Document:

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
                                  PREFERENCES
                                     OF THE
                      SERIES C CONVERTIBLE PREFERRED STOCK
                                       OF
                                AXM PHARMA, INC.

         The  undersigned,  the Chief Executive  Officer of AXM Pharma,  Inc., a
Nevada  corporation  (the  "Company"),  in accordance with the provisions of the
Nevada Revised  Statutes,  does hereby  certify that,  pursuant to the authority
conferred  upon the Board of Directors by the Articles of  Incorporation  of the
Company,  the  following  resolution  creating a series of Series C  Convertible
Preferred Stock, was duly adopted on June 24, 2004:

         RESOLVED,  that  pursuant  to the  authority  expressly  granted to and
vested in the Board of Directors of the Company by provisions of the Articles of
Incorporation of the Company (the "Articles of Incorporation"),  there hereby is
created out of the shares of Preferred  Stock, par value $.001 per share, of the
Company  authorized  in  Article  IV  of  the  Articles  of  Incorporation  (the
"Preferred  Stock"),  a series of Preferred  Stock of the  Company,  to be named
"Series C  Convertible  Preferred  Stock,"  consisting  of One Hundred and Fifty
(150)  shares,  which  series  shall have the  following  designations,  powers,
preferences   and  relative  and  other   special   rights  and  the   following
qualifications, limitations and restrictions:

         1.  Designation  and  Rank.  The  designation  of  such  series  of the
Preferred  Stock shall be the Series C Convertible  Preferred  Stock,  par value
$.001 per share (the "Series C Preferred  Stock").  The maximum number of shares
of Series C Preferred  Stock shall be One  Hundred and Fifty (150)  shares.  The
Series C Preferred Stock shall rank senior to the common stock,  par value $.001
per share (the "Common  Stock"),  and to all other  classes and series of equity
securities  of the Company which by their terms do not rank senior to the Series
C  Preferred  Stock  ("Junior  Stock").  The Series C  Preferred  Stock shall be
subordinate  to and  rank  junior  to all  indebtedness  of the  Company  now or
hereafter outstanding.

         2.  Dividends.

         (a)  Payment of  Dividends.  Subject to Section  5(c)(ii)  hereof,  the
holders of record of shares of Series C  Preferred  Stock  shall be  entitled to
receive,  out of any assets at the time legally available  therefor and when and
as declared by the Board of Directors, dividends at the rate of six percent (6%)
of the stated Liquidation Preference Amount (as defined in Section 4 hereof) per
share per annum  commencing on the date of issuance (the "Issuance Date") of the
Series  C  Preferred  Stock  (the  "Dividend  Payment"),  and no  more,  payable
semi-annually at the option of the Company in cash or shares of Common Stock. If

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

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

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

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

         3.  Voting Rights.

         (a) Class Voting  Rights.  The Series C Preferred  Stock shall have the
following  class voting  rights (in  addition to the voting  rights set forth in

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Section  3(b)  hereof).  So long as any shares of the Series C  Preferred  Stock
remain  outstanding,  the Company  shall not,  without the  affirmative  vote or
consent  of the  holders  of at least  three-fourths  (3/4) of the shares of the
Series C Preferred Stock  outstanding at the time,  given in person or by proxy,
either  in  writing  or at a  meeting,  in which  the  holders  of the  Series C
Preferred  Stock vote  separately as a class:  (i) authorize,  create,  issue or
increase  the  authorized  or  issued  amount  of any  class or series of stock,
including  but not  limited to the  issuance  of any more  shares of  previously
authorized Common Stock or Preferred Stock,  ranking pari passu or senior to the
Series C  Preferred  Stock,  with  respect  to the  distribution  of  assets  on
liquidation,  dissolution  or  winding  up;  (ii)  amend,  alter or  repeal  the
provisions of the Series C Preferred Stock, whether by merger,  consolidation or
otherwise, so as to adversely affect any right, preference,  privilege or voting
power of the Series C Preferred Stock; provided,  however, that any creation and
issuance  of another  series of Junior  Stock  shall not be deemed to  adversely
affect such rights, preferences,  privileges or voting powers; (iii) repurchase,
redeem or pay  dividends  on,  shares of Common Stock or any other shares of the
Company's Junior Stock (other than de minimus  repurchases from employees of the
Company in certain  circumstances);  (iv) amend the Articles of Incorporation or
By-Laws  of the  Company so as to affect  materially  and  adversely  any right,
preference, privilege or voting power of the Series C Preferred Stock; provided,
however,  that any creation and issuance of another series of Junior Stock shall
not be deemed to adversely affect such rights, preferences, privileges or voting
powers;  (v)  effect  any  distribution  with  respect  to  Junior  Stock;  (vi)
reclassify the Company's  outstanding  securities;  (vii)  voluntarily  file for
bankruptcy, liquidate the Company's assets or make an assignment for the benefit
of the  Company's  creditors;  or (viii)  change  the  nature  of the  Company's
business;  provided,  however,  that the Company  shall be permitted to take the
actions prohibited by subparagraphs (v) through (viii) if the Board has received
an opinion from reputable  outside counsel that the failure to take such actions
could reasonably result in a claim against the Board for breach of its fiduciary
duties to the Company or its shareholders.

         (b)  General  Voting  Rights.  The  holder  of each  share of  Series C
Preferred  Stock shall be entitled to the number of votes equal to the number of
shares of Common  Stock into which such share of Series C Preferred  Stock could
be converted  for  purposes of  determining  the shares  entitled to vote at any
regular,  annual or special meeting of  shareholders  of the Company,  and shall
have  voting  rights  and powers  equal to the  voting  rights and powers of the
Common Stock (except as otherwise  expressly  provided  herein or as required by
law,  voting  together  with the  Common  Stock as a single  class) and shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the  Company.  Fractional  votes  shall  not,  however,  be  permitted  and  any
fractional voting rights resulting from the above formula (after aggregating all
shares into which  shares of Series C Preferred  Stock held by each holder could
be converted)  shall be rounded to the nearest whole number (with one-half being
rounded upward).

         4. Liquidation Preference.

         (a) In the event of the  liquidation,  dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary,  the holders of shares
of the Series C Preferred Stock then  outstanding  shall be entitled to receive,
out of the assets of the Company available for distribution to its stockholders,
an amount equal to $100,000 per share (the "Liquidation  Preference  Amount") of

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

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

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

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<PAGE>

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

         (a) Right to Convert.  At any time on or after the Issuance  Date,  the
holder of any such  shares of Series C  Preferred  Stock may,  at such  holder's
option,  subject  to the  limitations  set forth in  Section 7 herein,  elect to
convert (a "Voluntary  Conversion") all or any portion of the shares of Series C
Preferred   Stock  held  by  such  person  into  a  number  of  fully  paid  and
nonassessable  shares  of  Common  Stock  equal  to  the  quotient  of  (i)  the
Liquidation  Preference  Amount of the shares of Series C Preferred  Stock being
converted  divided by (ii) the  Conversion  Price (as  defined  in Section  5(d)
below)  then in  effect  as of the date of the  delivery  by such  holder of its
notice of  election to convert.  In the event of a notice of  redemption  of any
shares of Series C Preferred Stock pursuant to Section 8 hereof,  the Conversion
Rights of the shares  designated for redemption  shall terminate at the close of
business on the last full day  preceding the date fixed for  redemption,  unless
the  redemption  price is not paid on such  redemption  date,  in which case the
Conversion  Rights for such shares  shall  continue  until such price is paid in
full. In the event of a  liquidation,  dissolution or winding up of the Company,
the Conversion  Rights shall terminate at the close of business on the last full
day preceding  the date fixed for the payment of any such amounts  distributable
on such event to the holders of Series C Preferred Stock. In the event of such a
redemption or liquidation,  dissolution or winding up, the Company shall provide
to each holder of shares of Series C Preferred  Stock notice of such  redemption
or  liquidation,  dissolution  or winding up,  which notice shall (i) be sent at
least fifteen (15) days prior to the  termination of the  Conversion  Rights and
(ii) state the amount per share of Series C Preferred Stock that will be paid or
distributed on such redemption or liquidation, dissolution or winding up, as the
case may be.

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

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

                  (ii)Company's  Response.  Upon  receipt  by the  Company  of a
         facsimile copy of a Conversion  Notice,  the Company shall  immediately
         send,  via  facsimile,  a  confirmation  of receipt of such  Conversion
         Notice to such  holder.  Upon  receipt by the  Company of a copy of the
         fully  executed  Conversion  Notice,  the  Company  or  its  designated

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         transfer agent (the "Transfer  Agent"),  as applicable,  shall,  within
         three (3) business days following the date of receipt by the Company of
         the  fully  executed  Conversion  Notice  (so  long  as the  applicable
         Preferred  Stock  Certificates  and  original   Conversion  Notice  are
         received by the Company on or before such third  business  day),  issue
         and deliver to the  Depository  Trust  Company  ("DTC")  account on the
         Holder's  behalf via the Deposit  Withdrawal  Agent  Commission  System
         ("DWAC") as specified in the Conversion Notice,  registered in the name
         of the holder or its designee, for the number of shares of Common Stock
         to which  the  holder  shall be  entitled.  If the  number of shares of
         Preferred  Stock  represented  by the  Preferred  Stock  Certificate(s)
         submitted for conversion is greater than the number of shares of Series
         C Preferred Stock being  converted,  then the Company shall, as soon as
         practicable  and in no event later than three (3)  business  days after
         receipt of the  Preferred  Stock  Certificate(s)  and at the  Company's
         expense,  issue  and  deliver  to  the  holder  a new  Preferred  Stock
         Certificate  representing  the  number of shares of Series C  Preferred
         Stock not converted.

                  (iii) Dispute  Resolution.  In the case of a dispute as to the
         arithmetic  calculation  of the number of shares of Common  Stock to be
         issued upon  conversion,  the Company shall cause its Transfer Agent to
         promptly  issue to the holder the number of shares of Common Stock that
         is not  disputed and shall submit the  arithmetic  calculations  to the
         holder via  facsimile as soon as  possible,  but in no event later than
         two (2) business days after receipt of such holder's Conversion Notice.
         If such holder and the Company are unable to agree upon the  arithmetic
         calculation  of the number of shares of Common  Stock to be issued upon
         such conversion within one (1) business day of such disputed arithmetic
         calculation  being  submitted  to the holder,  then the  Company  shall
         within  one  (1)  business  day  submit  via   facsimile  the  disputed
         arithmetic  calculation  of the number of shares of Common  Stock to be
         issued  upon such  conversion  to the  Company's  independent,  outside
         accountant.  The  Company  shall  cause the  accountant  to perform the
         calculations  and notify the  Company  and the holder of the results no
         later  than  three  (3)  business  days from the time it  receives  the
         disputed calculations.  Such accountant's  calculation shall be binding
         upon all parties absent manifest error. The reasonable expenses of such
         accountant in making such determination shall be paid by the Company in
         the event the holder's calculation was correct, or by the holder in the
         event the Company's  calculation was correct, or equally by the Company
         and the holder in the event that neither the  Company's or the holder's
         calculation  was  correct.  The period of time in which the  Company is
         required to effect conversions or redemptions under this Certificate of
         Designation  shall be tolled with respect to the subject  conversion or
         redemption  pending  resolution  of any dispute by the Company  made in
         good faith and in accordance with this Section 5(b)(iii).

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

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                  (v) Company's  Failure to Timely Convert.  If within three (3)
         business  days of the  Company's  receipt  of an  executed  copy of the
         Conversion   Notice  (so  long  as  the  applicable   Preferred   Stock
         Certificates and original Conversion Notice are received by the Company
         on or before such third business day) (the "Share Delivery Period") the
         Transfer  Agent  shall fail to issue and deliver to a holder the number
         of shares of Common  Stock to which such holder is  entitled  upon such
         holder's  conversion of the Series C Preferred  Stock or to issue a new
         Preferred Stock Certificate representing the number of shares of Series
         C Preferred Stock to which such holder is entitled  pursuant to Section
         5(b)(ii) (a "Conversion  Failure"),  in addition to all other available
         remedies  which  such  holder  may  pursue   hereunder  and  under  the
         Securities  Purchase  Agreement  (the "Purchase  Agreement")  among the
         Company  and the  initial  holders  of the  Series  C  Preferred  Stock
         (including  indemnification pursuant to Section 6 thereof), the Company
         shall pay additional  damages to such holder on each business day after
         such  third  (3rd)  business  day that such  conversion  is not  timely
         effected  in an amount  equal 0.5% of the product of (A) the sum of the
         number of shares of Common  Stock not  issued to the holder on a timely
         basis pursuant to Section 5(b)(ii) and to which such holder is entitled
         and, in the event the  Company has failed to deliver a Preferred  Stock
         Certificate  to the  holder  on a  timely  basis  pursuant  to  Section
         5(b)(ii), the number of shares of Common Stock issuable upon conversion
         of the shares of Series C Preferred Stock represented by such Preferred
         Stock Certificate, as of the last possible date which the Company could
         have issued such  Preferred  Stock  Certificate  to such holder without
         violating Section 5(b)(ii) and (B) the Closing Bid Price (as defined in
         Section  5(c)(iii) below) of the Common Stock on the last possible date
         which  the  Company  could  have  issued  such  Common  Stock  and such
         Preferred Stock Certificate, as the case may be, to such holder without
         violating Section 5(b)(ii).  If the Company fails to pay the additional
         damages set forth in this Section 5(b)(v) within five (5) business days
         of the date incurred, then such payment shall bear interest at the rate
         of 2.0% per month (pro rated for partial  months)  until such  payments
         are made.

         (c)  Mandatory Conversion.

                  (i) Each share of Series C Preferred Stock  outstanding on the
         Mandatory  Conversion Date shall,  automatically and without any action
         on the part of the holder thereof,  convert into a number of fully paid
         and  nonassessable  shares of Common Stock equal to the quotient of (i)
         the Liquidation  Preference  Amount of the shares of Series C Preferred
         Stock outstanding on the Mandatory  Conversion Date divided by (ii) the
         Conversion Price in effect on the Mandatory Conversion Date.

                  (ii) As used herein,  "Mandatory Conversion Date" shall be the
         date that is three (3) years  following  the Issuance  Date;  provided,
         that, that on the Mandatory Conversion Date, the Registration Statement
         is effective and has been effective, without lapse or suspension of any
         kind, for a period sixty (60) consecutive  calendar days, or the shares
         of  Common  Stock  into  which  the  Series C  Preferred  Stock  can be
         converted may be offered for sale to the public pursuant to Rule 144(k)
         ("Rule  144(k)")  under the  Securities  Act of 1933,  as amended.  The

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         Mandatory   Conversion   Date  and  the   Voluntary   Conversion   Date
         collectively  are referred to in this Certificate of Designation as the
         "Conversion Date."

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

                  (iv)On the Mandatory  Conversion Date, the outstanding  shares
         of Series C Preferred  Stock shall be converted  automatically  without
         any further action by the holders of such shares and whether or not the
         certificates representing such shares are surrendered to the Company or
         its Transfer Agent;  provided,  however,  that the Company shall not be
         obligated to issue the shares of Common Stock issuable upon  conversion
         of  any  shares  of  Series  C  Preferred  Stock  unless   certificates
         evidencing such shares of Series C Preferred Stock are either delivered
         to  the  Company  or  the  holder   notifies   the  Company  that  such
         certificates  have been lost,  stolen,  or  destroyed,  and executes an
         agreement satisfactory to the Company to indemnify the Company from any
         loss incurred by it in connection therewith. Upon the occurrence of the
         automatic  conversion of the Series C Preferred  Stock pursuant to this
         Section 5, the holders of the Series C Preferred  Stock shall surrender
         the  certificates  representing  the Series C Preferred Stock for which
         the  Mandatory  Conversion  Date has  occurred  to the  Company and the
         Company shall cause its Transfer  Agent to deliver the shares of Common
         Stock  issuable upon such  conversion  (in the same manner set forth in
         Section  5(b)(ii)) to the holder  within three (3) business days of the
         holder's delivery of the applicable Preferred Stock Certificates.

         (d)  Conversion Price.

                  (i) The term  "Conversion  Price"  shall mean $4.25 per share,
         subject to adjustment under Section 5(e) hereof; provided, however that
         the  Conversion  Price may only be adjusted to an amount  greater  than
         $4.25 per share to the extent that it is  adjusted  pursuant to Section
         5(e)(i).

                  (ii) Notwithstanding the foregoing to the contrary,  if during
         any period (a "Black-out Period"), a holder of Series C Preferred Stock
         is unable to trade any Common Stock issued or issuable upon  conversion
         of the Series C Preferred Stock  immediately due to the postponement of
         filing  or delay  or  suspension  of  effectiveness  of a  registration
         statement or because the Company has otherwise  informed such holder of
         Series C Preferred Stock that an existing  prospectus cannot be used at

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<PAGE>

         that time in the sale or transfer of such Common Stock  (provided  that
         such postponement, delay, suspension or fact that the prospectus cannot
         be used is not due to factors  solely  within the control of the holder
         of Series C Preferred Stock or due to the Company exercising its rights
         under Section 3(n) of the Registration  Rights Agreement (as defined in
         the Purchase Agreement)), such holder of Series C Preferred Stock shall
         have the option but not the obligation on any Conversion Date occurring
         within ten (10) trading days  following the expiration of the Black-out
         Period of using the Conversion Price applicable on such Conversion Date
         or any  Conversion  Price selected by such holder of Series C Preferred
         Stock that would have been  applicable had such Conversion Date been at
         any  earlier  time during the  Black-out  Period or within the ten (10)
         trading days thereafter.

         (e)  Adjustments of Conversion Price.

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

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

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

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

                  (iii) Adjustment for Other Dividends and Distributions. If the
         Company shall at any time or from time to time after the Issuance Date,
         make or issue or set a record date for the  determination of holders of
         Common  Stock  entitled  to  receive a dividend  or other  distribution
         payable in securities of the Company other than shares of Common Stock,
         then,  and in each event,  an  appropriate  revision to the  applicable
         Conversion  Price  shall  be made  and  provision  shall  be  made  (by
         adjustments of the  Conversion  Price or otherwise) so that the holders
         of Series C Preferred Stock shall receive upon conversions  thereof, in

                                       9
<PAGE>

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

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

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

                                       10
<PAGE>

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

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

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

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

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

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

                  (vii) Issuance of Common Stock Equivalents. If the Company, at
         any  time  after  the  Issuance   Date,   shall  issue  any  securities
         convertible into or exchangeable  for,  directly or indirectly,  Common
         Stock  ("Convertible  Securities"),  other than the Series C  Preferred

                                       11
<PAGE>

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

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

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

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

                                       12
<PAGE>

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

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

                  (x) Certain Issues  Excepted.  Anything herein to the contrary
         notwithstanding,  the  Company  shall  not  be  required  to  make  any
         adjustment to the Conversion  Price upon (i) the Company's  issuance of
         any  Additional  Shares  of  Common  Stock  (other  than for  cash) and
         warrants  therefore  in  connection  with  a  merger,   acquisition  or
         consolidation,  (ii) the  Company's  issuance of  Additional  Shares of
         Common Stock pursuant to a bona fide firm underwritten  public offering
         of the Company's securities, (iii) the Company's issuance of Additional
         Shares  of  Common  Stock or  warrants  therefore  in  connection  with
         strategic  alliances or other  partnering  arrangements so long as such
         issuances  are  not  for the  purpose  of  raising  capital,  (iv)  the
         Company's issuance of Common Stock or the issuance or grants of options
         to purchase  Common Stock pursuant to the Company's  stock option plans
         and employee stock purchase plans as they now exist,  (v) any issuances
         of warrants issued pursuant to the Purchase Agreement,  (vi) securities
         issued  pursuant  to the  conversion  or  exercise  of  convertible  or
         exercisable  securities  issued or  outstanding on or prior to the date
         hereof or issued pursuant to the Purchase Agreement, (vii) any warrants
         issued to the placement agent for the transactions  contemplated by the
         Purchase  Agreement,  and (viii) the  payment of any  dividends  on the
         Series C Preferred Stock.

                  (f) No Impairment.  The Company shall not, by amendment of its
Articles of  Incorporation  or through any  reorganization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company,  but will at all
times in good faith, assist in the carrying out of all the provisions of this

                                       13
<PAGE>

Section  5 and in the  taking  of  all  such  action  as  may  be  necessary  or
appropriate  in order to protect  the  Conversion  Rights of the  holders of the
Series C Preferred Stock against  impairment.  In the event a holder shall elect
to convert  any  shares of Series C  Preferred  Stock as  provided  herein,  the
Company cannot refuse  conversion based on any claim that such holder or any one
associated or  affiliated  with such holder has been engaged in any violation of
law, unless, an injunction from a court, on notice, restraining and/or adjoining
conversion of all or of said shares of Series C Preferred  Stock shall have been
issued and the Company  posts a surety bond for the benefit of such holder in an
amount  equal  to 130% of the  Liquidation  Preference  Amount  of the  Series C
Preferred  Stock such holder has elected to convert,  which bond shall remain in
effect until the  completion  of  arbitration/litigation  of the dispute and the
proceeds  of which  shall be  payable  to such  holder in the  event it  obtains
judgment.

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

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

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

                                       14
<PAGE>

public.  The Company  will also give  written  notice to each holder of Series C
Preferred Stock at least twenty (20) days prior to the date on which any Organic
Change,  dissolution,  liquidation  or  winding-up  will take  place;  provided,
however, no such notice shall be required to be provided to such holder prior to
such information being made known to the public.

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

                  (k) Reservation of Common Stock. The Company shall, so long as
any  shares  of  Series C  Preferred  Stock are  outstanding,  reserve  and keep
available  out of its  authorized  and  unissued  Common  Stock,  solely for the
purpose of effecting the conversion of the Series C Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion  of all of the Series C Preferred  Stock then  outstanding;  provided
that the number of shares of Common  Stock so reserved  shall at no time be less
than the  number  of shares  of  Common  Stock for which the  shares of Series C
Preferred  Stock are at any time  convertible.  The initial  number of shares of
Common Stock reserved for  conversions of the Series C Preferred  Stock and each
increase in the number of shares so reserved  shall be allocated  pro rata among
the  holders of the Series C  Preferred  Stock  based on the number of shares of
Series C  Preferred  Stock held by each holder of record at the time of issuance
of the Series C Preferred Stock or increase in the number of reserved shares, as
the case may be. In the event a holder shall sell or  otherwise  transfer any of
such  holder's  shares of Series C Preferred  Stock,  each  transferee  shall be
allocated a pro rata  portion of the number of reserved  shares of Common  Stock
reserved  for such  transferor.  Any shares of Common  Stock  reserved and which
remain  allocated  to any  person or entity  which  does not hold any  shares of
Series C Preferred Stock shall be allocated to the remaining holders of Series C
Preferred  Stock,  pro rata based on the number of shares of Series C  Preferred
Stock then held by such holder.

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

         6. No Preemptive Rights.  Except as provided in Section 5 hereof and in
the  Purchase  Agreement,  no holder of the Series C  Preferred  Stock  shall be
entitled to rights to subscribe for,  purchase or receive any part of any new or
additional  shares of any class,  whether now or hereinafter  authorized,  or of
bonds or debentures,  or other  evidences of  indebtedness  convertible  into or
exchangeable for shares of any class,  but all such new or additional  shares of

                                       15
<PAGE>

any  class,  or  any  bond,   debentures  or  other  evidences  of  indebtedness
convertible  into or exchangeable  for shares,  may be issued and disposed of by
the Board of Directors on such terms and for such  consideration  (to the extent
permitted  by law),  and to such person or persons as the Board of  Directors in
their absolute discretion may deem advisable.

         7. Conversion Restrictions.

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

         (b) Notwithstanding  anything to the contrary set forth in Section 5 of
this  Certificate of Designation,  at no time may a holder of shares of Series C
Preferred  Stock convert shares of the Series C Preferred Stock if the number of
shares of Common Stock to be issued  pursuant to such  conversion  would exceed,
when  aggregated  with all other  shares of Common Stock owned by such holder at
such time,  would result in such holder  beneficially  owning (as  determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  and the rules  thereunder)  in excess of 9.9% of the then  issued  and
outstanding shares of Common Stock outstanding at such time; provided,  however,
that upon a holder of Series C Preferred  Stock  providing  the  Company  with a
Waiver  Notice  that  such  holder  would  like to  waive  Section  7(b) of this
Certificate  of  Designation  with  regard to any or all shares of Common  Stock
issuable upon conversion of Series C Preferred Stock, this Section 7(b) shall be
of no force or effect  with regard to those  shares of Series C Preferred  Stock
referenced in the Waiver Notice.

         8. Redemption.

         (a) Redemption Option Upon Major Transaction.  In addition to all other
rights of the holders of Series C Preferred Stock contained herein, simultaneous
with the occurrence of a Major  Transaction (as defined  below),  each holder of
Series C  Preferred  Stock shall have the right,  at such  holder's  option,  to
require the Company to redeem all or a portion of such holder's shares of Series
C Preferred Stock at a price per share of Series C Preferred Stock equal to 100%
of the Liquidation  Preference Amount, plus any accrued but unpaid dividends and

                                       16
<PAGE>

liquidated damages (the "Major Transaction Redemption Price"); provided that the
Company shall have the sole option to pay the Major Transaction Redemption Price
in cash or shares of Common Stock.

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

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

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

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

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

         (d)  Payment  of  Redemption  Price.  Upon the  Company's  receipt of a
Notice(s)  of  Redemption  at Option of Buyer  Upon Major  Transaction  from any
holder of Series C Preferred  Stock, the Company shall  immediately  notify each
holder of Series C Preferred Stock by facsimile of the Company's receipt of such

                                       17
<PAGE>

Notice(s) of Redemption at Option of Buyer Upon of Buyer Upon Major  Transaction
and each  holder  which  has sent  such a notice  shall  promptly  submit to the
Company such holder's Preferred Stock Certificates which such holder has elected
to have  redeemed.  The Company shall have the sole option to pay the Redemption
Price in cash or shares of Common  Stock in  accordance  with  Section  8(a) and
Section 9 of this  Certificate  of  Designation.  The Company  shall deliver the
applicable  Major   Transaction   Redemption  Price  immediately  prior  to  the
consummation of the Major Transaction;  provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Company;  provided further that
if the  Company is unable to redeem all of the  Series C  Preferred  Stock to be
redeemed,  the  Company  shall  redeem  an amount  from each  holder of Series C
Preferred Stock being redeemed equal to such holder's  pro-rata amount (based on
the number of shares of Series C Preferred Stock held by such holder relative to
the number of shares of Series C Preferred  Stock  outstanding)  of all Series C
Preferred Stock being  redeemed.  If the Company shall fail to redeem all of the
Series C Preferred  Stock  submitted  for  redemption  (other than pursuant to a
dispute as to the arithmetic  calculation of the Redemption  Price), in addition
to any  remedy  such  holder of Series C  Preferred  Stock may have  under  this
Certificate of Designation and the Purchase Agreement, the applicable Redemption
Price payable in respect of such unredeemed  Series C Preferred Stock shall bear
interest at the rate of 1.0% per month  (prorated for partial months) until paid
in full. Until the Company pays such unpaid applicable  Redemption Price in full
to a holder of shares of Series C Preferred Stock submitted for redemption, such
holder shall have the option (the "Void Optional Redemption Option") to, in lieu
of redemption,  require the Company to promptly  return to such holder(s) all of
the shares of Series C Preferred  Stock that were  submitted  for  redemption by
such  holder(s)  under this  Section 8 and for which the  applicable  Redemption
Price has not been paid, by sending  written  notice  thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of
such  Void  Optional  Redemption  Notice(s)  and  prior to  payment  of the full
applicable  Redemption Price to such holder,  (i) the Notice(s) of Redemption at
Option of Buyer Upon Major  Transaction  shall be null and void with  respect to
those shares of Series C Preferred  Stock submitted for redemption and for which
the  applicable  Redemption  Price has not been paid and (ii) the Company  shall
immediately return any Series C Preferred Stock submitted to the Company by each
holder for  redemption  under  this  Section  8(d) and for which the  applicable
Redemption  Price has not been paid.  A  holder's  delivery  of a Void  Optional
Redemption  Notice and  exercise of its rights  following  such notice shall not
effect the Company's  obligations  to make any payments which have accrued prior
to the date of such notice other than interest payments.

         (e)  Demand  Registration  Rights.  If the  Redemption  Price  upon the
occurrence  of a Major  Transaction  is paid in shares of Common  Stock and such
shares have not been previously registered on a registration statement under the
Securities  Act, a holder of Series C Preferred Stock may make a written request
for  registration  under the Securities Act pursuant to this Section 8(e) of all
of its shares of Common  Stock issued upon such Major  Transaction.  The Company
shall  use its  reasonable  best  efforts  to  cause to be  filed  and  declared
effective  as soon as  reasonably  practicable  (but in no event  later than the
ninetieth  (90th)  day  after  such  holder's  request  is made) a  registration
statement under the Securities Act,  providing for the sale of all of the shares
of Common Stock issued upon such Major  Transaction by such holder.  The Company

                                       18
<PAGE>

agrees  to use its  reasonable  best  efforts  to  keep  any  such  registration
statement  continuously  effective for resale of the Common Stock for so long as
such holder shall  request,  but in no event later than the date that the shares
of Common Stock issued upon such Major  Transaction may be offered for resale to
the public pursuant to Rule 144(k).

         9. Inability to Fully Convert.

         (a)  Holder's  Option if Company  Cannot  Fully  Convert.  If, upon the
Company's receipt of a Conversion Notice or on a Mandatory  Conversion Date, the
Company  cannot  issue shares of Common  Stock  registered  for resale under the
Registration  Statement for any reason  (other than a limitation  based upon the
Conversion  Restrictions  contained  in  Section 7 abbove),  including,  without
limitation,  because the Company (w) does not have a sufficient number of shares
of Common  Stock  authorized  and  available,  (x) is  otherwise  prohibited  by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other  self-regulatory  organization  with jurisdiction over
the Company or its  securities  from issuing all of the Common Stock which is to
be issued  to a holder of Series C  Preferred  Stock  pursuant  to a  Conversion
Notice or (y)  fails to have a  sufficient  number  of  shares  of Common  Stock
registered for resale under the Registration  Statement,  then the Company shall
issue as many shares of Common Stock as it is able to issue in  accordance  with
such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with
respect to the unconverted Series C Preferred Stock, the holder,  solely at such
holder's  option,  can elect,  within five (5)  business  days after  receipt of
notice from the Company thereof to:

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

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

                  (iii) void its Conversion  Notice and retain or have returned,
as the case may be,  the  shares of  Series C  Preferred  Stock  that were to be
converted pursuant to such holder's  Conversion Notice (provided that a holder's
voiding its Conversion Notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice).

         (b)  Mechanics  of  Fulfilling  Holder's  Election.  The Company  shall
immediately  send via  facsimile to a holder of Series C Preferred  Stock,  upon
receipt of a facsimile copy of a Conversion Notice from such holder which cannot

                                       19
<PAGE>

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

         (c) Payment of Redemption Price. If such holder shall elect to have its
shares  redeemed  pursuant to Section  9(a)(i) above,  the Company shall pay the
Mandatory  Redemption  Price  to such  holder  within  thirty  (30)  days of the
Company's  receipt of the  holder's  Notice in Response to Inability to Convert,
provided that prior to the Company's  receipt of the holder's Notice in Response
to  Inability  to Convert the Company has not  delivered a notice to such holder
stating,  to the  satisfaction  of the  holder,  that  the  event  or  condition
resulting in the Mandatory  Redemption has been cured and all Conversion  Shares
issuable to such holder can and will be  delivered  to the holder in  accordance
with the terms of Section 8(d). If the Company shall fail to pay the  applicable
Mandatory Redemption Price to such holder on a timely basis as described in this
Section 9(c) (other than  pursuant to a dispute as to the  determination  of the
arithmetic  calculation of the Redemption Price), in addition to any remedy such
holder  of  Series  C  Preferred  Stock  may  have  under  this  Certificate  of
Designation and the Purchase  Agreement,  such unpaid amount shall bear interest
at the rate of 1.0% per month  (prorated for partial months) until paid in full.
Until the full Mandatory  Redemption Price is paid in full to such holder,  such
holder may (i) void the  Mandatory  Redemption  with  respect to those  Series C
Preferred Stock for which the full Mandatory  Redemption Price has not been paid
and (ii) receive back such Series C Preferred Stock.

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

         10.  Vote  to  Change  the  Terms  of or  Issue  Preferred  Stock.  The
affirmative  vote at a meeting  duly  called  for such  purpose  or the  written
consent  without a meeting,  of the holders of  three-fourths  (3/4) of the then
outstanding  shares of Series C Preferred  Stock,  shall be required (a) for any
change to this Certificate of Designation or the Articles of Incorporation which
would  amend,  alter,  change  or  repeal  any  of  the  powers,   designations,
preferences  and rights of the Series C Preferred  Stock or (b) for the issuance
of shares of Series C  Preferred  Stock  other  than  pursuant  to the  Purchase
Agreement.

                                       20
<PAGE>

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

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

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

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

                                       21
<PAGE>

         IN WITNESS  WHEREOF,  the  undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 24th day of June, 2004.

                                        AXM PHARMA, INC.

                                        By: _________________________________

                                        Name:
                                        Title:

                                       22
<PAGE>

                                                                       EXHIBIT I
                                AXM PHARMA, INC.

                                CONVERSION NOTICE

Reference is made to the  Certificate of Designation of the Relative  Rights and
Preferences  of  the  Series  C  Preferred  Stock  of  AXM  Pharma,   Inc.  (the
"Certificate  of   Designation").   In  accordance  with  and  pursuant  to  the
Certificate of Designation,  the undersigned hereby elects to convert the number
of shares of Series C Preferred Stock, par value $.001 per share (the "Preferred
Shares"),  of AXM Pharma, Inc., a Nevada corporation (the "Company"),  indicated
below  into  shares of Common  Stock,  par value  $.001 per share  (the  "Common
Stock"), of the Company, by tendering the stock certificate(s)  representing the
share(s) of Preferred Shares specified below as of the date specified below.

         Date of Conversion:   ____________________________

         Number of Preferred Shares to be converted:  __________________

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

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

Please confirm the following information:

         Conversion Price:              ______________________________

         Number of shares of Common Stock
         to be issued:                  ______________________________

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

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

         Issue to:                      ______________________________

                                        ______________________________

         Facsimile Number:              ______________________________

         Authorization:                 ______________________________

                                        By:  _________________________

                                        Title:  ______________________

         Dated:

                                       23<PAGE>

EXHIBIT 4.18

          THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT
          REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
          ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
          IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE
          FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
          SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM
          REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.

                      ACCESS INTEGRATED TECHNOLOGIES, INC.
                             SECURED PROMISSORY NOTE

$1,500,000                                                   New York, New York
                                                Dated as of:  November 14, 2003

                  For value received, the undersigned, Access Integrated
Technologies, Inc., a Delaware corporation (the "Company"), whose principal
place of business is located at 55 Madison Avenue, Suite 119, Morristown, New
Jersey 07960, hereby promises to pay to David Gajda (the "Holder") the principal
amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) in twenty (20)
equal quarterly installments, each in the amount of $80,360.43 on the last day
of March, June, September and December, commencing with March 31, 2004.

                  This note is one of the notes (the "Notes") referred to in
that certain Stock Purchase Agreement, dated as of July 17, 2003, between and
among the Company, Hollywood Software, Inc. and David Gajda and Robert Jackovich
(the "Purchase Agreement") and is subject to any right of offset by the Company
provided therein. This note is secured as provided in that certain Pledge and
Security Agreement of even date herewith, by and among the Company and David
Gajda and Robert Jackovich (the "Pledge Agreement").

                  Unpaid principal on this note shall accrue interest at the
rate of eight (8%) percent per annum (based on a 365-day year) and shall be paid
on each date on which principal is payable hereunder.

                  All or part of any this note may be prepaid at any time
without premium or penalty.

                  All payments to be made by the Company pursuant to this note
shall be made in lawful money of the United States by certified check, or
federal funds wire transfer in immediately available funds.
<PAGE>

                  If the principal of or the interest on this note is not paid
when due, then the overdue amount shall bear interest at the annual rate of
eleven and one-half (11.5%) percent ("Default Interest"), which interest shall
accrue from the date such overdue amount shall have become due through the date
of payment of such overdue amount (including interest thereon).

                  The Company shall not incur indebtedness for borrowed money,
except for Permitted Indebtedness. For purposes hereof, the following terms
shall have the meaning specified:

                  (a) "Permitted Indebtedness" means Purchase Money
Indebtedness, Acquisition Indebtedness, Senior Indebtedness, Debt Service
Indebtedness, Subordinate Indebtedness, Refinancing Indebtedness and lease
obligations that are capitalized in accordance with generally accepted
accounting principles.

                  (b) "Purchase Money Indebtedness" means indebtedness, other
than Acquisition Indebtedness, for the deferred purchase price of plant,
property and equipment that is unsecured or is secured solely by the item of
plant, property and equipment purchased;

                  (c) "Acquisition Indebtedness" means indebtedness incurred in
connection with the purchase of all or substantially all of the assets or equity
of a business that (i) is unsecured or secured solely by the assets (in the case
of an asset acquisition) or equity (in the case of an equity acquisition) of the
business so acquired, (ii) is in a principal amount that does not exceed fifty
(50%) percent of the aggregate purchase price therefor and (iii) does not
provide for amortization of principal on terms less favorable to the Company
than equal monthly installments over a five-year period;

                  (d) "Senior Indebtedness" means indebtedness in an aggregate
principal amount not greater than $1,000,000 at any time provided by a bank or
institutional lender that is unsecured or secured by all or any of the assets of
the Company and its subsidiaries;

                  (e) "Debt Service Indebtedness" means indebtedness the
proceeds of which are used exclusively to repay all or any portion of the Notes
and associated fees and expenses;

                  (f) "Subordinate Indebtedness" means unsecured indebtedness
that is subordinate and junior in right of payment to the Notes and which does
not provide for amortization of principal on terms less favorable to the Company
than equal monthly installments over a five-year period; and

                  (g) "Refinancing Indebtedness" means indebtedness incurred and
used solely to repay or refinance Permitted Indebtedness and any indebtedness of
the Company outstanding on the date hereof and associated fees and expenses;
provided, that the repayment terms thereof are not less favorable to the Buyer
than the repayment terms of the indebtedness so repaid or refinanced.

                  This note shall be subordinate and junior in right of payment
to all Senior Indebtedness.

                                       2
<PAGE>

                  If any of the following events (each, an "Event of Default")
shall occur and be continuing:

                  (i) The Company shall fail to pay (whether in cash or by valid
offset in accordance with the terms of the Purchase Agreement) any amount
payable under this note when such payment becomes due whether at maturity or by
acceleration or otherwise, and such failure remains uncured for five (5)
business days after the Holder gives written notice of such failure to the
Company;

                  (ii) A Default shall occur under the Pledge Agreement;

                  (iii) The Company shall incur any indebtedness other than
Permitted Indebtedness;

                  (iv) The Company shall prepay (other than payments in or by
conversion to capital stock of the Company) any Permitted Indebtedness other
than Senior Indebtedness or prepayments made with the proceeds of any
Refinancing Indebtedness;

                  (v) The Company shall breach, in any material respect, any
representation or warranty under, or fails, in any material respect, to perform
its obligations under this note or the Pledge Agreement; or

                  (vi) (a) The Company shall commence any case, proceeding or
other action (x) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship
or relief of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts or (y) seeking
appointment or a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the Company
shall commence dissolution proceedings or make a general assignment for the
benefit of its creditors; (b) there shall be commenced against the Company any
case, proceeding or other action of a nature referred to in clause (a) above
that (A) results in the entry of an order for relief of any such adjudication of
appointment or (B) remains undismissed, undischarged or unbonded for a period of
sixty (60) days; (c) there shall be commenced against the Company any case,
proceeding other action seeking issuance of a warrant of attachment, execution,
distrait or similar process against all or any substantial part of its assets
that results in the entry of an order for any such relief that shall not have
been vacated, discharged, or stayed or bonded pending appeal within sixty (60)
days from the entry thereof; (d) the Company shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in
any of the acts set forth in clauses (a), (b) or (c) above; or (e) the Company
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due,

                  then, and in any such event, (x) if such event is an Event of
Default specified in clause (vi) above with respect to the Company,
automatically this Note (with all accrued and unpaid interest thereon) and all
other amounts owing under this note shall immediately become due and payable,
and (y) if such event is an Event of Default specified in clauses (i), (ii),
(iii), (iv) or (v) above, the Holder may, at any time at its option, by written
notice to the Company, declare this note (with all accrued and unpaid interest
thereon) and all other amounts owing under this note to be immediately due and
payable. Notwithstanding anything to the contrary contained herein, any amounts
owed under this note shall bear interest at the Default Rate from and after the
occurrence of an Event of Default.

                                       3
<PAGE>

                  The Company hereby covenants and agrees that it will not
consummate any Business Combination (as defined in the Purchase Agreement)
unless and until this note shall be repaid in full; provided, however, that the
requirement that this note be repaid prior to consummation of the Business
Combination may be waived by written notice to Buyer delivered at least three
(3) business days prior to the consummation date of such Business Combination.

                  The Company hereby waives grace, diligence, presentment,
demand, notice of demand, dishonor, notice of dishonor, protest, notice of
protest, any and all exemption rights against the indebtedness evidenced by this
note and the right to plead any statute of limitations as a defense to the
repayment of all or any portion of this note, and interest thereon, to the
fullest extent allowed by law, any and all notices of any kind (other than
notices specifically provided for in this note) and, except with respect to its
rights provided in the Purchase Agreement, all compensation of cross-demands
pursuant to California Code of Civil Procedure Section 431.70, to the extent
applicable. No delay, omission and/or failure on the part of Holder in
exercising any right and/or remedy hereunder shall operate as a waiver of such
right and/or remedy or of any other right and/or remedy of Holder.

                  This note shall be construed and enforced under and pursuant
to the laws of the State of New York.

                  This note shall continue to be effective or be reinstated, as
the case may be, if at any time any payment made pursuant to it (whether by the
Company, any guarantor of this note or any other person or entity) is rescinded
or must otherwise be returned by the Holder upon the bankruptcy or
reorganization or otherwise of the Company or any guarantor or any other person
or entity, all as though such payment had not been made.

                  The failure on the part of the Holder to at any time enforce
any of the provisions of this note shall not be deemed or construed to be a
waiver of any such provisions, nor in any way to affect the validity of this
note or any provision hereof or the right of the Holder to thereafter enforce
each and every provision of this note. No waiver of any breach of any of the
provisions of this note shall be effective unless set forth in a written
instrument executed by the party against which enforcement of such waiver is
sought; and no waiver of any such breach shall be construed or deemed to be a
waiver of any other or subsequent breach. Neither this note nor any rights to
receive payments hereunder may be assigned or transferred by the Holder without
the prior written consent of the Company, which consent shall not be
unreasonably withheld, conditioned or delayed.

                                       4
<PAGE>

                  The Company agrees to pay any and all costs and/or expenses
paid and/or incurred by Holder by reason of, as a result of, or in connection
with, the collection or enforcement of this note or the Company's obligations
hereunder and under the Pledge Agreement and/or any other documents contemplated
hereby or thereby, including, but not limited to, any and all attorneys' fees
and related costs, whether such costs and/or expenses are paid or incurred in
connection with the enforcement of this Note, the Pledge Agreement or any other
documents contemplated hereby or thereby, the protection and/or preservation of
the collateral or security for this note and/or any other rights, remedies
and/or interests of Holder, whether or not suit is filed. The Company's
agreement to pay any and all such costs and expenses includes, but is not
limited to, costs and expenses incurred in enforcing any judgment obtained by
Holder and in connection with any appeals therefrom. All such costs and expenses
are immediately due and payable to Holder by the Company whether or not demand
therefore is made by Holder.

                  The Company hereby represents and warrants to Holder that, by
its execution below, the Company has the full power, authority and legal right
to execute and deliver this note and that the indebtedness evidenced hereby
constitutes a valid and binding obligation of the Company without exception or
limitation.

                  This note may be modified only by a written instrument that is
executed and delivered by the party against which enforcement of such
modification is sought.

                                      ACCESS INTEGRATED TECHNOLOGIES, INC.

                                      By: /s/ A. Dale Mayo
                                         -------------------------------------
                                          A. Dale Mayo
                                          President and Chief Executive Officer

                                       5

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