Document:

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                                                                     EXHIBIT 4.1

                 SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE

                                    AGREEMENT

                          DATED AS OF FEBRUARY 25, 2005

                                      AMONG

                       BOUNDLESS MOTOR SPORTS RACING, INC.

                                       AND

                       THE PURCHASERS LISTED ON EXHIBIT A

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                                TABLE OF CONTENTS

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ARTICLE I Purchase and Sale of Preferred Stock...................................................................      1

         Section 1.1       Purchase and Sale of Stock............................................................      1
         Section 1.2       The Conversion Shares.................................................................      1
         Section 1.3       Purchase Price and Closing............................................................      1
         Section 1.4       Warrants..............................................................................      2
         Section 1.5       Exchange of Promissory Notes..........................................................      2

ARTICLE II Representations and Warranties........................................................................      2

         Section 2.1       Representations and Warranties of the Company.........................................      2
         Section 2.2       Representations and Warranties of the Purchasers......................................     13

ARTICLE III Covenants............................................................................................     15

         Section 3.1       Securities Compliance.................................................................     15
         Section 3.2       Registration and Listing..............................................................     16
         Section 3.3       Inspection Rights.....................................................................     16
         Section 3.4       Compliance with Laws..................................................................     16
         Section 3.5       Keeping of Records and Books of Account...............................................     16
         Section 3.6       Reporting Requirements................................................................     16
         Section 3.7       Amendments............................................................................     17
         Section 3.8       Other Agreements......................................................................     17
         Section 3.9       Distributions.........................................................................     17
         Section 3.10      Status of Dividends...................................................................     17
         Section 3.11      Use of Proceeds.......................................................................     18
         Section 3.12      Future Financings; Right of First Offer and Refusal...................................     18
         Section 3.13      Reservation of Shares.................................................................     19
         Section 3.14      Transfer Agent Instructions...........................................................     20
         Section 3.15      Disposition of Assets.................................................................     20
         Section 3.16      Reporting Status......................................................................     20
         Section 3.17      Disclosure of Transaction ............................................................     20
         Section 3.18      Disclosure of Material Information....................................................     20
         Section 3.19      Pledge of Securities..................................................................     21
         Section 3.20      Independent Board Members ............................................................     21
         Section 3.21      Nasdaq Listing........................................................................     21
         Section 3.22      Board Observer Rights.................................................................     21

ARTICLE IV Conditions............................................................................................     22

         Section 4.1       Conditions Precedent to the Obligation of the Company to Sell the Shares..............     22
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         Section 4.2       Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares.......     22

ARTICLE V Stock Certificate Legend...............................................................................     25

         Section 5.1       Legend................................................................................     25

ARTICLE VI Indemnification.......................................................................................     26

         Section 6.1       General Indemnity.....................................................................     26
         Section 6.2       Indemnification Procedure.............................................................     26

ARTICLE VII Miscellaneous........................................................................................     27

         Section 7.1       Fees and Expenses.....................................................................     27
         Section 7.2       Specific Enforcement, Consent to Jurisdiction.........................................     28
         Section 7.3       Entire Agreement; Amendment...........................................................     28
         Section 7.4       Notices...............................................................................     29
         Section 7.5       Waivers...............................................................................     29
         Section 7.6       Headings..............................................................................     30
         Section 7.7       Successors and Assigns................................................................     30
         Section 7.8       No Third Party Beneficiaries..........................................................     30
         Section 7.9       Governing Law.........................................................................     30
         Section 7.10      Survival..............................................................................     30
         Section 7.11      Counterparts..........................................................................     30
         Section 7.12      Publicity.............................................................................     30
         Section 7.13      Severability..........................................................................     30
         Section 7.14      Further Assurances....................................................................     31
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             SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

      This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of February 25, 2005 by and among Boundless Motor
Sports Racing, Inc., a Colorado corporation (the "Company"), and each of the
Purchasers of shares of Series B Convertible Preferred Stock of the Company
whose names are set forth on Exhibit A hereto (individually, a "Purchaser" and
collectively, the "Purchasers").

      The parties hereto agree as follows:

                                    ARTICLE I

                      PURCHASE AND SALE OF PREFERRED STOCK

            Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company's Series B Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), at a purchase price of $3,000 per share, set forth opposite
such Purchaser's name on Exhibit A hereto. Upon the following terms and
conditions, each of the Purchasers shall be issued Series B Warrants, in
substantially the form attached hereto as Exhibit B (the "Warrants"), to
purchase the number of shares of the Company's common stock, par value $.0001
per share (the "Common Stock") set forth opposite such Purchaser's name on
Exhibit A hereto. The aggregate purchase price for the Preferred Shares and the
Warrants shall be $4,000,000. The designation, rights, preferences and other
terms and provisions of the Series B Convertible Preferred Stock are set forth
in the Certificate of Designation of the Relative Rights and Preferences of the
Series B Convertible Preferred Stock attached hereto as Exhibit C (the
"Certificate of Designation"). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.

            Section 1.2 The Conversion Shares. The Company has authorized and
has reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and exercise of the Warrants then outstanding.
Any shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred to as
the "Conversion Shares" and the "Warrant Shares", respectively. The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes collectively
referred to as the "Shares".

            Section 1.3 Purchase Price and Closing. The Company agrees to issue
and sell to the Purchasers and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchasers, severally but not

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jointly, agree to purchase that number of the Preferred Shares and Warrants set
forth opposite their respective names on Exhibit A. The aggregate purchase price
of the Preferred Shares and Warrants being acquired by each Purchaser is set
forth opposite such Purchaser's name on Exhibit A (for each such Purchaser, the
"Purchase Price" and collectively referred to as the "Purchase Prices"). The
Company acknowledges that a portion of the Purchase Price shall be paid by
certain Purchasers surrendering to the Company for cancellation promissory notes
issued by the Company as more fully described in Section 1.5 hereto. The closing
of the purchase and sale of the Preferred Shares and Warrants shall take place
at the offices of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New
York, New York 10022 (the "Closing") at 1:00 p.m. (eastern time) or at such
other time and place as the Purchasers and the Company may agree upon, upon the
satisfaction of each of the conditions set forth in Article IV hereof (the
"Closing Date"). Funding with respect to the Closing shall take place by wire
transfer of immediately available funds on or prior to the Closing Date.

            Section 1.4 Warrants. The Company agrees to issue to each of the
Purchasers Warrants to purchase a number of shares of Common Stock equal to
fifty percent (50%) of the number of Conversion Shares issuable upon conversion
of such Purchaser's Preferred Shares purchased. The number of Warrants each
Purchaser shall be issued pursuant to this Agreement is set forth opposite such
Purchaser's name on Exhibit A hereto. The Warrants shall expire seven (7) years
from the Closing Date and shall have an exercise price per share equal to $4.00.

            Section 1.5 Exchange of Promissory Notes. Prior to or at the
Closing, North Sound Capital LLC or its affiliates shall surrender to the
Company the promissory notes issued on January 13, 2005 in the aggregate
principal amount of $700,000 plus any accrued interest for cancellation, and
North Sound Capital LLC or its affiliates shall receive in exchange for the
surrender of such promissory notes, a number of Preferred Shares and Warrants as
set forth on Exhibit A attached hereto.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

            Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:

            (a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth in the Company's Form 10-KSB for the year ended September 30, 2004, as
amended, including the accompanying financial statements (the "Form 10-KSB"), or
in the Company's Form 10-QSB for the fiscal quarters ended June 30, 2004, March
31, 2004 and December 31, 2003 (collectively, the "Form 10-QSB"), or on Schedule
2.1(a) hereto. The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or

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in the aggregate) in which the failure to be so qualified will not have a
Material Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's
financial condition.

            (b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit D (the "Registration
Rights Agreement"), the Irrevocable Transfer Agent Instructions (as defined in
Section 3.14), the Certificate of Designation, and the Warrants (collectively,
the "Transaction Documents") and to issue and sell the Shares and the Warrants
in accordance with the terms hereof. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.

            (c) Capitalization. The authorized capital stock of the Company and
the shares thereof currently issued and outstanding as of February 25, 2005 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and Series B Convertible Preferred Stock have been duly
and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock are entitled to preemptive rights or registration rights
and there are no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and the Registration Rights
Agreement or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a right
of rescission or claim for damages with respect thereto which would have a
Material Adverse Effect (as defined below) on the Company's financial condition
or operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's Bylaws as in
effect on the date hereof (the "Bylaws"). For

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the purposes of this Agreement, "Material Adverse Effect" means any material
adverse effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement in any material respect.

            (d) Issuance of Shares. The Preferred Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares
are issued in accordance with the terms of the Certificate of Designation and
the Warrants, respectively, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock.

            (e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company's Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and

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agreements of the Purchasers herein.

            (f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, since September 30, 2004, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since September 30, 2004. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Form 10-KSB and the Form 10-QSB complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-KSB and the Form 10-QSB
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

            (g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each person's ownership. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to

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repurchase or otherwise acquire or retire any shares of the capital stock of any
subsidiary or any convertible securities, rights, warrants or options of the
type described in the preceding sentence. Neither the Company nor any subsidiary
is party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any subsidiary.

            (h) No Material Adverse Change. Since September 30, 2004, the
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on Schedule 2.1(h) hereto.

            (i) No Undisclosed Liabilities. Except as set forth on Schedule
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its subsidiaries
respective businesses since September 30, 2004 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.

            (j) No Undisclosed Events or Circumstances. Except as set forth on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.

            (k) Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule 2.1(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.

            (l) Title to Assets. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected in
the Form 10-KSB, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those disclosed in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(l) hereto or such that, individually or
in the aggregate, do not cause a Material Adverse Effect on the Company's
financial condition or operating results. All said leases of the Company and
each of its subsidiaries are valid and subsisting and in full force and effect.

            (m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of

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this Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on
Schedule 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
Except as set forth in the Form 10-KSB, Form 10-QSB or Schedule 2.1(m) hereto,
there are no outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against the Company or
any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.

            (n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

            (o) Taxes. Except as set forth in the Form 10-KSB or in the Form
10-QSB, the Company and each of the subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.

            (p) Certain Fees. Except as set forth in this Agreement or on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.

            (q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.

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            (r) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations as set forth in the
Form 10-KSB, Form 10-QSB and on Schedule 2.1(r) hereto, and all rights with
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others.

            (s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-KSB or Form 10-QSB describes all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.

            (t) Books and Record Internal Accounting Controls. The books and
records of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and

                                       8
<PAGE>

appropriate actions is taken with respect to any differences.

            (u) Material Agreements. Except as set forth in the Form 10-KSB,
Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-3 or
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, the Company and each of
its subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. Except as set forth on Schedule 2.1(u) or
in the Commission Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Preferred
Shares, other Preferred Stock, if any, or its Common Stock.

            (v) Transactions with Affiliates. Except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company or any subsidiary on
the one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its subsidiaries, or any person owning any
capital stock of the Company or any subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.

            (w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.

            (x) Governmental Approvals. Except as set forth in the Form 10-KSB
or Form 10-QSB, and except for the filing of any notice prior or subsequent to
the Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D and a registration statement or

                                       9
<PAGE>

statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of
Colorado, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.

            (y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since September 30, 2004, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.

            (z) Absence of Certain Developments. Except as provided on Schedule
2.1(z) hereto, since September 30, 2004, neither the Company nor any subsidiary
has:

                  (i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;

                  (ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;

                  (iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;

                  (iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;

                  (v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;

                  (vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or

                                       10
<PAGE>

disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;

                  (vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;

                  (viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;

                  (ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;

                  (x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;

                  (xi) made charitable contributions or pledges in excess of
$25,000;

                  (xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;

                  (xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;

                  (xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or

                  (xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.

            (aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

            (bb) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of

                                       11
<PAGE>

Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of
ERISA, if applicable, are met. As used in this Section 2.1(ac), the term "Plan"
shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made, by the Company or any subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any subsidiary,
is under common control, as described in Section 414(b) or (c) of the Code.

            (cc) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
and the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.

            (dd) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this Agreement
has been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or as a group
with

                                       12
<PAGE>

respect to the Transaction Documents or the transactions contemplated hereby or
thereby.

            (ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and since August 1, 2004, the Company has not
offered or sold any of its equity securities or debt securities convertible into
shares of Common Stock.

            (ff) Sarbanes-Oxley Act. Except as set forth on Schedule 2.1(ff)
hereto, the Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and
regulations promulgated thereunder, that are effective, and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such provisions.

            Section 2.2 Representations and Warranties of the Purchasers. Each
of the Purchasers hereby makes the following representations and warranties to
the Company with respect solely to itself and not with respect to any other
Purchaser:

            (a) Organization and Standing of the Purchasers. If the Purchaser is
an entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.

            (b) Authorization and Power. Each Purchaser has the requisite power
and authority to enter into and perform this Agreement and to purchase the
Preferred Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by such Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders, or partners, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by such Purchaser and constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with the terms
thereof.

            (c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both

                                       13
<PAGE>

would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.

            (d) Acquisition for Investment. Each Purchaser is acquiring the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Each Purchaser does not have a present intention to sell the Preferred Shares or
the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(f) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.

            (e) Status of Purchasers. Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act. Such Purchaser
is not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.

            (f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.

            (g) No General Solicitation. Each Purchaser acknowledges that the
Preferred Shares and the Warrants were not offered to such Purchaser by means of
any form of general or

                                       14
<PAGE>

public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.

            (h) Rule 144. Such Purchaser understands that the Shares must be
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

            (i) General. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.

            (j) Independent Investment. Except as may be disclosed in any
filings with the Commission by the Purchasers under Section 13 and/or Section 16
of the Exchange Act, no Purchaser has agreed to act with any other Purchaser for
the purpose of acquiring, holding, voting or disposing of the Shares purchased
hereunder for purposes of Section 13(d) under the Exchange Act, and each
Purchaser is acting independently with respect to its investment in the Shares.

                                   ARTICLE III

                                    COVENANTS

      The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).

            Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D with
respect to the Preferred Shares, Warrants, Conversion Shares and Warrant Shares
as required under Regulation D, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers or
subsequent holders.

                                       15
<PAGE>

            Section 3.2 Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the OTC Bulletin Board, Nasdaq
SmallCap Market or other exchange or market on which the Common Stock is
trading.

            Section 3.3 Inspection Rights. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.

            Section 3.4 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.

            Section 3.5 Keeping of Records and Books of Account. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

            Section 3.6 Reporting Requirements. If the Commission ceases making
periodic reports filed under Section 13 of the Exchange Act available via its
Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting
power of all voting securities then outstanding:

            (a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;

                                       16
<PAGE>

            (b) Annual Reports filed with the Commission on Form 10-KSB as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and

            (c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.

            Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Preferred Shares; provided,
however, that any creation and issuance of another series of Junior Stock (as
defined in the Certificate of Designation) or any other class or series of
equity securities which by its terms shall rank on parity with the Preferred
Shares shall not be deemed to materially and adversely affect such rights,
preferences or privileges.

            Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.

            Section 3.9 Distributions. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare or
pay any dividends or make any distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.

            Section 3.10 Status of Dividends. The Company covenants and agrees
that (i) no Federal income tax return or claim for refund of Federal income tax
or other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the

                                       17
<PAGE>

Preferred Shares out of the Company's current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, the
Company will, at the reasonable request of the Purchasers of 51% of the
outstanding Preferred Shares, join with the Purchasers in the submission to the
Service of a request for a ruling that dividends paid on the Shares will be so
eligible for Federal income tax purposes, at the Purchasers expense. In
addition, the Company will reasonably cooperate with the Purchasers (at
Purchasers' expense) in any litigation, appeal or other proceeding challenging
or contesting any ruling, technical advice, finding or determination that
earnings and profits are not eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the Code or incurred in
connection with any such submission, litigation, appeal or other proceeding.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
preclude the Company from claiming a deduction with respect to such dividends if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of the
dividends on the Shares is allowable for Federal income tax purposes, or (ii) in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.

            Section 3.11 Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.

            Section 3.12 Future Financings; Right of First Offer and Refusal.
(a) For purposes of this Agreement, a "Subsequent Financing" shall be defined as
any subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including debt securities so convertible, in
a private transaction (collectively, the "Financing Securities") other than a
Permitted Financing. For purposes of this Agreement, "Permitted Financing" shall
mean any transaction involving (i) the Company's issuance of any Financing
Securities (other than for cash) in connection with a merger, acquisition or
consolidation of the Company, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company's issuance of Financing Securities in connection with
bona fide firm underwritten public offerings of its securities, (iv) the
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Company's stock option plans and employee
stock purchase plans outstanding on the date hereof, (v) as a result of the
exercise of options or warrants or conversion of convertible notes or preferred
stock which are granted or issued as of the date of this Agreement or issued
pursuant to this Agreement or the Series C Convertible Preferred Stock Purchase
Agreement, (vi) any Warrants issued to the Purchasers and any warrants issued to
the placement agent for the transactions contemplated by this Agreement or the
Series C Convertible Preferred Stock Purchase Agreement or in connection with
other financial services rendered to the Company, (vii) the payment of any

                                       18
<PAGE>

dividend on the Preferred Shares or on the Series A Convertible Preferred Stock
of the Company, (viii) the issuance of up to $2,000,000 of additional Preferred
Shares to strategic investors on the same terms and conditions hereof to be
consummated no later than March 20, 2005, or (ix) the issuance of up to
$1,000,000 of shares of the Company's Series A Convertible Preferred Stock and
warrants to Boundless Investments, L.L.C. in exchange for cancellation of
$1,000,000 of principal amount of a promissory note issued on July 30, 2004.

            (b) During the period commencing on the Closing Date and ending on
the date that is eighteen (18) months following the Closing Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a "Rights Notice")
each Purchaser of the terms and conditions of any proposed Subsequent Financing.
The Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the proposed closing date of the Subsequent Financing, which shall be
within thirty (30) calendar days from the date of the Rights Notice, including,
without limitation, all of the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The Rights
Notice shall provide each Purchaser an option (the "Rights Option") during the
ten (10) trading days following delivery of the Rights Notice (the "Option
Period") to inform the Company whether such Purchaser will purchase up to fifty
percent (50%) of its Purchase Price for the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). If any Purchaser
elects not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis so long as such participation in the aggregate
does not exceed fifty percent (50%) of the total Purchase Price hereunder. For
purposes of this Section, all references to "pro rata" means, for any Purchaser
electing to participate in such Subsequent Financing, the percentage obtained by
dividing (x) the total number of Preferred Shares purchased by such Purchaser at
the Closing by (y) the total number of Preferred Shares purchased by all of the
participating Purchasers at the Closing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing on the scheduled closing date with a
third party; provided that all of the material terms and conditions of the
closing are the same as those provided to the Purchasers in the Rights Notice.
If the closing of the proposed Subsequent Financing does not occur on that date,
any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.12,
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.

            Section 3.13 Reservation of Shares. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the aggregate number of shares

                                       19
<PAGE>

of Common Stock needed to provide for the issuance of the Conversion Shares and
the Warrant Shares.

            Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit E attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

            Section 3.15 Disposition of Assets. So long as the Preferred Shares
remain outstanding, neither the Company nor any Subsidiary shall sell, transfer
or otherwise dispose of any of its properties, assets and rights including,
without limitation, its software and intellectual property, to any person except
for sales to customers in the ordinary course of business or with the prior
written consent of the holders of a majority of the Preferred Shares then
outstanding.

            Section 3.16 Reporting Status. So long as a Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.

                                       20
<PAGE>

            Section 3.17 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the Closing but in no
event later than one hour after the Closing; provided, however, that if the
Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing Date. The Company shall also file with the
Commission a Current Report on Form 8-K (the "Form 8-K") describing the material
terms of the transactions contemplated hereby (and attaching as exhibits thereto
this Agreement, the Registration Rights Agreement, the Certificate of
Designation, the form of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event more than three (3) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject to
prior review and comment by the Purchasers. "Trading Day" means any day during
which the OTC Bulletin Board (or other principal exchange on which the Common
Stock is traded) shall be open for trading.

            Section 3.18 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

            Section 3.19 Pledge of Securities. The Company acknowledges and
agrees that the Securities may be pledged by a Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Common Stock. The pledge of Common Stock shall not be deemed to
be a transfer, sale or assignment of the Common Stock hereunder, and no
Purchaser effecting a pledge of Common Stock shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document; provided that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.

            Section 3.20 Independent Board Members. Prior to the end of the
Company's fiscal quarter ending March 31, 2005, the Company shall maintain a
Board of Directors consisting of at least three (3) independent members.

            Section 3.21 Nasdaq Listing. Within ninety (90) days of the Closing,
the Company shall submit its application for listing on the Nasdaq Stock Market,
Inc. and shall use its best efforts to obtain such listing prior to the end of
the Company's fiscal quarter ending June 30, 2005. The Company shall send to the
Purchasers copies of all correspondence to and from the Nasdaq Stock Market,
Inc. in connection with its listing application.

                                       21
<PAGE>

            Section 3.22 Board Observer Rights. So long as $2,000,000 of
Preferred Shares remains outstanding, North Sound Capital LLC shall have the
right to have a representative (the "North Sound Representative") serve as an
observer of the Company's Board of Directors. The Company shall provide the
North Sound Representative at least forty-eight (48) hours prior written notice
of any meetings of the Company's Board of Directors. The North Sound
Representative may elect in its sole discretion to attend such meetings of the
Company's Board of Directors.

                                   ARTICLE IV

                                   CONDITIONS

            Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.

            (a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.

            (b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.

            (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

            (d) Delivery of Purchase Price. The Purchase Price for the Preferred
Shares and Warrants has been delivered to the Company at the Closing Date.

            (e) Delivery of Transaction Documents. The Transaction Documents
have been duly executed and delivered by the Purchasers to the Company.

            Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Shares. The obligation hereunder of each Purchaser to acquire
and pay for the Preferred Shares and the Warrants is subject to the satisfaction
or waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.

                                       22
<PAGE>

            (a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects as of
such date.

            (b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.

            (c) No Suspension, Etc. Trading in the Company's Common Stock shall
not have been suspended by the Commission or the OTC Bulletin Board (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the applicable Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Preferred Shares.

            (d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

            (e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.

            (f) Certificate of Designation of Rights and Preferences. Prior to
the Closing, the Certificate of Designation in the form of Exhibit C attached
hereto shall have been filed with the Secretary of State of Colorado.

            (g) Opinion of Counsel, Etc. At the Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of the
Closing, in the form of Exhibit F hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
the Closing.

                                       23
<PAGE>

            (h) Registration Rights Agreement. At the Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.

            (i) Certificates. The Company shall have executed and delivered to
the Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing.

            (j) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").

            (k) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to the aggregate number
of Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Closing Date and the number of Warrant Shares issuable upon
exercise of the number of Warrants assuming such Warrants were granted on the
Closing Date.

            (l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.

            (m) Secretary's Certificate. The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate
of Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.

            (n) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.

            (o) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.

            (p) Consummation of Series C Convertible Preferred Stock Purchase
Agreement. The transactions contemplated by the Series C Convertible Preferred
Stock Purchase Agreement dated as of the date hereof by and among the Company
and the purchasers named therein shall have been consummated.

                                       24
<PAGE>

                                    ARTICLE V

                            STOCK CERTIFICATE LEGEND

            Section 5.1 Legend. Each certificate representing the Preferred
Shares and the Warrants, and, if appropriate, securities issued upon conversion
thereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or "blue sky" laws):

            THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES")
            HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
            AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY
            NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
            UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
            OR BOUNDLESS MOTOR SPORTS RACING, INC. SHALL HAVE RECEIVED AN
            OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
            SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
            SECURITIES LAWS IS NOT REQUIRED.

      The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act and the holder has
complied with the prospectus delivery requirements, (iii) the Company has
received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions

                                       25
<PAGE>

on transfer contained in this Section 5.1 shall be in addition to, and not by
way of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares (provided that a registration statement under the
Securities Act providing for the resale of the Warrant Shares and Conversion
Shares is then in effect and such Purchaser complies with all applicable
securities laws in connection with the sale, including, without limitation, the
prospectus delivery requirements), the Company shall cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser's Prime Broker with the Depository
Trust Company through its Deposit Withdrawal Agent Commission system (to the
extent not inconsistent with any provisions of this Agreement).

                                   ARTICLE VI

                                 INDEMNIFICATION

            Section 6.1 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.

            Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it

                                       26
<PAGE>

commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.

                                   ARTICLE VII

                                  MISCELLANEOUS

            Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement, provided that the Company shall pay all actual attorneys' fees
and expenses (including disbursements and out-of-pocket expenses) incurred by
the Purchasers in connection with (i) the preparation, negotiation, execution
and delivery of this Agreement, the Certificate of Designation, the Warrants,
the Registration Rights Agreement and the transactions contemplated thereunder,
which payment shall be made at Closing, (ii) the filing and declaration of
effectiveness by the Commission of the Registration Statement (as defined in the
Registration Rights Agreement) and (iii) any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all

                                       27
<PAGE>

reasonable attorneys' fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the
Preferred Shares pursuant hereto.

            Section 7.2 Specific Enforcement, Consent to Jurisdiction.

            (a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.

            (b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.

            Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents or the Certificate of
Designation, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the holders of at least seventy-five percent (75%) of the Preferred
Shares then outstanding, and no provision hereof may be waived other than by an
a written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.

                                       28
<PAGE>

            Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

            If to the Company:       Boundless Motor Sports Racing, Inc.
                                     2500 McGee Drive, Suite 147
                                     Norman, Oklahoma 73072
                                     Attention: Paul Kruger and Brian Carter
                                     Tel. No.: (405) 360-5047
                                     Fax No.: (405) 360-5354

            with copies to:          Jackson Walker L.L.P.
                                     2435 N. Central Expressway
                                     Suite 600
                                     Richardson, Texas, 75080
                                     Attention: Richard F. Dahlson
                                     Tel No.: (972) 744-2996
                                     Fax No.: (972) 744-2990

            If to any Purchaser:     At the address of such Purchaser set forth
                                     on Exhibit A to this Agreement, with copies
                                     to Purchaser's counsel as set forth on
                                     Exhibit A or as specified in writing by
                                     such Purchaser with copies to:

                                     Kramer Levin Naftalis & Frankel LLP
                                     919 Third Avenue
                                     New York, New York 10022
                                     Attention: Christopher S. Auguste
                                     Tel No.: (212) 715-9100
                                     Fax No.: (212) 715-8000

      Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.

            Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

                                       29
<PAGE>

            Section 7.6 Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.

            Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.

            Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

            Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.

            Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Section 2.1(o) should survive until
thirty (30) days after the passage of the applicable statute of limitations and
those contained in Article II, with the exception of Sections 2.1(o), shall
survive the execution and delivery hereof and the Closing until the date three
(3) years from the Closing Date, and the agreements and covenants set forth in
Articles I, III, VI and VII of this Agreement shall survive the execution and
delivery hereof and the Closing hereunder until the Purchasers in the aggregate
beneficially own (determined in accordance with Rule 13d-3 under the Exchange
Act) less than 10% of the total combined voting power of all voting securities
then outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9,
3.10, 3.12, 3.13, 3.14, 3.15. 3.17 and 3.18 shall not expire until the
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.

            Section 7.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.

            Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

            Section 7.13 Severability. The provisions of this Agreement, the
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights

                                       30
<PAGE>

Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.

            Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       31
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.

                        BOUNDLESS MOTOR SPORTS RACING, INC.

                        By: /s/ Brian Carter
                            Name: Brian Carter
                            Title: Vice President

                        PURCHASER

                        North Sound Legacy Fund LLC
                          By: North Sound Capital,
                              its Manager

                             By: /s/ Andrew B David
                                 Name: Andrew B. David
                                 Title: General Counsel

                        North Sound Legacy Institutional Fund LLC
                          By: North Sound Capital,
                              its Manager

                             By: /s/ Andrew B David
                                 Name: Andrew B. David
                                 Title: General Counsel

                        North Sound Legacy International Fund LLC
                          By: North Sound Capital,
                              its Manager

                             By: /s/ Andrew B David
                                 Name: Andrew B. David
                                 Title: General Counsel

<PAGE>

                                 Royal Bank of Canada
                                  By: its agent RBC Capital Markets
                                      Corporation

                                     By: /s/ Josef Muskatel
                                         Name: Josef Muskatel
                                         Title: Director and Senior Counsel

                                     By: /s/ Johan Wahlstedt
                                         Name: Johan Wahlstedt
                                         Title: Managing Director<PAGE>

                                                                     EXHIBIT 4.2

              CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
                                   PREFERENCES
                                     OF THE
                      SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                       BOUNDLESS MOTOR SPORTS RACING, INC.

      The undersigned, the Chief Executive Officer of Boundless Motor Sports
Racing, Inc., a Colorado corporation (the "Company"), in accordance with the
provisions of the Colorado Business Corporation Act, does hereby certify that,
pursuant to the authority conferred upon the Board of Directors by the Articles
of Incorporation of the Company, the following resolution creating a series of
Series B Convertible Preferred Stock, was duly adopted on February 18, 2005:

      RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Company by provisions of the Articles of
Incorporation of the Company (the "Articles of Incorporation"), there hereby is
created out of the shares of Preferred Stock, par value $.01 per share, of the
Company authorized in Article IV of the Articles of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Company, to be named
"Series B Convertible Preferred Stock," consisting of Eight Thousand (8,000)
shares, which series shall have the following designations, powers, preferences
and relative and other special rights and the following qualifications,
limitations and restrictions:

      1. Designation and Rank. The designation of such series of the Preferred
Stock shall be the Series B Convertible Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock"). The maximum number of shares of Series B
Preferred Stock shall be Eight Thousand (8,000) shares. The Series B Preferred
Stock shall rank pari passu with shares of the Company's Series A Convertible
Preferred Stock and Series C Convertible Preferred Stock and shall rank senior
to the Company's common stock, par value $.0001 per share (the "Common Stock"),
and to all other classes and series of equity securities of the Company which by
their terms do not rank senior to the Series B Preferred Stock ("Junior Stock").
The Series B Preferred Stock shall be subordinate to and rank junior to all
indebtedness of the Company now or hereafter outstanding.

      2. Dividends.

            (a) Payment of Dividends. Commencing eighteen (18) months following
the date of the initial issuance (the "Issuance Date") of the Series B Preferred
Stock and subject to Section 5(c)(ii) hereof, the holders of record of shares of
Series B Preferred Stock shall be entitled to receive, out of any assets at the
time legally available therefor and as declared by the Board of Directors,
dividends at the rate of four percent (4%) of the stated Liquidation Preference
Amount (as defined in Section 4 hereof) per share per annum and increasing to
six percent (6%) of the stated Liquidation Preference Amount per share per annum
commencing thirty (30) months following the Issuance Date (the "Dividend
Payment"), and no more, payable semi-annually on the first business day of June
and December of each year at the option of the

<PAGE>

Company in cash or in shares of Common Stock. If the Company elects to pay any
dividend in shares of Common Stock, the number of shares of Common Stock to be
issued to the holder shall be an amount equal to the quotient of (i) the
Dividend Payment divided by (ii) the Conversion Price (as defined in Section
5(d) hereof). If the Company elects to pay any dividend in shares of Common
Stock, the Company will give the holders of record of shares of the Series B
Preferred Stock ten (10) trading days notice prior to the date of the applicable
Dividend Payment. In the case of shares of Series B Preferred Stock outstanding
for less than a full year, dividends shall be pro rated based on the portion of
each year during which such shares are outstanding. Dividends on the Series B
Preferred Stock shall be cumulative, shall accrue and be payable semi-annually.
Dividends on the Series B Preferred Stock are prior and in preference to any
declaration or payment of any distribution (as defined below) on any outstanding
shares of Junior Stock. Such dividends shall accrue on each share of Series B
Preferred Stock from day to day whether or not earned or declared so that if
such dividends with respect to any previous dividend period at the rate provided
for herein have not been paid on, or declared and set apart for, all shares of
Series B Preferred Stock at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata basis with all
other equity securities of the Company ranking on a parity with the Series B
Preferred Stock as to the payment of dividends before any distribution shall be
paid on, or declared and set apart for Junior Stock.

            (b) So long as any shares of Series B Preferred Stock are
outstanding, the Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than dividends or
distributions payable in additional shares of Junior Stock), unless at the time
of such dividend or distribution the Company shall have paid all accrued and
unpaid dividends on the outstanding shares of Series B Preferred Stock.

            (c) In the event of a dissolution, liquidation or winding up of the
Company pursuant to Section 4, all accrued and unpaid dividends on the Series B
Preferred Stock shall be payable on the date of payment of the preferential
amount to the holders of Series B Preferred Stock. In the event of (i) a
mandatory redemption pursuant to Section 9 or (ii) a redemption upon the
occurrence of a Major Transaction (as defined in Section 8(c)) or a Triggering
Event (as defined in Section 8(d)), all accrued and unpaid dividends on the
Series B Preferred Stock shall be payable on the date of such redemption. In the
event of a voluntary conversion pursuant to Section 5(a), all accrued and unpaid
dividends on the Series B Preferred Stock being converted shall be payable on
the Voluntary Conversion Date (as defined in Section 5(b)(i)).

            (d) For purposes hereof, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the Company, or the
purchase or redemption of shares of the Company (other than redemptions set
forth in Section 8 below or repurchases of Common Stock held by employees or
consultants of the Company upon termination of their employment or services
pursuant to agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or property.

      3. Voting Rights.

                                       2
<PAGE>

            (a) Class Voting Rights. The Series B Preferred Stock shall have the
following class voting rights (in addition to the voting rights set forth in
Section 3(b) hereof). So long as any shares of the Series B Preferred Stock
remain outstanding, the Company shall not, without the affirmative vote or
consent of the holders of at least seventy-five percent (75%) of the shares of
the Series B Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting, in which the holders of the Series B
Preferred Stock vote separately as a class: (i) authorize, create, issue or
increase the authorized or issued amount of any class or series of stock,
including but not limited to the issuance of any more shares of Preferred Stock,
ranking pari passu or senior to the Series B Preferred Stock, with respect to
the distribution of assets on liquidation, dissolution or winding up; (ii)
amend, alter or repeal the provisions of the Series B Preferred Stock, whether
by merger, consolidation or otherwise, so as to adversely affect any right,
preference, privilege or voting power of the Series B Preferred Stock; provided,
however, that any creation and issuance of another series of Junior Stock shall
not be deemed to adversely affect such rights, preferences, privileges or voting
powers; (iii) repurchase, redeem or pay dividends on, shares of Common Stock or
any other shares of the Company's Junior Stock (other than de minimus
repurchases from employees of the Company in certain circumstances); (iv) amend
the Articles of Incorporation or By-Laws of the Company so as to affect
materially and adversely any right, preference, privilege or voting power of the
Series B Preferred Stock; provided, however, that any creation and issuance of
another series of Junior Stock shall not be deemed to adversely affect such
rights, preferences, privileges or voting powers; (v) effect any distribution
with respect to Junior Stock; (vi) reclassify the Company's outstanding
securities; (vii) voluntarily file for bankruptcy, liquidate the Company's
assets or make an assignment for the benefit of the Company's creditors; or
(viii) change the nature of the Company's business. Notwithstanding the
foregoing to the contrary, the Company shall not authorize, create, issue or
increase the authorized or issued amount of any class or series of stock or
issue any convertible debt securities ranking pari passu or senior to the Series
B Preferred Stock with respect to the distribution of assets on liquidation,
dissolution or winding up without the affirmative vote or consent of the holders
of at least seventy-five percent (75%) of the shares of the Series B Preferred
Stock outstanding at the time.

            (b) General Voting Rights. Except with respect to transactions upon
which the Series B Preferred Stock shall be entitled to vote separately as a
class pursuant to Section 3(a) above and except as otherwise required by
Colorado law, the Series B Preferred Stock shall have no voting rights. The
Common Stock into which the Series B Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding
Common Stock of the Company.

      4. Liquidation Preference.

            (a) In the event of the liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or involuntary, the holders of
shares of the Series B Preferred Stock then outstanding shall be entitled to
receive, out of the assets of the Company available for distribution to its
stockholders, an amount equal to $3,000 per share (the "Liquidation Preference
Amount") of the Series B Preferred Stock plus any accrued and unpaid dividends
before any payment shall be made or any assets distributed to the holders of the
Common Stock or any other

                                       3
<PAGE>

Junior Stock. If the assets of the Company are not sufficient to pay in full the
Liquidation Preference Amount plus any accrued and unpaid dividends payable to
the holders of outstanding shares of the Series B Preferred Stock and any series
of preferred stock or any other class of stock on a parity, as to rights on
liquidation, dissolution or winding up, with the Series B Preferred Stock, then
all of said assets will be distributed among the holders of the Series B
Preferred Stock and the other classes of stock on a parity with the Series B
Preferred Stock, if any, ratably in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were paid in
full. The liquidation payment with respect to each outstanding fractional share
of Series B Preferred Stock shall be equal to a ratably proportionate amount of
the liquidation payment with respect to each outstanding share of Series B
Preferred Stock. All payments for which this Section 4(a) provides shall be in
cash, property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the Series B
Preferred Stock) or a combination thereof; provided, however, that no cash shall
be paid to holders of Junior Stock unless each holder of the outstanding shares
of Series B Preferred Stock has been paid in cash the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which such holder is
entitled as provided herein. After payment of the full Liquidation Preference
Amount plus any accrued and unpaid dividends to which each holder is entitled,
such holders of shares of Series B Preferred Stock will not be entitled to any
further participation as such in any distribution of the assets of the Company.

            (b) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4. In the event of
the merger or consolidation of the Company with or into another corporation, the
Series B Preferred Stock shall maintain its relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.

            (c) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, stating a payment date
and the place where the distributable amounts shall be payable, shall be given
by mail, postage prepaid, no less than forty-five (45) days prior to the payment
date stated therein, to the holders of record of the Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the Company.

      5. Conversion. The holder of Series B Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):

            (a) Right to Convert. At any time on or after the Issuance Date, the
holder of any such shares of Series B Preferred Stock may, at such holder's
option, subject to the limitations set forth in Section 7 herein, elect to
convert (a "Voluntary Conversion") all or any portion of the shares of Series B
Preferred Stock held by such person into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the
Liquidation Preference Amount of the shares of Series B Preferred Stock being
converted divided by (ii) the

                                       4
<PAGE>

Conversion Price (as defined in Section 5(d) below) then in effect as of the
date of the delivery by such holder of its notice of election to convert. In the
event of a notice of redemption of any shares of Series B Preferred Stock
pursuant to Section 8 hereof, the Conversion Rights of the shares designated for
redemption shall terminate at the close of business on the last full day
preceding the date fixed for redemption, unless the redemption price is not paid
on such redemption date, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Company, the Conversion Rights shall terminate
at the close of business on the last full day preceding the date fixed for the
payment of any such amounts distributable on such event to the holders of Series
B Preferred Stock. In the event of such a redemption or liquidation, dissolution
or winding up, the Company shall provide to each holder of shares of Series B
Preferred Stock notice of such redemption or liquidation, dissolution or winding
up, which notice shall (i) be sent at least fifteen (15) days prior to the
termination of the Conversion Rights and (ii) state the amount per share of
Series B Preferred Stock that will be paid or distributed on such redemption or
liquidation, dissolution or winding up, as the case may be.

            (b) Mechanics of Voluntary Conversion. The Voluntary Conversion of
Series B Preferred Stock shall be conducted in the following manner:

                  (i) Holder's Delivery Requirements. To convert Series B
Preferred Stock into full shares of Common Stock on any date (the "Voluntary
Conversion Date"), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such
date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) surrender
to a common carrier for delivery to the Company as soon as practicable following
such Voluntary Conversion Date but in no event later than three (3) business
days after such date the original certificates representing the shares of Series
B Preferred Stock being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates") and the originally executed Conversion Notice.

                  (ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by the Company of a copy of the fully executed Conversion Notice,
the Company or its designated transfer agent (the "Transfer Agent"), as
applicable, shall, within three (3) business days following the date of receipt
by the Company of the fully executed Conversion Notice (so long as the
applicable Preferred Stock Certificates and original Conversion Notice are
received by the Company on or before such third business day), issue and deliver
to the Depository Trust Company ("DTC") account on the Holder's behalf via the
Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled.
Notwithstanding the foregoing to the contrary, the Company or its Transfer Agent
shall only be obligated to issue and deliver the shares to the DTC on a holder's
behalf via DWAC if such conversion is in connection with a sale and such holder
has complied with the applicable prospectus delivery requirements. If the number
of shares of Preferred Stock represented by the

                                       5
<PAGE>

Preferred Stock Certificate(s) submitted for conversion is greater than the
number of shares of Series B Preferred Stock being converted, then the Company
shall, as soon as practicable and in no event later than three (3) business days
after receipt of the Preferred Stock Certificate(s) and at the Company's
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of shares of Series B Preferred Stock not converted.

                  (iii) Dispute Resolution. In the case of a dispute as to the
arithmetic calculation of the number of shares of Common Stock to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such
holder's Conversion Notice. If such holder and the Company are unable to agree
upon the arithmetic calculation of the number of shares of Common Stock to be
issued upon such conversion within one (1) business day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company's independent, outside accountant. The Company shall
cause the accountant to perform the calculations and notify the Company and the
holder of the results no later than seventy-two (72) hours from the time it
receives the disputed calculations. Such accountant's calculation shall be
binding upon all parties absent manifest error. The reasonable expenses of such
accountant in making such determination shall be paid by the Company, in the
event the holder's calculation was correct, or by the holder, in the event the
Company's calculation was correct, or equally by the Company and the holder in
the event that neither the Company's or the holder's calculation was correct.
The period of time in which the Company is required to effect conversions or
redemptions under this Certificate of Designation shall be tolled with respect
to the subject conversion or redemption pending resolution of any dispute by the
Company made in good faith and in accordance with this Section 5(b)(iii).

                  (iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of the Series B Preferred
Stock shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.

                  (v) Company's Failure to Timely Convert. If within three (3)
business days of the Company's receipt of an executed copy of the Conversion
Notice (so long as the applicable Preferred Stock Certificates and original
Conversion Notice are received by the Company on or before such third business
day) (the "Share Delivery Period") the Transfer Agent shall fail to issue and
deliver to a holder the number of shares of Common Stock to which such holder is
entitled upon such holder's conversion of the Series B Preferred Stock or to
issue a new Preferred Stock Certificate representing the number of shares of
Series B Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a "Conversion Failure"), in addition to all other available remedies
which such holder may pursue hereunder and under the Series B Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement") among the Company
and the initial holders of the Series B Preferred Stock (including
indemnification pursuant to Section 6 thereof), the Company shall pay additional
damages to such holder on each

                                       6
<PAGE>

business day after such third (3rd) business day that such conversion is not
timely effected in an amount equal 0.5% of the product of (A) the sum of the
number of shares of Common Stock not issued to the holder on a timely basis
pursuant to Section 5(b)(ii) and to which such holder is entitled and, in the
event the Company has failed to deliver a Preferred Stock Certificate to the
holder on a timely basis pursuant to Section 5(b)(ii), the number of shares of
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
represented by such Preferred Stock Certificate, as of the last possible date
which the Company could have issued such Preferred Stock Certificate to such
holder without violating Section 5(b)(ii) and (B) the Closing Bid Price (as
defined in Section 5(c)(iii) below) of the Common Stock on the last possible
date which the Company could have issued such Common Stock and such Preferred
Stock Certificate, as the case may be, to such holder without violating Section
5(b)(ii). If the Company fails to pay the additional damages set forth in this
Section 5(b)(v) within five (5) business days of the date incurred, then such
payment shall bear interest at the rate of 2.0% per month (pro rated for partial
months) until such payments are made.

            (c) Mandatory Conversion.

                  (i) The number of outstanding shares of Series B Preferred
Stock referred to below in Section 5(c)(ii) on the Mandatory Conversion Date
shall, automatically and without any action on the part of the holder thereof,
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Liquidation Preference Amount of the number of
shares of Series B Preferred Stock being converted on the Mandatory Conversion
Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion
Date.

                  (ii) As used herein, "Mandatory Conversion Date" shall mean,
subject to the provisions of Section 7 hereof, the date that is at least one
hundred eighty (180) days following the effective date (the "Effectiveness
Date") of the registration statement (the "Registration Statement") providing
for the resale of the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock that the Closing Bid Price (as defined below) of the
Common Stock is equal to or exceeds $6.00 (as may be adjusted for any stock
splits or combinations of the Common Stock) for a period of ten (10) consecutive
trading days; provided, that, (A) the first trading day of such ten (10) trading
day period shall commence at least one hundred eighty (180) days following the
Effectiveness Date, and (B) the dollar trading volume of the Common Stock for
each of such ten (10) trading days exceeds $500,000; and provided further, that,
on the Mandatory Conversion Date, (1) the Registration Statement is effective
and has been effective, without lapse or suspension of any kind, for a period
sixty (60) consecutive calendar days, or the shares of Common Stock into which
the Series B Preferred Stock can be converted may be offered for sale to the
public pursuant to Rule 144(k) ("Rule 144(k)") under the Securities Act of 1933,
as amended, (2) trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission, the OTC Bulletin Board or the Nasdaq
SmallCap Market (or other exchange or market on which the Common Stock is
trading), and (3) the Company is in material compliance with the terms and
conditions of this Certificate of Designation and the other Transaction
Documents (as defined in the Purchase Agreement). Notwithstanding the foregoing,
the Mandatory Conversion Date shall be extended for as long as

                                       7
<PAGE>

(i) a Triggering Event (as defined in Section 8(d) hereof) shall have occurred
and be continuing, or (ii) any event shall have occurred and be continuing which
with the passage of time and the failure to cure would result in a Triggering
Event. In the event that a holder of Series B Preferred Stock may not convert
all of its shares of Series B Preferred Stock upon a Mandatory Conversion
because of the restrictions contained in Section 7 hereof, such number of shares
of Series B Preferred Stock that may not be converted because of the
restrictions contained in Section 7 hereof shall remain outstanding but shall
not accrue any dividends pursuant to Section 2 hereof. The Mandatory Conversion
Date and the Voluntary Conversion Date collectively are referred to in this
Certificate of Designation as the "Conversion Date."

                  (iii) The term "Closing Bid Price" shall mean, for any
security as of any date, the last closing bid price of such security on the OTC
Bulletin Board, Nasdaq SmallCap Market or other principal exchange on which such
security is traded as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding shares of Series
B Preferred Stock.

                  (iv) On the Mandatory Conversion Date, the outstanding shares
of Series B Preferred Stock 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 Company or its Transfer Agent;
provided, however, that the Company shall not be obligated to issue the shares
of Common Stock issuable upon conversion of any shares of Series B Preferred
Stock unless certificates evidencing such shares of Series B Preferred Stock are
either delivered to the Company or the holder notifies the Company that such
certificates have been lost, stolen, or destroyed, and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. Upon the occurrence of a Mandatory Conversion of the
Series B Preferred Stock pursuant to this Section 5, the holders of the Series B
Preferred Stock shall surrender the certificates representing the Series B
Preferred Stock for which the Mandatory Conversion Date has occurred to the
Company and the Company shall cause its Transfer Agent to deliver the shares of
Common Stock issuable upon such conversion (in the same manner set forth in
Section 5(b)(ii)) to the holder within three (3) business days of the holder's
delivery of the applicable Preferred Stock Certificates.

            (d) Conversion Price.

                  (i) The term "Conversion Price" shall mean $3.00 per share,
subject to adjustment under Section 5(e) hereof. Notwithstanding any adjustment
hereunder, at no time shall the Conversion Price be greater than $3.00 per share
except if it is adjusted pursuant to Section 5(e)(i).

                                       8
<PAGE>

                  (ii) Notwithstanding the foregoing to the contrary, if during
any period (a "Black-out Period"), a holder of Series B Preferred Stock is
unable to trade any Common Stock issued or issuable upon conversion of the
Series B Preferred Stock immediately due to the postponement of filing or delay
or suspension of effectiveness of the Registration Statement or because the
Company has otherwise informed such holder of Series B Preferred Stock that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the holder of Series B Preferred Stock or due to the Company exercising its
rights under Section 3(n) of the Registration Rights Agreement (as defined in
the Purchase Agreement)), such holder of Series B Preferred Stock shall have the
option but not the obligation on any Conversion Date within ten (10) trading
days following the expiration of the Black-out Period of using the Conversion
Price applicable on such Conversion Date or any Conversion Price selected by
such holder of Series B Preferred Stock that would have been applicable had such
Conversion Date been at any earlier time during the Black-out Period or within
the ten (10) trading days thereafter.

            (e) Adjustments of Conversion Price.

                  (i) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common Stock, the
Conversion Price shall be proportionately increased. Any adjustments under this
Section 5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.

                  (ii) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the Conversion Price shall be decreased as of
the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:

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

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

                  (iii) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a

                                       9
<PAGE>

record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Company other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holders of Series
B Preferred Stock shall receive upon conversions thereof, in addition to the
number of shares of Common Stock receivable thereon, the number of securities of
the Company which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the Conversion
Date, retained such securities (together with any distributions payable thereon
during such period), giving application to all adjustments called for during
such period under this Section 5(e)(iii) with respect to the rights of the
holders of the Series B Preferred Stock; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event or (ii) a dividend or
other distribution of shares of Series B Preferred Stock which are convertible,
as of the date of such event, into such number of shares of Common Stock as is
equal to the number of additional shares of Common Stock being issued with
respect to each share of Common Stock in such dividend or distribution.

                  (iv) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of the Series B
Preferred Stock at any time or from time to time after the Issuance Date shall
be changed to the same or different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other
than by way of a stock split or combination of shares or stock dividends
provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in
each event, an appropriate revision to the Conversion Price shall be made and
provisions shall be made (by adjustments of the Conversion Price or otherwise)
so that the holder of each share of Series B Preferred Stock shall have the
right thereafter to convert such share of Series B Preferred Stock into the kind
and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such share of Series B Preferred
Stock might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

                  (v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Company (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange
or substitution of shares provided for in Section 5(e)(iv)), or a merger or
consolidation of the Company with or into another corporation where the holders
of outstanding voting securities prior to such merger or consolidation do not
own over 50% of the outstanding voting

                                       10
<PAGE>

securities of the merged or consolidated entity, immediately after such merger
or consolidation, or the sale of all or substantially all of the Company's
properties or assets to any other person (an "Organic Change"), then as a part
of such Organic Change an appropriate revision to the Conversion Price shall be
made if necessary and provision shall be made if necessary (by adjustments of
the Conversion Price or otherwise) so that the holder of each share of Series B
Preferred Stock shall have the right thereafter to convert such share of Series
B Preferred Stock into the kind and amount of shares of stock and other
securities or property of the Company or any successor corporation resulting
from Organic Change. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 5(e)(v) with respect to the
rights of the holders of the Series B Preferred Stock after the Organic Change
to the end that the provisions of this Section 5(e)(v) (including any adjustment
in the Conversion Price then in effect and the number of shares of stock or
other securities deliverable upon conversion of the Series B Preferred Stock)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.

                  (vi) Adjustments for Issuance of Additional Shares of Common
Stock.

                  (A) In the event the Company, shall, at any time, from time to
time, issue or sell any additional shares of Common Stock (otherwise than as
provided in the foregoing subsections (i) through (v) of this Section 5(e) or
pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior
to the Issuance Date) (the "Additional Shares of Common Stock"), at a price per
share less than the Conversion Price, or without consideration, the Conversion
Price then in effect upon each such issuance shall be adjusted to that price
(rounded to the nearest cent) determined by multiplying the Conversion Price by
a fraction:

                  (1) the numerator of which shall be equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (B) the number of shares
of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the then Conversion Price,
and

                  (2) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.

No adjustment of the number of shares of Common Stock shall be made under
paragraph (A) of Section 5(e)(vi) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Common Stock Equivalents (as defined below), if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Common Stock Equivalents (or upon the
issuance of any warrant or other rights therefore) pursuant to Section
5(e)(vii).

                                       11
<PAGE>

                  (vii) Issuance of Common Stock Equivalents. If the Company, at
any time after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than the Series B Preferred Stock, or any rights or warrants
or options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "Common Stock Equivalents") and the aggregate
of the price per share for which Additional Shares of Common Stock may be
issuable thereafter pursuant to such Common Stock Equivalent, plus the
consideration received by the Company for issuance of such Common Stock
Equivalent divided by the number of shares of Common Stock issuable pursuant to
such Common Stock Equivalent (the "Aggregate Per Common Share Price") shall be
less than the Conversion Price, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended or
adjusted shall make the Aggregate Per Common Share Price be less than Conversion
Price in effect at the time of such amendment or adjustment, then the Conversion
Price then in effect shall be adjusted pursuant to Section (5)(e)(vi) above
assuming that all Additional Shares of Common Stock have been issued pursuant to
the Convertible Securities or Common Stock Equivalents for a purchase price
equal to the Aggregate Per Common Share Price. No adjustment of the Conversion
Price shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefore, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii). No adjustment shall be made to the Conversion Price upon the issuance of
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.

                  (viii) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities other than the Series B Preferred Stock, or any
rights or warrants or options to purchase any such Common Stock or Convertible
Securities, shall be issued or sold:

                        (1) in connection with any merger or consolidation in
which the Company is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of the Company
shall be changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

                        (2) in the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities of another corporation, or
in the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be

                                       12
<PAGE>

deemed to have issued a number of shares of its Common Stock for stock or
securities or other property of the other corporation computed on the basis of
the actual exchange ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of such transaction of
all such stock or securities or other property of the other corporation. If any
such calculation results in adjustment of the applicable Conversion Price, or
the number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock, the determination of the applicable Conversion Price or the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock immediately prior to such merger, consolidation or sale, shall
be made after giving effect to such adjustment of the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock. In the event any
consideration received by the Company for any securities consists of property
other than cash, the fair market value thereof at the time of issuance or as
otherwise applicable shall be as determined in good faith by the Board of
Directors of the Company. In the event Common Stock is issued with other shares
or securities or other assets of the Company for consideration which covers
both, the consideration computed as provided in this Section (5)(e)(viii) shall
be allocated among such securities and assets as determined in good faith by the
Board of Directors of the Company.

                  (ix) Record Date. In case the Company shall take record of the
holders of its Common Stock or any other Preferred Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.

                  (x) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment to the
Conversion Price upon (i) the Company's issuance of any Additional Shares of
Common Stock and warrants therefore in connection with a merger, acquisition or
consolidation of the Company, (ii) the Company's issuance of Additional Shares
of Common Stock pursuant to a bona fide firm underwritten public offering of the
Company's securities, (iii) any issuances of warrants issued pursuant to the
Purchase Agreement or the Series C Convertible Preferred Stock Purchase
Agreement, (iv) securities issued pursuant to the conversion or exercise of
convertible or exercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement or the Series C
Convertible Preferred Stock Purchase Agreement, (v) any warrants issued to the
placement agent for the transactions contemplated by the Purchase Agreement or
the Series C Convertible Preferred Stock Purchase Agreement or in connection
with other financial services rendered to the Company, (vi) the payment of any
dividends on the Series B Preferred Stock or on the Series A Convertible
Preferred Stock of the Company, (vii) the Company's issuance of Additional
Shares of Common Stock in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the purpose of
raising capital, (viii) the Company's issuance of Common Stock or the issuance
or grants of options to purchase Common Stock pursuant to the Company's stock
option plans and employee stock purchase plans outstanding on the date hereof,
(ix) any shares of Common Stock issued by the Company to Paul Kruger to satisfy
any obligations of the Company which have been satisfied by Paul Kruger's
transfer of his currently outstanding shares of Common Stock so long as such
issuances by the Company to Paul Kruger does not exceed the number of shares of

                                       13
<PAGE>

Common Stock surrendered by Paul Kruger to satisfy such obligations of the
Company, (x) the issuance of up to $2,000,000 of additional shares of Series B
Preferred Stock to strategic investors on the same terms and conditions as the
Purchase Agreement to be consummated no later than March 20, 2005, and (xi) the
issuance of up to $1,000,000 of shares of the Company's Series A Convertible
Preferred Stock and warrants to Boundless Investments, L.L.C. in exchange for
cancellation of $1,000,000 of principal amount of a promissory note issued on
July 30, 2004.

            (f) No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment. In the event a holder shall elect
to convert any shares of Series B Preferred Stock as provided herein, the
Company cannot refuse conversion based on any claim that such holder or any one
associated or affiliated with such holder has been engaged in any violation of
law, unless, an injunction from a court, on notice, restraining and/or adjoining
conversion of all or of said shares of Series B Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such holder in an
amount equal to 130% of the Liquidation Preference Amount of the Series B
Preferred Stock such holder has elected to convert, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such holder in the event it obtains
judgment.

            (g) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
such affected Series B Preferred Stock, at any time, furnish or cause to be
furnished to such holder a like certificate setting forth such adjustments and
readjustments, the Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series B Preferred Stock. Notwithstanding the foregoing, the Company shall not
be obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.

            (h) Issue Taxes. The Company shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series B Preferred Stock pursuant thereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.

                                       14
<PAGE>

            (i) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile or
three (3) business days following being mailed by certified or registered mail,
postage prepaid, return-receipt requested, addressed to the holder of record at
its address appearing on the books of the Company. The Company will give written
notice to each holder of Series B Preferred Stock at least twenty (20) days
prior to the date on which the Company closes its books or takes a record (I)
with respect to any dividend or distribution upon the Common Stock, (II) with
respect to any pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic Change, dissolution,
liquidation or winding-up and in no event shall such notice be provided to such
holder prior to such information being made known to the public. The Company
will also give written notice to each holder of Series B Preferred Stock at
least twenty (20) days prior to the date on which any Organic Change,
dissolution, liquidation or winding-up will take place and in no event shall
such notice be provided to such holder prior to such information being made
known to the public.

            (j) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
trading immediately preceding the Voluntary Conversion Date or the Mandatory
Conversion Date, as applicable.

            (k) Reservation of Common Stock. The Company shall, so long as any
shares of Series B Preferred Stock are outstanding, reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series B Preferred Stock then outstanding. The initial
number of shares of Common Stock reserved for conversions of the Series B
Preferred Stock and any increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Series B Preferred Stock based on
the number of shares of Series B Preferred Stock held by each holder of record
at the time of issuance of the Series B Preferred Stock or increase in the
number of reserved shares, as the case may be. In the event a holder shall sell
or otherwise transfer any of such holder's shares of Series B Preferred Stock,
each transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series B Preferred Stock shall be allocated to the remaining
holders of Series B Preferred Stock, pro rata based on the number of shares of
Series B Preferred Stock then held by such holder.

            (l) Retirement of Series B Preferred Stock. Conversion of Series B
Preferred Stock shall be deemed to have been effected on the Conversion Date.
Upon conversion of only a portion of the number of shares of Series B Preferred
Stock represented by a certificate surrendered for conversion, the Company shall
issue and deliver to such holder at the expense of the Company, a new
certificate covering the number of shares of Series B Preferred Stock

                                       15
<PAGE>

representing the unconverted portion of the certificate so surrendered as
required by Section 5(b)(ii).

            (m) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of Series B Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.

      6. No Preemptive Rights. Except as provided in Section 5 hereof and in the
Purchase Agreement, no holder of the Series B Preferred Stock shall be entitled
to rights to subscribe for, purchase or receive any part of any new or
additional shares of any class, whether now or hereinafter authorized, or of
bonds or debentures, or other evidences of indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional shares of
any class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of Directors in
their absolute discretion may deem advisable.

      7. Conversion Restrictions.

            (a) Notwithstanding anything to the contrary set forth in Section 5
of this Certificate of Designation, at no time may a holder of shares of Series
B Preferred Stock convert shares of the Series B Preferred Stock if the number
of shares of Common Stock to be issued pursuant to such conversion would cause
the number of shares of Common Stock owned by such holder at such time to
exceed, when aggregated with all other shares of Common Stock owned by such
holder at such time, the number of shares of Common Stock which would result in
such holder beneficially owning (as determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in
excess of 4.9% of the then issued and outstanding shares of Common Stock
outstanding at such time; provided, however, that upon a holder of Series B
Preferred Stock providing the Company with sixty-one (61) days notice (pursuant
to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to
waive Section 7(a) of this Certificate of Designation with regard to any or all
shares of Common Stock issuable upon conversion of Series B Preferred Stock,
this Section 7(a) shall be of no force or effect with regard to those shares of
Series B Preferred Stock referenced in the Waiver Notice.

            (b) Notwithstanding anything to the contrary set forth in Section 5
of this Certificate of Designation, at no time may a holder of shares of Series
B Preferred Stock convert shares of the Series B Preferred Stock if the number
of shares of Common Stock to be issued pursuant to such conversion would cause
the number of shares of Common Stock owned by such holder at such time to
exceed, when aggregated with all other shares of Common Stock owned by such
holder at such time, the number of shares of Common Stock which would result in
such holder beneficially owning (as determined in accordance with Section 13(d)
of the Securities

                                       16
<PAGE>

Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.9% of
the then issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that upon a holder of Series B Preferred Stock providing the
Company with a Waiver Notice that such holder would like to waive Section 7(b)
of this Certificate of Designation with regard to any or all shares of Common
Stock issuable upon conversion of Series B Preferred Stock, this Section 7(b)
shall be of no force or effect with regard to those shares of Series B Preferred
Stock referenced in the Waiver Notice.

      8. Redemption.

            (a) Redemption Option Upon Major Transaction. In addition to all
other rights of the holders of Series B Preferred Stock contained herein,
simultaneous with the occurrence of a Major Transaction (as defined below), each
holder of Series B Preferred Stock shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such holder's
shares of Series B Preferred Stock at a price per share of Series B Preferred
Stock equal to one hundred ten percent (110%) of the Liquidation Preference
Amount, plus any accrued but unpaid dividends and liquidated damages (the "Major
Transaction Redemption Price"); provided that the Company shall have the sole
option to pay the Major Transaction Redemption Price in cash or shares of Common
Stock. If the Company elects to pay the Major Transaction Redemption Price in
shares of Common Stock, the price per share shall be based upon the Conversion
Price then in effect on the day preceding the date of delivery of the Notice of
Redemption at Option of Buyer Upon Major Transaction (as hereafter defined) and
the holder of such shares of Common Stock shall have demand registration rights
with respect to such shares.

            (b) Redemption Option Upon Triggering Event. In addition to all
other rights of the holders of Series B Preferred Stock contained herein, after
a Triggering Event (as defined below), each holder of Series B Preferred Stock
shall have the right, at such holder's option, to require the Company to redeem
all or a portion of such holder's shares of Series B Preferred Stock at a price
per share of Series B Preferred Stock equal to one hundred twenty percent (120%)
of the Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages the "Triggering Event Redemption Price" and, collectively
with the "Major Transaction Redemption Price," the "Redemption Price"); provided
that with respect to the Triggering Events described in clauses (i), (ii), (iii)
and (v) of Section 8(d), the Company shall have the sole option to pay the
Triggering Event Redemption Price in cash or shares of Common Stock; and
provided, further, that with respect to the Triggering Event described in clause
(iv) of Section 8(d), the Company shall pay the Triggering Event Redemption
Price in cash. If the Company elects to pay the Triggering Event Redemption
Price in shares of Common Stock in accordance with this Section 8(b), the price
per share shall be based upon the Conversion Price then in effect on the day
preceding the date of delivery of the Notice of Redemption at Option of Buyer
Upon Triggering Event and the holder of such shares of Common Stock shall have
demand registration rights with respect to such shares.

            (c) "Major Transaction". A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:

                                       17
<PAGE>

                  (i) the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (B) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities).

                  (ii) the sale or transfer of more than 50% of the Company's
assets other than inventory in the ordinary course of business in one or a
related series of transactions; or

                  (iii) closing of a purchase, tender or exchange offer made to
the holders of more than fifty percent (50%) of the outstanding shares of Common
Stock in which more than fifty percent (50%) of the outstanding shares of Common
Stock were tendered and accepted.

            (d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:

                  (i) so long as any shares of Series B Preferred Stock are
outstanding, the effectiveness of the Registration Statement, after it becomes
effective, (i) lapses for any reason (including, without limitation, the
issuance of a stop order) and such lapse continues for a period of twenty (20)
consecutive trading days, or (ii) is unavailable to the holder of the Series B
Preferred Stock for sale of the shares of Common Stock, and such lapse or
unavailability continues for a period of twenty (20) consecutive trading days,
and the shares of Common Stock into which such holder's Series B Preferred Stock
can be converted cannot be sold in the public securities market pursuant to Rule
144(k) ("Rule 144(k)") under the Securities Act of 1933, as amended, provided
that the cause of such lapse or unavailability is not due to factors solely
within the control of such holder of Series B Preferred Stock.

                  (ii) the suspension from listing, without subsequent listing
on any one of, or the failure of the Common Stock to be listed on at least one
of the OTC Bulletin Board, the Nasdaq National Market, the Nasdaq SmallCap
Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.,
for a period of five (5) consecutive trading days;

                  (iii) the Company's notice to any holder of Series B Preferred
Stock, including by way of public announcement, at any time, of its inability to
comply (including for any of the reasons described in Section 9) or its
intention not to comply with proper requests for conversion of any Series B
Preferred Stock into shares of Common Stock; or

                  (iv) the Company's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Certificate of Designation
within ten (10)

                                       18
<PAGE>

business days after the receipt by the Company of the Conversion Notice and the
Preferred Stock Certificates; or

                  (v) the Company breaches any representation, warranty,
covenant or other term or condition of the Purchase Agreement, this Certificate
of Designation or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby or hereby,
except to the extent that such breach would not have a Material Adverse Effect
(as defined in the Purchase Agreement) and except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of a least
ten (10) days.

            (e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Series B Preferred Stock. At any time after receipt of a Notice
of Major Transaction (or, in the event a Notice of Major Transaction is not
delivered at least ten (10) days prior to a Major Transaction, at any time
within ten (10) days prior to a Major Transaction), any holder of Series B
Preferred Stock then outstanding may require the Company to redeem, effective
immediately prior to the consummation of such Major Transaction, all of the
holder's Series B Preferred Stock then outstanding by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Company, which Notice of Redemption at
Option of Buyer Upon Major Transaction shall indicate (i) the number of shares
of Series B Preferred Stock that such holder is electing to redeem and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to Section
8(a) above.

            (f) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of Series B Preferred Stock. At
any time after the earlier of a holder's receipt of a Notice of Triggering Event
and such holder becoming aware of a Triggering Event, any holder of Series B
Preferred Stock then outstanding may require the Company to redeem all of the
Series B Preferred Stock by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon Triggering
Event") to the Company, which Notice of Redemption at Option of Buyer Upon
Triggering Event shall indicate (i) the number of shares of Series B Preferred
Stock that such holder is electing to redeem and (ii) the applicable Triggering
Event Redemption Price, as calculated pursuant to Section 8(b) above.

            (g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a Notice(s)
of Redemption at Option of Buyer Upon Major Transaction from any holder of
Series B Preferred Stock, the Company shall immediately notify each holder of
Series B Preferred Stock by facsimile of the Company's receipt of such Notice(s)
of Redemption at Option of Buyer Upon Triggering Event or Notice(s) of
Redemption at Option of Buyer Upon Major Transaction and each holder which

                                       19
<PAGE>

has sent such a notice shall promptly submit to the Company such holder's
Preferred Stock Certificates which such holder has elected to have redeemed.
Other than with respect to the Triggering Event described in clause (iv) of
Section 8(d), the Company shall have the sole option to pay the Redemption Price
in cash or shares of Common Stock in accordance with Sections 8(a) and (b) and
Section 9 of this Certificate of Designation. The Company shall deliver the
applicable Major Transaction Redemption Price immediately prior to the
consummation of the Major Transaction; provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Company; provided further that
if the Company is unable to redeem all of the Series B Preferred Stock to be
redeemed, the Company shall redeem an amount from each holder of Series B
Preferred Stock being redeemed equal to such holder's pro-rata amount (based on
the number of shares of Series B Preferred Stock held by such holder relative to
the number of shares of Series B Preferred Stock outstanding) of all Series B
Preferred Stock being redeemed. If the Company shall fail to redeem all of the
Series B Preferred Stock submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Redemption Price), in addition
to any remedy such holder of Series B Preferred Stock may have under this
Certificate of Designation and the Purchase Agreement, the applicable Redemption
Price payable in respect of such unredeemed Series B Preferred Stock shall bear
interest at the rate of 1.0% per month (prorated for partial months) until paid
in full. Until the Company pays such unpaid applicable Redemption Price in full
to a holder of shares of Series B Preferred Stock submitted for redemption, such
holder shall have the option (the "Void Optional Redemption Option") to, in lieu
of redemption, require the Company to promptly return to such holder(s) all of
the shares of Series B Preferred Stock that were submitted for redemption by
such holder(s) under this Section 8 and for which the applicable Redemption
Price has not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of
such Void Optional Redemption Notice(s) and prior to payment of the full
applicable Redemption Price to such holder, (i) the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction shall be null and void with respect to
those shares of Series B Preferred Stock submitted for redemption and for which
the applicable Redemption Price has not been paid and (ii) the Company shall
immediately return any Series B Preferred Stock submitted to the Company by each
holder for redemption under this Section 8(d) and for which the applicable
Redemption Price has not been paid and (iii) the Conversion Price of such
returned shares of Series B Preferred Stock shall be adjusted to the lesser of
(A) the Conversion Price and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option of Buyer
Upon Major Transaction is delivered to the Company and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company;
provided that no adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect. A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice other than interest payments. Payments
provided for in this Section 8 shall have priority to payments to other
stockholders in connection with a Major Transaction.

            (h) Demand Registration Rights. If the Redemption Price upon the
occurrence of a Major Transaction or a Triggering Event is paid in shares of
Common Stock and such shares have not been previously registered on a
registration statement under the Securities

                                       20
<PAGE>

Act, a holder of Series B Preferred Stock may make a written request for
registration under the Securities Act pursuant to this Section 8(h) of all of
its shares of Common Stock issued upon such Major Transaction or Triggering
Event. The Company shall use its reasonable best efforts to cause to be filed
and declared effective as soon as reasonably practicable (but in no event later
than the ninetieth (90th) day after such holder's request is made) a
registration statement under the Securities Act, providing for the sale of all
of the shares of Common Stock issued upon such Major Transaction or Triggering
Event by such holder. The Company agrees to use its reasonable best efforts to
keep any such registration statement continuously effective for resale of the
Common Stock for so long as such holder shall request, but in no event later
than the date that the shares of Common Stock issued upon such Major Transaction
or Triggering Event may be offered for resale to the public pursuant to Rule
144(k).

      9. Inability to Fully Convert.

            (a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Mandatory Conversion Date,
the Company cannot issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation, because
the Company (w) does not have a sufficient number of shares of Common Stock
authorized and available, (x) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or its
securities from issuing all of the Common Stock which is to be issued to a
holder of Series B Preferred Stock pursuant to a Conversion Notice or (y)
subsequent to the Effectiveness Date, fails to have a sufficient number of
shares of Common Stock registered for resale under the Registration Statement,
then the Company shall issue as many shares of Common Stock as it is able to
issue in accordance with such holder's Conversion Notice and pursuant to Section
5(b)(ii) above and, with respect to the unconverted Series B Preferred Stock,
the holder, solely at such holder's option, can elect, within five (5) business
days after receipt of notice from the Company thereof to:

                  (i) require the Company to redeem from such holder those
Series B Preferred Stock for which the Company is unable to issue Common Stock
in accordance with such holder's Conversion Notice ("Mandatory Redemption") at a
price per share equal to the Major Transaction Redemption Price as of such
Conversion Date (the "Mandatory Redemption Price"); provided that the Company
shall have the sole option to pay the Mandatory Redemption Price in cash or
shares of Common Stock;

                  (ii) if the Company's inability to fully convert Series B
Preferred Stock is pursuant to Section 9(a)(y) above, require the Company to
issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 5(b)(ii) above;

                  (iii) void its Conversion Notice and retain or have returned,
as the case may be, the shares of Series B Preferred Stock that were to be
converted pursuant to such holder's Conversion Notice (provided that a holder's
voiding its Conversion Notice shall not

                                       21
<PAGE>

effect the Company's obligations to make any payments which have accrued prior
to the date of such notice).

            (b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Series B Preferred Stock, upon
receipt of a facsimile copy of a Conversion Notice from such holder which cannot
be fully satisfied as described in Section 9(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the "Inability to
Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Series B Preferred Stock which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 9(a) above by delivering
written notice via facsimile to the Company ("Notice in Response to Inability to
Convert").

            (c) Payment of Redemption Price. If such holder shall elect to have
its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the
Mandatory Redemption Price to such holder within thirty (30) days of the
Company's receipt of the holder's Notice in Response to Inability to Convert,
provided that prior to the Company's receipt of the holder's Notice in Response
to Inability to Convert the Company has not delivered a notice to such holder
stating, to the satisfaction of the holder, that the event or condition
resulting in the Mandatory Redemption has been cured and all Conversion Shares
issuable to such holder can and will be delivered to the holder in accordance
with the terms of Section 2(g). If the Company shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as described in this
Section 9(c) (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Redemption Price), in addition to any remedy such
holder of Series B Preferred Stock may have under this Certificate of
Designation and the Purchase Agreement, such unpaid amount shall bear interest
at the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such holder, such
holder may (i) void the Mandatory Redemption with respect to those Series B
Preferred Stock for which the full Mandatory Redemption Price has not been paid,
(ii) receive back such Series B Preferred Stock, and (iii) require that the
Conversion Price of such returned Series B Preferred Stock be adjusted to the
lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date the holder
voided the Mandatory Redemption.

            (d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice from more than one holder of Series B Preferred
Stock on the same day and the Company can convert and redeem some, but not all,
of the Series B Preferred Stock pursuant to this Section 9, the Company shall
convert and redeem from each holder of Series B Preferred Stock electing to have
Series B Preferred Stock converted and redeemed at such time an amount equal to
such holder's pro-rata amount (based on the number shares of Series B Preferred
Stock held by such holder relative to the number shares of Series B Preferred
Stock outstanding) of all shares of Series B Preferred Stock being converted and
redeemed at such time.

                                       22
<PAGE>

      10. Vote to Change the Terms of or Issue Preferred Stock. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than seventy-five percent (75%) of the then
outstanding shares of Series B Preferred Stock, shall be required (a) for any
change to this Certificate of Designation or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series B Preferred Stock or (b) for
the issuance of shares of Series B Preferred Stock other than pursuant to the
Purchase Agreement.

      11. Lost or Stolen Certificates. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series B Preferred
Stock, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
Preferred Stock Certificates if the holder contemporaneously requests the
Company to convert such shares of Series B Preferred Stock into Common Stock.

      12. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designation
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designation. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Series B Preferred
Stock and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the holders of the Series B Preferred Stock shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

      13. Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all initial purchasers of the
Series B Preferred Stock and shall not be construed against any person as the
drafter hereof.

      14. Failure or Indulgence Not Waiver. No failure or delay on the part of a
holder of Series B Preferred Stock in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                                       23
<PAGE>

      IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 18'th day of February,
2005.

                                        BOUNDLESS MOTOR SPORTS RACING, INC.

                                        By: /s/ Brian Carter
                                            Name:  Brian Carter
                                            Title: Chief Financial Officer
                                                   and Vice President

                                       24
<PAGE>

                                                                       EXHIBIT I

                       BOUNDLESS MOTOR SPORTS RACING, INC.
                                CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series B Preferred Stock of Boundless Motor Sports Racing,
Inc. (the "Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series B Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of Boundless Motor Sports Racing, Inc., a Colorado corporation (the
"Company"), indicated below into shares of Common Stock, par value $.0001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.

      Date of Conversion:_______________________________________________________

      Number of Preferred Shares to be converted:_______________________________

      Stock certificate no(s). of Preferred Shares to be converted:_____________

      The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Purchase Agreement): YES ____    NO____

Please confirm the following information:

      Conversion Price:                 ________________________________________

      Number of shares of Common Stock
      to be issued:                     ________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: ___________________________

Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:

      Issue to:                         ________________________________________

                                        ________________________________________

      Facsimile Number:                 ________________________________________

      Authorization:                    ________________________________________

                                        By:_____________________________________

                                        Title:__________________________________

      Dated:

                                       25

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