"Preferred Stock").

         B.  Two  million  five  hundred   ninety-two   thousand   five  hundred
ninety-three  (2,592,593) of the authorized shares of Preferred Stock are hereby
designated  "Series A Preferred  Stock" (the "Series A Preferred"),  ten million
(10,000,000) of the authorized  shares of Preferred Stock are hereby  designated
"Series B Preferred Stock" (the "Series B Preferred"), two million eight hundred
fifty-seven  thousand  one hundred  thirty-nine  (2,857,139)  of the  authorized
shares of Preferred  Stock are hereby  designated  "Series B-1 Preferred  Stock"
(the "Series B-1  Preferred") and four million seven hundred  fourteen  thousand
two hundred eighty-five  (4,714,285) of the authorized shares of Preferred Stock
are hereby designated "Series C Preferred Stock" (the "Series C Preferred") (the
Series A  Preferred,  Series B  Preferred,  Series  B-1  Preferred  and Series C
Preferred are referred to herein collectively as the "Series Preferred").

                                       1.
<PAGE>

         C. The rights, preferences,  privileges, restrictions and other matters
relating to the Series Preferred are as follows:

         1. DIVIDEND RIGHTS.

                  (a) Holders of Series Preferred,  in preference to the holders
of any other stock of the  Corporation  ("Junior  Stock"),  shall be entitled to
receive,  when,  as and if declared by the Board of  Directors,  but only out of
funds that are legally available  therefor,  cash dividends at the rate of eight
percent (8%) of the applicable Original Issue Price (as defined below) per annum
on each  outstanding  share of  Series  Preferred  (as  adjusted  for any  stock
dividends,  combinations,  splits recapitalizations and the like with respect to
such  shares).  The  "Original  Issue Price" of the Series A Preferred  shall be
twenty-seven  cents ($0.27) (the "Series A Original Issue Price").  The Original
Issue Price of the Series B Preferred  shall be  thirty-five  cents ($0.35) (the
"Series B Original  Issue  Price").  The Original  Issue Price of the Series B-1
Preferred  shall be  thirty-five  cents ($0.35) (the "Series B-1 Original  Issue
Price").  The  Original  Issue Price of the Series C Preferred  shall be seventy
cents ($0.70) (the "Series C Original  Issue Price").  Such  dividends  shall be
payable  only when,  as and if declared by the Board of  Directors  and shall be
non-cumulative.

                  (b) So  long  as any  shares  of  Series  Preferred  shall  be
outstanding,  no  dividend,  whether  in  cash  or  property,  shall  be paid or
declared,  nor shall any other  distribution  be made, on any Junior Stock,  nor
shall any shares of any Junior Stock of the Corporation be purchased,  redeemed,
or otherwise  acquired for value by the Corporation  (except for acquisitions of
Common  Stock  by the  Corporation  pursuant  to  agreements  which  permit  the
Corporation  to  repurchase  such  shares  upon  termination  of services to the
Corporation  or in exercise of the  Corporation's  right of first refusal upon a
proposed  transfer) until all dividends (set forth in Section 1(a) above) on the
Series  Preferred  shall have been paid or declared and set apart.  In the event
dividends are paid on any share of Common Stock, an additional dividend shall be
paid with  respect to all  outstanding  shares of Series  Preferred in an amount
equal per share (on an  as-if-converted  to Common  Stock basis) to the dividend
amount paid or set aside for each share of Common Stock.  The provisions of this
Section  1(b) shall  not,  however,  apply to (i) a  dividend  payable in Common
Stock, (ii) the acquisition of shares of any Junior Stock in exchange for shares
of any other Junior Stock, or (iii) any repurchase of any outstanding securities
of the Corporation that is unanimously  approved by the  Corporation's  Board of
Directors.  The holders of the Series Preferred expressly waive their rights, if
any, as  described  in Sections  502 and 503 of the General  Corporation  Law of
California  as they  relate  to  repurchase  of  shares  of  Junior  Stock  upon
termination of employment or service by any person as a consultant or director.

         2. VOTING RIGHTS.

                  (a) General Rights.  Except as otherwise provided herein or as
required by law, the Series  Preferred shall be voted equally with the shares of
the Common Stock of the  Corporation  and not as a separate class, at any annual
or special meeting of shareholders  of the  Corporation,  and may act by written
consent  in the same  manner  as the  Common  Stock,  in  either  case  upon the
following basis:  each holder of shares of Series Preferred shall be entitled to
such  number of votes as shall be equal to the whole  number of shares of Common
Stock into which such holder's  aggregate  number of shares of Series  Preferred
are convertible  (pursuant to Section 4 hereof)  immediately  after the close of

                                       2.
<PAGE>

business on the record date fixed for such meeting or the effective date of such
written consent.

                  (b)  Separate  Vote of Series  Preferred.  With respect to the
Series A Preferred, so long as at least one million (1,000,000) shares of Series
A  Preferred  remain  outstanding,  and with  respect to the Series B  Preferred
and/or  Series  B-1  Preferred  and/or  Series C  Preferred,  so long as, in the
aggregate, at least four million (4,000,000) shares of Series B Preferred and/or
Series B-1 Preferred and/or Series C Preferred remain  outstanding (in each case
subject to adjustment for any stock split,  reverse stock split or other similar
event affecting the Series Preferred),  in addition to any other vote or consent
required herein or by law, the vote or written consent of the holders of, as the
case may be, a majority of the outstanding  Series A Preferred  and/or sixty-six
and two-thirds  percent (662/3%) of the outstanding  Series B Preferred,  Series
B-1 Preferred and Series C Preferred,  in the aggregate,  shall be necessary for
effecting or validating the actions described in all enumerated  clauses (i)-(x)
of this clause (b) except for clause  (ii),  as to which the  respective  Series
Preferred  affected  adversely  must vote in favor of such adverse change by the
described percentage vote:

                           (i)  Any  amendment,  alteration,  or  repeal  of any
provision  of the  Articles of  Incorporation  or the Bylaws of the  Corporation
(including any filing of a Certificate of Determination);

                           (ii)  Any  adverse  change  to  the  powers,  rights,
preferences, privileges, or restrictions of the Series Preferred;

                           (iii) Any increase in the authorized number of shares
of Preferred Stock;

                           (iv) Any authorization or any designation, whether by
reclassification or otherwise,  of any new class or series of stock or any other
securities  convertible into equity  securities of the Corporation  ranking on a
parity  with  or  senior  to the  Series  Preferred  in  rights  of  redemption,
liquidation preference, voting or dividends or any increase in the authorized or
designated number of any such new class or series;

                           (v) Any  repurchase or redemption of Preferred  Stock
(except as expressly contemplated by the Articles of Incorporation);

                           (vi) Any redemption, repurchase, payment of dividends
or other  distributions with respect to Junior Stock (except for acquisitions of
Common  Stock  by the  Corporation  pursuant  to  agreements  which  permit  the
Corporation  to  repurchase  such  shares  upon  termination  of services to the
Corporation  or in exercise of the  Corporation's  right of first refusal upon a
proposed  transaction;  provided  that  excluding  circumstances  involving  the
Corporation's  right of first refusal,  the repurchase price is equal to or less
than the original purchase price for such shares);

                           (vii)  Any  agreement  by  the   Corporation  or  its
shareholders  regarding  an Asset  Transfer or  Acquisition  (each as defined in
Section 3(c));

                                       3.
<PAGE>

                           (viii) Any  action  that  results  in the  payment or
declaration of a dividend on any shares of Common Stock or Preferred Stock;

                           (ix) Any voluntary  dissolution or liquidation of the
Corporation; or

                           (x) Any change in the authorized number of members of
the Corporation's Board of Directors.

                  (c) Election of Board of Directors.  The authorized  number of
members on the  Corporation's  Board of Directors shall be five (5). For so long
as at  least  one  million  (1,000,000)  shares  of  Series A  Preferred  remain
outstanding  (subject to adjustment for any stock split,  reverse stock split or
similar  event  affecting  the  Series A  Preferred)  the  holders  of  Series A
Preferred,  voting  as a  separate  class,  shall be  entitled  to elect two (2)
members of the Board of  Directors  (also  referred  to as the  "Board") at each
meeting or pursuant to each consent of the  Corporation's  shareholders  for the
election of directors,  and to remove from office such directors and to fill any
vacancy  caused  by  the  resignation,  death  or  removal  of  such  directors.
Notwithstanding the foregoing, in the event of a change in control,  dissolution
or liquidation of either Oryx Ventures or Oryx Technologies Corp.  (collectively
referred  to as "Oryx")  or both,  thereafter  the  holders of Series A shall be
entitled to elect only one (1) member of the Board.  For so long as at least one
million (1,000,000) shares of Series B Preferred and/or Series B-1 Preferred, in
the aggregate,  remain  outstanding  (subject to adjustment for any stock split,
reverse  stock split or similar event  affecting  the Series B Preferred  and/or
Series  B-1  Preferred)  the  holders  of  Series B  Preferred  and  Series  B-1
Preferred, voting together as a single class, shall be entitled to elect one (1)
member of the  Corporation's  Board of  Directors at each meeting or pursuant to
each consent of the  Corporation's  shareholders  for the election of directors,
and to remove from office such  director  and to fill any vacancy  caused by the
resignation,  death or removal of such  director.  The holders of Common  Stock,
voting as a separate class,  shall be entitled to elect all remaining members of
the Board of  Directors  at each  meeting  or  pursuant  to each  consent of the
Corporation's  shareholders  for the election of  directors,  and to remove from
office such directors and to fill any vacancy caused by the  resignation,  death
or removal of such  directors.  For the  purposes of this  Section  2(c) only, a
change of control shall mean:

                           (i) any  consolidation  or merger of Oryx Ventures or
Oryx  Technologies  Corp. with or into any other  corporation or other entity or
person, or any other corporate reorganization, in which the shareholders of Oryx
Ventures or Oryx  Technologies  Corp., as the case may be,  immediately prior to
such  consolidation,  merger or  reorganization,  own less than 50% of the given
entity's  voting  power   immediately  after  such   consolidation,   merger  or
reorganization,  or any  transaction or series of related  transactions to which
Oryx Ventures or Oryx Technologies  Corp. is a party in which in excess of fifty
percent (50%) of the given entity's voting power is  transferred,  excluding any
consolidation  or merger  effected  exclusively  to change the  domicile of Oryx
Ventures or Oryx Technologies Corp.; or

                           (ii)  a  sale,  lease,   pledge,   license  or  other
disposition of all or substantially all of the assets of either Oryx Ventures or
Oryx Technologies Corp.

                                       4.
<PAGE>

         3. LIQUIDATION RIGHTS.

                  (a) Upon any  liquidation,  dissolution,  or winding up of the
Corporation,  whether  voluntary  or  involuntary,  before any  distribution  or
payment  shall be made to the  holders of any Junior  Stock,  the holders of the
respective  Series  Preferred  shall be entitled to be paid out of the assets of
the Corporation an amount per share of Series  Preferred equal to the applicable
Original Issue Price for the respective  Series  Preferred plus all declared and
unpaid  dividends on such shares of  Preferred  Stock (as adjusted for any stock
dividends,  combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series  Preferred held by them. If, upon any such
liquidation,  dissolution, or winding up, the assets of the Corporation shall be
insufficient  to make payment in full to all holders of Series  Preferred of the
liquidation preference set forth in this Section 3(a), then such assets shall be
distributed  among the holders of the  respective  Series  Preferred at the time
outstanding,  ratably  in  proportion  to the full  amounts  to which they would
otherwise be respectively entitled.

                  (b) After  payment of the full  liquidation  preference of the
Series Preferred as set forth in Section 3(a) above, any remaining assets of the
Corporation  legally  available for  distribution,  if any, shall be distributed
ratably to the holders of the Common Stock and the Series Preferred on the basis
of Common Stock equivalents.

                  (c) The  following  events shall be  considered a  liquidation
under this Section 3:

                           (i) any  consolidation  or merger of the  Corporation
with or into any  other  corporation  or other  entity or  person,  or any other
corporate   reorganization,   in  which  the  shareholders  of  the  Corporation
immediately prior to such consolidation, merger or reorganization, own less than
50% of the  Corporation's  voting power  immediately  after such  consolidation,
merger or reorganization,  or any transaction or series of related  transactions
to which the Corporation is a party in which in excess of fifty percent (50%) of
the Corporation's voting power is transferred (an "Acquisition"),  excluding any
consolidation  or merger  effected  exclusively  to change the  domicile  of the
Corporation;

                           (ii)  a  sale,  lease,   pledge,   license  or  other
disposition of all or  substantially  all of the assets of the  Corporation  (an
"Asset Transfer");

                           (iii)  in any of such  events,  if the  consideration
received by this  Corporation  is other than cash,  its value will be deemed its
fair market value as  determined  in good faith by the Board of  Directors.  Any
securities shall be valued as follows:

                                    (A)  Securities  not  subject to  investment
letter or other similar restrictions on free marketability covered by clause (B)
immediately below:

                                             (1)  If  traded  on  a   securities
exchange or through the Nasdaq National Market,  the value shall be deemed to be
the average of the closing  prices of the  securities on such  quotation  system
over the thirty (30) day period ending three (3) days prior to the closing;

                                             (2)     If     actively      traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices  (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and

                                       5.
<PAGE>

                                             (3) If  there is no  active  public
market,  the value shall be the fair market value thereof,  as determined by the
Board of Directors.

                                    (B) The method of  valuation  of  securities
subject to investment letter or other restrictions on free marketability  (other
than  restrictions  arising  solely by virtue  of a  shareholder's  status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market  value  determined  as  above  in  (A)(1),  (2)  or (3)  to  reflect  the
approximate fair market value thereof, as determined by the Board of Directors.

         4. CONVERSION RIGHTS.

         The holders of the Series Preferred shall have the following rights
with respect to the conversion of the Series Preferred into shares of Common
Stock (the "Conversion Rights"):

                  (a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series  Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common  Stock.  The  number  of  shares of Common  Stock to which a holder of
respective  Series  Preferred  shall be entitled  upon  conversion  shall be the
product  obtained  by  multiplying  the  then  in  effect  "Series  A  Preferred
Conversion Rate," "Series B Preferred  Conversion  Rate",  "Series B-1 Preferred
Conversion  Rate",  or  "Series  C  Preferred  Conversion  Rate" as  applicable,
(determined  as  provided  in Section  4(b)) by the number of shares of Series A
Preferred,  Series B  Preferred,  Series B-1  Preferred  and Series C Preferred,
respectively, being converted.

                  (b) Series  Preferred  Conversion Rate. The conversion rate in
effect at any time for  conversion  of the  Series A  Preferred  (the  "Series A
Preferred  Conversion  Rate")  shall be the  quotient  obtained by dividing  the
Original  Issue  Price of the  Series A  Preferred  by the  "Series A  Preferred
Conversion  Price,"  calculated as provided in Section 4(c). The conversion rate
then in effect at any time for conversion of the Series B Preferred (the "Series
B Preferred  Conversion  Rate") shall be the  quotient  obtained by dividing the
Original  Issue  Price of the  Series B  Preferred  by the  "Series B  Preferred
Conversion  Price,"  calculated as provided in Section 4(c). The conversion rate
then in effect at any time for  conversion  of the  Series  B-1  Preferred  (the
"Series  B-1  Preferred  Conversion  Rate")  shall be the  quotient  obtained by
dividing the Original Issue Price of the Series B-1 Preferred by the "Series B-1
Preferred  Conversion  Price,"  calculated  as  provided  in Section  4(c).  The
conversion  rate in effect at any time for  conversion of the Series C Preferred
(the "Series C Preferred  Conversion  Rate")  shall be the quotient  obtained by
dividing  the  Original  Issue Price of the Series C Preferred  by the "Series C
Preferred Conversion Price," calculated as provided in Section 4(c).

                  (c) Conversion  Price.  The conversion  price for the Series A
Preferred  shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Preferred Conversion Price"). The conversion price for the Series
B  Preferred  shall  initially  be the  Original  Issue  Price  of the  Series B
Preferred (the "Series B Preferred  Conversion Price"). The conversion price for
the Series B-1 Preferred  shall be $0.175 (the "Series B-1 Preferred  Conversion
Price").  The conversion price for the Series C Preferred shall initially be the
Original  Issue  Price of the  Series  C  Preferred  (the  "Series  C  Preferred
Conversion  Price").  Such initial Series  Preferred  Conversion  Price shall be
adjusted from time to time in accordance  with this Section 4. All references to


                                       6.
<PAGE>

the Series A  Preferred  Conversion  Price,  the Series B  Preferred  Conversion
Price,  the  Series B-1  Preferred  Conversion  Price or the Series C  Preferred
Conversion Price herein shall mean the Series A Preferred  Conversion Price, the
Series B Preferred  Conversion Price, the Series B-1 Preferred  Conversion Price
and the Series C Preferred Conversion Price, in each case as adjusted.

                  (d) Mechanics of Conversion.  Each holder of Series  Preferred
who  desires to convert the same into  shares of Common  Stock  pursuant to this
Section  4 shall  surrender  the  certificate  or  certificates  therefor,  duly
endorsed,  at the office of the Corporation or any transfer agent for the Series
Preferred,  and shall give written notice to the Corporation at such office that
such holder  elects to convert the same.  Such notice  shall state the number of
shares of Series Preferred being  converted.  Thereupon,  the Corporation  shall
promptly  issue and  deliver  at such  office to such  holder a  certificate  or
certificates  for the number of shares of Common  Stock to which such  holder is
entitled and shall promptly pay (i) in cash or, to the extent  sufficient  funds
are not then legally available therefor,  in Common Stock (at the Common Stock's
fair market  value  determined  by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of Series Preferred
being  converted  and (ii) in cash (at the  Common  Stock's  fair  market  value
determined by the Board of Directors as of the date of conversion)  the value of
any fractional share of Common Stock otherwise  issuable to any holder of Series
Preferred.  Such  conversion  shall be  deemed to have been made at the close of
business on the date of such  surrender  of the  certificates  representing  the
shares of Series  Preferred to be converted,  and the person entitled to receive
the shares of Common Stock  issuable upon such  conversion  shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.

                  (e)  Adjustment  for Stock  Splits  and  Combinations.  If the
Corporation shall at any time or from time to time after the date that the first
share of Series C  Preferred  is issued  (the  "Series C Original  Issue  Date")
effect a subdivision  of the  outstanding  Common Stock without a  corresponding
subdivision of the Preferred Stock, the Series A Preferred Conversion Price, the
Series B Preferred  Conversion Price, the Series B-1 Preferred  Conversion Price
and the Series C Preferred  Conversion Price in effect  immediately  before that
subdivision shall be proportionately  decreased.  Conversely, if the Corporation
shall at any time or from time to time after the  Series C  Original  Issue Date
combine the  outstanding  shares of Common Stock into a smaller number of shares
without  a  corresponding  combination  of the  Preferred  Stock,  the  Series A
Preferred  Conversion Price, the Series B Preferred Conversion Price, the Series
B-1 Preferred  Conversion  Price and the Series C Preferred  Conversion Price in
effect immediately  before the combination shall be  proportionately  increased.
Any  adjustment  under this Section 4(e) shall become  effective at the close of
business on the date the subdivision or combination becomes effective.

                  (f) Adjustment for Common Stock  Dividends and  Distributions.
If the  Corporation at any time or from time to time after the Series C Original
Issue Date  makes,  or fixes a record date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
additional  shares of Common  Stock,  in each such event the Series A  Preferred
Conversion  Price,  the  Series B  Preferred  Conversion  Price,  the Series B-1
Preferred  Conversion Price and the Series C Preferred  Conversion Price that is
then in effect  shall be  decreased  as of the time of such  issuance or, in the
event such  record  date is fixed,  as of the close of  business  on such record
date,  by  multiplying  the Series A Preferred  Conversion  Price,  the Series B
Preferred  Conversion  Price,  the Series B-1 Preferred  Conversion Price or the
Series C  Preferred  Conversion  Price  then in  effect  by a  fraction  (i) the
numerator  of which is the total  number of shares of Common  Stock  issued  and
outstanding  immediately  prior to the  time of such  issuance  or the  close of


                                       7.
<PAGE>

business on such record  date,  and (ii) the  denominator  of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such  issuance  or the close of  business  on such  record date plus the
number of shares of  Common  Stock  issuable  in  payment  of such  dividend  or
distribution;  provided,  however,  that if such  record  date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor,  the Series A Preferred Conversion Price, the Series B Preferred
Conversion  Price,  the Series B-1 Preferred  Conversion  Price and the Series C
Preferred  Conversion  Price shall be recomputed  accordingly as of the close of
business on such record date and  thereafter  the Series A Preferred  Conversion
Price,  the Series B  Preferred  Conversion  Price,  the  Series  B-1  Preferred
Conversion  Price and the Series C Preferred  Conversion Price shall be adjusted
pursuant to this Section 4(f) to reflect the actual  payment of such dividend or
distribution.

                  (g)    Adjustment   for    Reclassification,    Exchange   and
Substitution.  If at any time or from time to time  after the  Series C Original
Issue  Date,  the  Common  Stock  issuable  upon the  conversion  of the  Series
Preferred is changed into the same or a different  number of shares of any class
or classes of stock, whether by recapitalization,  reclassification or otherwise
(other than an  Acquisition  or Asset  Transfer as defined in Section  3(c) or a
subdivision  or  combination  of shares or stock  dividend or a  reorganization,
merger,  consolidation  or sale of assets provided for elsewhere in this Section
4), then in any such event each holder of Series  Preferred shall have the right
thereafter  to  convert  such  stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization,  reclassification
or other change by holders of the maximum  number of shares of Common Stock into
which such  shares of Series  Preferred  could have been  converted  immediately
prior to such  recapitalization,  reclassification  or  change,  all  subject to
further  adjustment as provided herein or with respect to such other  securities
or property by the terms thereof.

                  (h) Reorganizations, Mergers or Consolidations. If at any time
or from time to time after the Series C Original Issue Date,  there is a capital
reorganization  of the  Common  Stock  or the  merger  or  consolidation  of the
Corporation with or into another  corporation or another entity or person (other
than  an  Acquisition  or  Asset  Transfer  as  defined  in  Section  3(c)  or a
recapitalization,   subdivision,  combination,  reclassification,   exchange  or
substitution  of shares  provided for elsewhere in this Section 4), as a part of
such capital reorganization,  provision shall be made so that the holders of the
Series  Preferred shall thereafter be entitled to receive upon conversion of the
Series  Preferred the number of shares of stock or other  securities or property
of the  Corporation  to which a holder of the  number of shares of Common  Stock
deliverable   upon   conversion   would  have  been  entitled  on  such  capital
reorganization,  subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application  of the  provisions  of this Section 4 with respect to the rights of
the holders of Series Preferred after the capital reorganization to the end that
the provisions of this Section 4 (including adjustment of the Series A Preferred
Conversion  Price,  the  Series B  Preferred  Conversion  Price,  the Series B-1
Preferred  Conversion Price and the Series C Preferred  Conversion Price then in


                                       8.
<PAGE>

effect and the  number of shares  issuable  upon  conversion  of the  respective
Series  Preferred)  shall  be  applicable  after  that  event  and be as  nearly
equivalent as practicable.

                           (i) Sale of Shares Below Series Preferred  Conversion
Price.

                                    (i) If at any  time  or  from  time  to time
after the Series C Original Issue Date, the  Corporation  issues or sells, or is
deemed by the express  provisions  of this  Section 4(i) to have issued or sold,
Additional  Shares of Common  Stock (as defined in clause  (iv) of this  Section
4(i)  below),  other than as a dividend  or other  distribution  on any class of
stock as  provided  in  Section  4(f)  above,  and other than a  subdivision  or
combination of shares of Common Stock as provided in Section 4(e) above,  for an
Effective Price (as defined in clause (iv) of this Section 4(i) below) less than
the then effective Series A Preferred  Conversion  Price, the Series B Preferred
Conversion  Price,  the Series B-1  Preferred  Conversion  Price or the Series C
Preferred  Conversion  Price,  then and in each such case the  current  Series A
Preferred  Conversion Price, the Series B Preferred Conversion Price, the Series
B-1 Preferred  Conversion Price or the Series C Preferred  Conversion  Price, as
the case may be, shall be reduced,  as of the opening of business on the date of
such issue or sale, to a price  determined by multiplying the Series A Preferred
Conversion  Price,  the  Series B  Preferred  Conversion  Price,  the Series B-1
Preferred  Conversion Price or the Series C Preferred  Conversion  Price, as the
case may be, by a fraction (i) the numerator of which shall be (A) the number of
shares of Common Stock deemed  outstanding (as defined below)  immediately prior
to such issue or sale,  plus (B) the number of shares of Common  Stock which the
aggregate  consideration  received  (as  defined  below in  clause  (ii) of this
Section 4(i)) by the  Corporation  for the total number of Additional  Shares of
Common  Stock so issued  would  purchase at such  respective  Series A Preferred
Conversion  Price,  the  Series B  Preferred  Conversion  Price,  the Series B-1
Preferred  Conversion Price or the Series C Preferred Conversion Price, and (ii)
the  denominator  of which shall be the number of shares of Common  Stock deemed
outstanding (as defined below)  immediately prior to such issue or sale plus the
total number of  Additional  Shares of Common  Stock so issued or sold.  For the
purposes of the immediately  preceding sentence,  the number of shares of Common
Stock  deemed to be  outstanding  as of a given date shall be the sum of (A) the
number of shares of Common Stock actually outstanding,  (B) the number of shares
of Common Stock into which the then outstanding shares of Series Preferred could
be converted if fully converted on the day immediately preceding the given date,
and (C) the  number of shares of Common  Stock  issuable  upon the  exercise  or
conversion of all other rights,  options and convertible  securities outstanding
on the day immediately  preceding the given date. No adjustment shall be made to
the Series A  Preferred  Conversion  Price,  the Series B  Preferred  Conversion
Price,  the  Series B-1  Preferred  Conversion  Price or the Series C  Preferred
Conversion  Price in an amount less than  one-quarter of one cent per share. Any
adjustment  otherwise  required by this  Section 4(i) that is not required to be
made  due to  the  immediately  preceding  sentence  shall  be  included  in any
subsequent  adjustment to the Series A Preferred  Conversion Price, the Series B
Preferred  Conversion  Price,  the Series B-1 Preferred  Conversion Price or the
Series C Preferred  Conversion  Price. For avoidance of doubt, any adjustment to
the Series C Conversion  Price as a result of the provisions of Section 4(j) and
4(k) below shall not cause any adjustments to the applicable  Conversion  Prices
of the Series Preferred pursuant to the provisions of this Section 4(i)(i).

                                    (ii)  For  the   purpose   of   making   any
adjustment  required under this Section 4(i), the consideration  received by the
Corporation  for any  issue or sale of  securities  shall  (A) to the  extent it


                                       9.
<PAGE>

consists  of  cash,  be  computed  at the net  amount  of cash  received  by the
Corporation  after  deduction  of  any  underwriting  or  similar   commissions,
compensation  or  concessions  paid or allowed by the  Corporation in connection
with such issue or sale but without  deduction  of any  expenses  payable by the
Corporation,  (B) to the extent it  consists  of  property  other than cash,  be
computed at the fair value of that  property as  determined in good faith by the
Board of Directors,  and (C) if Additional  Shares of Common Stock,  Convertible
Securities  (as defined in clause (iii) of this Section 4(i) below) or rights or
options to purchase  either  Additional  Shares of Common  Stock or  Convertible
Securities  are issued or sold  together with other stock or securities or other
assets of the Corporation for a consideration  which covers both, be computed as
the portion of the  consideration so received that may be reasonably  determined
in good  faith by the Board of  Directors  to be  allocable  to such  Additional
Shares of Common Stock,  Convertible  Securities or rights or options.

                                    (iii)  For  the  purpose  of the  adjustment
required under this Section 4(i), if (x) the Corporation issues or sells any (i)
stock or other securities  convertible  into,  Additional Shares of Common Stock
(such  convertible  stock or securities being herein referred to as "Convertible
Securities") or (ii) rights or options for the purchase of Additional  Shares of
Common  Stock or  Convertible  Securities  and (y) the  Effective  Price of such
Additional Shares of Common Stock is less than the Series A Preferred Conversion
Price,  the Series B  Preferred  Conversion  Price,  the  Series  B-1  Preferred
Conversion Price or the Series C Preferred  Conversion  Price, then in each case
the  Corporation  shall be deemed to have issued at the time of the  issuance of
such  rights  or  options  or  Convertible  Securities  the  maximum  number  of
Additional  Shares of Common Stock issuable upon exercise or conversion  thereof
and to have received as consideration  for the issuance of such shares an amount
equal  to the  total  amount  of the  consideration,  if  any,  received  by the
Corporation   for  the  issuance  of  such  rights  or  options  or  Convertible
Securities,  plus, in the case of such rights or options, the minimum amounts of
consideration,  if any,  payable to the  Corporation  upon the  exercise of such
rights or options,  plus,  in the case of  Convertible  Securities,  the minimum
amounts of  consideration,  if any,  payable to the  Corporation  (other than by
cancellation  of  liabilities  or  obligations  evidenced  by  such  Convertible
Securities)  upon  the  conversion  thereof;  provided  that  if in the  case of
Convertible  Securities  the  minimum  amounts of such  consideration  cannot be
ascertained,  but are a function of antidilution or similar protective  clauses,
the  Corporation  shall be  deemed  to have  received  the  minimum  amounts  of
consideration  without  reference to such clauses;  provided further that if the
minimum amount of consideration  payable to the Corporation upon the exercise or
conversion of rights,  options or Convertible Securities is reduced over time or
on the occurrence or  non-occurrence of specified events other than by reason of
antidilution  adjustments,  the Effective Price shall be recalculated  using the
figure to which  such  minimum  amount of  consideration  is  reduced;  provided
further that if the minimum amount of  consideration  payable to the Corporation
upon  the  exercise  or  conversion  of  such  rights,  options  or  Convertible
Securities  is  subsequently  increased,  the  Effective  Price  shall  be again
recalculated using the increased minimum amount of consideration  payable to the
Corporation  upon  the  exercise  or  conversion  of  such  rights,  options  or
Convertible  Securities.  No  further  adjustment  of  the  Series  A  Preferred
Conversion  Price,  the  Series B  Preferred  Conversion  Price,  the Series B-1
Preferred  Conversion  Price or the  Series C  Preferred  Conversion  Price,  as
adjusted upon the issuance of such rights,  options or  Convertible  Securities,
shall be made as a result of the actual issuance of Additional  Shares of Common
Stock on the  exercise  of any such rights or options or the  conversion  of any
such  Convertible  Securities.  If any such rights or options or the  conversion


                                      10.
<PAGE>
privilege  represented by any such  Convertible  Securities shall expire without
having been exercised,  the Series A Preferred  Conversion  Price,  the Series B
Preferred  Conversion  Price,  the Series B-1 Preferred  Conversion Price or the
Series C  Preferred  Conversion  Price as  adjusted  upon the  issuance  of such
rights,  options or Convertible  Securities  shall be readjusted to the Series A
Preferred  Conversion Price, the Series B Preferred Conversion Price, the Series
B-1 Preferred  Conversion Price or the Series C Preferred Conversion Price which
would have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of  conversion of such  Convertible  Securities,  and such  Additional
Shares of  Common  Stock,  if any,  were  issued  or sold for the  consideration
actually received by the Corporation upon such exercise, plus the consideration,
if any, actually received by the Corporation for the granting of all such rights
or  options,  whether or not  exercised,  plus the  consideration  received  for
issuing or selling  the  Convertible  Securities  actually  converted,  plus the
consideration,  if any,  actually  received  by the  Corporation  (other than by
cancellation  of  liabilities  or  obligations  evidenced  by  such  Convertible
Securities) on the conversion of such Convertible Securities; provided that such
readjustment shall not apply to prior conversions of Series Preferred.

                                    (iv)  "Additional  Shares of  Common  Stock"
shall mean all shares of Common Stock issued by the Corporation or deemed issued
pursuant to this Section 4(i), whether or not subsequently reacquired or retired
by the  Corporation  other  than:  (A) shares of Series C  Preferred  and/or any
shares of Common  Stock  issued upon  conversion  of the Series  Preferred;  (B)
shares of Common Stock and/or  options,  warrants or other Common Stock purchase
rights and the Common Stock issued  pursuant to such options,  warrants or other
rights   (as   adjusted   for  any  stock   dividends,   combinations,   splits,
recapitalizations  and the  like)  after the  Series C  Original  Issue  Date to
employees,  officers  or  directors  of,  or  consultants  or  advisors  to  the
Corporation or any  subsidiary  pursuant to stock purchase or stock option plans
or other arrangements that are approved by the Board; (C) shares of Common Stock
issued pursuant to the exercise of options,  warrants or convertible  securities
outstanding  as of the Series C Original  Issue Date; (D) shares of Common Stock
issued and/or options,  warrants or other Common Stock purchase rights,  and the
Common  Stock  issued  pursuant to such  options,  warrants or other  rights for
consideration other than cash pursuant to a merger,  consolidation,  acquisition
or similar business  combination approved by the Board; (E) shares issued in any
bona fide strategic transactions approved by the Board; and (F) shares of Common
Stock issued pursuant to any equipment  leasing  arrangement,  or debt financing
from a bank or similar financial  institution approved by the Board.  References
to Common  Stock in the  provisions  of this  clause  (iv) above  shall mean all
shares of Common Stock issued by the Corporation or deemed to be issued pursuant
to this Section 4(i). The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient  determined  by dividing the total number of  Additional
Shares of Common Stock issued or sold,  or deemed to have been issued or sold by
the  Corporation  under this  Section  4(i),  into the  aggregate  consideration
received,  or deemed to have been  received  by the  Corporation  for such issue
under this Section 4(i), for such Additional Shares of Common Stock.

                           (j)  Adjustment  for  Failure  to  Achieve  Milestone
Completion.  If, on March 31, 2004,  the  Corporation  has, with new or existing
customers,  then current licenses to between  fifty-six (56) and sixty-nine (69)
seats  for  the  Corporation's  STRIDE  software  program,  then  the  Series  C
Conversion Price will be reduced to $0.475 per share. If, on March 31, 2004, the
Corporation does not have, with new or existing customers, then current licenses


                                      11.
<PAGE>

to at least fifty-six (56) seats, for the Corporation's STRIDE software program,
then the Series C  Conversion  Price  will be  reduced to $0.35 per share.  Such
adjustment  shall be  automatically  effective  as of April 1,  2004;  provided,
however, that there shall be no adjustments pursuant to this Section 4(j) if the
Corporation,  on March 31,  2004,  has,  with new or  existing  customers,  then
current  licenses to at least  seventy (70) seats for the  Corporation's  STRIDE
software program.

                           (k) Notices of Adjustment  for Milestone  Completion.
Following  any  adjustment  pursuant  to  Section  4(j)  above  of the  Series C
Preferred  Conversion  Price due to the failure of the  Corporation  to have the
required  number of seat licenses,  within thirty (30) days following  March 31,
2004 the  Corporation  shall mail to each  holder of Series C Preferred a notice
specifying  whether or not there was an  adjustment  to the Series C  Conversion
Price pursuant to Section 4(j) hereof. In the case of an adjustment, such notice
shall  describe the  adjustment  and state the then current  Series C Conversion
Price.  Such notice shall state the actual  number of then current seat licenses
for the Corporation's STRIDE software program as of March 31, 2004.

                           (l)  Certificate  of  Adjustment.  In each case of an
adjustment  or  readjustment  of the Series A Preferred  Conversion  Price,  the
Series B Preferred  Conversion Price, the Series B-1 Preferred  Conversion Price
or the Series C  Preferred  Conversion  Price for the number of shares of Common
Stock or other  securities  issuable upon  conversion of the  respective  Series
Preferred,  if the respective  Series Preferred is then convertible  pursuant to
this Section 4, the Corporation,  at its expense,  shall compute such adjustment
or  readjustment  in  accordance  with  the  provisions  hereof  and  prepare  a
certificate  showing  such  adjustment  or  readjustment,  and  shall  mail such
certificate,  by first class mail, postage prepaid, to each registered holder of
Series  Preferred at the holder's address as shown in the  Corporation's  books.
The  certificate  shall set forth such  adjustment or  readjustment,  showing in
detail the facts upon which such adjustment or readjustment is based,  including
a statement  of (i) the  consideration  received or deemed to be received by the
Corporation  for any Additional  Shares of Common Stock issued or sold or deemed
to have been issued or sold, (ii) the Series A Preferred Conversion Price and/or
the  Series B  Preferred  Conversion  Price  and/or  the  Series  B-1  Preferred
Conversion Price and/or the Series C Preferred Conversion Price, as the case may
be, at the time in effect, (iii) the number of Additional Shares of Common Stock
and (iv) the type and amount,  if any, of other property which at the time would
be received upon conversion of the Series Preferred.

                           (m)  Notices of Record  Date.  Upon (i) any taking by
the  Corporation  of a record of the holders of any class of securities  for the
purpose of  determining  the  holders  thereof  who are  entitled to receive any
dividend or other  distribution,  or (ii) any Acquisition (as defined in Section
3(c) or other capital reorganization of the Corporation, any reclassification or
recapitalization  of  the  capital  stock  of the  Corporation,  any  merger  or
consolidation  of the  Corporation  with or into any other  corporation,  or any
Asset  Transfer (as defined in Section  (3c)),  or any voluntary or  involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each  holder of  Series  Preferred  at least ten (10) days  prior to the
record date specified  therein (or such shorter period approved by a majority of
each Series of the outstanding  Series Preferred voting separately as a class) a
notice  specifying  (A) the date on which any such record is to be taken for the
purpose of such dividend or  distribution  and a description of such dividend or
distribution,  (B) the  date on  which  any  such  Acquisition,  reorganization,


                                      12.
<PAGE>

reclassification,  transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective,  and (C) the date, if
any,  that is to be fixed as to when the  holders of record of Common  Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other  securities)  for  securities  or other  property  deliverable  upon  such
Acquisition, reorganization,  reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.

                           (n) Automatic Conversion.

                                    (i) (A)  Each  respective  share  of  Series
Preferred shall automatically be converted into shares of Common Stock, based on
the then-effective  Series A Preferred  Conversion Price, the Series B Preferred
Conversion  Price,  the Series B-1  Preferred  Conversion  Price or the Series C
Preferred  Conversion Price, as the case may be, immediately upon the closing of
a firmly  underwritten  public  offering  pursuant to an effective  registration
statement  under the Securities Act of 1933, as amended,  covering the offer and
sale of Common  Stock for the  account of the  Corporation  in which (i) the per
share  price  is at least  $5.00  per  share  (as  adjusted  for  stock  splits,
dividends,  recapitalizations  and the like),  and (ii) the cash proceeds to the
Corporation (before underwriting  discounts,  commissions and fees) are at least
$20,000,000.

                                             (B)   Each   share   of   Series  A
Preferred shall automatically be converted into shares of Common Stock, based on
the  then-effective  Series A Preferred  Conversion  Price upon the  affirmative
election  of the  holders of at least a majority  of the  outstanding  shares of
Series A Preferred.  Each share of Series B Preferred  and Series B-1  Preferred
shall  automatically  be  converted  into shares of Common  Stock,  based on the
then-effective  Series B  Preferred  Conversion  Price and Series B-1  Preferred
Conversion Price, respectively,  upon the affirmative election of the holders of
at least a majority of the  outstanding  shares of Series B Preferred and Series
B-1  Preferred,  voting  together  as a single  class.  Each  share of  Series C
Preferred shall automatically be converted into shares of Common Stock, based on
the  then-effective  Series C Preferred  Conversion  Price upon the  affirmative
election  of the  holders of at least a majority  of the  outstanding  shares of
Series C  Preferred.  Upon such  automatic  conversion,  any declared and unpaid
dividends shall be paid in accordance with the provisions of Section 4(d).

                                    (ii)  Upon  the  occurrence  of  any  of the
events specified in Section  4(l)(i)(A) above, the outstanding  shares of Series
Preferred  shall be converted  automatically  without any further  action by the
holders of such shares and  whether or not the  certificates  representing  such
shares are  surrendered  to the  Corporation  or its transfer  agent;  provided,
however,  that the  Corporation  shall not be  obligated  to issue  certificates
evidencing the shares of Common Stock issuable upon such  conversion  unless the
certificates  evidencing such shares of Series Preferred are either delivered to
the  Corporation or its transfer agent as provided below, or the holder notifies
the  Corporation  or its transfer agent that such  certificates  have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the  Corporation  from any loss incurred by it in connection with such
certificates.  Upon the  occurrence of such  automatic  conversion of the Series
Preferred,  the holders of Series  Preferred  shall  surrender the  certificates
representing  such shares at the office of the Corporation or any transfer agent
for the Series Preferred.  Thereupon, the Corporation shall issue and deliver to
such holder promptly at such office and in its name as shown on such surrendered


                                      13.
<PAGE>

certificate or  certificates,  a certificate or  certificates  for the number of
shares of Common  Stock into which the  shares of Series  Preferred  surrendered
were convertible on the date on which such automatic  conversion  occurred,  and
any  declared  and  unpaid  dividends  shall  be paid  in  accordance  with  the
provisions of Section 4(d).

                           (o) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Series Preferred.  All shares of Common
Stock (including  fractions  thereof)  issuable upon conversion of more than one
share of Series  Preferred by a holder  thereof shall be aggregated for purposes
of  determining  whether  the  conversion  would  result in the  issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional  share, the Corporation  shall, in lieu
of issuing any fractional  share, pay cash equal to the product of such fraction
multiplied by the Common  Stock's fair market value (as determined by the Board)
on the date of conversion.

                           (p)  Reservation of Stock  Issuable Upon  Conversion.
The  Corporation  shall  at all  times  reserve  and keep  available  out of its
authorized  but  unissued  shares of Common  Stock,  solely  for the  purpose of
effecting the conversion of the shares of the Series  Preferred,  such number of
its shares of Common  Stock as shall from time to time be  sufficient  to effect
the conversion of all outstanding shares of the Series Preferred. If at any time
the  number of  authorized  but  unissued  shares of Common  Stock  shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
Preferred,  the  Corporation  will take  such  corporate  action as may,  in the
opinion of its counsel,  be necessary  to increase its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purpose.

                           (q) Notices. Any notice required by the provisions of
this Section 4 shall be in writing and shall be deemed  effectively  given:  (i)
upon personal delivery to the party to be notified,  (ii) when sent by confirmed
facsimile if sent during  normal  business  hours of the recipient and if not so
sent  within such  hours,  then on the next  business  day,  provided  that such
facsimile  notice  is  followed  upon  within  three (3) days by  registered  or
certified mail,  postage prepaid as set forth in this clause (q), (iii) five (5)
days after having been sent by  registered  or certified  mail,  return  receipt
requested,  postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized  overnight  courier,  specifying  next  day  delivery,  with  written
verification of receipt. All notices shall be addressed to each holder of record
at the address of such holder appearing on the books of the Corporation.

                           (r) Payment of Taxes.  The  Corporation  will pay all
taxes (other than taxes based upon income) and other  governmental  charges that
may be imposed  with  respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series Preferred, excluding any tax or other charge
imposed in  connection  with any transfer  involved in the issue and delivery of
shares of Common  Stock in a name  other than that in which the shares of Series
Preferred so converted were registered.

                           (s) No Dilution or Impairment. Without the consent of
the holders of the then outstanding Series Preferred,  as required under Section
2(b),  the  Corporation  shall not amend its  Amended and  Restated  Articles of
Incorporation  or  participate  in  any  reorganization,   transfer  of  assets,
consolidation,  merger,  dissolution,  issue or sale of  securities  or take any
other  voluntary  action,  for the  purpose of  avoiding or seeking to avoid the
observance  or  performance  of any of the  terms to be  observed  or  performed


                                      14.
<PAGE>

hereunder  by the  Corporation,  but shall at all times in good faith  assist in
carrying out all such action as may be reasonably  necessary or  appropriate  in
order to protect the  conversion  rights of the holders of the Series  Preferred
against dilution or other impairment.

         5. REDEMPTION.

                  (a) Series C Preferred  Redemption.  The Corporation  shall be
obligated to redeem the Series B Preferred,  Series B-1  Preferred  and Series C
Preferred as follows:

                           (i) The holders of at least  sixty-six and two-thirds
percent (66 2/3%) of the then outstanding  shares of Series B Preferred,  Series
B-1 Preferred  and Series C Preferred,  voting  together as a single class,  may
require  the  Corporation,  to the extent it may  lawfully  do so, to redeem the
Series B  Preferred,  Series B-1  Preferred  and Series C Preferred in three (3)
equal annual installments beginning on the fifth anniversary after the date that
the first share of Series C Preferred is issued (the "Original Issue Date"), and
ending  on the date two (2)  years  from  such  first  redemption  date  (each a
"Redemption  Date");  provided that the Corporation shall receive at least sixty
(60) days prior to such fifth anniversary  written notice of such request of the
Series B Preferred, Series B-1 Preferred and Series C Preferred. The Corporation
shall effect such  redemptions  on the applicable  Redemption  Date by paying in
cash in exchange for the shares of Series B Preferred,  Series B-1 Preferred and
Series C  Preferred  to be  redeemed a sum equal to the Series B Original  Issue
Price,  Series B-1 Original  Issue Price or Series C Original  Issue  Price,  as
applicable,  per share of Series B Preferred,  Series B-1  Preferred or Series C
Preferred,  as applicable,  (as adjusted for any stock dividends,  combinations,
splits,  recapitalizations and the like) plus declared and unpaid dividends with
respect to such  shares.  The total amount to be paid for the Series B Preferred
is the "Series B Redemption  Price".  The total amount to be paid for the Series
B-1 Preferred is the "Series B-1 Redemption  Price". The total amount to be paid
for the Series C Preferred  is the "Series C  Redemption  Price".  The number of
shares of Series B Preferred,  Series B-1 Preferred and Series C Preferred  that
the Corporation  shall be required to redeem on any one Redemption Date shall be
equal to the amount determined by dividing (A) the aggregate number of shares of
Series B  Preferred,  Series B-1  Preferred  and Series C Preferred  outstanding
immediately  prior  to the  Redemption  Date  by (B)  the  number  of  remaining
Redemption  Dates  (including  the  Redemption  Date to which  such  calculation
applies).  Shares  subject to redemption  pursuant to this Section 5(a) shall be
redeemed from each holder of Series B Preferred, Series B-1 Preferred and Series
C Preferred on a pro rata basis.

                           (ii) At least  thirty  (30)  days,  but no more  than
sixty (60) days prior to the first Redemption Date, the Corporation shall send a
notice (a "Redemption Notice") to all holders of Series B Preferred,  Series B-1
Preferred  and Series C Preferred to be redeemed  setting forth (A) the Series B
Redemption  Price,  the Series B-1 Redemption  Price and the Series C Redemption
Price for the shares to be redeemed; and (B) the place at which such holders may
obtain payment of the Series B Redemption Price, the Series B-1 Redemption Price
and Series C Redemption Price upon surrender of their share certificates. If the
Corporation  does not have  sufficient  funds  legally  available  to redeem all
shares to be redeemed at the Redemption Date (including, if applicable, those to
be redeemed at the option of the Corporation),  then it shall redeem such shares
pro rata  (based on the  portion of the  aggregate  Series B  Redemption  Price,


                                      15.
<PAGE>

Series B-1  Redemption  Price and Series C Redemption  Price payable to them) to
the extent possible and shall redeem the remaining shares to be redeemed as soon
as sufficient funds are legally available.

                           (iii)  On  or  prior  to  the  Redemption  Date,  the
Corporation shall deposit the Series B Redemption  Price,  Series B-1 Redemption
Price and Series C Redemption  Price of all shares to be redeemed with a bank or
trust company having aggregate capital and surplus in excess of $100,000,000, as
a trust fund, with  irrevocable  instructions and authority to the bank or trust
company  to pay,  on and after such  Redemption  Date,  the Series B  Redemption
Price, Series B-1 Redemption Price and Series C Redemption Price, as applicable,
of the shares to their  respective  holders  upon the  surrender  of their share
certificates.  Any moneys deposited by the Corporation  pursuant to this Section
5(b) for the  redemption of shares  thereafter  converted  into shares of Common
Stock  pursuant to Section 4 hereof no later than the fifth (5th) day  preceding
the  Redemption  Date,  as  applicable,  shall be  returned  to the  Corporation
forthwith  upon such  conversion.  The  balance  of any funds  deposited  by the
Corporation  pursuant to this Section 5(b) remaining unclaimed at the expiration
of one (1) year following such Redemption Date, as applicable, shall be returned
to the Corporation promptly upon its written request.

                           (iv) On or after such Redemption Date, each holder of
shares of Series B Preferred,  Series B-1 Preferred and Series C Preferred to be
redeemed shall surrender such holder's certificates  representing such shares to
the  Corporation  in the manner and at the place  designated  in the  Redemption
Notice and thereupon the Series B Redemption Price,  Series B-1 Redemption Price
and Series C Redemption Price, as applicable, of such shares shall be payable to
the order of the person whose name appears on such  certificate or  certificates
as the owner thereof and each surrendered  certificate shall be canceled. In the
event less than all the shares represented by such certificates are redeemed,  a
new certificate  shall be issued  representing the unredeemed  shares.  From and
after such Redemption Date,  unless there shall have been respectively a default
in payment of the Series B Redemption  Price,  Series B-1  Redemption  Price and
Series C Redemption  Price or the  Corporation  is unable to pay the  respective
Series B Redemption  Price,  Series B-1 Redemption Price and Series C Redemption
Price due to not having  sufficient  legally  available funds, all rights of the
respective  holder of Series B Preferred,  Series B-1 Preferred  and/or Series C
Preferred (except the right to receive the Series B Redemption Price, Series B-1
Redemption Price or Series C Redemption  Price, as applicable,  without interest
upon surrender of their certificates), shall cease and terminate with respect to
such  shares;  provided  that in the event  that  shares of Series B  Preferred,
Series B-1 Preferred and Series C Preferred are not redeemed due to a default in
payment by the Corporation or because the  Corporation  does not have sufficient
legally  available  funds,  then such  respective  shares of Series B Preferred,
Series B-1 Preferred and Series C Preferred  shall remain  outstanding and shall
be entitled to all of the rights and preferences provided herein.

                           (v) In the  event  of a call  for  redemption  of any
shares of Series B Preferred,  Series B-1  Preferred  and Series C Preferred the
Conversion Rights (as defined in Section 4) for such Series B Preferred,  Series
B-1 Preferred and Series C Preferred shall terminate as to the shares designated
for  redemption  at the close of business on the fifth (5th) day  preceding  the
Redemption Date, as applicable,  unless default is respectively  made in payment
of the  Series B  Redemption  Price,  Series B-1  Redemption  Price and Series C
Redemption Price.

                                      16.
<PAGE>
         6. NO REISSUANCE OF SERIES PREFERRED.

         No share or shares of Series Preferred acquired by the Corporation by
reason of purchase, conversion or otherwise shall be reissued.

                                       IV.

         A. The  liability  of the  directors  of the  Corporation  for monetary
damages shall be eliminated to the fullest extent  permissible  under California
law.

         B. The Corporation is authorized to provide  indemnification  of agents
(as defined in Section 317 of the General  Corporation  Law of  California)  for
breach of duty to the Corporation and its shareholders  through bylaw provisions
or through  agreements  with agents,  or both, in excess of the  indemnification
otherwise permitted by Section 317 of the General Corporation Law of California,
subject to the limits on such excess indemnification set forth in Section 204 of
the General Corporation Law of California.  If, after the effective date of this
Article IV, California law is amended in a manner which permits a corporation to
limit  the  monetary  or  other  liability  of  its  directors  or to  authorize
indemnification of, or advancement of such defense expenses to, its directors or
other  persons,  in any such case to a greater  extent than is permitted on such
effective date, the references in this Article to "California law" shall to that
extent be deemed to refer to California law as so amended.

         C.  Any  repeal  or  modification  of this  Article  IV  shall  only be
prospective  and shall not affect the rights under this Article in effect at the
time of the alleged  occurrence  of any action or omission to act giving rise to
liability."

         THREE:  The  foregoing  amendment  and  restatement  of the Amended and
Restated  Articles  of  Incorporation  has been  duly  approved  by the Board of
Directors of this Corporation.

         FOUR: The foregoing  Amended and Restated Articles of Incorporation has
been duly  approved by the required  vote of  shareholders  in  accordance  with
Section 902 of the General  Corporation  Law of California.  The total number of
outstanding  shares  entitled to vote or act by written  consent was six million
one hundred six thousand two hundred fifty  (6,106,250)  shares of Common Stock,
two  million  five  hundred  ninety-two   thousand  five  hundred   ninety-three
(2,592,593)  shares of Series A Preferred,  nine million nine hundred sixty-four
thousand two hundred eighty-six (9,964,286) shares of Series B Preferred and two
million eight hundred fifty-seven  thousand one hundred thirty-nine  (2,857,139)
shares of Series B-1  Preferred.  A majority  of the  outstanding  shares of the
Common Stock voting as a single class, a majority of the  outstanding  shares of
the  Series A  Preferred  Stock  voting as a single  class,  a  majority  of the
outstanding  shares of the Series B-1 Preferred  Stock voting as a single class,
sixty-six  and two thirds  percent  (66 2/3%) of the  outstanding  shares of the
Series B Preferred  Stock and Series B-1 Preferred  Stock,  voting together as a
single class,  and a majority of the outstanding  shares of the Common Stock and
the Preferred Stock, voting together as a single class, approved the Amended and
Restated Articles of Incorporation by written consent in accordance with Section
603 of the General Corporation Law of California.


                                      17.
<PAGE>


         The  undersigned,  Mark  Underseth,  the  President and Secretary of S2
TECHNOLOGIES,  INC.,  declares  under  penalty of perjury  under the laws of the
State of California  that the matters set out in the foregoing  certificate  are
true of his own knowledge.

         Executed at San Diego, California on January __, 2004.



                                      ------------------------------------------
                                      Mark Underseth, President and Secretary















                 AMENDED AND RESTATED ARTICLES OF INCORPORATION
                                 SIGNATURE PAGE
<PAGE>
<TABLE>
<CAPTION>


                                                   TABLE OF CONTENTS

                                                                                                               PAGE

<S>      <C>      <C>                                                                                            <C>
1.       DIVIDEND RIGHTS..........................................................................................2

2.       VOTING RIGHTS............................................................................................2

         (a)      General Rights..................................................................................2

         (b)      Separate Vote of Series Preferred...............................................................2

         (c)      Election of Board of Directors..................................................................4

3.       LIQUIDATION RIGHTS.......................................................................................4

4.       CONVERSION RIGHTS........................................................................................6

         (a)      Optional Conversion.............................................................................6

         (b)      Series Preferred Conversion Rate................................................................6

         (c)      Conversion Price................................................................................6

         (d)      Mechanics of Conversion.........................................................................6

         (e)      Adjustment for Stock Splits and Combinations....................................................7

         (f)      Adjustment for Common Stock Dividends and Distributions.........................................7

         (g)      Adjustment for Reclassification, Exchange and Substitution......................................7

         (h)      Reorganizations, Mergers or Consolidations......................................................8

         (i)      Sale of Shares Below Series Preferred Conversion Price..........................................8

         (j)      Certificate of Adjustment......................................................................11

         (k)      Notices of Record Date.........................................................................11

         (l)      Automatic Conversion...........................................................................12

         (m)      Fractional Shares..............................................................................12

         (n)      Reservation of Stock Issuable Upon Conversion..................................................13

         (o)      Notices........................................................................................13

         (p)      Payment of Taxes...............................................................................13

         (q)      No Dilution or Impairment......................................................................13

5.       REDEMPTION..............................................................................................13

6.       NO REISSUANCE OF SERIES PREFERRED.......................................................................15

                                                         i.
</TABLE>

<PAGE>



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