Document:

<PAGE>

                                                                   Exhibit 10.47

                       LAND AND BUILDING LEASE AGREEMENT
                       ---------------------------------
                                 JULY 19, 2001

                                   LANDLORD:
                                   --------
                          REALTY INCOME CORPORATION,
                            A MARYLAND CORPORATION
                         DOING BUSINESS IN FLORIDA AS
                        REALTY INCOME PROPERTIES, INC.

                                    TENANT:
                                    ------
                              E-DIETS.COM, INC.,
                            A DELAWARE CORPORATION

                              PREMISES LOCATION:
                              -----------------
                         3801 WEST HILLSBORO BOULEVARD
                           DEERFIELD BEACH, FL 33442
<PAGE>

                       LAND AND BUILDING LEASE AGREEMENT

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                               <C>
1.      DEFINITIONS..............................................................................................    1
        1.1          Lease Year..................................................................................    1
        1.2          Hazardous Material..........................................................................    1
        1.3          Environmental Law...........................................................................    2
2.      PREMISES.................................................................................................    2
3.      TERM.....................................................................................................    2
        3.1          Primary Term................................................................................    2
        3.2          Option to Extend............................................................................    2
        3.3          Surrender of Premises; Holding Over.........................................................    3
4.      BASE MONTHLY RENT........................................................................................    3
        4.1          Net-Net-Net Lease...........................................................................    3
        4.2          Base Monthly Rent...........................................................................    3
5.      ADDITIONAL RENT..........................................................................................    3
        5.1          Consumer Price Index Rental Increase........................................................    3
6.      SUBSTITUTE RENT AND INCREASES............................................................................    4
7.      SECURITY DEPOSIT.........................................................................................    4
8.      USE OF THE PREMISES......................................................................................    5
9.      PROPERTY TAXES, OTHER CHARGES, ASSESSMENTS AND UTILITIES.................................................    5
        9.1          Tenant's Required Payments..................................................................    5
        9.2          Payments Not Required by Tenant.............................................................    6
        9.3          Assessments.................................................................................    6
        9.4          Utility Payments............................................................................    6
        9.5          Tenant's Right to Contest Utility Charges, Contest Taxes and Seek Reduction of Assessed
                     Valuation of the Premises...................................................................    6
        9.6          Landlord Not Required to Join in Proceedings or Contest Brought by Tenant...................    7
        9.7          Tax Period and Adjustment of Taxes..........................................................    7
        9.8          Default By Tenant...........................................................................    7
10.     FURNITURE, FIXTURES AND EQUIPMENT........................................................................    8
        10.1         Furniture, Fixtures, and Equipment..........................................................    8
        10.2         Security Interest...........................................................................    8
        10.3         Subordination...............................................................................    8
        10.4         Removal of Furniture, Fixtures, and Equipment at Expiration of Lease........................    9
        10.5         Right to Affix Signs........................................................................    9
11.     MAINTENANCE OF THE PREMISES..............................................................................    9
        11.1         Obligation to Maintain the Premises.........................................................    9
        11.2         Major Repair or Replacement.................................................................    9
        11.3         Obligation to Keep the Premises Clear......................................................    10
12.     REPAIRS AND ALTERATIONS.................................................................................    10
        12.1         Right to Make Alterations..................................................................    10
        12.2         Tenant Shall Not Render Premises Liable For Any Lien.......................................    10
13.     INDEMNITY AND INSURANCE.................................................................................    11
</TABLE>

                                      (i)
<PAGE>

<TABLE>
<S>                                                                                                                 <C>
        13.1         Indemnification............................................................................    11
        13.2         Insurance Company Requirement..............................................................    11
        13.3         Insurance Certificate Requirements.........................................................    12
        13.4         Minimum Acceptable Insurance Coverage Requirements.........................................    12
        13.5         Additional Insureds........................................................................    13
        13.6         Mortgage Endorsement.......................................................................    13
        13.7         Renewals, Lapses or Deficiencies...........................................................    14
        13.8         Waiver of Subrogation......................................................................    14
14.     PARTIAL AND TOTAL DESTRUCTION OF THE PREMISES...........................................................    14
        14.1         Damage or Destruction......................................................................    14
        14.2         Tenant's Right to Terminate................................................................    14
15.     CONDEMNATION............................................................................................    15
        15.1         Condemnation Damages.......................................................................    15
        15.2         Termination of Lease Due to Condemnation...................................................    15
16.     ASSIGNMENT AND SUBLETTING...............................................................................    15
        16.1         Tenant's Right of Assignment and Subletting................................................    15
        16.2         Landlord's Option to Preserve Subtenancies.................................................    16
        16.3         Tenant's Assignment of All Rent from Subletting as Security for Tenant's Obligations.......    16
        16.4         Continuing Obligation of Tenant............................................................    16
        16.5         Fees and Costs with Regard to Proposed Assignment or Sublease..............................    16
        16.6         Landlord's Right of Assignment.............................................................    16
17.     DEFAULT AND TERMINATION.................................................................................    17
        17.1         Event of Default...........................................................................    17
        17.2         Landlord's Remedies........................................................................    18
        17.3         Late Charge................................................................................    20
        17.4         Right of Landlord to Re-Enter..............................................................    20
        17.5         Surrender of Premises......................................................................    21
        17.6         Interest Charges...........................................................................    21
        17.7         Tenant's Default...........................................................................    21
        17.8         Default by Landlord........................................................................    21
18.     RIGHT OF INSPECTION.....................................................................................    22
19.     WAIVER OF BREACH........................................................................................    22
20.     NOTICES.................................................................................................    22
        20.1         Notice Requirements........................................................................    22
        20.2         Payments Under Lease.......................................................................    23
21.     RELATIONSHIP OF THE PARTIES.............................................................................    23
22.     SUBORDINATION, ATTORNMENT AND ESTOPPEL..................................................................    23
        22.1         Subordination and Non-Disturbance..........................................................    23
        22.2         Attornment.................................................................................    24
        22.3         Estoppel Certificate.......................................................................    24
23.     TENANT'S FINANCIAL STATEMENTS...........................................................................    24
24.     ATTORNEYS' FEES.........................................................................................    25
        24.1         Recovery of Attorneys' Fees and Costs of Suit..............................................    25
        24.2         Party to Litigation........................................................................    25
25.     CONSENT.................................................................................................    25
</TABLE>

                                     (ii)
<PAGE>

<TABLE>
<S>                                                                                                                 <C>
26.     AUTHORITY TO MAKE LEASE; COVENANT OF QUIET ENJOYMENT....................................................    25
        26.1         Full Power and Authority to Enter Lease....................................................    25
        26.2         Quiet Enjoyment............................................................................    25
        26.3         No Violation of Covenants and Restrictions.................................................    26
27.     HAZARDOUS MATERIAL......................................................................................    26
        27.1         Environmental Compliance...................................................................    26
        27.2         Survival...................................................................................    26
28.     GENERAL PROVISIONS......................................................................................    27
        28.1         Gender; Number.............................................................................    27
        28.2         Captions...................................................................................    27
        28.3         Exhibits...................................................................................    27
        28.4         Entire Agreement...........................................................................    27
        28.5         Drafting...................................................................................    27
        28.6         Modification...............................................................................    27
        28.7         Joint and Several Liability................................................................    27
        28.8         Governing Law..............................................................................    27
        28.9         Attorneys' Fees............................................................................    27
        28.10        Time of Essence............................................................................    28
        28.11        Severability...............................................................................    28
        28.12        Successors and Assigns.....................................................................    28
        28.13        Independent Covenants......................................................................    28
        28.14        Information Provided.......................................................................    28
        28.15        Limitation of Landlord's Liability.........................................................    28
        28.16        No Lease Until Accepted....................................................................    28
        28.17        Counterparts...............................................................................    29
</TABLE>

Exhibit "A" - Legal Description of Real Property
Exhibit "B" - Memorandum of Lease

                                     (iii)
<PAGE>

                        LAND AND BUILDING LEASE AGREEMENT

             This Land and Building Lease Agreement (this "Lease"), dated for
reference purposes only as of July 19, 2001, is made by and between REALTY
INCOME CORPORATION, a Maryland corporation doing business in Florida as Realty
Income Properties, Inc. ("Landlord"), and E-DIETS.COM, INC. a Delaware
corporation ("Tenant"), with reference to the recitals set forth below.

                                   RECITALS

             A.  Landlord is the owner of that certain real property, together
with all the improvements thereon and appurtenances thereunto belonging (the
"Premises"), the legal description of which is attached hereto and incorporated
herein as Exhibit "A," commonly known as:

                         3801 WEST HILLSBORO BOULEVARD
                           DEERFIELD BEACH, FL 33442

             B.  Landlord desires to lease the Premises to Tenant, and Tenant
desires to lease the Premises from Landlord pursuant to the provisions of this
Lease.

                                1. DEFINITIONS

             The following terms, when used in this Lease, shall have the
meaning set forth in this Section.

1.1          Lease Year
             ----------

             The term "Lease Year" shall mean the first twelve (12) full
calendar months after the Rent Commencement Date (as defined in Section 4.2) and
each subsequent twelve (12) month period thereafter during the term and any
extensions. If the Rent Commencement Date is other than the first day of the
month, then the first Lease Year also will include the partial month in which
the Rent Commencement Date occurs.

1.2          Hazardous Material
             ------------------

             The term "Hazardous Material" means any substance, material, or
waste which is toxic, ignitable, reactive, or corrosive and which is or becomes
regulated by the local or state governmental authority or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste," "extremely
hazardous waste," "restricted hazardous waste," "hazardous substance," or
"hazardous material," by any local or state law, (ii) oil and petroleum products
and their by-products, (iii) asbestos, or asbestos-containing materials, (iv)
designated as a "hazardous substance" pursuant to the Federal Water Pollution
Control Act, (v) defined as a "hazardous waste" pursuant to the Federal Resource
Conservation and Recovery Act, or (vi) defined as a "hazardous substance"
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act.
<PAGE>

1.3       Environmental Law
          -----------------

          The term "Environmental Law" shall mean any law, statute, regulation,
order, or rule now or hereafter promulgated by any governmental entity, whether
local, state, or federal, relating to air pollution, water pollution, noise
control, and/or transporting, storing, handling, discharge of or disposal of
Hazardous Material, including, without limitation, the following: the Clean Air
Act; the Resource Conservation and Recovery Act, as amended by the Hazardous
Waste and Solid Waste Amendments of 1984; the Comprehensive Environmental
Response Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986; the Toxic Substances Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act, as amended; the Safe Drinking Water
Act; OSHA; the Hazardous Liquid Pipeline Safety Act; the Hazardous Materials
Transportation Act; and the National Environmental Policy Act, as the same may
be amended from time to time.

                                  2. PREMISES

          Landlord leases to Tenant and Tenant leases from Landlord the Premises
in its "AS IS, WHERE IS, WITH ALL FAULTS" condition with no representations or
warranties whatsoever and on the terms and conditions set forth in this Lease.
By affixing its initials below, Tenant acknowledges and agrees that: (i) no
representations have been or are made, or responsibility assumed by Landlord,
with respect to the Premises or its operation, or the condition or repair of the
Premises, or as to any fact, circumstance, thing or condition which may effect
or relate to the Premises, except as specifically set forth in this Lease; (ii)
the Premises is leased in its "AS IS, WHERE IS, WITH ALL FAULTS" condition as of
the Commencement Date; and (iii) other than as specifically set forth in this
Lease, Landlord shall have no obligation to alter, restore, improve, repair, or
develop the Premises, and further shall have no obligation to remove therefrom
any items of personal property, or other trade fixtures or equipment which may
be upon the Premises.

                                                        RTH
                                           -------------------------------------
                                           Tenant's Initials

                                   3.  TERM

3.1       Primary Term
          ------------

          The effective date (the "Commencement Date") of this Lease shall be
the date upon which this Lease is last executed by Landlord or Tenant. On or
after the Commencement Date, a Memorandum of Lease, a copy of which is attached
hereto and incorporated herein as Exhibit "B," shall be recorded by Tenant. The
expiration date of the primary term (the "Primary Term") shall be last day of
the month FIVE (5) YEARS following the Rent Commencement Date, unless extended
as set forth in Section 3.2. References to the term of the Lease shall include
extensions, if any. Except as otherwise expressly stated, the terms and
conditions of this Lease shall remain in effect during any extension, renewal,
or holdover of the Primary Term.

3.2       Option to Extend
          ----------------

          On or before two hundred seventy (270) days prior to the expiration of
the Primary Term, providing Tenant (i) is occupying the Premises; (ii) is not in
default of this Lease; Tenant may extend the term of this Lease for an
additional SIXTY (60) MONTHS by notifying
<PAGE>

Landlord of such intention in writing (the "Extension Period"). The maximum term
of the Lease with one extension is TEN (10) YEARS.

3.3  Surrender of Premises; Holding Over
     -----------------------------------

     On the last day or sooner termination of the term of this Lease, Tenant
shall quit and surrender the Premises, together with all alterations, vacant and
free of all tenancies and any leasehold rights therein and in good condition and
repair, normal wear and tear excepted, broom clean and free of violations, and
shall surrender all keys for the Premises to Landlord at the place then fixed
for the payment of rent and shall inform Landlord of all combinations of locks,
safes, and vaults, if any, in the Premises. If Tenant does not do so, then after
expiration of this Lease, it will be a tenant at will upon the applicable
conditions of this Lease. In such event the rent payable shall be increased by
fifty percent (50%) over the rent payable during the last full month of the term
of this Lease that just ended. If the Premises is not surrendered as and when
aforesaid, Tenant shall indemnify Landlord from and against loss or liability
resulting from the delay by Tenant in so surrendering the Premises, including
without limitation, any claims made by any succeeding occupant or purchaser
founded on such delay. Tenant's obligations under this Section shall survive the
expiration or earlier termination of this Lease.

                             4.  BASE MONTHLY RENT

4.1       Net-Net-Net Lease
          -----------------

          This is a net-net-net lease. It is the intention of Landlord and
Tenant that the Base Monthly Rent (as defined below) and other sums and charges
provided herein shall be absolutely net to Landlord. Except as otherwise
specifically set forth in this Lease, Tenant shall pay, as additional rent, all
costs, charges, obligations, assessments, and expenses of every kind and nature
against or relating to the Premises or the use, occupancy, area, possession,
leasing, operation, management, maintenance, or repair thereof, which may arise
or become due during the term hereof, whether or not now customary or within the
contemplation of the parties hereto.

4.2       Base Monthly Rent
          -----------------

          Tenant shall pay to Landlord as base monthly rent ("Base Monthly
Rent") the sum of TEN THOUSAND ONE HUNDRED EIGHTY-FIVE DOLLARS ($10,185). Base
Monthly Rent shall be payable by Tenant to Landlord in advance in equal monthly
installments commencing on the sixtieth (60th) day following the Commencement
Date and on the first day of each calendar month thereafter, without prior
notice, invoice, demand, deduction, or offset whatsoever. Landlord shall have
the right to accept all rent and other payments, whether full or partial, and to
negotiate checks and payments thereof without any waiver of rights, irrespective
of any conditions to the contrary sought to be imposed by Tenant. All rent shall
be paid to Landlord at the address to which notices to Landlord are given. Base
Monthly Rent for any partial month shall be prorated based upon a thirty (30)
day month.

                              5.  ADDITIONAL RENT

5.1       Consumer Price Index Rental Increase
          ------------------------------------

          The capitalized terms used herein are defined below. Effective on each
Adjustment Date, Base Monthly Rent shall be increased by five (5) times the
increases in the CPI, with the
<PAGE>

increases to be calculated as follows: (i) subtract one point zero (1.0) from a
fraction, the numerator of which shall be the Variable Index, and the
denominator of which shall be the Base Index; and (ii) multiply the result
obtained in (i) above by five (5); then (iii) multiply the result obtained in
(ii) above by the Initial Base Monthly Rent. Notwithstanding the foregoing, in
no event shall the increase in Base Monthly Rent exceed three percent (3%), nor
shall the new Base Monthly Rent be less than the previous Base Monthly Rent.

          The new Base Monthly Rent shall be payable in advance in consecutive
monthly installments on the first day of each month until the next Adjustment
Date, or the expiration of the term, as the case may be. Landlord's delay or the
failure of Landlord, beyond commencement of any Adjustment Date, in computing or
billing for these adjustments will not impair the continuing obligation of
Tenant to pay the rent adjustments. In applying the foregoing formula for Base
Monthly Rent adjustments, the following terms shall have the following meaning:

          5.1.1     "Adjustment Date" shall mean, as the case may require, each
                    anniversary of the Rent Commencement Date; provided,
                    however, if the Rent Commencement Date is other than the
                    first day of the month, then "Adjustment Date" shall mean,
                    as the case may require, the first day of the first month
                    occurring after each anniversary of the Rent Commencement
                    Date.

          5.1.2     "Base Index" shall mean the CPI for the first month of the
                    first Lease Year.

          5.1.3     "CPI" shall mean the Consumer Price Index for All Urban
                    Consumers, All Items, U.S.A. Area, 1982-1984 = 100, as
                    published by the Bureau of Labor Statistics, United States
                    Department of Labor (U.S. City Average). If such index is
                    discontinued, CPI shall then mean the most nearly comparable
                    index published by the Bureau of Labor Statistics or other
                    official agency of the United States Government as
                    determined by Landlord.

          5.1.4     "Initial Base Monthly Rent" shall mean the Base Monthly Rent
                    payable by Tenant for the first full calendar month of the
                    first Lease Year.

          5.1.5     "Variable Index" shall mean the CPI for the month in which
                    the Adjustment Date occurs.

                    6.  SUBSTITUTE RENT AND INCREASES

          This Section was left blank intentionally.

                              7. SECURITY DEPOSIT

          Tenant shall, prior to the Commencement Date, deposit with Landlord,
the sum of TWENTY THOUSAND THREE HUNDRED SEVENTY DOLLARS ($20,370) (the
"Security Deposit"), as a Security Deposit to secure the faithful performance by
Tenant of all the terms, covenants, and conditions of this Lease. Landlord may
use the Security Deposit or any portion
<PAGE>

thereof to cure a default by Tenant or to compensate Landlord for all damages
sustained by Landlord resulting from the default. Tenant shall, within five (5)
days of demand, pay to Landlord a sum equal to the portion of the Security
Deposit expended or applied by Landlord so as to maintain the Security Deposit
in the sum initially deposited with Landlord. Any interest earned on the
Security Deposit shall accrue to the benefit of Landlord. Landlord shall not be
required to keep this Security Deposit separate from its general funds. The
Security Deposit shall not be mortgaged, assigned, transferred, or encumbered by
Tenant without the prior written consent of Landlord and any such act on the
part of Tenant shall be without force and effect and shall not be binding upon
Landlord. Tenant shall have no right to have the Security Deposit applied to the
last month's or any other rent payable by Tenant hereunder. Landlord shall
return the Security Deposit to Tenant within sixty (60) days of the expiration
or termination of the Lease, subject to the terms hereof.

                            8. USE OF THE PREMISES

          Tenant shall use the Premises only for Tenant's corporate offices and
no other uses without the prior written consent of Landlord which consent may be
withheld in its sole and absolute discretion. Tenant has satisfied itself, and
represents to Landlord, that such use is lawful and conforms to all applicable
zoning and other use restrictions and regulations applicable to the Premises.
Tenant shall, at Tenant's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, covenants and restrictions of record,
and requirements in effect during the term or any part of the term hereof,
regulating the use by Tenant of the Premises, including, without limitation, the
obligation at Tenant's cost, to alter, maintain, or restore the Premises in
compliance and conformity with all laws relating to the condition, use, or
occupancy of the Premises during the term (including any and all requirements as
set forth in the Americans with Disabilities Act) and regardless of (i) whether
such laws require structural or non-structural improvements, (ii) whether the
improvements were foreseen or unforeseen, and (iii) the period of time remaining
in the term. Tenant shall not perform any acts or carry on any practices, which
may injure the Premises, except as expressed in this Lease.

         9.  PROPERTY TAXES, OTHER CHARGES, ASSESSMENTS AND UTILITIES

9.1       Tenant's Required Payments
          --------------------------

          Tenant shall (i) pay at least fifteen (15) days before delinquency and
as additional rent, all Property Taxes and Other Charges (as such terms are
defined herein) that accrue during or are otherwise allocable to the term of
this Lease; and (ii) concurrently provide Landlord with evidence of payment
thereof. Property taxes and Other Charges together are referred to herein as
"Taxes."

          9.1.1     "Property Taxes" shall mean all taxes, assessments, excises,
                    levies, fees, and charges (and any tax, assessment, excise,
                    levy, fee, or charge levied wholly or partly in lieu thereof
                    or as a substitute therefor or as an addition thereto) of
                    every kind and description, general or special, ordinary or
                    extraordinary, foreseen or unforeseen, secured or unsecured,
                    whether or not now customary or within the contemplation of
                    Landlord and Tenant, that are levied, assessed, charged,
                    confirmed, or imposed on or against, or otherwise with
                    respect to, the Premises or any part thereof or any personal
                    property on or in the Premises. It is
<PAGE>

                    the intention of Landlord and Tenant that all new and
                    increased taxes, assessments, levies, fees, and levies,
                    fees, and charges be included within the definition of
                    Property Taxes for the purpose of this Lease.

          9.1.2     "Other Charges" shall mean all taxes, assessments, excises,
                    levies, fees, and charges (including, without limitation,
                    common area maintenance charges, charges relating to the
                    cost of providing facilities or services, and charges
                    relating to documents or instruments of record effecting or
                    encumbering the Premises), whether or not now customary or
                    within the contemplation of Landlord and Tenant, that are
                    levied, assessed, charged, confirmed, or imposed upon, or
                    measured by, or reasonably attributable to (a) the Premises;
                    (b) the cost or value of Tenant's furniture, fixtures,
                    equipment, or personal property located in the Premises or
                    the cost or value of any leasehold improvements made in or
                    to the Premises by or for Tenant, regardless of whether
                    title to such improvements is vested in Tenant or Landlord;
                    (c) Base Monthly Rent and additional rent payable under the
                    Lease , including, if applicable, Property Taxes, Other
                    Charges, insurance, maintenance, and other costs incurred by
                    Tenant by which Landlord may benefit, including, without
                    limitation, any gross income tax or excise tax levied by any
                    public or government authority with respect to the receipt
                    of any such rents and costs; (d) the possession, leasing,
                    operation, management, maintenance, alteration, repair, use,
                    or occupancy by Tenant of the Premises; and (e) this
                    transaction or any document to which Tenant is a party
                    creating or transferring an interest or an estate in the
                    Premises.

9.2       Payments Not Required by Tenant
          -------------------------------

          Tenant shall not be required to pay any state or federal income or
franchise taxes of Landlord, or any state or federal estate, succession,
inheritance, or transfer taxes of Landlord.

9.3       Assessments
          -----------

          If any assessment for a capital improvement made by a public or
governmental authority shall be levied or assessed against the Premises, and the
assessment is payable either in a lump sum or on an installment basis, then
Tenant shall have the right to elect the basis of payment; provided however,
throughout the entire term of this Lease, Tenant shall pay all assessments that
accrue during or are otherwise allocable to the term of this Lease

9.4       Utility Payments
          ----------------

          Tenant shall promptly pay when due all charges for water, gas,
electricity, and all other utilities furnished to or used upon the Premises,
including all charges for installation, termination, and relocations of such
service. Landlord, at its option, may require Tenant to furnish Landlord with
evidence of payment of such charges.

9.5       Tenant's Right to Contest Utility Charges, Contest Taxes and Seek
          -----------------------------------------------------------------
          Reduction of Assessed Valuation of the Premises
          -----------------------------------------------

          Tenant, at Tenant's sole cost and expense, shall have the right, at
any time, to seek a reduction in the assessed valuation of the Premises or to
contest any taxes or utility charges that
<PAGE>

are to be paid by Tenant; provided however, Tenant shall (i) give Landlord
written notice of any such intention to contest at least thirty (30) days before
any delinquency could occur; (ii) indemnify and hold Landlord harmless from all
liability on account of such contest; (iii) take such action as is necessary to
remove the effect of any lien which attached to the Premises or the improvements
thereon due to such contest, or in lieu thereof, at Landlord's election, furnish
Landlord with adequate security for the amount of the Taxes due plus interest
and penalties; and (iv) in the event of a final determination adverse to Tenant,
prior to enforcement, foreclosure or sale, pay the amount involved together with
all penalties, fines, interest, costs, and expenses which may have accrued.
Tenant may use any means allowed by statute to protest Taxes or utility charges
as defined in this Section 9 as long as Tenant remains current as to all other
terms and conditions of this Lease. If Tenant seeks a reduction or contests any
Taxes or utility charges, the failure on Tenant's part to pay the Taxes or
utility charges shall not constitute a default as long as Tenant complies with
the provisions of this Section.

9.6       Landlord Not Required to Join in Proceedings or Contest Brought by
          ------------------------------------------------------------------
          Tenant
          ------

          Landlord shall not be required to join in any proceeding or contest
brought by Tenant unless the provisions of the law require that the proceeding
or contest be brought by or in the name of Landlord or the owner of the
Premises. In that case, Landlord shall join in the proceeding or contest or
permit it to be brought in Landlord's name as long as Landlord is not required
to bear any cost. Tenant, on final determination of the proceeding or contest,
shall immediately pay or discharge any decision or judgment rendered, together
with all costs, charges, interest, and penalties incidental to the decision or
judgment.

9.7       Tax Period and Adjustment of Taxes
          ----------------------------------

          For the purpose of this Lease, the calculation of Taxes payable by
Tenant for any particular Lease Year shall be based upon the Taxes actually due
and payable in accordance with applicable law during such Lease Year even though
such Taxes may relate to a different period of time (such as the taxing
authority's fiscal year). [For example, if Taxes are payable on or before
September 30 of each year with respect to the fiscal period beginning on the
immediately preceding July 1 and ending on the immediately succeeding June 30,
then, for all purposes of this Lease, Taxes for Lease Year "X" refers to the
Taxes due and payable on September 30 of such Lease Year even though the same
may relate in part to both such Lease Year and the succeeding Lease Year.] The
parties hereby understand that, notwithstanding the foregoing, Taxes payable by
Tenant in accordance with the terms of this Lease shall be appropriately
adjusted for any partial Lease Year.

9.8       Default By Tenant
          -----------------

          At Landlord's option, and without in any way limiting Tenant's
obligations under this Lease, in the event of a material Default which has not
been cured within any applicable cure period by Tenant hereunder, Property Taxes
shall be paid by Tenant as additional rent to Landlord in monthly installments
for the remaining Term of this Lease on the same day that Base Monthly Rent is
due hereunder. Such monthly installments shall be an estimated amount equal to
one-twelfth (1/12) of the Property Taxes for the immediate preceding year,
subject to adjustment when the actual amount of Property Taxes is determined. At
such time as the actual amount of Property Taxes is determined, Landlord shall
furnish to Tenant a statement indicating the actual amount of Property Taxes.
Within thirty (30) days after receipt of such statement by Tenant, Tenant shall
pay to Landlord any deficiency due. Any surplus paid by Tenant shall, at
<PAGE>

Tenant's option, be credited against the next installment(s) of Base Monthly
Rent or other charges due from Tenant or be refunded to Tenant forthwith. In
this instance, Landlord will endeavor to pay the Property Taxes within the
period to receive the maximum discount for early payment.

                    10.  FURNITURE, FIXTURES AND EQUIPMENT

10.1      Furniture, Fixtures, and Equipment
          ----------------------------------

          During the term Tenant may at Tenant's expense, place or install such
furniture, fixtures, and equipment on the Premises as may be needed for the
conduct of Tenant's business.

10.2      Security Interest
          -----------------

          Tenant hereby grants to Landlord a lien and security interest on all
property of Tenant now or hereafter placed and installed in, upon, or about the
Premises, including, without limitation, all furniture, trade fixtures,
equipment, machinery, furnishings, signs, and other articles of personal
property, and all proceeds of the sale or other disposition of such property
(collectively, the "Collateral") to secure the payment of all Base Monthly Rent
and additional rent to be paid by Tenant pursuant to this Lease and all other
obligations of Tenant arising under this Lease. It is expressly understood that
the term Collateral as used herein shall in no event extend to leasehold
improvements, fixtures or similar "vanilla shell" items such as light fixtures,
HVAC equipment, or other fixtures and equipment permanently affixed to the
Premises. Such lien and security interest shall be addition to Landlord's lien
provided by law. This Lease shall constitute a security agreement under the
Commercial Code of the state in which the Premises is located so that Landlord
shall have and may enforce a security interest in the Collateral. Tenant agrees
to execute as debtor and deliver such financing statement or statements and any
further documents as Landlord may now or hereafter reasonably request to protect
such security interest pursuant to such code. Landlord may also at any time file
a copy of this Lease as a financing statement. Landlord, as secured party, shall
be entitled to all rights and remedies afforded as secured party under such
code, which right and remedies shall be in addition to Landlord's liens and
rights provided by law or by the other terms and provisions of this Lease.

10.3      Subordination
          -------------

          Notwithstanding anything contained herein to the contrary, subject to
the provisions of this Section 10, Tenant may finance the Collateral. Provided
Tenant is not in default of the Lease, and subject to such reasonable
restrictions as Landlord may impose to protect its interests, Landlord's
security interest, at the option and upon written declaration of Landlord, shall
be subject, subordinate, and inferior to any lien(s) (and all renewals,
extensions, or replacements thereof) now or hereafter imposed by Tenant upon the
Collateral for the purpose of financing the same.

          Landlord agrees to execute such reasonable and necessary documents to
confirm Landlord's foregoing covenant in favor of Tenant's mortgagees. Any
furniture, fixtures, and equipment placed in the Premises by Tenant may be
replaced by Tenant periodically during the term.
<PAGE>

10.4      Removal of Furniture, Fixtures, and Equipment at Expiration of Lease
          --------------------------------------------------------------------

          At the expiration or earlier termination of the Lease, providing
Tenant is not in default of any terms or conditions of the Lease, the furniture,
fixtures, and equipment may be removed at the option of Tenant. Tenant
immediately shall make such repairs and restoration of the Premises as are
necessary to repair any damage to the Premises from the removal of the
furniture, fixtures, and equipment. Furniture, fixtures, and equipment not so
removed shall, at Landlord's option, become the property of Landlord, and
Landlord may cause such property to be removed from the Premises and disposed
of, but the cost of any such removal shall be borne by Tenant. The provisions of
this paragraph shall survive the expiration or termination of this Lease with
respect to the Premises.

10.5      Right to Affix Signs
          --------------------

          Tenant shall have the right to affix signs customarily used in its
business upon the windows, doors, interior, and exterior walls of the Premises,
and such free-standing signs as may seem appropriate to Tenant and are
authorized by any governmental authority having jurisdiction over the Premises
and permitted by any covenants, conditions, and restrictions encumbering the
Premises. Upon the expiration or earlier termination of the Lease, Landlord may
require Tenant to remove such signs within a reasonable time following receipt
of written notice from Landlord. Tenant immediately shall make such repairs and
restoration of the Premises as are necessary to repair any damage to the
Premises from the removal of the signs.

                       11.   MAINTENANCE OF THE PREMISES

11.1      Obligation to Maintain the Premises
          -----------------------------------

          During the term of this Lease, Tenant shall, at its own expense, keep
and maintain the entire Premises in good order and repair, including, but not
limited to, the interior, exterior, foundations, floors, walls, roof, and
structure of the building; the sidewalks, curbs, walls, trash enclosures,
landscaping with sprinkler system (if installed), light standards, and parking
areas which are a part of the Premises. Tenant shall make such repairs and
replacements as may be necessary, regardless of whether the benefit of such
repair or replacement extends beyond the term of this Lease. The Premises shall
be returned to Landlord at the termination or expiration of this Lease in good
condition, ordinary wear excepted. Landlord hereby assigns to Tenant all
building contractor, subcontractor, and manufacturer's warranties and guarantees
applicable to the Premises; and Landlord shall cooperate with Tenant at Tenant's
request and sole cost in any action to enforce such warranties and guarantees.
In the event of destruction of the Premises by fire or casualty, the condition
of Premises upon termination of this Lease shall be governed by Section 14.
Landlord shall have no obligation whatsoever to alter, remodel, improve, repair,
renovate, retrofit or maintain the Premises or any portion thereof.

11.2      Major Repair or Replacement
          ---------------------------

          Notwithstanding anything contained herein to the contrary, in the
event it shall become necessary to make any Major Repair or Replacement (as
defined below) during the term of this Lease or any extension hereof, such Major
Repair or Replacement shall be performed only with the prior written approval of
Landlord, which approval shall not be unreasonably withheld. The term "Major
Repair or Replacement" as used herein shall mean a single item of repair or
replacement (excluding maintenance) needed in connection with the structural
portions
<PAGE>

of the Premises, the roof, parking areas or HVAC system costing in excess of TEN
THOUSAND DOLLARS ($10,000). The actual cost of such Major Repair or Replacement
shall be amortized over the useful life of the improvement on a straight line
basis. Tenant shall be entitled to reimbursement from Landlord of the
unamortized balance at the expiration of the Primary Term, unless Tenant has
elected to extend the term of the Lease pursuant to Section 3.2, in which case
Tenant shall not be entitled to reimbursement until the Extension Period has
expired. Tenant shall not be entitled to reimbursement from Landlord if the
Lease is terminated other than by expiration of the Lease Term or pursuant to
Sections 14.2 or 15.2. Notwithstanding the right of reimbursement granted
herein, Tenant solely shall be responsible for all Major Repair or Replacement
if such Major Repair or Replacement is caused as a result of Tenant's
negligence, intentional acts or omissions, or lack of proper maintenance during
the Primary Term or the Extension Period. Notwithstanding anything contained
herein to the contrary, Landlord solely shall be responsible for all Major
Repair or Replacement if such Major Repair or Replacement is caused as a result
of Landlord's negligence or intentional acts or omissions, or as a result of a
latent defect in the Premises.

11.3      Obligation to Keep the Premises Clear
          -------------------------------------

          Tenant shall keep the Premises, including sidewalks adjacent to the
Premises and loading area allocated for the use of Tenant, clean and free from
rubbish and debris at all times. Tenant shall store all trash and garbage within
the Premises and arrange for regular pickup and cartage of such trash and
garbage at Tenant's expense.

                         12.  REPAIRS AND ALTERATIONS

12.1      Right to Make Alterations
          -------------------------

          At all times during the term of this Lease, except as provided in
Section 17, Tenant shall have the right to make alterations, additions, and
improvements to the interior or exterior of the Premises and parking areas
adjacent to the Premises. Nevertheless, any alterations or additions that are
over TWENTY-FIVE THOUSAND DOLLARS ($25,000) or are structural in nature shall
not be made by Tenant without prior written consent of Landlord. Any
alterations, additions, and improvements which may be made or installed by
Tenant shall remain upon the Premises and, at the expiration or earlier
termination of this Lease, shall be surrendered with the Premises to Landlord.
Any alteration, addition, or improvement for which Landlord gives its written
consent shall be accomplished by Tenant in a good workmanlike manner, in
conformity with applicable laws, regulations and covenants, conditions and
restrictions encumbering the Premises, and by a licensed contractor; and with
respect to alterations, additions, or improvements requiring Landlord's consent,
the contractor shall be approved by Landlord. Prior to commencement of any such
work, Tenant shall provide to Landlord copies of all required permits and
governmental approvals. Upon completion of any such work, Tenant shall provided
to Landlord "as-built" plans, copies of all construction contracts, building
permits, inspection reports and proof of payment of all labor and materials.
Tenant shall pay when due all claims for such labor and materials and shall give
Landlord at least ten (10) days' prior written notice of the commencement of any
such work.

12.2      Tenant Shall Not Render Premises Liable For Any Lien
          ----------------------------------------------------

          Tenant shall have no right, authority, or power to bind Landlord, or
any interest of Landlord in the Premises, nor to render the Premises liable for
any lien or right of lien for the
<PAGE>

payment of any claim for labor, material, or for any charge or expense incurred
to maintain, to repair, or to make alterations, additions, and improvements to
the Premises. Tenant shall in no way be considered the agent of Landlord in the
construction, erection, modification, repair, or alteration of the Premises.
Notwithstanding the above, Tenant shall have the right to contest the legality
or validity of any lien or claim filed against the Premises. No contest shall be
carried on or maintained by Tenant after the time limits in the sale notice of
the Premises for any such lien or claim unless Tenant (i) shall have duly paid
the amount involved under protest; (ii) shall have procured and recorded a lien
release bond from a bonding company acceptable to Landlord in an amount not less
than one and one-half (1-1/2) times the amount involved; or (iii) shall have
procured a stay of all proceedings to enforce collection. Upon a final adverse
determination of any contest, Tenant shall pay and discharge the amount of the
lien or claim determined to be due, together with any penalties, fines,
interest, cost, and expense which may have accrued, and shall provide proof of
payment to Landlord.

                         13. INDEMNITY AND INSURANCE

13.1      Indemnification
          ---------------

          Tenant shall indemnify, defend, and protect Landlord, and hold
Landlord harmless from any and all loss, cost, damage, expense, liability
(including, without limitation, court costs and reasonable attorneys' fees)
incurred in connection with or arising at any time and from any cause whatsoever
in or about the Premises, other than damages proximately caused by reason of the
gross negligence or willful misconduct of Landlord or its agents and employees,
including, without limiting the generality of the foregoing: (i) any default by
Tenant in the observance or performance of any of the terms, covenants, or
conditions of this Lease on Tenant's part to be observed or performed; (ii) the
use or occupancy of the Premises by Tenant or any person claiming by, through,
or under Tenant; (iii) the condition of the Premises or any occurrence or
happening on the Premises from any cause whatsoever; or (iv) any acts,
omissions, or negligence of Tenant or any person claiming by, through, or under
Tenant, or of the contractors, agents, servants, employees, visitors, or
licensees of Tenant or any such person, in, on, or about the Premises, either
prior to or during the Lease term (including, without limitation, any holdovers
in connection therewith), including, without limitation, any acts, omissions, or
negligence in the making or performance of any alterations. Tenant further
agrees to indemnify and hold harmless Landlord, Landlord's agents, and the
landlord or landlords under all ground or underlying leases, from and against
any and all loss, cost, liability, damage, and expense (including, without
limitation, reasonable attorneys' fees) incurred in connection with or arising
from any claims by any persons by reason of injury to persons or damage to
property occasioned by any use, occupancy, condition, occurrence, happening,
act, omission, or negligence referred to in the preceding sentence. The
provisions of this Section shall survive the expiration or sooner termination of
this Lease with respect to any claims or liability occurring prior to such
expiration or termination, and shall not be limited by reason of any insurance
carried by Landlord and Tenant.

13.2      Insurance Company Requirement
          -----------------------------

          Insurance required by this Lease shall be issued by companies
holding a general policyholder's rating of A-VIII or better as set forth in the
most current issue of Best's Insurance Guide and authorized to do business in
                      ----------------------
the state in which the Premises are located. If this
<PAGE>

publication is discontinued, then another insurance rating guide or service
generally recognized as authoritative shall be substituted by Landlord.

13.3      Insurance Certificate Requirements
          ----------------------------------

          13.3.1    Tenant shall deliver to Landlord evidence of the existence
                    and amounts of the insurance with additional insured
                    endorsements and loss payable clauses as required herein.
                    Tenant shall deliver to Landlord an ACORD Form 25-S
                    Certificate of Insurance in connection with Tenant's
                    liability policy(ies), and an ACORD Form 27 Evidence of
                    Property Insurance in connection with Tenant's property
                    policy(ies). No policy shall be cancelable or subject to
                    reduction of coverage or other modification except after
                    thirty (30) days' prior written notice to Landlord. Neither
                    the issuance of any insurance policy required hereunder, nor
                    the minimum limits specified herein with respect to any
                    insurance coverage, shall be deemed to limit or restrict in
                    any way the liability of Tenant arising under or out of this
                    Lease.

          13.3.2    The insurance required to be maintained herein may be
                    carried under blanket policies. The insurance shall provide
                    for payment of loss jointly to Landlord and Tenant, subject
                    to paragraph 14 below.

13.4      Minimum Acceptable Insurance Coverage Requirements
          --------------------------------------------------

          13.4.1    Tenant shall, at Tenant's expense, obtain and keep in full
                    force during the term of this Lease a policy of combined
                    single limit bodily injury and property damage insurance
                    written on an occurrence basis insuring Tenant (with
                    Landlord as an additional insured) against any liability
                    arising out of ownership, use, occupancy, or maintenance of
                    the Premises and all of its appurtenant areas. The insurance
                    shall be in an amount not less than Two Million Dollars
                    ($2,000,000) per occurrence; provided however, following
                    receipt of written notice from Landlord the limits of such
                    insurance shall be increased from time to time during the
                    term of the Lease to such amount as may be commercially
                    reasonable . The policy shall provide blanket contractual
                    liability coverage. However, the limits of the insurance
                    shall not limit the liability of Tenant. In addition, Tenant
                    shall, at Tenant's expense, obtain and keep in full force
                    during the term of this Lease an umbrella liability policy
                    in an amount not less than Two Million Dollars ($2,000,000)
                    in excess of primary insurance. The insurance to be
                    maintained by Tenant pursuant to this Section 13.4.1 shall
                    be primary and not contributory to any other insurance
                    maintained by Landlord.

          13.4.2    Tenant shall, at Tenant's expense, obtain and keep in force
                    during the term of this Lease a "Special Form" (as such term
                    is used in the insurance industry) policy of insurance
                    covering loss or damage to the Premises. The insurance shall
                    be in an amount not less than the full guaranteed
                    replacement cost of the building(s) (less slab, foundation,
<PAGE>

                    supports and other customarily excluded improvements). The
                    policy shall contain only standard printed exclusions;
                    include an agreed value endorsement waiving any co-insurance
                    penalty, and an ordinance or law coverage endorsement
                    covering increased costs resulting from changes in laws or
                    codes, and demolition and removal of the damaged structure.
                    In no event shall any deductible payable in connection with
                    such policy, together with any other form of self-insurance,
                    exceed Ten Thousand Dollars ($10,000). In addition, Tenant
                    shall, at Tenant's expense, obtain and keep in force during
                    the term of this Lease a policy or policies of insurance
                    covering loss or damage due to earthquake and flood.

          13.4.3    Tenant shall also obtain and keep in force during the term
                    of this Lease a policy of Business Interruption insurance
                    covering a period of one (1) year. This insurance shall
                    cover all Taxes and insurance costs for the same period in
                    addition to one (1) year's lease rent amount.

          13.4.4    Tenant shall also obtain and keep in force during the term
                    of this Lease a worker's compensation policy, insuring
                    against and satisfying Tenant's obligations and liabilities
                    under the worker's compensation laws of the state in which
                    the Premises are located, including Employer's Liability
                    insurance, in an amount of not less than One Million Dollars
                    ($1,000,000).

13.5      Additional Insureds
          -------------------

          Tenant shall name as additional insureds (by way of a CG 20 26
endorsement) and loss payees on all insurance, Landlord, Landlord's
successor(s), assignee(s), nominee(s), nominator(s), and agents with an
insurable interest as follows:

               REALTY INCOME CORPORATION, ITS OFFICERS, DIRECTORS,
               AND ALL SUCCESSOR(S), ASSIGNEE(S), SUBSIDIARIES,
               CORPORATIONS, PARTNERSHIPS, PROPRIETOR-SHIPS, JOINT
               VENTURES, FIRMS, AND INDIVIDUALS AS HERETOFORE, NOW,
               OR HEREAFTER CONSTITUTED ON WHICH THE NAMED INSURED
               HAS THE RESPONSIBILITY FOR PLACING INSURANCE AND FOR
               WHICH SIMILAR COVERAGE IS NOT OTHERWISE MORE
               SPECIFICALLY PROVIDED.

13.6      Mortgage Endorsement
          --------------------

          If requested by Landlord, the policies of insurance required to be
maintained hereunder shall bear a standard first mortgage endorsement in favor
of any holder or holders of a first mortgage lien or security interest in the
property with loss payable to such holder or holders as their interests may
appear, subject to paragraph 14 below.
<PAGE>

13.7     Renewals, Lapses or Deficiencies
         --------------------------------

         Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewal certificates of insurance or renewal
binders. Should Tenant fail to provide to Landlord the renewals or renewal
binders, or in the event of a lapse or deficiency of any insurance coverage
specified herein for any reason, Landlord may immediately replace the deficient
insurance coverage with a policy of insurance covering the Premises of the type
and in the limits set forth above. Upon written notice from Landlord of the
placement of insurance, Tenant shall immediately pay to Landlord, as additional
rent, an amount equal to the total cost of premiums and expense of such
insurance placement. Tenant shall not do or permit to be done anything which
shall invalidate or materially increase the cost of such insurance policies.

13.8     Waiver of Subrogation
         ---------------------

         Tenant hereby waives and releases any and all right of recovery against
Landlord, including, without limitation, employees and agents, arising during
the term of the Lease for any and all loss (including, without limitation, loss
of rental) or damage to property located within or constituting a part of the
Premises, which loss or damage arises from any type of peril which is covered or
could be covered by a Special Form policy. This waiver is in addition to any
other waiver or release contained in this Lease. Tenant shall have its insurance
policies issued in such form as to waive any right of subrogation that might
otherwise exist, and shall provide written evidence thereof to Landlord upon
written request.

               14.PARTIAL AND TOTAL DESTRUCTION OF THE PREMISES

14.1     Damage or Destruction
         ---------------------

         In the event any part or all of the Premises shall at any time during
the term of this Lease be damaged or destroyed, regardless of cause, Tenant
shall give prompt notice to Landlord. Tenant shall repair and restore the
Premises to its original condition, including buildings and all other
improvements on the Premises, as soon as circumstances permit. Tenant shall hold
Landlord free and harmless from any and all liability of any nature whatsoever
resulting from such damage or destruction, and such repairs and restoration.
Tenant and not Landlord, shall be responsible for paying for any cost of repairs
and restoration in excess of the proceeds available from insurance policies
procured by Tenant. Tenant is not entitled to any rent abatement during or
resulting from any disturbance from partial or total destruction of the
Premises, and in no event shall Tenant be entitled to terminate the Lease.

14.2     Tenant's Right to Terminate
         ---------------------------

         Notwithstanding anything contained herein to the contrary, Tenant may
terminate this Lease upon giving written notice to Landlord within thirty (30)
days following the date upon which the Premises is damaged or destroyed,
provided: (i) the Premises is totally or substantially damaged or destroyed (as
defined below); (ii) Tenant is not then in breach or default of the Lease; and
(iii) Tenant timely files an appropriate claim with its insurance carrier (in
the event of an insured casualty) in connection with such damage or destruction
and thereafter promptly pays over to Landlord the entirety of insurance proceeds
received in connection with the loss, plus a sum equal to the entirety of the
self-insured retention. As used herein, the phrase "totally or substantially
damaged or destroyed" shall mean that the period of time to restore or repair
the
<PAGE>

Premises as estimated by at least two (2) reputable general contractors
properly licensed in the State in which the Premises is located (and reasonably
acceptable to and approved by Landlord), shall exceed One Hundred Twenty (120)
days.

         The Lease will terminate effective on the date Landlord receives the
total sum due pursuant to this Section 14.2. Upon such termination, Landlord and
Tenant shall be released from all obligations and liabilities under the Lease,
with the exception of those liabilities which accrued prior to the termination
date and those obligations which, pursuant to the terms of the Lease, accrued
prior to the termination date and survive termination or expiration of the
Lease.

                                15.CONDEMNATION

15.1     Condemnation Damages
         --------------------

         In the event of the taking or conveyance of the whole or any part of
the Premises by reason of condemnation by any public or quasi-public body,
Landlord and Tenant shall represent themselves independently in seeking damages
before the condemning body. Each party shall be entitled to the amount awarded
respectively to each. Landlord shall be entitled to the entirety of the award
with the exception of the following:

         15.1.1       Any portion of the award attributable to Tenant's movable
                      leasehold improvements made to the Premises by Tenant in
                      accordance with this Lease;

         15.1.2       Any portion of the award attributable to Tenant's
                      furniture, fixtures and equipment;

         15.1.3       Any portion of the award attributable to: (i) removing
                      Tenant's furniture, fixtures and equipment; (ii) damage or
                      loss to Tenant's business and good will; and (iii) moving
                      and relocation expenses; and

         15.1.4       Any portion of the award attributable to Tenant's interest
                      in the leasehold estate created by this Lease.

15.2     Termination of Lease Due to Condemnation
         ----------------------------------------

         In the event that the Condemnation materially adversely affects the use
of the Premises as defined in Section 8, Tenant may terminate the Lease by
giving Landlord sixty (60) days' written notice of its intention to terminate
the Lease after receiving notice of the Condemnation from the condemning
authority. The effective date of the termination shall be the actual date of
such taking. In the event of termination, the rent for the last month of
Tenant's occupancy shall be prorated and Landlord shall refund to Tenant any
rent paid in advance and Tenant shall thereupon be released from its obligation
to pay rent.

                         16.ASSIGNMENT AND SUBLETTING

16.1     Tenant's Right of Assignment and Subletting
         -------------------------------------------

         Tenant shall not voluntarily or by operation of law assign or encumber
its interest in this Lease or in the Premises, or sublease all or any part of
the Premises, or allow any other
<PAGE>

person or entity to occupy or use any part of the Premises, without first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld. Any assignment, encumbrance, or sublease without
Landlord's consent shall be voidable and, at Landlord's election, shall
constitute a default. It shall not be unreasonable for Landlord to withhold its
consent to any proposed assignment or subletting if the proposed transferee does
not meet certain criteria, including, but not limited to, the transferee's
financial condition, the nature, quality, and character of the transferee, the
identity or business character of the transferee, the nature of the use and
occupancy and the transferee's business experience. The sale of the entirety of
Tenant's business, or the merger of Tenant in its entirety with another entity
shall not be deemed an assignment under this provision provided the proposed
transferee has a tangible net worth equal to or greater than that of Tenant at
the time of the sale or merger.

16.2     Landlord's Option to Preserve Subtenancies
         ------------------------------------------

         In the event of Tenant's surrender of this Lease or the termination of
this Lease in any other manner, Landlord may, at its option, either terminate
any or all subtenancies or succeed to the interest of Tenant as sublandlord
thereunder. No merger shall result from Tenant's sublease of the Premises under
this Section, Tenant's surrender of this Lease, or the termination of this Lease
in any other manner.

16.3     Tenant's Assignment of All Rent from Subletting as Security for
         ---------------------------------------------------------------
         Tenant's Obligations
         --------------------

         Tenant immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as permitted by this Lease. In the event of a default by
Tenant, Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver
for Tenant appointed on Landlord's application, may collect the rent and apply
it toward Tenant's obligations under this Lease.

16.4     Continuing Obligation of Tenant
         -------------------------------

         No transfer permitted by this Section 16 shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Section. Consent to one transfer is not
a consent to any subsequent transfer. If Tenant's transferee defaults under this
Lease, Landlord may proceed directly against Tenant without pursuing remedies
against the transferee. Landlord may consent to subsequent assignments or
modifications of this Lease by Tenant's transferee, without notifying Tenant or
obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.

16.5     Fees and Costs with Regard to Proposed Assignment or Sublease
         -------------------------------------------------------------

         If Tenant requests Landlord to consent to a proposed assignment or
sublease, Tenant shall pay to Landlord, whether or not consent is ultimately
given, Landlord's reasonable attorneys' fees and other costs incurred in
connection with each such request, not to exceed ONE THOUSAND DOLLARS ($1,000)
for each requested assignment or sublease.

16.6     Landlord's Right of Assignment
         ------------------------------

         Landlord shall be free at all times, without need of consent or
approval by Tenant, to assign its interest in this Lease and/or to convey fee
title to the Premises. Each conveyance by Landlord of Landlord's interest in the
Lease or the Premises prior to expiration or termination
<PAGE>

hereof shall be subject to this Lease and shall relieve the grantor of any
further obligations or liability as Landlord, and Tenant shall look solely to
Landlord's successor in interest for all future obligations of Landlord. Tenant
hereby agrees to attorn to Landlord's successors in interest, whether such
interest is acquired by sale, transfer, foreclosure, deed in lieu of
foreclosure, or otherwise. The term "Landlord" as used in this Lease, so far as
covenants and obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner at the time in question of the fee
title of the Premises. Without further agreement, the transferee of such title
shall be deemed to have assumed and agreed to observe and perform any and all
obligations of Landlord hereunder during its ownership of the Premises.

                          17.DEFAULT AND TERMINATION

17.1     Event of Default
         ----------------

         The occurrence of any of the following events (each an "Event of
Default") shall constitute a default by Tenant:

         17.1.1        Failure by Tenant to pay Base Monthly Rent or any item of
                       additional rent when due; provided, however, for up to
                       two (2) times during any twelve (12) consecutive month
                       period, if any payment of rent is not received when due,
                       Landlord shall notify Tenant in writing (a "Late
                       Notice"), and Tenant shall have ten (10) days from the
                       date of receipt of the Late Notice to make full payment
                       of the rent. If the late rent is not paid within the ten
                       (10) day period, or if any subsequent rent during that
                       twelve (12) consecutive month period is not received when
                       due after Landlord has delivered to Tenant the two (2)
                       Late Notices as hereinabove required, then Tenant shall
                       be in default of this Lease..

         17.1.2        Failure by Tenant to perform or comply with any provision
                       of this Lease (other than as set forth in Subsection
                       17.1.1) if the failure is not cured within thirty (30)
                       days after notice has been given to Tenant. If, however,
                       the failure cannot reasonably be cured within the cure
                       period, Tenant shall not be in default of this Lease if
                       Tenant commences to cure the failure within the cure
                       period and diligently and in good faith continues to cure
                       the failure.

         17.1.3        A default by Tenant under any other lease in which
                       Landlord is the landlord and Tenant is the tenant.

         17.1.4        To the extent permitted by law, a general assignment by
                       Tenant or any guarantor of the Lease for the benefit of
                       creditors, or the filing by or against Tenant or any
                       guarantor of any proceeding under any insolvency or
                       bankruptcy law, unless in the case of a proceeding filed
                       against Tenant or any guarantor the same is dismissed
                       within sixty (60) days, or the appointment of a trustee
                       or receiver to take possession of all or substantially
                       all of the assets of Tenant or any guarantor, unless
                       possession is restored to Tenant or such guarantor within
                       (30) days, or any execution or other judicially
                       authorized seizure of all or
<PAGE>

                       substantially all of Tenant's assets located upon the
                       Premises or of Tenant's interest in this Lease, unless
                       such seizure is discharged within thirty (30) days.

         17.1.5        Any notice delivered pursuant to this Section 17.1 shall
                       be in lieu of, and not in addition to, any notice
                       required by law.

17.2     Landlord's Remedies
         -------------------

         Landlord shall have any one or more of the following remedies after the
occurrence of a default by Tenant. These remedies are not exclusive; they are
cumulative in addition to any remedies now or later allowed by law, in equity,
or otherwise:

         17.2.1        Terminate this Lease by giving written notice of
                       termination to Tenant, in which event Tenant immediately
                       shall surrender the Premises to Landlord. If Tenant fails
                       to so surrender the Premises, then Landlord, without
                       prejudice to any other remedy it has for possession of
                       the Premises or arrearages in rent or other damages, may
                       re-enter and take possession of the Premises and expel or
                       remove Tenant and any other person or entity occupying
                       the Premises or any part thereof, without being liable
                       for any damages, whether caused by negligence of Landlord
                       or otherwise.

         17.2.2        No act by Landlord other than giving notice of
                       termination to Tenant shall terminate this Lease. Acts of
                       maintenance, efforts to relet the Premises, or the
                       appointment of a receiver on Landlord's initiative to
                       protect Landlord's interest under this Lease shall not
                       constitute a termination of this Lease. On termination of
                       the Lease, Landlord shall have the right to recover from
                       Tenant:

                       (i)      The worth at the time of the award of the unpaid
                                rent that had been earned at the time of
                                termination of this Lease; and

                       (ii)     Any other amount, including, without limitation,
                                attorneys' fees and court costs, necessary to
                                compensate Landlord for all detriment
                                proximately caused by Tenant's default permitted
                                by applicable law.

                                The term "rent" as used in this Section 17.2.2
                                means all sums payable by Tenant pursuant to the
                                Lease, including, without limitation, all rent,
                                additional rent, Taxes, and insurance.

          17.2.3       Landlord may re-enter and take possession of the Premises
                       without terminating this Lease and without being liable
                       for any damages, whether caused by the negligence of
                       Landlord or otherwise. Landlord may relet the Premises,
                       or any part of them, to third parties, but has no
                       obligation to do so. Landlord may relet the Premises on
                       whatever terms and conditions Landlord, in its sole
                       discretion, deems advisable.
<PAGE>

                       Reletting can be for a period shorter or longer than the
                       remaining term of this Lease. Landlord's action under
                       this Subsection is not considered an acceptance of
                       Tenant's surrender of the Premises unless Landlord so
                       notifies Tenant in writing. Tenant shall be immediately
                       liable to Landlord for all costs Landlord incurs in
                       reletting the Premises, including brokers' commissions,
                       expenses of remodeling the Premises required by the
                       reletting, and like costs. Tenant shall pay to Landlord
                       the rent due under this Lease on the dates the rent is
                       due, less the rent Landlord receives from any reletting.

                       If Landlord elects to relet the Premises without
                       terminating this Lease, any rent received will be applied
                       to the account of Tenant, not to exceed Tenant's total
                       indebtedness to Landlord; no reletting by Landlord is
                       considered to be for its own account unless Landlord has
                       notified Tenant in writing that the Lease has been
                       terminated. If Landlord elects to relet the Premises,
                       rent that Landlord receives from reletting will be
                       applied to the payment of: (i) first, any indebtedness
                       from Tenant to Landlord other than rent due from Tenant;
                       (ii) second, all costs, including maintenance, incurred
                       by Landlord in reletting; and (iii) third, rent due and
                       unpaid under the Lease. After deducting the payments
                       referred to in this Subsection, any sum remaining from
                       the rent Landlord receives from reletting will be held by
                       Landlord and applied in payment of future rent as rent
                       becomes due under this Lease. If, on the date rent is due
                       under this Lease, the rent received from the reletting is
                       less than the rent due on that date, Tenant will pay to
                       Landlord, in addition to the remaining rent due, all
                       costs, including maintenance, Landlord incurred in
                       reletting which remain after applying the rent received
                       from the reletting. Tenant shall have no right to or
                       interest in the rent or other consideration received by
                       Landlord from reletting to the extent it exceeds Tenant's
                       total indebtedness to Landlord.

         17.2.4        Following the expiration of any applicable cure period,
                       Landlord may re-enter the Premises without terminating
                       this Lease and without being liable for any damages
                       (unless caused by the gross negligence or willful
                       misconduct of Landlord), and do whatever Tenant is
                       obligated to do under the terms of this Lease. The
                       expenses incurred by Landlord in affecting compliance
                       with Tenant's obligations under this Lease immediately
                       shall become due and payable to Landlord as additional
                       rent.

         17.2.5        In all events, Tenant is liable for all damages of
                       whatever kind of nature, direct or indirect, suffered by
                       Landlord as a result of the occurrence of an Event of
                       Default.

         17.2.6        Pursuit of any of the foregoing remedies does not
                       constitute an irrevocable election of remedies nor
                       preclude pursuit of any other remedy provided elsewhere
                       in this Lease or by applicable law, and
<PAGE>

                       none is exclusive of another unless so provided in this
                       Lease or by applicable law. Likewise, forbearance by
                       Landlord to enforce one or more of the remedies available
                       to it on an Event of Default does not constitute a waiver
                       of that default or of the right to exercise that remedy
                       later or of any rent, damages, or other amounts due to
                       Landlord hereunder.

         17.2.7        Whether or not Landlord elects to terminate this Lease or
                       Tenant's right to possession of the Premises on account
                       of any default by Tenant, Landlord shall have all rights
                       and remedies at law or in equity, including, but not
                       limited to, the right to re-enter the Premises and, to
                       the maximum extent provided by law, Landlord shall have
                       the right to terminate any and all subleases, licenses,
                       concessions, or other consensual arrangements for
                       possession entered into by Tenant and affecting the
                       Premises or, in Landlord's sole discretion, may succeed
                       to Tenant's interest in such subleases, licenses,
                       concessions, or arrangements. In the event of Landlord's
                       election to succeed to Tenant's interest in any such
                       subleases, licenses, concessions, or arrangements, Tenant
                       shall have no further right to or interest in the rent or
                       other consideration receivable thereunder as of the date
                       of notice by Landlord of such election.

17.3     Late Charge
         -----------

         If Tenant fails to pay when due any payment of rent or other charges
which Tenant is obligated to pay to Landlord under this Lease, there shall be a
late charge, immediately payable by Tenant as additional rent, in the amount of
six percent (6%) of each such obligation. Landlord and Tenant agree that this
sum is reasonable to compensate Landlord for accounting and administrative
expenses incurred by Landlord. In addition to the late charge, any and all rent
or other charges which Tenant is obligated to pay to Landlord under this Lease
which are unpaid shall bear interest at the rate set forth in Section 17.6 from
the date said payment was due until paid, said interest to be payable by Tenant
as additional rent. Landlord and Tenant agree that this sum is reasonable to
compensate Landlord for the loss of the use of funds. Notwithstanding the
foregoing, in the event Landlord shall have provided written notice to Tenant in
accordance with Section 17.1.1, Tenant shall not be obligated to pay the late
charge and interest otherwise due pursuant to this Section 17.3 unless ten (10)
days shall have lapsed following Tenant's receipt of said notice and the
delinquent amount(s) shall not have been paid. In addition to the foregoing, if
any check tendered by Tenant to Landlord is dishonored by the financial
institution upon which the check is drawn (e.g., insufficient funds, uncollected
funds, account closed, payment stopped, etc.), Tenant shall pay to Landlord the
greater of Twenty Dollars ($20.00) or the actual service fee charged by
Landlord's financial institution in connection with such dishonored check.

17.4     Right of Landlord to Re-Enter
         -----------------------------

         In the event of any termination of this Lease, Landlord shall have the
immediate right to enter upon and repossess the Premises, and any personal
property of Tenant may be removed from the Premises and stored in any public
warehouse at the risk and expense of Tenant.
<PAGE>

17.5     Surrender of Premises
         ---------------------

         No act or thing done by Landlord or any agent or employee of Landlord
during the Lease term shall be deemed to constitute an acceptance by Landlord or
a surrender of Premises unless such intent is specifically acknowledged in a
writing signed by Landlord. The delivery of keys to the Premises to Landlord or
any agent or employee of Landlord shall not constitute a surrender of the
Premises or effect a termination of this Lease, whether or not the keys are
thereafter retained by Landlord and, notwithstanding such delivery, Tenant shall
be entitled to the return of such keys at any reasonable time upon request until
this Lease shall have been terminated properly. The voluntary or other surrender
of this Lease by Tenant, whether accepted by Landlord or not, or a mutual
termination hereof, shall not work a merger, and at the option of Landlord shall
operate as an assignment to Landlord of all subleases or subtenancies affecting
the Premises.

17.6     Interest Charges
         ----------------

         Any amount not paid by one party to the other when due to the other
party will bear interest from the date due at the lesser of (i) the prime
commercial rate being charged by the Bank of America N.A. in effect on the date
due plus two percent (2%) per annum; or (ii) the maximum rate permitted by law.
If Bank of America N.A. is no longer in existence, then another comparable bank
or financial institution shall be substituted by Landlord.

17.7     Tenant's Default
         ----------------

         If Tenant is in default of the Lease, then:

         17.7.1          For so long as Landlord does not terminate Tenant's
                         right to possession of the Premises, if Tenant obtains
                         Landlord's consent, Tenant will have the right to
                         assign or sublet its interest in the Lease, but Tenant
                         will not be released from liability.

         17.7.2          No structural changes to the building at any cost shall
                         be permitted without the prior written approval of
                         Landlord.

         17.7.3          All costs of de-identification of the Premises shall be
                         paid by Tenant whether or not Landlord terminates this
                         Lease.

17.8     Default by Landlord
         -------------------

         Landlord shall be in default if Landlord fails to perform any provision
of this Lease required of it and the failure is not cured within thirty (30)
days after notice has been given to Landlord. If, however, the failure cannot
reasonably be cured within the cure period, Landlord shall not be in default of
this Lease if Landlord commences to cure the failure within the cure period and
diligently and in good faith continues to cure the failure. Notices given under
this Section 17.8 shall specify the alleged breach and the applicable Lease
provisions. If Landlord shall at any time default beyond the applicable notice
and cure period, Tenant shall have the right to cure such default on Landlord's
behalf. Any sums expended by Tenant in doing so, and all reasonably necessary
incidental costs and expenses incurred in connection therewith, shall be payable
by Landlord to Tenant within thirty (30) days following demand therefor by
Tenant, provided, however, that Tenant shall not be entitled to any deduction or
offset against any rent
<PAGE>

otherwise payable to Landlord under this Lease, and in no event may Tenant
terminate this Lease in the event of a default by Landlord.

                            18.RIGHT OF INSPECTION

         Landlord and Landlord's authorized representatives shall have the
right (but not the obligation) after written notice to Tenant of at least two
(2) business days (except in the event of emergencies), to enter upon the
Premises at all reasonable hours for the purpose of inspecting the Premises or
of making repairs, additions, or alterations in or upon the Premises, and,
during the last six (6) months of the term for the purpose of exhibiting the
Premises to prospective tenants, purchasers, or others. Provided Tenant is not
in default beyond any applicable cure period, Landlord shall not exhibit any
"for sale" signs during the term of the Lease. Landlord will make every
reasonable effort to not interfere with the operation of Tenant's business.

                              19.WAIVER OF BREACH

         No waiver by Landlord of any breach of any one or more of the terms,
covenants, conditions, or agreements of this Lease shall be deemed to imply or
constitute a waiver of any succeeding or other breach. Failure of Landlord to
insist upon the strict performance of any of the terms, conditions, covenants,
and agreements of this Lease shall not constitute or be considered as a waiver
or relinquishment of Landlord's rights to subsequently enforce any default,
term, condition, covenant, or agreement, which shall all continue in full force
and effect. The rights and remedies of Landlord under this Lease shall be
cumulative and in addition to any and all other rights and remedies which
Landlord has or may have.

                                  20.NOTICES

20.1     Notice Requirements
         -------------------

         All notices, requests, or demands herein provided to be given or made,
or which may be given or made by either party to the other, shall be given or
made only in writing and shall be deemed to have been duly given: (i) when
delivered personally at the address set forth below, or to any agent of the
party to whom notice is being given, or if delivery is rejected when delivery
was attempted; or (ii) on the date delivered when sent via Overnight Mail,
properly addressed and postage prepaid; or (iii) on the date sent via facsimile
transmission (provided, however, if receipt is confirmed after 5 p.m.
recipient's time, delivery will be deemed on the next business day); or (iv)
upon delivery, or if delivery is rejected when delivery was attempted of
properly addressed first class mail, postage prepaid with return receipt
requested. The proper address to which notices, requests, or demands may be
given or made by either party shall be the address set forth at the end of this
Section or to such other address or to such other person as any party shall
designate. Such address may be changed by written notice given to the other
party in accordance with this Section.
<PAGE>

         If to Landlord:

                  Realty Income Corporation
                  Attn:  Legal Department
                  220 West Crest Street
                  Escondido, CA  92025-1707
                  Phone Number:  (760) 741-2111
                  Fax Number:  (760) 741-8674

         If to Tenant:

                  E-Diets.com, Inc.
                  Attn:  Vice President, Operations
                  3467 West Hillsboro Boulevard, Suite 2
                  Deerfield Beach, FL  33442
                  Phone Number:  (954) 360-9022
                  Fax Number:  (954) 360-9095

20.2     Payments Under Lease
         --------------------

         Rent and all other payments due to Landlord under this Lease shall be
paid in lawful money of the United States of America without offset or deduction
(except as provided herein) to the name and at the address first given above or
to such other persons or parties or at such other places as Landlord may from
time to time designate in writing.

                        21.RELATIONSHIP OF THE PARTIES

         This Lease shall not be deemed or construed by the parties, nor by any
third party, as creating the relationship of (i) principal and agent, (ii)
partnership, or (iii) joint venture between the parties. Neither the method of
computation of rent nor any other provision of this Lease, nor any acts of the
parties are other than in the relationship of Landlord and Tenant.

                   22.SUBORDINATION, ATTORNMENT AND ESTOPPEL

22.1     Subordination and Non-Disturbance
         ---------------------------------
         Subject to the provisions of this Section, this Lease and the leasehold
estate created hereby shall be, at the option and upon written declaration of
Landlord, subject, subordinate, and inferior to the lien and estate of any
liens, trust deeds, and encumbrances ("Mortgages"), and all renewals,
extensions, or replacements thereof, now or hereafter imposed by Landlord upon
the Premises; provided, however, that this Lease shall not be subordinate to any
Mortgage arising after the date of this Lease, or any renewal, extension, or
replacement thereof, unless and until Landlord provides Tenant with an agreement
("Non-Disturbance Agreement"), signed and acknowledged by each holder of any
such interest setting forth that so long as Tenant is not in default hereunder,
Landlord's and Tenant's rights and obligations hereunder shall remain in force
and Tenant's right to possession shall be upheld. The Non-Disturbance Agreement
may contain additional provisions as are customarily requested by secured
lenders with liens encumbering real property security similar to the Premises
and any tenants in similar situations, including,
<PAGE>

without limitation, Tenant's agreement to attorn as set forth in Section 22.2
below. Tenant shall, promptly following a request by Landlord and after receipt
of the Non-Disturbance Agreement, execute and acknowledge any subordination
agreement or other documents required to establish of record the priority of any
such encumbrance over this Lease, so long as such agreement does not otherwise
increase Tenant's obligations or diminish Tenant's rights hereunder.

22.2     Attornment
         ----------

         In the event of foreclosure of any Mortgage, whether superior or
subordinate to this Lease, then (i) this Lease shall continue in force; (ii)
Tenant's quiet possession shall not be disturbed if Tenant is not in default
hereunder; (iii) Tenant shall attorn to and recognize the mortgagee or purchaser
at foreclosure sale ("Successor Landlord") as Tenant's landlord for the
remaining term of this Lease; and (iv) the Successor Landlord shall not be bound
by (a) any payment of rent for more than one month in advance; (b) any
amendment, modification, or ending of this Lease without the Successor
Landlord's consent after the Successor Landlord's name is given to Tenant,
unless the amendment, modification, or ending is specifically authorized by the
original Lease and does not require Landlord's prior agreement or consent; and
(c) any liability for any act or omission of a prior Landlord. At the request of
the Successor Landlord, Tenant shall execute a new lease for the Premises,
setting forth all of the provisions of this Lease except that the term of the
new lease shall be for the balance of the term of this Lease.

22.3     Estoppel Certificate
         --------------------

         Tenant shall execute and deliver to Landlord, within twenty (20) days
after receipt of Landlord's request, any estoppel certificate or other statement
to be furnished to any prospective purchaser of or any lender against the
Premises. Such estoppel certificate shall acknowledge and certify each of the
following matters, to the extent each may be true: that the Lease is in effect
and not subject to any rental offsets, claims, or defenses to its enforcement;
the commencement and expiration dates of the term; that Tenant is paying rent on
a current basis; that any improvements required to be furnished under the Lease
have been completed in all respects; that the Lease constitutes the entire
agreement between Tenant and Landlord relating to the Premises; that Tenant has
accepted the Premises and is in possession thereof; that the Lease has not been
modified, altered, or amended except in specified respects by specified
instruments; that Tenant has no notice of any prior assignment, hypothecation,
or pledge of rents or the Lease; and such other matters as reasonably may be
requested. Tenant shall also, upon request of Landlord, certify and agree for
the benefit of any lender against the Premises or the building ("Lender") that
Tenant will not look to such Lender: as being liable for any act or omission of
Landlord; as being obligated to cure any defaults of Landlord under the Lease
which occurred prior to the time Lender, its successors or assigns, acquired
Landlord's interest in the Premises by foreclosure or otherwise, as being bound
by any payment of rent or additional rent by Tenant to Landlord for more than
one (1) month in advance; or as being bound by Landlord to any amendment or
modification of the Lease without Lender's written consent. Failure to deliver
the documents required under this Section 22 in the time period required shall
constitute an Event of Default without the need for any notice or cure period.

                       23.TENANT'S FINANCIAL STATEMENTS

         During the term of the Lease, Tenant shall provide Landlord with
current financial statements as follows: (i) within sixty (60) days of the end
of each fiscal quarter, including the
<PAGE>

fourth (4/th/) quarter, Tenant's profit and loss statement and balance sheet;
(ii) within one hundred twenty (120) days of the end of each fiscal year,
Tenant's profit and loss statement, balance sheet, statement of changes in
financial position, and notes to the financial statements as reviewed or audited
by an independent certified public accountant or accounting firm; and (iii)
within one hundred twenty (120) days of the end of each fiscal year, Tenant's
profit and loss statement for the retail sales operations located upon the
Premises.
                              24. ATTORNEYS' FEES

24.1     Recovery of Attorneys' Fees and Costs of Suit
         ---------------------------------------------

         Tenant and Landlord shall each reimburse the other, upon demand, for
any costs or expenses incurred by Tenant or Landlord, as the case may be, in
connection with any breach or default under this Lease by the other party,
whether or not suit is commenced or judgment entered. Such costs shall include
legal fees and costs incurred for the negotiation of a settlement, enforcement
of rights, or otherwise. Furthermore, if any action for breach of or to enforce
the provisions of this Lease is commenced, the court in such action shall award
to the party in whose favor a judgment is entered, a reasonable sum as
attorneys' fees and costs. Such attorneys' fees and costs shall be paid by the
losing party in such action.

24.2     Party to Litigation
         -------------------

         Tenant shall indemnify Landlord against and hold Landlord harmless from
all costs, expenses, demands, and liability incurred by Landlord if Landlord
becomes or is made a party to any claim or action (i) instituted by Tenant, or
by any third party against Tenant, or by or against any person holding any
interest under or using the Premises by license of or agreement with Tenant;
(ii) for foreclosure of any lien for labor or material furnished to or for
Tenant or such other person; (iii) otherwise arising out of or resulting from
any action or transaction of Tenant or such other person; or (iv) necessary to
protect Landlord's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs incurred by Landlord in any
such claim or action.

                                  25. CONSENT

         Landlord shall have no liability for damages resulting from, nor may
Tenant terminate this Lease as a result of, Landlord's failure to give any
consent, approval, or instruction reserved to Landlord. Tenant's sole remedy in
any such event shall be an action for injunctive relief.

           26. AUTHORITY TO MAKE LEASE; COVENANT OF QUIET ENJOYMENT

26.1     Full Power and Authority to Enter Lease
         ---------------------------------------

         The parties covenant and warrant that each has full power and authority
to enter into this Lease.

26.2     Quiet Enjoyment
         ---------------

         Landlord covenants and warrants that Tenant shall have and enjoy full,
quiet, and peaceful possession of the Premises, its appurtenances and all rights
and privileges incidental
<PAGE>

thereto during the term, as against all persons subject to the provisions of
this Lease and any title exceptions or defects in existence on the Commencement
Date.

26.3     No Violation of Covenants and Restrictions
         ------------------------------------------

         Tenant leases the Premises subject to all encumbrances, covenants,
conditions, restrictions, easements, rights of way, and all other matters of
record affecting the Premises. Tenant shall not violate, knowingly permit a
violation, or cause Landlord to violate any recorded covenants and restrictions
affecting the Premises. Tenant shall defend, indemnify, and hold harmless
Landlord from any costs or expenses incurred from such a violation.

                            27. HAZARDOUS MATERIAL

27.1     Environmental Compliance
         ------------------------

         Tenant shall not cause or permit, except in compliance with all
applicable laws, any Hazardous Material to be brought upon, or used in or about
the Premises by Tenant, its agents, employees, contractors, or invitees, without
the prior written consent of Landlord (which Landlord shall not unreasonably
withhold as long as Tenant demonstrates to Landlord's reasonable satisfaction
that such Hazardous Material is necessary or useful to Tenant's business and
will be used, kept, and stored in a manner that complies with all laws relating
to such Hazardous Material.) If Tenant breaches the obligations stated in the
preceding sentence, if the presence of Hazardous Material on the Premises caused
or permitted by Tenant results in contamination of the Premises, or if
contamination of the Premises by Hazardous Material otherwise occurs and
Landlord is not responsible for the contamination, then Tenant shall indemnify,
defend, and hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without limitation,
diminution in value of the Premises, damages for the loss or restriction on use
of rentable or usable space or of any amenity of the Premises, damages arising
from any adverse impact on marketing of space of the Premises, and sums paid in
settlement of claims, attorneys' fees, consultation fees, and expert fees) which
arise during or after the term of the Lease as a result of such contamination.
This indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation or site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state, or local
governmental agency or political subdivision because of Hazardous Material
present in the soil or ground water on or under the Premises. Without limiting
the foregoing, if the presence of any Hazardous Material on the Premises caused
or permitted by Tenant as aforesaid results in any contamination of the
Premises, Tenant shall promptly take all actions at its sole expense as are
recommended by environmental engineers hired by Tenant and are necessary to
return the Premises to the condition existing prior to the introduction of any
such Hazardous Material to the Premises; provided that Landlord's approval of
such actions shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material adverse
long-term or short-term effect on the Premises.

27.2     Survival
         --------

         Provisions of this Section 27 shall survive termination of tenancy.
<PAGE>

                            28. GENERAL PROVISIONS

28.1     Gender; Number
         --------------

         The use of (i) the neuter gender includes the masculine and feminine
and (ii) the singular number includes the plural, whenever the context requires.

28.2     Captions
         --------

         Captions in this Lease are inserted for the convenience of reference
only and do not define, describe, or limit the scope or the intent of this Lease
or any of its terms.

28.3     Exhibits
         --------

         All attached exhibits are a part of this Lease and are incorporated in
full by this reference. Except as specifically provided herein, if any provision
contained in any exhibit hereto is inconsistent or in conflict with any
provisions of this Lease, the provisions of this Lease shall supersede the
provisions of such exhibit and shall be paramount and controlling.

28.4     Entire Agreement
         ----------------

         This Lease contains the entire agreement between the parties relating
to the transactions contemplated hereby and all prior or contemporaneous
agreements, understandings, representations and statements, oral or written, are
merged into this Lease.

28.5     Drafting
         --------

         This Lease shall not be construed more strictly against one party than
the other because it may have been drafted by one of the parties or its counsel,
each having contributed substantially and materially to the negotiation and
drafting hereof.

28.6     Modification
         ------------

         No modification, waiver, amendment, discharge, or change of this Lease
shall be valid unless it is in writing and signed by the party against which the
enforcement of the modification, waiver, amendment, discharge, or change is or
may be sought.

28.7     Joint and Several Liability
         ---------------------------

         If any party consists of more than one person or entity, the liability
of each such person or entity signing this Lease shall be joint and several.

28.8     Governing Law
         -------------

         This Lease shall be construed and enforced in accordance with the laws
of the state in which the Premises are located. In the event any provision
contained in this Lease is inconsistent or in conflict with local law, custom,
or practice, the provisions of this Lease shall supersede and shall be paramount
and controlling.

28.9     Attorneys' Fees
         ---------------

         With respect to any provisions in this Lease providing for payment or
indemnification of attorneys' fees, such fees shall be deemed to include
reasonable fees incurred through any applicable appeal process, and shall
include fees attributable to legal services provided by any in-house counsel and
staff to the prevailing or indemnified party. For purposes hereof, the services
<PAGE>

of in-house counsel and their staff shall be valued at rates for independent
counsel prevailing in the metropolitan area in which such counsel and staff
practice.

28.10    Time of Essence
         ---------------

         Time is of the essence of every provision of this Lease.

28.11    Severability
         ------------

         In the event any term, covenant, condition, or provision of this Lease
is held to be invalid, void, or otherwise unenforceable by any court of
competent jurisdiction, the fact that such term, covenant, condition, or
provision is invalid, void, or otherwise unenforceable shall in no way affect
the validity or enforceability of any other term, covenant, condition, or
provision of this Lease.

28.12    Successors and Assigns
         ----------------------

         Except as otherwise provided herein, all terms of this Lease shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective legal representatives, successors, and assigns.

28.13    Independent Covenants
         ---------------------

         This Lease shall be construed as though the covenants herein between
Landlord and Tenant are independent and not dependent, and Tenant hereby
expressly waives the benefit of any statute to the contrary and agrees that if
Landlord fails to perform its obligations set forth herein, Tenant shall not be
entitled to make any repairs or perform any acts hereunder at Landlord's expense
or to any offset of the rent or other amounts owing hereunder against Landlord;
provided, however, the foregoing shall in no way impair the right of Tenant to
commence a separate action against Landlord for any violation by Landlord of the
provisions hereof so long as notice is first given to Landlord and any holder of
a mortgage or deed of trust covering the Premises (of whose address Tenant has
theretofore been notified) and an opportunity is granted to Landlord and such
holder to correct such violation as provided above.

28.14    Information Provided
         --------------------

         Tenant warrants and represents that all information Tenant has provided
to Landlord is accurate and correct and Tenant acknowledges that Landlord has
relied upon such information in entering into this Lease

28.15    Limitation of Landlord's Liability
         ----------------------------------

         Notwithstanding anything contained in this Lease to be contrary,
Landlord shall not incur any liability beyond Landlord's interest in the
Premises upon a breach of this Lease, and Tenant shall look exclusively to such
interest in the Premises for the payment and discharge of any obligations
imposed upon Landlord under this Lease.

28.16    No Lease Until Accepted
         -----------------------

         Landlord's delivery of unexecuted copies or drafts of this Lease is
solely for the purpose of review by the party to whom delivered and is in no way
to be construed as an offer by Landlord nor in any way implies that Landlord is
under any obligation to lease the Premises. When this Lease has been executed by
both Landlord and Tenant, it shall constitute a binding agreement to lease the
Premises upon the terms and conditions provided herein and Landlord and
<PAGE>

Tenant agree to execute all instruments and documents and take all actions as
may be reasonably necessary or required in order to consummate the lease of the
Premises as contemplated herein.

28.17    Counterparts
         ------------

         This Lease may be executed in any number of counterparts, each of which
shall be deemed an original. The counterparts shall together constitute but one
agreement. Any signature on a copy of this Lease or any document necessary or
convenient thereto sent by facsimile shall be binding upon transmission by
facsimile and the facsimile copy may be utilized for the purposes of this Lease.

LANDLORD:                                        TENANT:

REALTY INCOME CORPORATION,                       E-DIETS.COM, INC.,
a Maryland corporation                           a Delaware corporation
doing business in Florida as
Realty Income Properties, Inc.

By: /s/ Mark Selman                              By: /s/ Robert T. Hamilton
   ----------------------------                     ----------------------------

Date:   July 20, 2001                            Date:   July 19, 2001
     --------------------------                       --------------------------

Signed, sealed, and delivered                    Signed, sealed, and delivered
this 20th day of July 2001                       this 19th day of July 2001
in the presence of:                              in the presence of:

 /s/ Laura S. King                                /s/ Carla Clemente
-------------------------------                  -------------------------------
Witness                                          Witness

 /s/ Autumn F. Bidwell
-------------------------------                  _______________________________
Witness                                          Witness
<PAGE>

                       LAND AND BUILDING LEASE AGREEMENT

                                  EXHIBIT "A"

                      LEGAL DESCRIPTION OF REAL PROPERTY

PREMISES LOCATION:  3801 West Hillsboro Boulevard
                    Deerfield Beach, FL 33442

                          To be provided by Landlord.
<PAGE>

                       LAND AND BUILDING LEASE AGREEMENT

                                  EXHIBIT "B"

Recording requested by, and
after recording return to:

REALTY INCOME CORPORATION
Attn: Legal Department
220 West Crest Street
Escondido, CA 92025-1707

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

                              MEMORANDUM OF LEASE

     This Memorandum of Lease is made and entered into as of July 19, 2001 by
and between REALTY INCOME CORPORATION, a Maryland corporation doing business in
Florida as Realty Income Properties, Inc. ("Landlord") and E-DIETS.COM, INC., a
Delaware corporation ("Tenant") who agree as follows:

     A.   Terms and Premises. Landlord leases to Tenant and Tenant leases from
          ------------------
Landlord that certain real property, together with all the improvements thereon
and appurtenances thereunto belonging (the "Premises"), which legal description
is attached hereto and incorporated herein as Exhibit "A," commonly known as:

                         3801 WEST HILLSBORO BOULEVARD
                           DEERFIELD BEACH, FL 33442

upon the following terms:

     1.   Date of Lease: July 19, 2001.

     2.   Date of Commencement: July __, 2001.

     3.   Expiration of Lease: The last day of the month five (5) years
          following the Rent Commencement Date (as such term is defined in the
          Lease).

     4.   Extension Options: One (1) Five-Year Option to Extend.

     5.   Landlord hereby gives notice in accordance with Section 713.10,
          Florida Statutes, that the Lease referenced herein contains language
          substantially similar to the following:
<PAGE>

          Interests Not Subject to Mechanics' Liens. It expressly is covenanted
          -----------------------------------------
          and agreed that the interest of Landlord in the Premises shall not be
          subject to liens for improvements made by Tenant, its successors,
          assigns, or subtenants (collectively referred to herein as "Tenant").
          No mechanic's lien shall lie against Landlord's interest in the
          Premises, including buildings and all improvements located thereon,
          arising through Tenant, and no person who furnished work, labor,
          services, or materials to the Premises or the furniture, fixtures, or
          equipment thereof at the request of Tenant shall acquire any lien
          rights under Chapter 713, Florida Statutes, against the interest of
          Landlord.

     6.   The purpose of the Memorandum of Lease is to give record notice of the
          existence of said Lease and the rights created thereby, all of which
          are confirmed, and the notice required by Section 713.10, Florida
          Statutes.

     B.   Conflicts Between Lease and Memorandum. This Memorandum of Lease is
          --------------------------------------
for information purposes only and nothing contained herein shall be deemed in
any way to modify or otherwise affect any of the terms and conditions of the
Lease, the terms of which are incorporated herein by reference. This instrument
is merely a Memorandum of Lease and is subject to all of the terms, provisions,
and conditions of the Lease. In the event of any inconsistency or conflicts
between the provisions of the Lease and this instrument, the provisions of the
Lease shall prevail. The rights and obligations set forth herein shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

                     SIGNATURES APPEAR ON FOLLOWING PAGE.
<PAGE>

LANDLORD:                                        TENANT:

REALTY INCOME CORPORATION,                       E-DIETS.COM, INC.,
a Maryland corporation                           a Delaware corporation
doing business in Florida as
Realty Income Properties, Inc.

By: /s/ Mark Selman                              By: /s/ Robert T. Hamilton
   ----------------------------                     ----------------------------

Date:   July 20, 2001                            Date:   July 19, 2001
     --------------------------                       --------------------------

Signed, sealed, and delivered                    Signed, sealed, and delivered
this 20th day of July 2001                       this 19th day of July 2001
in the presence of:                              in the presence of:

 /s/ Laura S. King                                /s/ Carla Clemente
-------------------------------                  -------------------------------
Witness                                          Witness

 /s/ Autumn F. Bidwell
-------------------------------                  _______________________________
Witness                                          Witness

              ATTACH A NOTARY ACKNOWLEDGMENT FOR ALL SIGNATURES.<PAGE>

                                                                     Exhibit 4.1

                          CERTIFICATE OF DESIGNATIONS

                                      OF

                SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK

              (Pursuant to Section 151 of the General Corporation

                         Law of the State of Delaware)

     Microcide Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:

     That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Restated
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors, at a meeting held on July 19, 2001, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, par value
$0.001 per share, which series is designated "Series B Convertible Redeemable
Preferred Stock," which resolution is as follows:

     Resolved, that pursuant to authority vested in the Board of Directors by
the Restated Certificate of Incorporation, as amended, the Board of Directors
does hereby provide for the creation of a series of the Preferred Stock, par
value of $0.001 per share (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Restated Certificate of Incorporation, as amended, of
the Corporation, does hereby fix the same as follows:

                SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK

SECTION 1.  CERTAIN DEFINED TERMS.

           (a)  All the agreements or instruments defined in this Certificate of
Designations shall mean such agreements or instruments as the same may from time
to time be supplemented or amended, or the terms thereof waived or modified, to
the extent permitted by, and in accordance with, the terms thereof and of this
Certificate of Designations.

          (b)  The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):

          (c)  "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.

                                       1
<PAGE>

          (d)  "Auditors" means Ernst and Young LLP or another firm of
independent public accountants of recognized national standing selected by the
Corporation's Board of Directors to audit its annual financial statements.

          (e)  "Board of Directors" or "Board" means the Board of Directors of
the Corporation.

          (f)  "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Corporation to have been duly adopted
by the Board of Directors, or duly authorized committee thereof (to the extent
permitted by applicable law), and to be in full force and effect on the date of
such certification, and delivered to the Holders.

          (g)  "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.

          (h)  "Common Stock" includes the Common Stock, $0.001 par value, of
the Corporation as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise
and any stock (other than the Common Stock of the Corporation) and other
securities of the Corporation or any other Person which any Holder at any time
shall be entitled to receive, or shall have received, on the exercise of
conversion rights of the Series B Preferred Stock, in lieu of or in addition to
the Common Stock of the Corporation.

          (i)  "Common Stock Equivalent" means any warrant, option, subscription
or purchase right with respect to shares of Common Stock, any security
convertible into, exchangeable for, or otherwise entitling the holder thereof to
acquire, shares of Common Stock or any warrant, option, subscription or purchase
right with respect to any such convertible, exchangeable or other security.

          (j)  "Conversion Date" means the date on which a Conversion Notice is
given by a Holder, whether by mail, courier, personal service, telephone line
facsimile transmission or other means, as provided in Section 10(a); provided,
that if the Conversion Notice is given after 12:00 noon California time on any
date, the Conversion Date shall mean the date following the date on which the
Conversion Notice is given.

          (k)  "Conversion Notice" means a Notice of Conversion of Series B
Convertible Redeemable Preferred Stock substantially in the form attached to the
Subscription Agreement as Annex H.

          (l)  "Conversion Price" means $3.00 per share, subject to adjustment
as provided in Section 10(c).

          (m)  "Corporation Certificate" means a certificate of the Corporation
signed by an Officer.

                                       2
<PAGE>

          (n)  "Corporation Notice" means a Corporation Notice substantially in
the form attached to the Subscription Agreement as Annex H.

          (o)  "Corporation Redemption Date" means the Business Day on which
shares of Series B Preferred Stock are to be redeemed pursuant to Section 9(a),
determined in accordance with Section 9(a).

          (p)  "Corporation Redemption Event" means that (1) the Market Price of
the Common Stock shall be greater than $20.00 (subject to appropriate adjustment
in the event of an adjustment in the Conversion Price) on each Trading Day
during a period of 40 consecutive Trading Days and (2) the Registration
Statement shall have been effective during the entire 40-Trading Day period.

          (q)  "Corporation Redemption Price" means an amount in cash equal to
the sum of (1) the Stated Value PLUS (2) an amount equal to the declared and
unpaid dividends on the share of Series B Preferred Stock to be redeemed to the
applicable Corporation Redemption Date.

          (r)  "Current Market Price" shall mean the arithmetic average of the
daily Market Prices (calculated without duplicating any adjustments referred to
in the proviso of such defined term) per share of Common Stock for the ten
consecutive Trading Days immediately prior to the date in question; PROVIDED,
HOWEVER, that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4),
(5), (6), or (7), occurs during such ten consecutive Trading Days, then the
Market Price for each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Market Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event, (2) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 10(c)(1), (2), (3), (4), (5), (6), or (7),
occurs on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Market Price for each Trading
Day on and after the "ex" date for such other event shall be adjusted by
multiplying such Market Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of such other event,
and (3) if the "ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this proviso, the Market
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value (as determined
by the Board of Directors in a manner consistent with any determination of such
value for purposes of Section 10(c)(4) or (6), whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For purposes of any computation under Section 10(c)(6), the Current
Market Price of the Common Stock on any date shall be deemed to be the
arithmetic average of the daily Market Prices per share of Common Stock for such
day and the next two succeeding Trading Days; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the Tender Offer requiring such computation)
that requires an adjustment to the Conversion Price pursuant to Section
10(c)(1), (2), (3), (4), (5), (6),

                                       3
<PAGE>

or (7), occurs on or after the Expiration Time for the Tender Offer requiring
such computation, the Market Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying such Market Price by
the reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event. For purposes of this paragraph, the
term "ex" date, (1) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades, regular way, on the
relevant exchange or in the relevant market from which the Market Price was
obtained without the right to receive such issuance or distribution, (2) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades, regular way, on such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (3) when used with respect to any Tender
Offer means the first date on which the Common Stock trades, regular way, on
such exchange or in such market after the Expiration Time of such Tender Offer.
Notwithstanding the foregoing, whenever successive adjustments to the Conversion
Price are called for pursuant to Section 10(c), such adjustments shall be made
to the Current Market Price as may be necessary or appropriate to effectuate the
intent of Section 10(c) and to avoid unjust or inequitable results as determined
in good faith by the Board of Directors.

          (s)  "Eligible Bank" means a corporation organized or existing under
the laws of the United States or any state, having combined capital and surplus
of at least $100 million and subject to supervision by United States federal or
state authority and which has a branch located in New York, New York.

          (t)  "Eligible Marketable Securities" of the Corporation as of any
date means marketable securities which would be reflected on a consolidated
balance sheet of the Corporation and its subsidiaries prepared as of such date
in accordance with Generally Accepted Accounting Principles and which have been
purchased pursuant to the Corporation's Investment Guidelines delivered to Buyer
on or prior to the date hereof.

          (u)  "Expiration Time" shall have the meaning provided in Section
10(c)(6).

          (v)  "Final Mandatory Redemption Date" means [insert date six years
after the Issuance Date].

          (w)  "Fundamental Change" means:  (1) any consolidation or merger of
the Corporation or any Subsidiary with or into another entity (other than a
merger or consolidation of a wholly-owned Subsidiary into the Corporation or a
wholly-owned Subsidiary) where the stockholders of the Corporation immediately
prior to such transaction do not collectively own at least 51% of the
outstanding voting securities of the surviving corporation of such consolidation
or merger immediately following such transaction; or the sale of all or
substantially all of the assets of the Corporation in a single transaction or a
series of related transactions; or (2) the occurrence of any transaction or
event in connection with which all or substantially all the Common Stock shall
be exchanged for, converted into, acquired for or constitute the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or will, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved

                                       4
<PAGE>

for quotation on Nasdaq or any similar United States system of automated
dissemination of transaction reporting of securities prices; or (3) the
acquisition by a Person or entity or group of Persons or entities acting in
concert as a partnership, limited partnership, syndicate or group, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, of beneficial ownership of securities of the Corporation
representing 50% or more of the combined voting power of the outstanding voting
securities of the Corporation ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors; or
(4) the disposal or sale of more than 50% of the assets of the Corporation; or
(5) the liquidation, dissolution or other winding up the affairs of the
Corporation; PROVIDED, HOWEVER, that in each case the Holders have not violated
any provision of Section 5(k)(x) of the Subscription Agreements.

          (x)  "Generally Accepted Accounting Principles" for any Person means
the United States generally accepted accounting principles and practices applied
by such Person from time to time in the preparation of its audited financial
statements.

          (y)  "Holder" means at any time with respect to any share of Series B
Preferred Stock the Person shown as the holder of record of such share of Series
B Preferred Stock on the records of the Corporation relating to the Series B
Preferred Stock which records are maintained in accordance with applicable law.

          (z)  "Holder Notice" means a Holder Notice substantially in the form
attached to the Subscription Agreement as Annex H.

          (aa) "Holder Optional Repurchase Date" means the date which is five
(5) Business Days after a Holder who is entitled to repurchase rights under
Section 11(a) and 11(b) gives a Holder Notice.

          (bb) "Holder Optional Repurchase Event" means any one of the following
events:

               (1)  For any period of five (5) consecutive Trading Days
following the Issuance Date there shall be no reported sale price of the Common
Stock on any of the Nasdaq, the NYSE or the AMEX;

               (2)  For any period of five (5) consecutive Trading Days
following the Issuance Date the Common Stock is not listed for trading on any of
the Nasdaq, the NYSE or the AMEX;

               (3)  Any Fundamental Change;

               (4)  The Corporation fails to have the Registration Statement
declared effective within 90 days of the Issuance Date;

               (5)  On or after the SEC Effective Date and prior to the end of
the Registration Period for any Holder, such Holder shall not be able for 20
Trading Days (whether or not consecutive), in any period of 365 consecutive days
to sell shares of Common Stock issuable or issued upon conversion of shares of
Series B Preferred Stock pursuant to the

                                       5
<PAGE>

Registration Statement (A) by reason of the requirements of the 1933 Act, the
1934 Act or any of the rules or regulations under either thereof or (B) due to
the Registration Statement or the Prospectus containing any untrue statement of
material fact or omitting to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or any other failure
of the Registration Statement or the Prospectus to comply with the rules and
regulations of the SEC;

               (6)  The Corporation fails to issue or cause to be issued shares
of Common Stock to any Holder upon exercise by such Holder of the conversion
rights of such Holder within five (5) Trading Days after the due date therefor
(i.e. six (6) Trading Days following the Conversion Date) in accordance with the
terms of Section 10 or fails to transfer any certificate for shares of Common
Stock issued to any Holder upon conversion of Series B Preferred Stock or upon
exercise by such Holder of any purchase rights of such Holder as and when
required by this Certificate of Designations or the Subscription Agreements;
provided, that if such failure occurs due to the failure of the Transfer Agent
to comply with timely instructions from the Corporation, a Holder Optional
Repurchase Event shall not occur unless such failure continues for two (2)
additional Trading Days;

               (7)  The Corporation (A) fails to comply with Sections 5(k)(i),
(v) or (vi) of the Subscription Agreements, or (B) fails to comply for a period
of 45 days in any material respect with any of the other requirements set forth
in Section 5(k) of the Subscription Agreements or other material term or
provision of the Series B Preferred Stock;

               (8)  Any material representation or warranty of the Corporation
made herein or in any other Transaction Document shall be false or misleading in
any material respect when made;

               (9)  The Corporation or any Subsidiary shall (A) have received
notice that it is in default in any payment with respect to any indebtedness for
borrowed money which indebtedness has an outstanding principal amount in excess
of $1,000,000 individually or $2,000,000 in the aggregate for the Corporation
and the Subsidiaries, beyond the period of grace, if any, provided in the
instrument or agreement under which such indebtedness was created or (B) have
received notice that it is in default in the observance or performance of any
agreement, covenant or condition relating to any such indebtedness or contained
in any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such indebtedness to become due prior to its stated maturity and such
default or event shall continue beyond the period of grace, if any, provided in
the instrument or agreement under which such indebtedness was created (after
giving effect to any consent or waiver obtained and then in effect thereunder)
and, in each case, such breach or default results in the acceleration of such
indebtedness or any other indebtedness of the Corporation; PROVIDED, HOWEVER,
that the events and conditions described in the preceding clauses (A) and (B)
shall not constitute a Holder Optional Repurchase Event if the Corporation cures
such breach or default within five days of notice of such breach or default;
PROVIDED FURTHER THAT, any breach or default for non-payment of any indebtedness
shall not constitute a Holder Optional Repurchase Event if (i) the Corporation
(with the unanimous approval of the Board of Directors) is actively

                                       6
<PAGE>

contesting such default in good faith, (ii) prior to the expiration of such
five-day period no other indebtedness of the Corporation or any of its
Subsidiaries shall, in accordance with its terms, be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled or
required payment prior to the stated maturity thereof, and (iii) the aggregate
amount of any non-payment does not exceed $1,000,000. The Corporation shall
provide notice to the Holders of any payment defaults that it intends to contest
in good faith within five (5) days of such obligation becoming due and payable.

               (cc) "Holder Optional Repurchase Price" means an amount in cash
equal to the sum of (1) the Stated Value PLUS (2) an amount equal to any
declared and unpaid dividends on the share of Series B Preferred Stock to be
redeemed at the applicable Holder Optional Repurchase Date; PROVIDED, HOWEVER,
that if a Fundamental Change has occurred, then the Holder Optional Repurchase
Price means an amount in cash equal to the sum of (1) 150% of the Stated Value
PLUS (2) an amount equal to any declared and unpaid dividends on the share of
Series B Preferred Stock to be redeemed at the applicable Holder Optional
Repurchase Date.

               (dd) "Initial Mandatory Redemption Date" means [insert date five
years after the Issuance Date].

               (ee) "Issuance Date" means the first date of original issuance of
any shares of Series B Preferred Stock.

               (ff) "Junior Dividend Stock" means, collectively, the Common
Stock and any other class or series of capital stock of the Corporation ranking,
as to dividends, junior to the Series B Preferred Stock.

               (gg) "Junior Liquidation Stock" means, collectively, the Common
Stock and any other class or series of capital stock of the Corporation ranking
junior as to liquidation rights to the Series B Preferred Stock.

               (hh) "LIBOR Rate" shall mean the arithmetic average of rates of
interest per annum (rounded upwards, if necessary to the next 1/16 of 1%) at
which Citibank, F.S.B. is offered deposits of United States Dollars in the
London interbank market on or about 11:00 a.m. London time two (2) Business Days
prior to the commencement of an interest period.

               (ii) "Liquidation Preference" means, for each share of Series B
Preferred Stock, the sum of (1) the Stated Value PLUS (2) an amount equal to any
declared and unpaid dividends thereon to the date of final distribution to the
Holders in connection with the liquidation, dissolution or winding up of the
Corporation.

               (jj) "Majority Holders" means at any time the Holders of
outstanding shares of Series B Preferred Stock which shares constitute 75% of
the outstanding shares of Series B Preferred Stock.

               (kk) "Mandatory Redemption Notice" means a Mandatory Redemption
Notice substantially in the form attached to the Subscription Agreements as
Annex H.

                                       7
<PAGE>

               (ll) "Mandatory Redemption Price" means an amount in cash equal
to the sum of (1) the Stated Value PLUS (2) an amount equal to any declared and
unpaid dividends on the share of Series B Preferred Stock to the Initial
Mandatory Redemption Date or the Final Mandatory Redemption Date, as applicable.

               (mm) "Market Price" of any security on any date means the closing
price of such security on such date on the Nasdaq or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.; PROVIDED, HOWEVER, that during any period the Market Price is
being determined, the Market Price shall be subject to equitable adjustments
from time to time on terms consistent with Section 10(c) and otherwise
reasonably acceptable to the Majority Holders for (1) stock splits, (2) stock
dividends, (3) combinations, (4) capital reorganizations, (5) issuance to all
holders of Common Stock of rights or warrants to purchase shares of Common
Stock, (6) distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), (7) Tender Offers by the Corporation or any
Subsidiary for, or other repurchases of shares of, Common Stock in one or more
transactions which, individually or in the aggregate, result in the purchase of
more than ten percent of the Common Stock outstanding, and (8) similar events
relating to the Common Stock, in each case which occur, or with respect to which
"ex-" trading of the Common Stock begins, during such period.

               (nn) "Merger Shares" shall have the meaning set forth in the
Subscription Agreements.

               (oo) "Nasdaq" means the Nasdaq National Market.

               (pp) "Nasdaq Stock Market" means The Nasdaq Stock Market, Inc.

               (qq) "1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto.

               (rr) "1933 Act" means the Securities Act of 1933, as amended, or
any successor statute thereto.

               (ss) "NYSE" means the New York Stock Exchange, Inc.

               (tt) "Officer" means the Chairman of the Board, the Chief
Executive Officer, the President or the Chief Financial Officer of the
Corporation.

               (uu) "Parity Dividend Stock" means any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Preferred Stock.

               (vv) "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock ranking on a parity as to liquidation rights with
the Series B Preferred Stock.

               (ww) "Permitted Indebtedness" means:

                                       8
<PAGE>

                     (1)  Indebtedness not in excess of the aggregate principal
amount which is outstanding on the Issuance Date and which would be reflected on
a balance sheet of the Corporation as of the Issuance Date or in the notes
thereto prepared in accordance with Generally Accepted Accounting Principles;

                     (2)  Indebtedness of up to $5 million incurred after the
Issuance Date consisting of (A) equipment lease obligations or other equipment
financings for equipment used in the business of the Corporation and its
Subsidiaries which obligations or financings are required to be capitalized in
accordance with Generally Accepted Accounting Principles; and (B) Indebtedness
incurred in connection with acquisition of furniture, fixtures and equipment
used in the business of the Corporation and its Subsidiaries, in each such case
in an amount not in excess of the purchase price thereof;

                     (3)  Indebtedness that is secured only by real property;
and

                     (4)  Indebtedness of up to $5 million that is unsecured.

               (xx)  "Person" means any natural person, partnership,
corporation, limited liability company, trust, incorporated organization,
unincorporated association, joint stock company or association or similar entity
or any government, governmental agency or political subdivision.

               (yy)  "QIB" means a "qualified institutional buyer" as defined in
Rule 144A.

               (zz)  "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).

               (aaa) "Redemption Notice" means a Redemption Notice substantially
in the form attached to the Subscription Agreement as Annex H.

               (bbb) "Registrable Securities" means (1) the shares of Common
Stock issuable or issued upon conversion of shares of Series B Preferred Stock,
(2) if the Common Stock is changed, converted or exchanged by the Corporation or
its successor, as the case may be, into any other stock or other securities on
or after the date this Certificate of Designations is filed with the Secretary
of State of the State of Delaware, such other stock or other securities which
are issued or issuable in respect of or in lieu of the shares of Common Stock
issuable or issued upon conversion of shares of Series B Preferred Stock and (3)
if any other securities are issued to holders of the Common Stock (or such other
shares or other securities into which or for which the Common Stock is so
changed, converted or exchanged as described in the immediately preceding clause
(2)) upon any reclassification, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of the shares
of Common Stock issuable or issued upon conversion of shares of Series B
Preferred Stock.

                                       9
<PAGE>

               (ccc) "Registration Period" means the first to occur of the
following time frames: (1) the date which is five years after the SEC Effective
Date, (2) the date on which no Person who is entitled to the benefits of Section
8 of any Subscription Agreement and who is or was a Holder any longer owns or
has any right to acquire any Registrable Securities or (3) the date on which
each Person who is entitled to the benefits of Section 8 of any Subscription
Agreement and who is or was a Holder may sell, pursuant to Rule 144 under the
1933 Act (or any successor or replacement rule or regulation), all Registrable
Securities owned by such Person or which such Person has the right to acquire,
without the filing of any notice with the SEC and without restriction on the
manner of sale or amount of securities sold.

               (ddd) "Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 8 of
each Subscription Agreement.

               (eee) "Rule 144A" means Rule 144A as promulgated under the 1933
Act.

               (fff) "SEC" means the United States Securities and Exchange
Commission.

               (ggg) "SEC Effective Date" means the date on which the
Registration Statement is first ordered effective by the SEC.

               (hhh) "Securities" shall have the meaning provided in Section
10(c).

               (iii) "Senior Dividend Stock" means any class or series of
capital stock of the Corporation ranking, as to dividends, senior to the Series
B Preferred Stock.

               (jjj) "Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series B Preferred Stock.

               (kkk) "Series B Preferred Stock" means the Series B Convertible
Redeemable Preferred Stock, $0.001 par value, of the Corporation.

               (lll) "Stated Value" means $1,000 per share of Series B Preferred
Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to the shares of Series B Preferred
Stock after the filing date hereof).

               (mmm) "Subscription Agreements" means the several Subscription
Agreements, dated as of July 27, 2001, by and between the Corporation and the
several original Holders pursuant to which the shares of Series B Preferred
Stock were issued.

               (nnn) "Subsidiary" means any corporation or other entity of which
a majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the Corporation's board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Corporation.

               (ooo) "Tender Offer" means a tender offer or exchange offer.

               (ppp) "Trading Day" means a day on whichever of (1) the national
securities exchange, (2) the Nasdaq or (3) such other securities market, in any
such case which at the time

                                       10
<PAGE>

constitutes the principal securities market for the Common Stock, is open for
general trading of securities.

               (qqq) "Transaction Documents" means, individually or
collectively, the Subscription Agreements, this Certificate of Designations, the
Transfer Agent Instruction and each other instrument, statement or certificate
given in writing in connection herewith or therewith.

               (rrr) "Transfer Agent" means Mellon Investor Services LLC, or its
duly appointed successor who shall be serving as transfer agent and registrar
for the Common Stock and who shall have been authorized by the Corporation to
act as conversion agent for the Series B Preferred Stock in accordance with the
Transfer Agent Instruction and the name, address and telephone number of which
shall have been given to the Holders by notice from the Corporation.

               (sss) "Transfer Agent Instruction" means the Transfer Agent
Instruction, dated [________ __, 2001], from the Corporation to the Transfer
Agent for the benefit of the Holders.

SECTION 2.  DESIGNATION AND AMOUNT.

     The shares of such series shall be designated as "Series B Convertible
Redeemable Preferred Stock", and the number of shares constituting the Series B
Preferred Stock shall be 60,000, and shall not be subject to increase. The
Corporation shall not issue any shares of Series B Preferred Stock other than
pursuant to the Subscription Agreements, unless such issuance shall have been
approved by the Majority Holders. Any shares of Series B Preferred Stock which
are redeemed by the Corporation and retired and any shares of Series B Preferred
Stock which are converted into shares of Common Stock in accordance with Section
10 shall be restored to the status of authorized, unissued and undesignated
shares of the Corporation's class of Preferred Stock and shall not be subject to
issuance, and shall not thereafter be outstanding, as shares of Series B
Preferred Stock.

SECTION 3.  SERIES B PREFERRED STOCK CAPITAL.

     The amount to be represented in the capital account for the Series B
Preferred Stock at all times for each outstanding share of Series B Preferred
Stock shall be an amount equal to the sum of (a) the Stated Value PLUS (b) an
amount equal to any declared and unpaid dividends on such share of Series B
Preferred Stock to the date of determination.

SECTION 4.  RANK.

     The shares of Series B Preferred Stock shall rank senior to the Common
Stock and any shares of any other series of Preferred Stock or any shares of any
other class of preferred stock of the Corporation, now or hereafter issued, as
to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
except as otherwise approved by the Majority Holders in accordance with Section
12(b). Nothing in this Section 4 shall prohibit the Corporation from issuing
shares of capital stock if such issuance is made in compliance with Section
12(b) and the applicable provisions of the General Corporation Law of the State
of Delaware.

                                       11
<PAGE>

SECTION 5.  DIVIDENDS.

     The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends only when, as, and if declared by the Board of Directors out
of funds legally available for such purpose.  No dividends shall be paid or
declared and set apart for payment on the Common Stock unless an equivalent
amount per share (based on the relative stated values) shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Preferred Stock.

SECTION 6.  LIQUIDATION PREFERENCE.

     In the event of a liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the Holders shall be entitled to
receive out of the assets of the Corporation, whether such assets constitute
stated capital or surplus of any nature, an amount per share of Series B
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; PROVIDED, HOWEVER, that such rights shall accrue to the
Holders only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock that has been
issued consistent with this Certificate of Designations are fully met. After the
liquidation preferences of such Senior Liquidation Stock are fully met, the
remaining assets of the Corporation available for distribution shall be
distributed ratably among the Holders and the holders of any Parity Liquidation
Stock that has been issued consistent with this Certificate of Designations in
proportion to the respective preferential amounts to which each is entitled up
to the full extent of such preferential amounts. After payment in full of the
Liquidation Preference of the shares of the Series B Preferred Stock and the
liquidation preference of such Parity Liquidation Stock that has been issued
consistent with this Certificate of Designations, the Holders shall not be
entitled to any further participation in any distribution of assets by the
Corporation.

SECTION 7.  MANDATORY REDEMPTION.

            (a)  The Corporation shall give a Mandatory Redemption Notice to the
Holders not less than 30 nor more than 45 Business Days prior to the Initial
Mandatory Redemption Date; PROVIDED, HOWEVER, that each Holder, with respect to
its Series B Preferred Stock, shall have the right but not the obligation to
delay the Initial Mandatory Redemption Date by one year. Any Holder desiring to
extend the Initial Mandatory Redemption Date shall provide the Corporation
written notice no later than 60 days prior to the Initial Mandatory Redemption
Date. The Corporation shall give a Mandatory Redemption Notice to the Holders of
Series B Preferred Stock which has not been redeemed on the Initial Mandatory
Redemption Date not less than 30 nor more than 45 Business Days prior to the
Final Mandatory Redemption Date. On the Initial Mandatory Redemption Date, the
Series B Preferred Stock outstanding on the date the Mandatory Redemption Notice
is sent and held by Holders who have not requested a delay in the Initial
Mandatory Redemption Date shall be redeemed at the Mandatory Redemption Price.
Notwithstanding the foregoing, the number of shares of Series B Preferred Stock
to be redeemed from each Holder on the Initial Mandatory Redemption Date shall
be reduced (and there shall be a corresponding reduction in the total number of
shares redeemed) by the number of shares with respect to which such Holder has
given a Conversion

                                       12
<PAGE>

Notice (1) on or after the date the Mandatory Redemption Notice is given and (2)
prior to the Initial Mandatory Redemption Date. On the Final Mandatory
Redemption Date, all outstanding Series B Preferred Stock shall be redeemed at
the Mandatory Redemption Price. Any failure or defect in the giving of the
Mandatory Redemption Notice shall not affect the Corporation's obligation to
redeem the shares of Series B Preferred Stock pursuant to this Section 7.

            (b)  On the Initial Mandatory Redemption Date or the Final Mandatory
Redemption Date (or such later date as a particular Holder shall surrender to
the Corporation the certificate(s) for the shares of Series B Preferred Stock
redeemed), the Corporation shall pay to or upon the order of each Holder by wire
transfer of immediately available funds to such account as shall be specified
for such purpose by such Holder an amount equal to the Mandatory Redemption
Price of all of such Holder's shares of Series B Preferred Stock to be redeemed
on the Initial Mandatory Redemption Date or the Final Mandatory Redemption Date,
as applicable. A Holder of such shares of Series B Preferred Stock shall not be
entitled to payment of the Mandatory Redemption Price of such shares of Series B
Preferred Stock until such Holder shall have surrendered the certificate(s) for
such shares of Series B Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).

            (c)  The Corporation shall not be entitled to give the Mandatory
Redemption Notice with respect to, or to redeem, any shares of Series B
Preferred Stock with respect to which a Conversion Notice has been given
providing for a Conversion Date which is on or prior to the date on which the
Mandatory Redemption Notice is given or after the date on which the Mandatory
Redemption Notice is given but prior to the Initial Mandatory Redemption Date.
If a Mandatory Redemption Notice has been given, thereafter the proceedings for
such Mandatory Redemption shall not affect the rights of the Holders to convert
in accordance with Section 10 any shares of Series B Preferred Stock at any time
prior to the Initial Mandatory Redemption Date or the Final Mandatory Redemption
Date. If on the applicable Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date the Corporation fails to pay the Mandatory Redemption
Price of any outstanding shares of Series B Preferred Stock to be redeemed in
full to such Holder or to deposit the same with an Eligible Bank in accordance
with Section 14(c), such Holder shall be entitled to convert in accordance with
Section 10 such shares of Series B Preferred Stock of such Holder so called for
redemption at any time after the Initial Mandatory Redemption Date or the Final
Mandatory Redemption Date and prior to the date on which the Corporation pays
the Mandatory Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount due to
such Holder pursuant to Section 14(d)) or so deposits the same (together with
any amount due to such Holder pursuant to Section 14(d)) and gives notice to
such Holder of such deposit and in the case of any such conversion of any share
of Series B Preferred Stock, upon delivery to the converting Holder of the
shares of Common Stock issuable upon such conversion the Corporation shall have
no further liability in respect of the Mandatory Redemption Price of such share
of Series B Preferred Stock so converted other than payment of the amount
payable pursuant to Section 14(d) in respect of the period from the Initial
Mandatory Redemption Date or the Final Mandatory Redemption Date to the
Conversion Date for such conversion; PROVIDED, HOWEVER, that a Holder of such
shares of Series B Preferred Stock shall not be entitled to convert such shares
of Series B Preferred Stock if the Corporation's failure to pay the Mandatory
Redemption Price is due to such Holder's failure to have surrendered the
certificate(s) for such

                                       13
<PAGE>

shares of Series B Preferred Stock to the Corporation or, in the case of the
loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).

SECTION 8.  NO SINKING FUND.

     The shares of Series B Preferred Stock shall not be entitled to the
benefits of any sinking fund for the redemption or repurchase of shares of
Series B Preferred Stock.

SECTION 9.  REDEMPTION AT OPTION OF CORPORATION.

            (a)  Corporation Redemption.

                 (1)  At any time after the second anniversary of the Issuance
Date, the Corporation shall have the right, if a Corporation Redemption Event
shall have occurred, on one occasion only with respect to such Corporation
Redemption Event to redeem on the applicable Corporation Redemption Date all or
any portion of the outstanding shares of Series B Preferred Stock so long as on
the date the Corporation gives the Redemption Notice and at all times thereafter
through such Corporation Redemption Date (A) the Corporation shall be in
compliance in all material respects with its obligations to the Holders
(including, without limitation, its obligations under the Transaction
Documents), (B) if such Redemption Notice is given before the end of the
Registration Period, the Registration Statement shall be effective and available
for use by the selling stockholders named therein and shall reasonably be
expected to remain effective and available for such use for the 30 days
following such Corporation Redemption Date, (C) no Holder Optional Repurchase
Event shall have occurred (i) with respect to which any Holder shall be entitled
to exercise redemption rights under Section 11 or (ii) with respect to which any
Holder shall have exercised such rights and the Corporation shall not have paid,
or deposited in accordance with Section 14(c), the Holder Optional Repurchase
Price and (D) the Corporation has sufficient funds legally available to pay the
Corporation Redemption Price of the shares of Series B Preferred Stock to be
redeemed. Any redemption of outstanding shares of Series B Preferred Stock
pursuant to this Section 9(a) shall be made at the applicable Corporation
Redemption Price. To exercise its right of redemption under this Section 9(a),
the Corporation shall give a Redemption Notice to the Holders within five (5)
Trading Days after such Corporation Redemption Event occurs and the Corporation
Redemption Date shall be set by the Corporation at not less than 30 nor more
than 35 Trading Days after the date of such Redemption Notice.

                 (2)  On the Corporation Redemption Date (or such later date as
a particular Holder shall surrender to the Corporation the certificate(s) for
the shares of Series B Preferred Stock redeemed), the Corporation shall pay to
or upon the order of each Holder by wire transfer of immediately available funds
to such account as shall be specified for such purpose by such Holder an amount
equal to the Corporation Redemption Price of all of such Holder's shares of
Series B Preferred Stock to be redeemed on the Corporation Redemption Date. A
Holder of such shares of Series B Preferred Stock shall not be entitled to
payment of the Corporation Redemption Price of such shares of Series B Preferred
Stock until such Holder shall have surrendered the certificate(s) for such
shares of Series B Preferred Stock to the Corporation or, in the case of the
loss, theft or destruction of any such certificate, given indemnity in
accordance with Section 14(b).

                                       14
<PAGE>

                 (3)  The Corporation shall not be entitled to give a Redemption
Notice with respect to, or to redeem, any shares of Series B Preferred Stock
with respect to which a Conversion Notice has been given providing for a
Conversion Date which is on or prior to the date on which a Redemption Notice is
given. If a Redemption Notice has been given, thereafter the proceedings for
such redemption shall not affect the rights of the Holders to convert in
accordance with Section 10 any shares of Series B Preferred Stock called for
redemption at any time prior to the Corporation Redemption Date for such shares.
If on the applicable Corporation Redemption Date the Corporation fails to pay
the Corporation Redemption Price of any outstanding shares of Series B Preferred
Stock to be redeemed in full to such Holder or to deposit the same with an
Eligible Bank in accordance with Section 14(c), such Holder shall be entitled to
convert in accordance with Section 10 the shares of Series B Preferred Stock of
such Holder so called for redemption at any time after such Corporation
Redemption Date and prior to the date on which the Corporation pays the
Corporation Redemption Price in full to such Holder for all shares of Series B
Preferred Stock to be redeemed from such Holder (together with any amount due to
such Holder pursuant to Section 14(d)) or so deposits the same (together with
any amount due to such Holder pursuant to Section 14(d)) and gives notice to
such Holder of such deposit and in the case of any such conversion of any share
of Series B Preferred Stock, upon delivery to the converting Holder of the
shares of Common Stock issuable upon such conversion the Corporation shall have
no further liability in respect of the Corporation Redemption Price of such
share of Series B Preferred Stock so converted, other than payment of the amount
payable pursuant to Section 14(d) in respect of the period from the applicable
Corporation Redemption Date to the Conversion Date for such conversion;
PROVIDED, HOWEVER, that a Holder of such shares of Series B Preferred Stock
shall not be entitled to convert such shares of Series B Preferred Stock if the
Corporation's failure to pay the Corporation Redemption Price is due to such
Holder's failure to have surrendered the certificate(s) for such shares of
Series B Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 14(b).

            (b)  No Other Redemption at the Option of the Corporation. Except as
otherwise specifically provided in Section 9(a), the Corporation shall not have
any right to redeem any shares of Series B Preferred Stock at the option of the
Corporation.

SECTION 10. CONVERSION.

            (a)  Right to Convert. Subject to and upon compliance with the
provisions of this Section 10, each Holder shall have the right, at such
Holder's option, at any time (except that if such Holder shall have exercised
redemption rights under Section 11 or the Corporation shall have exercised its
redemption rights under Section 9, such conversion right shall terminate with
respect to the shares of Series B Preferred Stock to be redeemed at the close of
business on the last Trading Day prior to the date the Corporation pays or
deposits in accordance with Section 14(c) the applicable Holder Optional
Repurchase Price or Corporation Redemption Price unless the Corporation shall
default in payment due upon redemption of any share of Series B Preferred Stock
(except in the case where the Corporation's failure to pay the applicable Holder
Optional Repurchase Price or Corporation Redemption Price is due to such
Holder's failure to have surrendered the certificate(s) for such shares of
Series B Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 14(b))) to convert the outstanding shares of Series B Preferred Stock
held by such

                                       15
<PAGE>

Holder, or from time to time any portion of such shares, plus an amount equal to
any declared and unpaid dividends on such share, into that number of fully paid
and non-assessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing (1) the sum of (A) the aggregate Stated Value
of all shares of Series B Preferred Stock being converted by such Holder on the
same Conversion Date PLUS (B) any declared and unpaid dividends on the shares of
Series B Preferred Stock being converted to the applicable Conversion Date BY
(2) the Conversion Price in effect on the applicable Conversion Date, by giving
a Conversion Notice in the manner provided in Section 10(b); PROVIDED, HOWEVER,
that, if at any time any share of Series B Preferred Stock is converted in whole
or in part pursuant to this Section 10(a), the Corporation does not have
available for issuance upon such conversion as authorized and unissued shares or
in its treasury at least the number of shares of Common Stock required to be
issued pursuant hereto, then, at the election of such Holder made by notice from
such Holder to the Corporation, such share of Series B Convertible Preferred
Stock, to the extent that sufficient shares of Common Stock are not then
available for issuance upon conversion, shall be converted into the right to
receive from the Corporation, in lieu of the shares of Common Stock into which
such share of Series B Convertible Preferred Stock would otherwise be converted
and which the Corporation is unable to issue, payment in an amount equal to the
product obtained by multiplying (1) the number of shares of Common Stock to
which the Holder is entitled which the Corporation is unable to issue TIMES (2)
the arithmetic average of the Market Price for the Common Stock during the five
consecutive Trading Days immediately prior to the applicable Conversion Date.
Any such payment shall, for all purposes of this Certificate of Designations, be
deemed to be satisfaction in full of the Corporation's obligation to issue upon
such conversion shares of Common Stock that are not then available for issuance
upon such conversion. A Holder is not entitled to any rights of a holder of
Common Stock until such Holder has converted one or more shares of Series B
Preferred Stock to Common Stock, and only to the extent any such shares of
Series B Preferred Stock are deemed to have been converted to Common Stock under
this Section 10. For purposes of Sections 10(d) and 10(e), whenever a provision
references the shares of Common Stock into which any share of Series B Preferred
Stock is convertible or the shares of Common Stock issuable upon conversion of
any share of Series B Preferred Stock or words of similar import, any
determination required by such provision shall be made as if a sufficient number
of shares of Common Stock were then available for issuance upon conversion in
full of all outstanding shares of Series B Preferred Stock.

            (b)  Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; no Adjustment for Interest or Dividends.

                 (1)  To exercise the conversion privilege with respect to the
Series B Preferred Stock, a Holder shall give a Conversion Notice (or such other
notice which is acceptable to the Corporation) to the Corporation and the
Transfer Agent or to the office or agency designated by the Corporation for such
purpose by notice to the Holders. A Conversion Notice may be given by telephone
line facsimile transmission to the numbers set forth on the form of Conversion
Notice.

                 (2)  As promptly as practicable, but in no event later than
three (3) Trading Days, after a Conversion Date, the Corporation shall issue and
shall deliver to the Holder giving a Conversion Notice or such Holder's designee
the number of full shares of Common Stock issuable upon such conversion of
shares of Series B Preferred Stock in

                                       16
<PAGE>

accordance with the provisions of this Section 10 and deliver a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 10(b)(7) and, if applicable, any
cash payment required pursuant to the proviso to the first sentence of Section
10(a) (which payment, if any, shall be paid no later than three (3) Trading Days
after the applicable Conversion Date). The Holder shall promptly surrender to
the Corporation such Holder's certificates for the shares of Series B Preferred
Stock to be converted.

                 (3)  Each conversion of shares of Series B Preferred Stock
shall be deemed to have been effected on the applicable Conversion Date, and the
person in whose name any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on such
Conversion Date the holder of record of the shares represented thereby;
PROVIDED, HOWEVER, that if a Conversion Date is a date on which the stock
transfer books of the Corporation shall be closed such conversion shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the applicable Conversion Date.

                 (4)  The Corporation shall notify a Holder of any claim by the
Corporation of manifest error in a Conversion Notice within two (2) Trading Days
after such Holder gives such Conversion Notice and no such claim of error shall
limit or delay performance of the Corporation's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. A
Conversion Notice shall be deemed for all purposes to be in proper form unless
the Corporation notifies the Holder who gives a Conversion Notice by telephone
line facsimile transmission within three (3) Trading Days after the Conversion
Date (which notice from the Corporation shall specify all defects in the
Conversion Notice) and any Conversion Notice containing any such defect shall
nonetheless be effective on the Conversion Date if such Holder promptly
undertakes to correct all such defects. The Corporation shall pay all expenses
related to such issuances (including any stamp taxes or issue taxes); provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock or other securities or property on conversion of shares of Series B
Preferred Stock in a name other than that of such Holder, and the Corporation
shall not be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance thereof
shall have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The converting Holder shall be responsible for the amount of any withholding tax
payable in connection with any conversion of shares of Series B Preferred Stock.

                 (5)  If a Holder shall have given a Conversion Notice in
accordance with the terms of this Certificate of Designations, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by such
Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any person or any action to enforce
the same, any failure or delay in the enforcement of any other obligation of the
Corporation to any Holder, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by any Holder or any other
person of any obligation to the Corporation or any

                                       17
<PAGE>

violation or alleged violation of law by any Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to such Holder in connection with such conversion;
PROVIDED, HOWEVER, that nothing herein shall limit or prejudice the right of the
Corporation to pursue any such claim in any other manner permitted by applicable
law. The occurrence of an event which requires an adjustment of the Conversion
Price as contemplated by Section 10(c) shall in no way restrict or delay the
right of any Holder to receive certificates for Common Stock upon conversion of
shares of Series B Preferred Stock and the Corporation shall use its best
efforts to implement such adjustment on terms reasonably acceptable to the
Majority Holders within two (2) Trading Days after such occurrence.

                 (6)  If the Corporation fails to issue and deliver the shares
of Common Stock to a converting Holder in connection with a particular
conversion of shares of Series B Preferred Stock within three (3) Trading Days
after a Conversion Date, in addition to any other liabilities the Corporation
may have hereunder and under applicable law (x) the Corporation shall pay or
reimburse such Holder on demand for all out-of-pocket expenses, including,
without limitation, reasonable fees and expenses of legal counsel, incurred by
the Holder as a result of such failure, (y) if as a result of such failure such
Holder shall suffer any direct damages or liabilities from such failure
(including, without limitation, margin interest and the cost of purchasing
securities to cover a sale (whether by such Holder or such Holder's securities
broker) or borrowing of shares of Common Stock by such Holder for purposes of
settling any trade involving a sale of shares of Common Stock made by such
Holder during the period beginning on the Conversion Date and ending on the date
the Corporation delivers or causes to be delivered to such Holder such shares of
Common Stock), then the Corporation shall upon demand of such Holder pay to the
Holder an amount equal to the actual direct, out-of-pocket damages and
liabilities suffered by such Holder by reason thereof which such Holder
documents to the reasonable satisfaction of the Corporation, and (z) the Holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission), given at any time prior to delivery to
such Holder of the shares of Common Stock issuable in connection with such
exercise of the Holder's conversion right, rescind such exercise and the
Conversion Notice relating thereto, in which case such Holder shall thereafter
be entitled to convert, in accordance with this Section 10 that portion of such
shares of Series B Preferred Stock as to which such exercise is so rescinded.
Notwithstanding the foregoing, the Corporation shall not be liable to such
Holder under clause (y) of the immediately preceding sentence to the extent the
failure of the Corporation to deliver or to cause to be delivered such shares of
Common Stock results from fire, flood, storm, earthquake, shipwreck, strike,
war, acts of terrorism, crash involving facilities of a common carrier, acts of
God, or any similar event outside the control of the Corporation (it being
understood that the action or failure to act of the Transfer Agent shall not be
deemed an event outside the control of the Corporation except to the extent
resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Transfer Agent under any
bankruptcy, insolvency or other similar law or any similar event outside the
control of the Transfer Agent). A converting Holder shall notify the Corporation
in writing (or by telephone conversation, confirmed in writing) as promptly as
practicable following the third Trading Day after the Conversion Date if such
Holder becomes aware that such shares of Common Stock so issuable have not been
received as provided herein, but any failure so to give such notice shall not
affect the Holder's rights under this Certificate of Designations or otherwise.

                                       18
<PAGE>

                 (7)  No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series B Preferred Stock but, in lieu of any
fraction of a share of Common Stock which would otherwise be issuable in respect
of such conversion, the Corporation shall pay lawful money of the United States
of America for such fractional share, based on a value of one share of Common
Stock being equal to the Market Price of the Common Stock on the applicable
Conversion Date.

                 (8)  If a portion of the shares of Series B Preferred Stock
represented by a particular certificate are to be converted, upon surrender of
such certificate to the Corporation, the Corporation shall execute and deliver
to the Holders of such certificate without service charge, a new certificate or
certificates, in such denomination or denominations as requested by such Holder.

            (c)  Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Corporation as follows:

                 (1)  In case the Corporation shall on or after the Issuance
Date pay a dividend or make a distribution to all holders of the outstanding
Common Stock in shares of Common Stock, the Conversion Price in effect at the
opening of business on the date following the date fixed for the determination
of stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the Record Date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following such
Record Date. If any dividend or distribution of the type described in this
Section 10(c)(1) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.

                 (2)  In case the Corporation shall on or after the Issuance
Date issue rights or warrants (other than any rights or warrants referred to in
Section 10(c)(4)) to all holders of its outstanding shares of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Conversion Price in effect on the Record Date fixed for
the determination of stockholders entitled to receive such rights or warrants,
the Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the applicable Record Date plus the number of shares which the
aggregate offering price of the total number of shares so offered pursuant to
such rights or warrants would purchase at such current Conversion Price, and the
denominator shall be the number of shares of Common Stock outstanding on the
close of business on such Record Date plus the total number of additional shares
of Common Stock so offered for subscription or purchase. Such adjustment shall
become effective immediately after the opening of business on the day following
the Record Date fixed for determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not delivered
pursuant to such rights or warrants, upon the expiration or termination of such
rights or warrants,

                                       19
<PAGE>

the Conversion Price shall be readjusted to the Conversion Price which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered. In the event that such rights or warrants are
not so issued, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such Record Date had not been fixed. In
determining whether any rights or warrants entitle the holder to subscribe for
or purchase shares of Common Stock at less than such current Conversion Price,
and in determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account any consideration received for such rights or
warrants, and the value of such consideration, if other than cash, shall be
determined by the Board of Directors.

                 (3)  In case the outstanding shares of Common Stock shall on or
after the Issuance Date be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the earlier
of the day following the day upon which such subdivision becomes effective and
the day on which "ex-" trading of the Common Stock begins with respect to such
subdivision shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening of
business on the earlier of the day following the day upon which such combination
becomes effective and the day on which "ex-" trading of the Common Stock with
respect to such combination begins shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately after
the opening of business on the earlier of the day following the day upon which
such subdivision or combination becomes effective and the day on which "ex-"
trading of the Common Stock begins with respect to such subdivision or
combination.

                 (4)  In case the Corporation shall on or after the Issuance
Date, by dividend or otherwise, distribute to all holders of its Common Stock
shares of any class of capital stock of the Corporation (other than any
dividends or distributions to which Section 10(c)(1) applies), evidences of its
indebtedness, cash or other assets (including securities, but excluding (i) any
rights or warrants referred to in Section 10(c)(2), (ii) dividends and
distributions paid exclusively in cash and (iii) any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation to which
Section 10(d) applies) (the foregoing hereinafter in this Section 10(c)(4)
called the "Securities")), then, in each such case, subject to the second
paragraph of this Section 10(c)(4), the Conversion Price shall be reduced so
that the same shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
Record Date with respect to such distribution by a fraction the numerator of
which shall be the Current Market Price on such date less the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on such date of the portion of
the Securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following such
Record Date; PROVIDED, HOWEVER, that in the event the then fair market value (as
so determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that the Holders shall have the right to receive upon conversion of
shares of Series B Preferred Stock the amount of Securities such Holder would
have received had such Holder converted such Holder's shares of

                                       20
<PAGE>

Series B Preferred Stock into shares of Common Stock immediately prior to such
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 10(c)(4) by reference to the actual or
when issued trading market for any Securities comprising all or part of such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the Current Market Price to the extent possible.

     Rights or warrants distributed by the Corporation to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Corporation's capital stock (either initially or under certain circumstances),
which rights or warrants, until the occurrence of a specified event or events (a
"Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also required to be issued in
respect of future issuances of Common Stock, shall not be deemed to have been
distributed for purposes of this Section 10(c) (and no adjustment to the
Conversion Price under this Section 10(c) will be required) until the occurrence
of the earliest Trigger Event; PROVIDED, HOWEVER, that the Holders have not
violated any provision of Section 5(k)(x) of the Subscription Agreements. If any
such rights or warrants, including any such existing rights or warrants
distributed prior to the Issuance Date, are subject to Trigger Events, upon the
satisfaction of each of which such rights or warrants shall become exercisable
to purchase different securities, evidences of indebtedness or other assets,
then the occurrence of each such Trigger Event shall be deemed to be such date
of issuance and record date with respect to new rights or warrants (and a
termination or expiration of the existing rights or warrants without exercise by
the holder thereof) (so that, by way of illustration and not limitation, the
dates of issuance of any such rights shall be deemed to be the dates on which
such rights become exercisable to purchase capital stock of the Corporation, and
not the date on which such rights may be issued, or may become evidenced by
separate certificates, if such rights are not then so exercisable). In addition,
in the event of any distribution of rights or warrants, or any Trigger Event
with respect thereto, that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Price under this
Section 10(c) was made (i) in the case of any such rights or warrants which
shall all have been redeemed or repurchased without exercise by any holders
thereof, the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with respect to
such rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such redemption
or repurchase, and (ii) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.

     For purposes of this Section 10(c)(4) and Sections 10(c)(1) and (2), any
dividend or distribution to which this Section 10(c)(4) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 10(c)(2) applies (or both),
shall be deemed instead to be (i) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 10(c)(2)
applies (and any

                                       21
<PAGE>

Conversion Price reduction required by this Section 10(c)(4) with respect to
such dividend or distribution shall then be made) immediately followed by (ii) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Price reduction required by Sections
10(c)(1) and (2) with respect to such dividend or distribution shall then be
made), except (A) the Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution", "Record Date fixed for such
determination" and "Record Date" within the meaning of Section 10(c)(1) and as
"the date fixed for the determination of stockholders entitled to receive such
rights or warrants", "the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 10(c)(2) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the Record Date fixed for such determination" within
the meaning of Section 10(c)(1).

                 (5)  In case the Corporation shall on or after the Issuance
Date, by dividend or otherwise, distribute to all holders of its Common Stock
cash (excluding any cash that is distributed upon a merger or consolidation to
which Section 10(d) applies or as part of a distribution referred to in Sections
10(c)(4) or 10(c)(6)) in an aggregate amount that, combined with (A) the
aggregate amount of any other such distributions to all holders of its Common
Stock made exclusively in cash within the 12 months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this Section 10(c)(5) or Section 10(c)(6) has been made, and (B) the aggregate
of any cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and set forth in a Board Resolution) of
consideration payable in respect of any Tender Offer by the Corporation or any
Subsidiary for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to Section 10(c)(6) has been made, exceeds 10% of
the product of (x) the Current Market Price on the Record Date with respect to
such distribution TIMES (y) the number of shares of Common Stock outstanding on
such date, then, and in each such case, immediately after the close of business
on such date, unless the Corporation elects to reserve such cash for
distribution to the Holders upon the conversion of shares of Series B Preferred
Stock (and shall have made adequate provision) so that the Holders will receive
upon such conversion, in addition to the shares of Common Stock to which the
Holders are entitled, the amount of cash which the Holders would have received
if the Holders had, immediately prior to the Record Date for such distribution
of cash, converted their shares of Series B Preferred Stock into Common Stock,
the Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on such Record Date by a fraction (i) the numerator of
which shall be equal to the Current Market Price on such Record Date less an
amount equal to the quotient of (x) the excess of such combined amount over such
10% and (y) the number of shares of Common Stock outstanding on such Record Date
and (ii) the denominator of which shall be equal to the Current Market Price on
such Record Date; PROVIDED, HOWEVER, that in the event the portion of the cash
so distributed applicable to one share of Common Stock is equal to or greater
than the Current Market Price of the Common Stock on such Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so that the
Holders shall have the right to receive upon conversion of shares of Series B
Preferred Stock the amount of cash the Holders would have received had the
Holders converted all of their shares of Series B Preferred Stock immediately

                                       22
<PAGE>

prior to such Record Date. In the event that such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or distribution
had not been declared.

                 (6)  In case a Tender Offer on or after the Issuance Date made
by the Corporation or any Subsidiary for all or any portion of the Common Stock
shall expire and such Tender Offer (as amended upon the expiration thereof)
shall require the payment to stockholders (based on the acceptance (up to any
maximum specified in the terms of the Tender Offer) of Purchased Shares (as
defined below)) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) that combined together with (A) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such Tender Offer, of consideration payable
in respect of any other Tender Offers, by the Corporation or any Subsidiary for
all or any portion of the Common Stock expiring within the 12 months preceding
the expiration of such Tender Offer and in respect of which no adjustment
pursuant to this Section 10(c)(6) has been made and (B) the aggregate amount of
any distributions to all holders of the Corporation's Common Stock made
exclusively in cash within 12 months preceding the expiration of such Tender
Offer and in respect of which no adjustment pursuant to Section 10(c)(5) has
been made, exceeds 10% of the product of the Current Market Price as of the last
time (the "Expiration Time") tenders could have been made pursuant to such
Tender Offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) at the Expiration Time, then, and in
each such case, immediately prior to the opening of business on the day after
the date of the Expiration Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to close of business on the date of the Expiration Time
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered shares) at the Expiration Time
multiplied by the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time and the denominator shall be the sum of (x)
the fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the Tender Offer) of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares) at the
Expiration Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction (if any) to become
effective immediately prior to the opening of business on the day following the
Expiration Time. In the event that the Corporation is obligated to purchase
shares pursuant to any such Tender Offer, but the Corporation is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such Tender Offer had not been
made. If the application of this Section 10(c)(6) to any Tender Offer would
result in an increase in the Conversion Price, no adjustment shall be made for
such Tender Offer under this Section 10(c)(6). If any Tender Offer is approved
by the members of the Board of Directors elected by the Holders pursuant to
Section 12(c), no adjustment shall be made for such Tender Offer under this
Section 10(c)(6).

                                       23
<PAGE>

               (7)  (i) In case at any time on or after the Issuance Date the
Corporation shall issue shares of its Common Stock or Common Stock Equivalents
(collectively, the "Newly Issued Shares"), other than an issuance pro rata to
all holders of its outstanding Common Stock, at a price per share below the
Conversion Price in effect at the time of such issuance, then following such
issuance of Newly Issued Shares the Conversion Price shall be adjusted as
provided in this Section 10(c)(7). The Conversion Price following any such
adjustment shall be determined by multiplying the Conversion Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the sum
of (a) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly Issued
Shares) PLUS (b) the number of shares of Common Stock which the aggregate
consideration, if any, received by the Corporation for the number of Newly
Issued Shares would purchase at a price per share equal to the Conversion Price
in effect at the time of such issuance, and the denominator shall be the sum of
(X) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the exercise or conversion of all options, warrants, purchase rights or
convertible securities which are exercisable or convertible at the time of the
issuance of the Newly Issued Shares) PLUS (Y) the number of Newly Issued Shares.
The adjustment provided for in this Section 10(c)(7) may be expressed as the
following mathematical formula:

                NCP   =    (O +(C / CP))  *  CP
                          --------------
                               (O + N)

     where,

          C =    aggregate consideration received by the Corporation for the
                 Newly Issued Shares

          N =    number of Newly Issued Shares

          O =    number of shares of Common Stock outstanding (on a fully
                 diluted basis, as described above) immediately prior to the
                 issuance of the Newly Issued Shares

          CP =   Conversion Price immediately prior to the issuance of the Newly
                 Issued Shares

          NCP =  Conversion Price immediately after the issuance of the Newly
                 Issued Shares

     (ii)  Notwithstanding the foregoing, no adjustment shall be made under this
Section 10(c)(7) by reason of:

          (A)  the issuance by the Corporation of shares of Common Stock pro
          rata to all holders of the Common Stock so long as (i) any adjustment
          to the Conversion Price that is required by Section 10(c)(1) is made
          and (ii) the Corporation shall

                                       24
<PAGE>

          have given notice of such issuance thereof to the Holders pursuant to
          Section 10(e);

          (B)  the issuance by the Corporation of shares of Common Stock upon
          conversion of the Series B Preferred Stock in accordance with the
          terms hereof;

          (C)  the issuance by the Corporation of shares of Common Stock as
          dividends on the Series B Preferred Stock, if any, in accordance with
          the terms of Section 5;

          (D)  the issuance by the Corporation of shares of Common Stock to any
          employee, officer or director of, or consultant to, the Corporation
          pursuant to any stock option, incentive or employee stock purchase
          plans or agreements approved by the Corporation's Board of Directors;
          PROVIDED, HOWEVER, if the Board of Directors and/or its stockholders
          within 12 months of the Issuance Date increase the number of shares
          available for grant under the Corporation's 1993 Amended Incentive
          Stock Option Plan, 1996 Director Stock Option Plan or 2001 Incentive
          Stock Plan (each a "Plan"), other than any automatic increase provided
          in any such Plans (so long as the calculation upon which such increase
          is based, if it calculates the increase based on a percentage of the
          outstanding capital stock of the Corporation, does not include the
          Preferred Stock or Common Stock issued or issuable upon conversion of
          the Preferred Stock), such increase shall be subject to adjustment
          contemplated by this Section 10(c)(7);

          (E)  the issuance by the Corporation of shares of Common Stock or
          other securities to any bank, equipment lessor or other similar
          financial institution in connection with commercial credit
          arrangements, equipment financing or similar transactions approved by
          the Corporation's Board of Directors;

          (F)  the issuance by the Corporation of Newly Issued Shares in an
          offering for cash for the account of the Corporation that is
          underwritten on a firm commitment basis and (i) is registered under
          the 1933 Act or (ii) is sold in an offering to "qualified
          institutional buyers" as defined in, and in a transaction under, Rule
          144A under the 1933 Act;

          (G)  the issuance by the Corporation for cash of Newly Issued Shares
          in connection with a strategic alliance, collaboration, joint venture
          or partnership of the Corporation with another Person which strategic
          alliance, collaboration, joint venture or partnership relates to the
          Corporation's business as conducted immediately prior thereto and
          which Person is engaged in a business similar or related to the
          business of the Corporation so long the number of shares issued in
          such transaction does not exceed ten percent of the outstanding
          capital stock of the Corporation (on a fully-diluted basis)
          immediately prior to the issuance and such issuance is unanimously
          approved by the directors of the Corporation elected pursuant to
          Section 12(c)(1);

          (H)  the issuance by the Corporation of New Issued Shares in
          connection with any merger, consolidation, business combination, share
          exchange, acquisition of

                                       25
<PAGE>

          all or any portion of the business or assets of another Person or any
          similar transaction and such issuance is unanimously approved by the
          directors of the Corporation elected pursuant to Section 12(c)(1);

          (I)  the issuance of any Merger Shares; and

          (J)  any other issuances by the Corporation that are unanimously
               approved by the directors of the Corporation elected pursuant to
               Section 12(c)(1).

               (8)  The Corporation may make such reductions in the Conversion
Price, in addition to those required by Sections 10(c)(1), (2), (3), (4), (5),
(6), or (7) as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.

               (9)  No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 10(c)(9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
10 shall be made by the Corporation and shall be made to the nearest cent or to
the nearest one hundredth of a share, as the case may be.

     No adjustment need be made for a change in the par value of the Common
Stock or from par value to no par value or from no par value to par value.

               (10)  Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly, but in no event later than five (5)
Business Days thereafter, give notice to the Holders setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment, but which statement shall not include any
information which would be material non-public information for purposes of the
1934 Act. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.

               (11)  In any case in which this Section 10(c) provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Corporation may defer until the occurrence of such event (i) issuing to the
Holders in connection with any conversion of shares of Series B Preferred Stock
after such Record Date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to such
Holders any amount in cash in lieu of any fraction pursuant to Section 10(b)(6).

               (12)  For purposes of this Section 10(c), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation other than dividends or
distributions payable only in shares of Common Stock.

                                       26
<PAGE>

               (13)  Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock, the
Corporation shall take all corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue shares of such Common Stock at such adjusted Conversion Price.

          (d)  Effect of Reclassification, Consolidation, Merger or Sale.

               (1)  If any of the following events occur, namely (A) any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), (B) any
consolidation, merger or combination of the Corporation with another corporation
or other entity as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or (C) any sale or conveyance
of the properties and assets of the Corporation as, or substantially as, an
entirety to any other corporation or other entity as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
then the Corporation or the successor or purchasing corporation or other entity,
as the case may be, shall prior to such transaction amend its certificate of
incorporation or comparable instrument to provide that the shares of Series B
Preferred Stock, to the extent such shares shall remain outstanding, shall
following such transaction be convertible into the kind and amount of shares of
stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance by the holder of a number of shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
assuming such holder of Common Stock did not exercise such holder's rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (PROVIDED that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section 10(d) the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). Such written agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 10. If, in the case of any such reclassification, change, consolidation,
merger, combination, sale or conveyance, the stock or other securities and
assets receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and assets of a corporation other than the
successor or purchasing corporation or other entity, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such other corporation or other entity shall also so amend its
certificate of incorporation or comparable instrument and the certificate(s) of
incorporation or comparable instruments so amended shall also contain such
additional provisions to protect the interests of the Holders as the Board of
Directors shall reasonably consider necessary by reason of the foregoing,
including, to the extent practicable, the provisions providing for the
redemption rights set forth in Section 11.

                                       27
<PAGE>

               (2)  The above provisions of this Section shall similarly apply
to successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances .

               (3)  If this Section 10(d) applies to any event or occurrence,
Section 10(c) shall not apply.

          (e)  Notice to Holder Prior to Certain Actions. In case on or after
the Issuance Date:

               (1)  the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained earnings);
or

               (2)  the Corporation shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase any share
of any class or any other rights or warrants; or

               (3)  the Board of Directors shall authorize any reclassification
of the Common Stock (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or any consolidation or merger or other
business combination transaction to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required, or the sale
or transfer of all or substantially all of the assets of the Corporation; or

               (4)  there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;

the Corporation shall give the Holders as promptly as possible but in any event
at least ten (10) Trading Days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights are to be
determined, or (B) the date on which such reclassification, consolidation,
merger, other business combination transaction, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the date
as of which it is expected that holders of Common Stock of record who shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
shall be determined. Such notice shall not include any information which would
be material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Corporation gives such notice to the Holders or is required to give
such notice to the Holders, the Holders shall be entitled to give a Conversion
Notice which is contingent on the completion of such action.

SECTION 11. REPURCHASE UPON HOLDER OPTIONAL REPURCHASE EVENT.

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<PAGE>

          (a)  Repurchase Right Upon Holder Optional Repurchase Event. If a
Holder Optional Repurchase Event shall occur at any time when any shares of
Series B Preferred Stock are outstanding, then, in addition to any other rights
of the Holders, each Holder shall have the right, at such Holder's option, to
require the Corporation to repurchase all of such Holder's shares of Series B
Preferred Stock, or from time to time any portion thereof, on the date that is
five (5) Business Days after the date such Holder gives a Holder Notice with
respect to such Holder Optional Repurchase Event. Each share of Series B
Preferred Stock required to be so repurchased shall be repurchased at a price
equal to the Holder Optional Repurchase Price.

          (b)  Notices; Method Of Exercising Optional Repurchase Rights, Etc.

               (1)  On or before the fifth Business Day after the occurrence of
an Holder Optional Repurchase Event, the Corporation shall give to each Holder a
Corporation Notice of the occurrence of such Holder Optional Repurchase Event
and of the repurchase right set forth herein arising as a result thereof. The
Corporation Notice shall set forth:

                   (i)   the date by which the optional repurchase right must be
exercised, and

                   (ii)  a description of the procedure (set forth below) which
each such Holder must follow to exercise such Holder's optional repurchase
right. No failure of the Corporation to give a Corporation Notice or defect
therein shall limit the right of any Holder to exercise the Holder Optional
Repurchase right or affect the validity of the proceedings for the repurchase of
such Holder's shares of Series B Preferred Stock.

              (2)  To exercise its optional repurchase right, a Holder shall
deliver to the Corporation on or before the thirtieth day after a Corporation
Notice is given to such Holder (or if no Corporation Notice has been given to
such Holder, within 40 days after such Holder first learns of the Holder
Optional Repurchase Event) a Holder Notice to the Corporation setting forth the
name of such Holder, and number of such Holder's shares of Series B Preferred
Stock to be repurchased. A Holder Notice may be revoked by the Holder giving
such Holder Notice by giving notice of such revocation to the Corporation at any
time prior to the time the Corporation pays the applicable Holder Optional
Repurchase Price to such Holder.

              (3)  If a Holder shall have given a Holder Notice, then on the
applicable Holder Optional Repurchase Date (or such later date as such Holder
surrenders such Holder's certificates for the shares of Series B Preferred Stock
repurchased) the Corporation shall make payment in immediately available funds
of the applicable Holder Optional Repurchase Price to such account as specified
by such Holder in writing to the Corporation at least one (1) Business Day prior
to the applicable Holder Optional Repurchase Date. The Holder of such shares of
Series B Preferred Stock shall not be entitled to payment of the Holder Optional
Repurchase Price of such shares of Series B Preferred Stock until such Holder
shall have surrendered the certificate(s) for such shares of Series B Preferred
Stock to the Corporation or, in the case of the loss, theft or destruction of
any such certificate, given indemnity in accordance with Section 14(b).

                                       29
<PAGE>

         (c)  Other.

              (1)  A Holder Notice given by a Holder shall be deemed for all
purposes to be in proper form unless the Corporation notifies such Holder in
writing within three (3) Business Days after such Holder Notice has been given
(which notice shall specify all defects in such Holder Notice), and any Holder
Notice containing any such defect shall nonetheless be effective on the date
given if such Holder promptly undertakes to correct all such defects.
Notwithstanding the absence of any such undertaking from such Holder, no such
claim of error shall limit or delay performance of the Corporation's obligation
to repurchase all shares of Series B Preferred Stock not in dispute.

              (2)  If on or before the applicable date for repurchase pursuant
to this Section 11 the Corporation shall have failed to pay in full the Holder
Optional Repurchase Price for any shares of Series B Preferred Stock to be
repurchased to the holders thereof or to deposit the same with an Eligible Bank
in accordance with Section 14(c), then without in any way relieving the
Corporation of its obligation to pay such amount in accordance herewith (except
to the extent expressly provided in this Section 11(c)(2)), the Holder of any
such share of Series B Preferred Stock shall continue to have the right to
convert such share of Series B Preferred Stock into Common Stock in accordance
with Section 10(a) at any time prior to the date on which the Corporation pays
the Holder Optional Repurchase Price, as the case may be, of such share of
Series B Preferred Stock to such Holder (together with any amount due to such
holder pursuant to Section 14(d)) or so deposits the same (together with any
amount due to such Holder pursuant to Section 14(d)) and gives notice to such
Holder of such deposit; PROVIDED, HOWEVER, that the shares of Common Stock
received by such Holder upon any such conversion in certain circumstances may be
subject to restrictions on resale by such Holder arising under applicable
securities laws to the extent not registered for resale by such Holder pursuant
to the Registration Statement. If a Holder converts all or any portion of such
Holder's shares of Series B Preferred Stock as permitted by this Section
11(c)(2), the amount of the Holder Optional Repurchase Price due to such Holder
with respect to the number of shares of Series B Preferred Stock so converted
shall be reduced by the Stated Value for each share of Series B Preferred Stock
so converted.

              (3)  If a portion of the shares of Series B Preferred Stock
represented by a particular certificate are to be repurchased, upon surrender of
such certificate to the Corporation in accordance with the terms of this Section
11, the Corporation shall execute and deliver to the Holders of such certificate
without service charge, a new certificate or certificates, in such denomination
or denominations as requested by such Holder.

SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS AND COVENANTS.

         (a)  Voting Rights. Each Holder of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series B Preferred Stock could be converted (pursuant
to Section 10) immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock and shall be entitled to notice of any stockholders' meeting in accordance
with the bylaws of the Corporation; PROVIDED, HOWEVER, that except as set forth
in clause (c) below, the Holders shall have no voting rights with respect to any
other seats on the Board of

                                       30
<PAGE>

Directors. Except as otherwise provided herein or as required by law, the Series
B Preferred Stock shall vote together with the Common Stock at any annual or
special meeting of the stockholders and not as a separate class, and may act by
written consent in the same manner as the Common Stock.

         (b)  Certificate Of Incorporation; Certain Stock. The affirmative vote
or written consent of the Majority Holders, voting separately as a class, will
be required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation or
this Certificate of Designations if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series B Preferred Stock, or (2) the creation or issuance of any Senior
Dividend Stock, Senior Liquidation Stock, Parity Dividend Stock or Parity
Liquidation Stock; PROVIDED, HOWEVER, that any increase in the authorized
Preferred Stock of the Corporation or the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the Holders except as otherwise required by law; and PROVIDED
FURTHER, HOWEVER, that no such amendment, alteration or repeal shall (i) reduce
the Mandatory Redemption Price, Holder Optional Repurchase Price or Corporation
Redemption Price or the amount payable, if any, to a holder of shares of Series
B Preferred Stock pursuant to Section 5, (ii) change the definition of Majority
Holders, (iii) change the method of calculating the Conversion Price in a manner
adverse to the Holders or reduce the number of shares of Common Stock issuable
upon any conversion of shares of Series B Preferred Stock (other than any
reduction in the number of shares of Common Stock so issuable pursuant to an
amendment of the Certificate of Incorporation which effects a combination of the
outstanding shares of Common Stock and results in an adjustment in the
Conversion Price pursuant to Section 10(c)(3)), or (iv) amend, modify or repeal
any provision of this Section 12(b), unless in each such case referred to in the
preceding clauses (i) through (iv) such amendment, modification or repeal has
been approved by the affirmative vote or written consent of the Majority
Holders, voting separately as a class.

         (c)  Election of Directors. For so long as any shares of Series B
Preferred Stock remain outstanding: (1) the Holders, voting as a separate class,
shall be entitled to elect three (3) members of the Corporation's Board of
Directors at each meeting or pursuant to each consent of the Corporation's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors; and (2) the holders of Common Stock and the Holders, voting
together as a single class on an as-converted basis, shall be entitled to elect
the remaining members of the Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors.

         (d)  Repurchases of Series B Preferred Stock. The Corporation shall not
repurchase or otherwise acquire any shares of Series B Preferred Stock (other
than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise acquire simultaneously a pro rata
portion of each Holder's shares of Series B Preferred Stock based on the ratio
of the number of shares of Series B Preferred Stock held by such Holder to the

                                       31
<PAGE>

total number of shares of Series B Preferred Stock outstanding for cash at the
same price per share.

SECTION 13. OUTSTANDING SHARES.

     For purposes of this Certificate of Designations, all shares of Series B
Preferred Stock shall be deemed outstanding except (a) from the date a
Conversion Notice is given by a holder of Series B Preferred Stock, all shares
of Series B Preferred Stock converted into Common Stock (so long as the
Corporation shall issue the shares of Common Stock issuable upon such conversion
as and when required by this Certificate of Designations); (b) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation (other than any original holder of shares of Series B Preferred
Stock) and (c) from the applicable Initial Mandatory Redemption Date and Final
Mandatory Redemption Date, Holder Optional Repurchase Date or Corporation
Redemption Date, all shares of Series B Preferred Stock which are redeemed, so
long as in each case the Mandatory Redemption Price, Holder Optional Repurchase
Price or Corporation Redemption Price, as the case may be, of such shares of
Series B Preferred Stock shall have been paid by the Corporation as and when due
hereunder or deposited in accordance with Section 14(c).

SECTION 14. MISCELLANEOUS.

         (a)  Notices. Any notices required or permitted to be given under the
terms of this Certificate of Designations shall be in writing and shall be
delivered by telephone line facsimile transmission or if no telephone line
facsimile transmission number shall have been provided for such purpose, shall
be delivered personally or by courier or by mail and shall be deemed given upon
receipt, if delivered by telephone line facsimile transmission, personally or by
courier or five days after being placed in the mail (certified mail, return
receipt requested, in the case of any such notice to a Person at an address in
the United States of America), if mailed (1) in the case of the Corporation,
addressed to the Corporation at 850 Maude Avenue, Mountain View, California
94043, Attention: Chief Financial Officer (telephone line facsimile transmission
number (650) 428-3545), or, (2) in the case of any Holder, at such Holder's
address or telephone line facsimile transmission number or address shown on the
stock books maintained by the Corporation with respect to the Series B Preferred
Stock or such other telephone line facsimile transmission number or address as
the Corporation shall have provided by notice to the Holders in accordance with
this Section 14(a) or any Holder shall have provided to the Corporation in
accordance with this Section 14(a).

         (b)  Replacement of Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series B
Preferred Stock and (1) in the case of loss, theft or destruction, of indemnity
from the Holder of the certificate for such shares of Series B Preferred Stock
reasonably satisfactory in form to the Corporation (and without the requirement
to post any bond or other security) or (2) in the case of mutilation, upon
surrender and cancellation of the certificate for such shares of Series B
Preferred Stock, the Corporation will execute and deliver to such Holder a new
certificate for such shares of Series B Preferred Stock without charge to such
Holder.

                                       32
<PAGE>

         (c)  Payment on Redemption; Deposit of Redemption Price. If any share
of Series B Preferred Stock is to be redeemed and any notice required in
connection therewith shall have been timely given as provided therein, the
applicable redemption price of such share of Series B Preferred Stock to be so
redeemed and with respect to which any such notice has been given shall become
due and payable on the applicable redemption date. On and after such redemption
date, provided that the Corporation shall have paid such redemption price to the
respective Holders who are entitled thereto on or prior to the applicable
redemption date or shall have deposited with an Eligible Bank on or prior to
such redemption date, to be held in trust for the respective Holders entitled
thereto, an amount sufficient to pay the applicable redemption price, then on
such redemption date the dividends on such share of Series B Preferred Stock
shall cease to accrue, and such share of Series B Preferred Stock shall be
deemed not to be outstanding and the Holder thereof shall not be entitled to any
rights of a Holder except to receive payment of the applicable redemption price
and all other rights hereunder with respect to such share of Series B Preferred
Stock shall cease. So long as the Corporation shall have so paid or deposited
the full amount of the applicable redemption price on a timely basis, no Holder
shall be entitled to interest on the amount so held by such Eligible Bank and,
so long as the Corporation shall be in compliance in all material respects with
its obligations to the Holders (including, without limitation, its obligations
under the Transaction Documents), the Corporation shall be entitled to any
interest paid by such Eligible Bank on the funds so deposited, subject to
applicable abandoned property and escheat laws. On presentation and surrender of
the certificate for such share of Series B Preferred Stock, such share shall be
redeemed at the applicable redemption price.

         (d)  Overdue Amounts. If the Corporation fails to pay when due or to
deposit with an Eligible Bank in accordance with Section 14(c) the full amount
of the Mandatory Redemption Price, the Holder Optional Repurchase Price or the
Corporation Redemption Price on or before the respective Initial Mandatory
Redemption Date and Final Mandatory Redemption Date, Holder Optional Repurchase
Date, Corporation Redemption Date or the date of redemption specified in Section
11(b), in each such case for the number of shares of Series B Preferred Stock to
be redeemed on such date or to pay any other amount to any Holder when due, then
the amount thereof shall bear interest at a rate of 5% per annum in excess of
the LIBOR Rate (or such lesser rate as shall be the maximum rate allowed by
applicable law) from such date until paid or so deposited in full or until such
share of Series B Preferred Stock is converted in accordance with this
Certificate of Designations (in which case such interest shall remain due and
payable).

         (e)  Certain Changes in Law. To the extent that the 1933 Act or the
1934 Act or any statutes, rules or regulations promulgated thereunder relating
to the registration for public sale of securities and/or the registration of
issuers thereof are superseded, replaced or repealed, the requirements of this
Certificate of Designations relating to such statutes, rules and regulations
shall be applied as nearly as practicable with respect to such successor
statutes, rules or regulations, if any, to achieve the purposes intended hereby.

     In Witness Whereof, Microcide Pharmaceuticals, Inc., has caused this
certificate to be signed by one of its officers thereunto duly authorized as of
the [__] day of [_________], 2001.

                                       33
<PAGE>

                              MICROCIDE PHARMACEUTICALS, INC.

                              By: ___________________________________________
                              Name: _________________________________________
                              Title: ________________________________________

                                       34

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