Document:

Exhibit 10(by)

                          MASTER DISTRIBUTOR AGREEMENT
                        For Puerto Rico and The Caribbean

Master Distributor Agreement, dated as of October 24, 2002 ("Agreement") between
Artera  Group,  Inc.,  a Delaware  corporation  having a place of business at 20
Ketchum Street,  Westport,  CT 06880 ("Artera"),  and Spyder Technologies Group,
LLC, a Connecticut  limited  liability  company having a place of business at 40
Kellogg Hill Road, Weston, CT 06883, a Federal Employer Identification Number of
32-0027124,  a primary telephone number of 203-858-1915 and a primary World Wide
Web site of http://www.spydergroup.com ("Master Distributor").

In consideration of the mutual promises contained in this Agreement,  Artera and
Master Distributor hereby agree as follows:

1.   Duties and Rights of Master Distributor.

(a)  Master  Distributor  shall seek out and find resellers for Artera's "Artera
     Turbo" service (the  "Service") in the Territory (as defined in Schedule A)
     as  more  fully  described  in this  Agreement.  Master  Distributor  shall
     describe  the  Service to  prospective  resellers  in the  Territory,  make
     presentations   about  the  Service  to  such  resellers,   facilitate  the
     negotiation  and execution of agreements  between Artera and such resellers
     and,  if  such   agreements  are  reached,   maintain   Artera's   business
     relationships with such resellers.  Master Distributor shall be responsible
     for  obtaining  sufficient  knowledge  about the  Service to enable  Master
     Distributor to describe the Service accurately and otherwise to perform its
     duties under this Agreement.

(b)  Master  Distributor  shall be  responsible  for  providing  training to all
     resellers in the Territory,  such that those  resellers are able to provide
     level 1  support  to  their  customers  as  described  in  Schedule  B. For
     resellers of Master  Distributor that cannot or do not provide such level 1
     support to their  customers,  Master  Distributor will provide such level 1
     support  to those  customers.  In all  cases,  Master  Distributor  will be
     responsible for providing level 2 support (i.e., support pertaining to more
     detailed, Service-specific problems or issues) to all of its resellers, and
     their  customers,  in the Territory.  Artera shall be  responsible  for all
     level 3 support (i.e., software bug fixes).

(c)  Master Distributor shall make available such time as Master Distributor, in
     its sole  discretion,  deems  appropriate for the performance of its duties
     under this Agreement.  Master  Distributor may perform similar services for
     other  companies  during the term of this  Agreement,  except  that  Master
     Distributor may not do so for companies whose products or services directly
     compete with the Service.

(d)  Master  Distributor  may solicit all Targets (as defined in Schedule C) for
     the Service.  Master  Distributor  will report such Targets that are active
     prospects for the Service to Artera each month.

(e)  For sixteen months after the date of this Agreement,  Master  Distributor's
     right  to  solicit  Targets  in the  Territory  for the  Service  shall  be
     exclusive.  Thereafter,  if Master Distributor has failed to achieve a Goal
     (as defined in Schedule D) for any twelve-month  period  (including  months
     five through  sixteen of this  Agreement),  Artera may at any time, upon 15
     days' prior written notice to Master  Distributor,  irrevocably convert all
     of Master  Distributor's  rights  under  this  Agreement  to  non-exclusive
     rights.

(f)  In  connection  with the  performance  of its duties under this  Agreement,
     Master  Distributor shall have the right to use and refer to all trademarks
     and service marks associated with the Service, including but not limited to
     "Artera Turbo." Except for such right, however, such trademarks and service
     marks shall remain the sole property of Artera.

(g)  In performing its duties and  exercising  its rights under this  Agreement,
     Master  Distributor  shall, at its own expense,  comply with all applicable
     laws, including but not limited to (i) the laws of all jurisdictions within
     the  Territory  as they  pertain to the sale,  distribution  and use of the
     Service;  and (ii) all import and export laws of the United States and such
     other  jurisdictions  as they pertain to the distribution of the Service as
     contemplated by this Agreement.

2.   Term and Termination.

(a)  The initial  term of this  Agreement  shall  commence as of the date hereof
     and,  unless  terminated  in  accordance  with Section  2(b) hereof,  shall
     continue for a period of five years and four months.  Thereafter,  the term
     shall  automatically renew for successive  twelve-month  periods unless one
     party  gives  the  other  party 30 days'  prior  written  notice  that this
     Agreement shall terminate as of the end of the then current term.

(b)  This  Agreement  may be  terminated  by either  party,  upon 30 days' prior
     written  notice  to the  other  party,  for  the  material  breach  of this
     Agreement  by the  other  party  or for the  willful  misconduct  or  gross
     negligence of the other party in the course of performing  its duties under
     this  Agreement  (such  material  breach,   willful   misconduct  or  gross
     negligence  being  deemed  "Cause"),  if such  breach is not cured and such
     misconduct or gross negligence  halted by the end of such 30-day period. In
     addition,  this Agreement may be terminated by Artera at any time,  upon 30
     days' prior written  notice to Master  Distributor,  if Master  Distributor
     fails  to  achieve  fifty  percent  (50%)  of the  applicable  Goal for any
     twelve-month period as described in Schedule D.

(c)  Upon the expiration or any termination of this  Agreement,  the obligations
     of the parties under this Agreement shall cease as of  termination,  except
     (i) obligations that accrued prior to termination;  (ii) if the termination
     was not by Artera for Cause,  Master Distributor shall receive  commissions
     as  described in Section  3(c)  hereof;  and (iii) as  otherwise  expressly
     provided in this Agreement.

3.   Compensation.

(a)  As sole compensation for the services provided under this Agreement, Artera
     shall pay Master  Distributor a commission  equal to fifty percent (50%) of
     the Gross Revenues (as defined below)  actually  received by Artera for the
     Service during the term of this Agreement from or through resellers secured
     by  Master  Distributor  in the  Territory.  For  purposes  hereof,  "Gross
     Revenues" shall mean monies  received by Artera less sales,  use, excise or
     similar taxes. Commissions to Master Distributor shall be payable twice per
     calendar  month: on the 15th day of the month for monies received by Artera
     from the 25th day of the previous month through the 10th day of the current
     month,  and on the 30th day of the month for monies received by Artera from
     the 11th  day of the  current  month  through  the 24th day of the  current
     month.  Payments shall be wired to an account  specified by Spyder.  Master
     Distributor  shall be  responsible  for all  costs of sales  and  marketing
     incurred in  connection  with the  distribution  of the Service  under this
     Agreement.

(b)  Master  Distributor will remit any payments due to its Service resellers in
     the Territory by the later of (i) the due date therefor under the agreement
     between  Master  Distributor  and such  reseller  and (ii) seven days after
     receipt of the  associated  funds from Artera.  If a payment  obligation of
     Master Distributor to a reseller that is documented by such reseller is not
     paid by the  applicable  date above and such failure is not cured by Master
     Distributor  within seven days after  written  notice  thereof from Artera,
     Artera may directly remit the late payment and all future payments (whether
     late  or  not)  documented  by such  reseller  as  being  due  from  Master
     Distributor,  and Artera may set off such payments against  commissions due
     to Master  Distributor  under this  Agreement.  If, by the  process  above,
     Artera's right to remit a payment to a reseller and make the related setoff
     is  triggered  with respect to three or more  resellers in any  consecutive
     three-month period,  Artera shall have such right to remit and set off with
     respect to all of Master Distributor's resellers.

(c)  Following the expiration or any  termination of this Agreement other than a
     termination by Artera for Cause,  Master  Distributor  shall be entitled to
     receive  commissions  as  described  above with  respect to Gross  Revenues
     actually  received  by Artera for the  Service  from or  through  resellers
     secured  by  Master  Distributor  in the  Territory  prior  to the  date of
     expiration or termination;  provided,  however,  that if Master Distributor
     elects to discontinue  provision of (or  responsibility  for) support after
     such expiration or termination, its commission shall be reduced as follows:
     (i) for discontinuing  level 1 support,  the reduction is ten percent (10%)
     of  Gross  Revenues;  and  (ii)  for  discontinuing  level 2  support,  the
     reduction is a further five percent (5%) of Gross Revenues. For any support
     services  Master  Distributor  elects to  discontinue  under the  foregoing
     provision,  Artera  shall  have the  right to assume  or make  third  party
     arrangements for provision of such services.

4.   Expenses.  All expenses  incurred by Master  Distributor  in performing its
     duties   under  this   Agreement   shall  be  the  sole   -----------------
     responsibility of Master  Distributor unless otherwise agreed to in advance
     in writing by Artera.

5.   Confidentiality. Simultaneously with their execution of this Agreement, the
     parties hereto shall execute a  Non-Disclosure  Agreement  substantially in
     the form of Schedule E.

6.   Notice.  All notices under this Agreement  shall be in writing and shall be
     deemed duly given upon delivery by hand, by recognized  commercial courier,
     by fax or by certified mail (return receipt  requested),  in each case with
     postage or delivery charges pre-paid, as follows:

     If to Artera:                            If to Master Distributor:
     ------------                             ------------------------

     Artera Group, Inc.                       Spyder Technologies Group, LLC
     900 Straits Turnpike                     40 Kellogg Hill Road
     Middlebury, CT  06762                    Weston, CT  06883
     Fax:  203-577-5380                       Fax:  203-454-3094
     Attn:  Michelle Jordano                  Attn:  President

     with a copy to:
     --------------

     General Counsel
     Artera Group, Inc.
     20 Ketchum St.
     Westport, CT  06880
     Fax:  203-226-4338

7.   Indemnification,  Insurance and Limitation of Liability.  Each party hereto
     shall  indemnify  and hold  harmless  the other party,  such other  party's
     affiliates,   and  the   officers,   directors,   employees,   agents   and
     representatives  of all  thereof  from  and  against  any and  all  claims,
     damages, actions, costs and expenses (including reasonable attorneys' fees)
     arising  out  of or  relating  to a  breach  by  such  party  of any of its
     representations,  warranties or undertakings set forth in this Agreement or
     arising  out of or  relating  to such  party's  intentionally  wrongful  or
     grossly negligent conduct in connection with this Agreement or such party's
     performance hereunder. In the event of a claim for which indemnification is
     to be sought  hereunder,  the party to be indemnified  shall provide prompt
     written  notice of such  claim to the other  party,  shall  allow the other
     party to control  the  defense of such claim and shall  cooperate  with the
     other  party in  conducting  such  defense.  Each party  shall at all times
     during the term of this Agreement maintain such insurance coverage, if any,
     that is commercially reasonable in light of the nature, volume and location
     of such party's business  activities in connection with this Agreement.  In
     no event  shall  either  party be liable to the other or to any third party
     for incidental,  special,  punitive or consequential damages (including but
     not limited to lost profits) relating to this Agreement.

8.   Miscellaneous.

(a)  Any  provision of this  Agreement  that is prohibited or held to be void or
     unenforceable  shall be  ineffective  to the extent of such  prohibition or
     unenforceability,  without  invalidating  the remaining  provisions of this
     Agreement.

(b)  This Agreement shall bind and inure to the benefit of and be enforceable by
     the parties hereto and their respective  permitted  successors and assigns.
     Neither  party may assign  this  Agreement  nor any  rights or  obligations
     hereunder  without  the prior  written  consent of the other  party,  which
     consent shall not be unreasonably withheld.

(c)  No term or provision  of this  Agreement  may be waived or modified  unless
     such waiver or  modification  is in writing and signed by the party against
     whom such waiver or modification is sought to be enforced. No waiver of any
     breach of any provision of this Agreement shall  constitute a waiver of any
     prior,  concurrent or subsequent  breach of the same or any other provision
     hereof.

(d)  Master Distributor shall be considered an independent contractor to Artera,
     and nothing in this Agreement shall be construed as creating an employment,
     agency, partnership or joint venture relationship between the parties.

(e)  No provision of this Agreement shall be interpreted  against a party solely
     because such party or its attorney drafted such provision.

(f)  Neither  party  shall be deemed in breach of this  Agreement  to the extent
     that  performance  of its  obligations is prevented or delayed by reason of
     any act of God, fire, natural disaster,  accident, riot, act of government,
     shortage  of   materials  or  supplies,   failure  of   transportation   or
     communication,  third party nonperformance (including,  without limitation,
     failure of performance by common carriers, interexchange carriers and local
     exchange  carriers)  or any other  cause  beyond  such  party's  reasonable
     control.

(g)  This Agreement  shall be construed in accordance with the laws of the State
     of  Connecticut,  U.S.A.,  without regard to the principles of conflicts of
     laws thereof.

(h)  Jurisdiction  for any action under this  Agreement  shall lie solely in the
     Federal or state courts located in the State of  Connecticut,  and venue in
     any such action shall be proper only therein.

(i)  Except as may be expressly set forth herein, this Agreement constitutes the
     entire  agreement  between the parties with  respect to the subject  matter
     hereof  and  supersedes  all  prior  and  contemporaneous  written  or oral
     agreements  or  communications  between  such  parties with respect to such
     subject matter.

IN WITNESS  WHEREOF,  Artera  and Master  Distributor  have duly  executed  this
Agreement as of the date first above written.

ARTERA GROUP, INC.                            SPYDER TECHNOLOGIES GROUP, LLC

By:     /s/ CY E. HAMMOND                      By:    /s/ JONATHAN PARRELLA
    ------------------------------                ------------------------------
         Cy E. Hammond                                 Jonathan Parrella
         Treasurer                                     President

<PAGE>

                                                                      Schedule A

                                    TERRITORY

The  "Territory" is defined as the islands located in the Caribbean and Southern
Atlantic  as listed  below (it is  intended  that the list  include  all islands
associated  with  those  listed  below,  many of  which  are too  small  to list
separately):

Anguilla
Antigua
Aruba
Bahamas
Barbados
Bonaire
British Virgin Islands
Cayman Islands
Curacao
Dominica
Dominican Republic
Grenada
Guadeloupe
Guyana
Haiti
Jamaica
Martinique
Puerto Rico 1
Saba
St. Barthelemy
St. Eustatius
St. Kitts
St. Lucia
St. Martin (both parts)
St. Vincent and The Grenadines
Trinidad and Tobago
Turks and Caicos
U.S. Virgin Islands 2

1    Excluding all Incumbent Local Exchange Carriers ("ILECs") other than Puerto
     Rico Tel, and exluding all Rural Local Exchange Carriers ("RLECs").

2    Excluding all ILECs and RLECs.

<PAGE>

                                                                      Schedule B

                                 LEVEL 1 SUPPORT

The  purpose  of  Level  1  support  is to  assist  the End  User  in the  basic
installation and usage of the Service.  This can include  answering some general
questions  to help  the End  User  understand  what  the  Service  is and how it
provides a benefit to them.  While these  questions may be more  "marketing"  in
nature,  they will allow the End User to have a better overall  experience  with
the  Service  and the  support  services  relating  thereto.  Level 1 support is
responsible  for  assisting  the End User with the  items  listed  below.  It is
presumed  that this list will be refined as experience is gained and the Service
evolves over time.

1.   Establishing  an  Internet   connection   (typically  via  Windows  Dial-Up
     Networking).

2.   Launching a Web browser and surfing to various Web sites on the Internet.

3.   Answering basic questions about the system configuration needed for running
     the Service (i.e. Windows version,  memory,  hard disk space) as documented
     on Artera's Web site.

4.   Assisting the customer in downloading the Service software.

5.   Running the Service's setup program and installing it to their PC.

6.   Launching/running the Service.

7.   Answering  basic  questions  about  navigating  within the  Service's  user
     interface.

8.   Answering basic questions  about,  and showing the End User, how to know if
     the Service is  working.  This  includes  pointing  out the  Network  View,
     Activity View and SpeedBar.

9.   Diagnosing that the End User's browser is actually  forwarding its requests
     to Artera.  This is  accomplished  by reviewing  the Activity  View and the
     browser's proxy settings.

10.  Assisting  an End User who is using a dialer  other  than  Windows  Dial-Up
     Networking (e.g., Juno or NetZero).

11.  Assisting an End User who is using a browser other than Internet  Explorer.
     This will require  telling the End User how  manually to set the  browser's
     proxy settings.

12.  Verifying that the End User has an Artera data center connection online.

13.  Assisting the End User in how to uninstall the Service.

14.  Helping End Users to understand  what the Service's  Firewall is and how to
     disable it if they desire. The End User should be told that they should not
     run the Service's Firewall with any other firewall.  The End User should be
     helped to understand the ramifications of disabling the Service's Firewall.

15.  Assisting  the End  User  in  opening  additional  ports  in the  Service's
     Firewall.

16.  Assisting  the End User in adding sites into the  Service's  Site  Blocking
     list.

17.  Assisting the End User in adding sites into the Service's Ad Blocking list.

18.  Helping End Users to  understand  how Ad Blocking  removes ads and replaces
     them with "place  holder"  graphics.  This can result in what appears to be
     "missing" elements on the page. The End User can be informed of how to turn
     off Ad Blocking if they do not like this behavior  (understanding that this
     will reduce the speed benefits of the Service).

19.  Helping End Users to understand  how to change the image quality within the
     Service.  This includes explaining how to refresh the page once quality has
     been set to "Best  Quality."  The End User  should  be  informed  of how to
     revert back to "Best  Speed"  image  quality  setting.  The End User should
     understand  that if they do not  revert  back to "Best  Speed,"  this  will
     reduce the speed benefits of the Service.

20.  Telling the End User how to get to the Artera Web site.

21.  Explaining  to the End User what a cache is, and how to adjust its settings
     within the Service.

22.  Explaining  to the End User what settings in their browser are changed when
     the Service is running. This includes the change to the proxy settings, the
     number  of  requests  that  the  browser  will  issue  at one  time and the
     disablement  of the browser's  cache.  Importantly,  the End User should be
     told  that  when the  Service  is not  running,  or is  uninstalled,  these
     settings in the browser are changed back to their original values.

23.  Answering  questions about obtaining  (i.e.,  downloading)  Service product
     updates and installing them.

<PAGE>

                                                                      Schedule C

                                     TARGETS

The "Targets" are all resellers  whose principal place of business and principal
source of business is located within the Territory. Those resellers that operate
within the Territory,  but whose principal place of business or principal source
of business is located outside the Territory,  are specifically  excluded unless
agreed, in each case, in advance in writing by Artera.

<PAGE>

                                                                      Schedule D

                                      GOALS

The "Goals" are defined as the following:

1.   Ramp-up period:

For the  first  four  months  after  the date of this  Agreement,  there  are no
specific requirements.

2.   For the first twelve months thereafter:

Master  Distributor will secure Five Hundred  Thousand Dollars  ($500,000.00) in
Gross Revenues for Artera from sales of the Service in the Territory.

3.   For succeeding twelve-month periods:

Master  Distributor  will  secure  Gross  Revenues  for Artera from sales of the
Service in the Territory  that are twenty percent (20%) higher than the required
level for the preceding twelve months.

<PAGE>

                                                                      Schedule E

                                     FORM OF
                            NON-DISCLOSURE AGREEMENT
                               ARTERA GROUP, INC.

Non-Disclosure  Agreement,  dated as of October ___, 2002, between Artera Group,
Inc.,   for  itself  and  its   subsidiaries,   parent  company  and  affiliates
(collectively, "Artera"), and Spyder Technologies, LLC, (the "Company").

WHEREAS,  the parties hereto wish to consider a possible  business  transaction,
relationship  or  arrangement  between them, in connection  with which it may be
necessary  or  desirable  for such  parties to exchange  technical,  scientific,
marketing, business or other confidential or proprietary information.

NOW, THEREFORE,  in consideration of these premises,  and of the mutual promises
and covenants contained herein, the parties hereto agree as follows:

1.   Definitions.

(a)  "Disclosing  Party" shall mean the party hereto  disclosing  information to
     the other party hereto.

(b)  "Receiving  Party" shall mean the party hereto  receiving  information from
     the other party hereto.

(c)  "Confidential Information" shall mean information disclosed by or on behalf
     of one party  hereto to the other party  hereto that  relates in any way to
     the  Disclosing   Party's  business,   operations,   products,   processes,
     methodologies,   formulas,   plans,  intentions,   projections,   know-how,
     intellectual   property  rights,  trade  secrets,   market   opportunities,
     suppliers,  customers,  marketing activities,  sales,  software,  hardware,
     computer  or  telecommunications   systems,  costs,  prices,  usage  rates,
     records, finances or personnel,  whether expressed or disclosed in writing,
     electronically,  orally or by any other  means,  and  whether or not marked
     "confidential"  by the  Disclosing  Party.  Notwithstanding  the foregoing,
     "Confidential  Information"  shall not include  information  that (i) is or
     becomes generally available to the public through no fault of the Receiving
     Party,  (ii) was known to the  Receiving  Party prior to  disclosure by the
     Disclosing Party, (iii) was independently  developed by the Receiving Party
     without reliance on Confidential  Information or (iv) was lawfully received
     by the Receiving  Party from a third party without breach of any obligation
     to the Disclosing Party by such third party.

2.   Disclosure of Confidential Information.  During the term of this Agreement,
     each party hereto may disclose Confidential Information to the other party.
     Neither  party  has any  obligation  to  disclose  or  accept  Confidential
     Information under this Agreement.

3.   Obligation of Confidentiality. Confidential Information received by a party
     hereunder shall forever be kept in confidence by the Receiving  Party.  The
     Receiving  Party  may  reveal  such  Confidential  Information  only to its
     officers, directors, employees,  consultants,  subcontractors or agents who
     have a need to know such  Confidential  Information,  and shall ensure that
     such  persons  comply  with  all of  the  limitations  set  forth  in  this
     Agreement.  Without limiting the generality of the foregoing, the Receiving
     Party shall  exercise the same degree of care to preserve and safeguard the
     Disclosing  Party's   Confidential   Information  as  the  Receiving  Party
     exercises with its own Confidential Information, which in no event shall be
     less than reasonably prudent care.

4.   Permitted  Disclosures.  The confidentiality  obligations of this Agreement
     shall not apply to the extent that disclosure of  Confidential  Information
     by a Receiving  Party (a) is required by law,  (b) is ordered by a court or
     administrative body of competent  jurisdiction (where the party making such
     disclosure  has given the other party as much prior written  notice of such
     disclosure  and as much  opportunity to object to such order as is possible
     under the  circumstances)  or (c) occurs with the Disclosing  Party's prior
     written consent in each instance.

5.   Use of Confidential  Information.  During the period of confidentiality set
     forth above,  Confidential  Information  may be used by the Receiving Party
     only  in  connection  with  actual  or  possible   business   transactions,
     relationships  or  arrangements  with the  Disclosing  Party.  Without  the
     express  written  consent of the  Disclosing  Party in each  instance,  the
     Receiving  Party  shall not  disassemble,  reverse  engineer,  re-engineer,
     redesign,  decrypt, decipher,  reconstruct,  re-orient, modify or alter any
     Confidential  Information  of the Disclosing  Party or any circuit  design,
     algorithm, logic or program code in any of the Disclosing Party's products,
     models or prototypes that contain Confidential Information,  or attempt any
     of the foregoing.

6.   Termination of Agreement.  This Agreement  shall be in effect from the date
     hereof until the date as of which this  Agreement is  terminated  by either
     party via written  notice to the other party;  provided,  however,  that no
     such written  notice may be given that has an  effective  date prior to the
     expiration or termination of the Master Distributor Agreement,  dated as of
     the date  hereof,  between  Artera  and the  Company.  Termination  of this
     Agreement  shall not affect the rights and  obligations  of the parties set
     forth herein with respect to  Confidential  Information  supplied  prior to
     termination.  Upon termination of this Agreement, or upon a written request
     by the Disclosing Party at any time, all copies of Confidential Information
     in the  Receiving  Party's  possession  shall be  promptly  returned to the
     Disclosing  Party or destroyed.  Upon a written  request by the  Disclosing
     Party,  such return or  destruction  shall be  certified  by the  Receiving
     Party.

7.   Effect  of  Agreement.   Neither  this  Agreement  nor  any  disclosure  of
     Confidential  Information  hereunder  shall be  deemed  to (a)  create  any
     partnership,  joint venture,  employment or agency relationship between the
     parties, (b) bind either party to any business transaction, relationship or
     arrangement  between them  (without a separate  agreement  therefor) or (c)
     constitute a grant of any  intellectual  property or other right or license
     in any  Confidential  Information by the Disclosing  Party to the Receiving
     Party.

8.   Representations  and Warranties.  Each party represents and warrants to the
     other that it has the right to make the  disclosures  made by it under this
     Agreement.  The Confidential  Information disclosed under this Agreement is
     delivered "as is." The Disclosing Party makes no representation or warranty
     of any kind under this  Agreement  with  respect  to the  accuracy  of such
     Confidential  Information,  its  suitability  for any particular use or the
     non-infringement of any third party rights.

9.   Remedies and  Indemnification.  Each party agrees that money  damages would
     not be a sufficient  remedy for a breach of this  Agreement by it and that,
     upon such  breach,  in  addition  to all  other  remedies  available  under
     applicable  law, the other party shall be entitled to specific  performance
     and injunctive and other equitable relief as a remedy for such breach,  and
     each party waives any  requirement  for the securing or posting of any bond
     in  connection  with such  remedy.  Each  party  shall  indemnify  and hold
     harmless  the  other  party and such  other  party's  officers,  directors,
     employees,   agents,  consultants,   subcontractors,   representatives  and
     affiliates  from  and  against  any and all  losses,  liabilities,  claims,
     damages, actions, costs and expenses (including reasonable attorneys' fees)
     arising  out  of or  relating  to a  breach  by  such  party  of any of its
     representations,  warranties or  undertakings  set forth in this Agreement.
     Anything  contained  in this  Agreement  to the  contrary  notwithstanding,
     neither  party  hereto  shall be liable to the other  party for the other's
     special, incidental,  consequential damages, including lost profits, or for
     any punitive  damages,  by reason of or in connection with a breach of this
     Agreement.

10.  Export  Regulations.  Each party hereto  shall  comply with all  applicable
     regulations  of the United  States Bureau of Export  Administration  of the
     Department of Commerce (Title 15, Code of Federal Regulations, Sections 700
     et seq.), as amended from time to time.  Without limiting the generality of
     the foregoing or of any other  provision of this  Agreement,  neither party
     shall export or re-export any  Confidential  Information  received from the
     other  party to any  person  or  entity  if such  export  or  re-export  is
     prohibited without a government  license or authorization,  if such license
     or  authorization  shall not first have been obtained.  The foregoing shall
     survive the expiration or any termination of this Agreement.

11.  Notices.  All notices under this Agreement shall be in writing and shall be
     deemed duly given upon delivery by hand, by recognized  commercial courier,
     by fax or by certified mail (return receipt  requested),  in each case with
     postage or delivery charges pre-paid, as follows:

If to Artera:                             If to Master Distributor:
------------                              ------------------------

Artera Group, Inc.                        Spyder Technologies Group, LLC
900 Straits Turnpike                      40 Kellogg Hill Road
Middlebury, CT  06762                     Weston, CT  06883
Fax:  203-577-5380                        Fax:  203-454-3094
Attn:  Michelle Jordano                   Attn:  President

with a copy to:
--------------

General Counsel
Artera Group, Inc.
20 Ketchum St.
Westport, CT  06880
Fax:  203-226-4338

12.  Miscellaneous.  This  Agreement  shall  be  governed  by and  construed  in
     accordance  with the laws of the State of Connecticut and the United States
     as applicable to agreements made and performed wholly therein. Jurisdiction
     for any action  under  this  Agreement  shall lie solely in the  Federal or
     state  courts  located in the State of  Connecticut,  and venue in any such
     action shall be proper only  therein.  This  Agreement  contains the entire
     agreement  between the parties  hereto with  respect to the subject  matter
     hereof  and  supersedes  any and all prior or  contemporaneous  agreements,
     communications or understandings  between such parties.  No modification or
     addition to this Agreement  shall be binding  unless  effected by a written
     instrument  signed by both parties  hereto.  This Agreement  shall apply in
     lieu of and  notwithstanding  any specific  legend or statement  associated
     with any particular Confidential  Information disclosed,  and the duties of
     the parties shall be  determined  exclusively  by the terms and  conditions
     herein.  If any provision of this Agreement is held to be invalid,  illegal
     or   unenforceable  in  any  respect,   such   invalidity,   illegality  or
     unenforceability  shall not affect any other  provision of this  Agreement,
     and this  Agreement  shall be  construed  as if such  invalid,  illegal  or
     unenforceable  provision had never been contained herein.  Moreover, if any
     provision of this Agreement is held to be excessively broad, such provision
     shall be deemed  limited  or reduced  to the  extent  necessary  to make it
     enforceable  under application law. Neither party shall be deemed in breach
     of this  Agreement to the extent that  performance  of its  obligations  is
     prevented by reason of any act of God, fire,  natural  disaster,  accident,
     riot or  other  event of  force  majeure  beyond  such  party's  reasonable
     control.  No provision of this  Agreement  shall be  interpreted  against a
     party solely  because such party or its  attorney  drafted such  provision.
     This  Agreement  may be  executed in  counterparts,  each of which shall be
     deemed an original, but all of which shall constitute the same instrument.

IN WITNESS  WHEREOF,  the parties  hereto have executed this Agreement as of the
date first above written.

SPYDER TECHNOLOGIES, LLC                      ARTERA GROUP, INC.

By:                                           By:
    ------------------------------                ------------------------------
         Jonathan Parrella                             Cy E. Hammond
         President                                     Treasurer<PAGE>
                                                                     Exhibit 4.1

                          CERTIFICATE OF DESIGNATIONS

                      SETTING FORTH THE PREFERENCES, RIGHTS

                   AND LIMITATIONS OF THE SERIES C CONVERTIBLE

                    PREFERRED STOCK OF COMPUTER MOTION, INC.

        The undersigned officers of COMPUTER MOTION, INC. (the "Corporation"), a
Delaware corporation, DO HEREBY CERTIFY that, pursuant to the provisions of
Sections 151 and 242 of the General Corporation Law of the State of Delaware:

        1. The name of the Corporation is Computer Motion, Inc. and the
Corporation is validly existing and incorporated.

        2. On October 9, 2002, pursuant to authority vested in the Board of
Directors by Article IV of the Corporation's Second Amended and Restated
Certificate of Incorporation, the Board of Directors established a series of up
to an aggregate of 8,965 shares of Series C-1 Convertible Preferred Stock of the
Corporation, par value $0.001 per share (the "Series C-1 Convertible Preferred
Stock"), and up to an aggregate of 1,785 shares of Series C-2 Convertible
Preferred Stock of the Corporation, par value $0.001 per share (the "Series C-2
Convertible Preferred Stock" and together with the Series C-1 Convertible
Preferred Stock, the "Series C Convertible Preferred Stock") and adopted the
following with respect to the Certificate of Designations of the Series C
Convertible Preferred Stock:

    WHEREAS, the Corporation desires to create a new series of its Preferred
    Stock to be designated as "Series C Convertible Preferred Stock";

    NOW, THEREFORE, it is hereby

    RESOLVED, that a new series of the class of authorized preferred stock of
    the Corporation, designated "Series C-1 Convertible Preferred Stock" and
    "Series C-2 Convertible Preferred Stock" be hereby created, and that the
    designation and amount thereof and the voting powers, preferences and
    relative, participating, optional and other special rights of the shares of
    such series, and the qualifications, limitations and restrictions thereof
    shall be as set forth below:

        SECTION 1. DESIGNATION AND AMOUNT; PAR VALUE.

        The shares of Series C Convertible Preferred Stock shall be designated
as "Series C-1 Convertible Preferred Stock" and "Series C-2 Convertible
Preferred Stock" and the number of shares constituting the Series C-1
Convertible Preferred Stock shall be 8,965 and the number of shares constituting
the Series C-2 Convertible Preferred Stock shall be 1,785. The par value of each
share of the series shall be $0.001. Each share of the Series C Convertible
Preferred Stock shall have a stated value of $1,400 (the "Stated Value").

<PAGE>

        As used herein, the "Initial Issuance Date" shall mean the date upon
which the Corporation first issues and sells shares of Series C Convertible
Preferred Stock.

        SECTION 2. DIVIDENDS ON SERIES C CONVERTIBLE PREFERRED STOCK.

        The Corporation shall pay dividends on the Stated Value of each share of
the Series C Convertible Preferred Stock at the rate of 12.0% per annum,
decreasing to the rate of 8.0% per annum upon the Corporation obtaining
stockholder approval in accordance with Section 3.13 of the Series C Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement") and increasing to
the rate of 12.0% per annum on the second anniversary of the Initial Issuance
Date. Dividends shall be computed based on a 360-day year consisting of twelve
30-day months. Dividends shall be cumulative with respect to each share of the
Series C Convertible Preferred Stock while such share is outstanding. Dividends
shall be payable in arrears semi-annually to the holder of shares of Series C-1
Convertible Preferred Stock registered on the books of the Corporation (the
"Holder").

        (a) Dividends on Series C-1 Convertible Preferred Stock. At the option
of the Corporation, dividends may be payable to the Holders of Series C-1
Convertible Preferred Stock in the form of either (i) such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts or (ii) provided, and to the extent, that
the Maximum Share Issuance (as defined in Section 4(c) below), if then
applicable, shall not have occurred in respect of the shares of Series C
Convertible Preferred Stock held by such Holder, the number of full shares of
Common Stock that the amount of accrued dividends payable would entitle such
Holder to acquire based upon a price per share equal to 90% of the average of
the VWAP (as defined below) for the twenty (20) Trading Day period immediately
prior to the date such dividend becomes due and payable; provided, however, that
if the Corporation elects to pay a Holder in shares of Common Stock, the
Corporation shall issue to the Holder freely tradeable shares of Common Stock;
provided further, that the Corporation may elect to pay a Holder in shares of
Common Stock only if the Registration Statement (the "Registration Statement")
filed by the Corporation pursuant to the Registration Rights Agreement, dated as
of the Initial Issuance Date, among the Corporation and the original purchasers
of the Series C Convertible Preferred Stock (the "Registration Rights
Agreement") remains effective. The Corporation shall notify the Holder in
writing not less than twenty-two (22) Trading Days of the date such dividends
are due and payable of the form in which the Corporation elects to pay
accumulated dividends. In the event the Corporation fails to timely provide such
notice, payments of dividends shall be in cash.

        As used herein, "VWAP" shall mean the Volume Weighted Average Price of
the Corporation's Common Stock as reported by Bloomberg, L.P. on such day on the
NASDAQ National Market (or the NASDAQ Small Cap Market, the New York Stock
Exchange or American Stock Exchange in the event any such market or exchange
constitutes the principal market on which the Common Stock is quoted or listed
or admitted to trading) (such four markets and exchanges, the "Approved
Markets") or, if not quoted or listed or admitted to trading on any such
Approved Market, the closing bid price in the over-the-counter market as
furnished by any New York Stock Exchange

                                       2
<PAGE>
member firm that is selected from time to time by the Corporation for that
purpose. In lieu of any fractional share of Common Stock to which the Holder
would otherwise be entitled upon payment of a dividend, the number of shares of
Common Stock issuable upon payment thereof shall be rounded up to the nearest
whole number.

        (b) Dividends on Series C-2 Convertible Preferred Stock. Dividends shall
be payable quarterly to the Holders of Series C-2 Convertible Preferred Stock in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.

        (c) Failure to Timely Pay Dividends. If the Corporation fails to pay any
dividend payment to the Holders on the date such dividend payment is due, the
dividend rate then in effect shall increase by a rate per annum equal to three
percent (3%). During any period that such dividend payments are in arrears, the
Corporation shall not incur any indebtedness.

        SECTION 3. REDEMPTION.

        (a) Redemption Date. The "Redemption Date" shall mean October 29, 2004.

        (b) Corporation's Election to Redeem. At any time following the
Redemption Date, the Corporation may elect to redeem on a pro rata basis no less
than $2,000,000 of the outstanding Series C Convertible Preferred Stock, by
delivering at least 15 days' notice of such election (the "Redemption Election
Notice") to the Holders of the Series C Convertible Preferred Stock. Upon
receipt of the Redemption Election Notice, the Holder shall surrender to the
Corporation its stock certificate representing such Holder's pro rata portion of
shares of the Series C Convertible Preferred Stock being redeemed (the "Series C
Convertible Stock Certificates") and, upon such surrender, the Corporation shall
deliver to the Holder with respect to each share of Series C Convertible
Preferred Stock so redeemed, an amount of cash equal to the Stated Value plus
any accrued and unpaid dividends (the "Redemption Price"). In the event that
less than all of the outstanding shares of Series C Convertible Preferred Stock
are redeemed, the Corporation shall promptly return to the Holder its stock
certificate representing the balance of such shares of Series C Convertible
Preferred Stock not redeemed. Notwithstanding the foregoing, the Holder shall
have the right to convert any shares of Series C Convertible Preferred Stock in
accordance with Section 4(a) below until the close of business on the date fixed
for redemption in such Redemption Election Notice. The Series C Convertible
Preferred Stock shall not be redeemable at the election of the Holder.

        (c) Effect of Redemption. At any time following delivery of the
Redemption Election Notice, unless there shall have been a default in payment of
the Redemption Price, all rights of the holders of the shares of Series C
Convertible Preferred Stock designated for redemption in the Redemption Election
Notice as holders of Series C Convertible Preferred Stock (except the right to
receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such

                                       3
<PAGE>
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or deemed to be outstanding for any purpose whatsoever.

        SECTION 4. CONVERSION.

        (a) Right to Convert. Subject to Section 3 and this Section 4, a Holder
has the right to convert shares of the Series C Convertible Preferred Stock, in
whole or from time to time in part, into such number of shares of common stock,
par value $.001 per share, of the Corporation (the "Common Stock") equal to the
aggregate Stated Value of the shares of Series C Convertible Preferred Stock
divided by the then effective Conversion Price (as defined below) and any
accrued and unpaid dividends shall then be payable in accordance with Section 2
above.

        (b) Automatic Conversion. At any time following 180 days after the
effectiveness of the Registration Statement, each share of Series C Convertible
Preferred Stock shall automatically be converted into shares of Common Stock
equal to the Stated Value divided by the then effective Conversion Price on the
sixth (6th) Trading Day following the date that the Corporation provides written
notice to each Holder that immediately following any ten (10) consecutive
Trading Days during which the VWAP is greater than $3.00 (the "Threshold
Appreciation Price"); provided, however, that the Registration Statement remains
effective on the sixth (6th) Trading Day referred to above. In the event of an
automatic conversion as described above, any accrued and unpaid dividends shall
be due and payable on the date of such automatic conversion in accordance with
Section 2 above.

        (c) Conversion Price; Amount; Maximum Share Issuance. The price at which
the Holder may convert shares of the Series C Convertible Preferred Stock (or
any portion thereof) into shares of Common Stock shall be $1.40, subject to
adjustment as provided in Section 4(f) (the "Conversion Price"). In lieu of any
fractional share of Common Stock to which the Holder would otherwise be entitled
upon conversion of shares of the Series C Convertible Preferred Stock, the
number of shares of Common Stock issuable upon conversion thereof shall be
rounded up to the nearest whole number.

        The maximum number of shares of Common Stock (the "Maximum Share
Issuance") initially issuable upon conversion of all or any shares of the Series
C Convertible Preferred Stock (including shares of Common Stock that the
Corporation elects to issue in payment of dividends as provided in Section 2
hereof) dated as of the Initial Issuance Date, between the Corporation and the
original purchasers of the Series C Convertible Preferred Stock) is 3,484,606;
provided, however, that the limitation on conversion of shares of Series C
Convertible Preferred Stock up to the Maximum Share Issuance shall be eliminated
if the Corporation receives approval from its stockholders to issue the maximum
number of shares of Common Stock issuable upon conversion of the Series C
Convertible Preferred Stock upon the terms of this Certificate of Designations
in accordance with the provisions of the Approved Market on which the
Corporation's Common Stock is then listed or traded (the "Stockholder
Approval"). No Holder of Series C Convertible Preferred Stock pursuant to the
Purchase Agreement shall be issued, upon conversion of shares of Series C
Preferred Stock, shares of Common Stock in an

                                       4
<PAGE>
amount greater than the product of (i) the Maximum Share Issuance multiplied by
(ii) a fraction, the numerator of which is the number of shares of Series C
Preferred Stock issued to such Holder pursuant to the Purchase Agreement and the
denominator of which is the aggregate amount of all the shares of Series C
Preferred Stock issued to the Holders pursuant to the Purchase Agreement (the
"Cap Allocation Amount"). In the event that any Holder of Series C Preferred
Stock shall convert all of such Holder's shares of Series C Preferred Stock into
a number of shares of Common Stock which, in the aggregate, is less than such
Holder's Cap Allocation Amount, then the difference between such Holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such Holder shall be allocated to the respective Cap Allocation Amounts of the
remaining Holders of Series C Preferred Stock on a pro rata basis in proportion
to the number of shares of Series C Preferred Stock then held by each such
Holder. If the Corporation obtains the Stockholder Approval, the Corporation
shall be obligated to issue upon conversion of the Series C Preferred Stock, in
the aggregate, shares of Common Stock in excess of the Maximum Share Issuance.

        (d) Mechanics of Conversion.

        (i) To convert shares of the Series C Convertible Preferred Stock in
accordance with Section 4(a), the Holder must (i) complete and sign a Notice of
Conversion in form acceptable to the Corporation (the "Notice of Conversion")
and deliver the Notice of Conversion to the Corporation as herein provided and
(ii) prior to the date on which delivery of Common Stock is required to be made
hereunder, (x) duly endorse and deliver to the Corporation the Series C
Convertible Stock Certificate(s) representing the shares of the Series C
Convertible Preferred Stock being converted and (y) pay any transfer or similar
tax with respect to the delivery of such Series C Convertible Stock
Certificate(s) if required. The Holder shall surrender such Series C Convertible
Stock Certificate(s) and the Notice of Conversion to the Corporation (with an
advance copy by facsimile of the Notice of Conversion). The date on which Notice
of Conversion is given (the "Date of Conversion") shall be deemed to be the date
of receipt by the Corporation of the facsimile of the Notice of Conversion,
provided that such Series C Convertible Stock Certificate(s) are received by the
Corporation within five (5) business days thereafter. The Corporation shall not
be obligated to cause the transfer agent for the Common Stock (the "Transfer
Agent") to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either such Series C Convertible Stock Certificate
has been received by the Corporation or, if such Series C Convertible Stock
Certificate(s) have been lost, stolen or destroyed, the Holder has executed and
delivered to the Corporation an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with the
shares of the Series C Convertible Preferred Stock represented by such Series C
Convertible Stock Certificate(s).

        If the Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, the Holder shall
deliver to the Corporation valid broker information, including DTC number, and
verification that such broker has been instructed to initiate the DWAC transfer
(as defined below) (collectively, the "Broker Information") and, thereafter, the
Corporation shall cause the Transfer Agent

                                       5
<PAGE>
to transmit electronically the shares of Common Stock issuable to the Holder
upon conversion of shares of the Series C Convertible Preferred Stock by
crediting the account of the Holder's prime broker with DTC through DTC's
Deposit Withdrawal Agent Commission ("DWAC") system, within three (3) business
days after delivery to the Corporation of the Broker Information and the
Holder's Series C Convertible Stock Certificate(s). In the event the Holder
otherwise elects in writing, however, the Corporation shall cause the Transfer
Agent to issue and deliver (within such three (3) business day period) to the
address of the Holder on the books of the Corporation, as contemplated by the
Purchase Agreement, or as otherwise directed pursuant to the Notice of
Conversion, a certificate or certificates for the number of shares of Common
Stock to which such Holder shall be entitled as aforesaid. In the event the
Corporation fails to complete such delivery as aforesaid, it shall be
responsible for actual damages incurred by the Holder as a result thereof. The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Notwithstanding that the
Holder is required to deliver the Series C Convertible Stock Certificate(s),
duly endorsed, within five (5) business days after the Date of Conversion, if
such Series C Convertible Certificate(s) are not received by the Corporation
within ten (10) business days after the Date of Conversion, the Corporation may
at its option elect, by written notice given to the Holder within fifteen (15)
business days after the Date of Conversion, elect (A) to treat Notice of
Conversion as null and void or (B) to treat the Notice of Conversion as binding
and require the Holder to deliver the applicable Series C Convertible Stock
Certificate(s). In the event the Corporation elects to treat the Notice of
Conversion as binding, the shares of Series C Convertible Preferred Stock with
respect to which such Notice of Conversion was given shall thereafter no longer
be deemed outstanding and the Holder thereof shall not be entitled to any voting
or other rights attendant thereto, excepting only the right to receive, upon the
delivery to the Corporation of the applicable Series C Convertible Stock
Certificate(s), the shares of Common Stock upon the conversion thereof as
contemplated above.

        Following conversion of a share of the Series C Convertible Preferred
Stock, such share will no longer be outstanding and may not be reissued. In the
event of the conversion of less than all of the shares of the Series C
Convertible Preferred Stock represented by a Series C Convertible Stock
Certificate, the Corporation or its Transfer Agent will issue to the Holder a
new stock certificate representing the number of shares of the Series C
Convertible Preferred Stock not converted or shall endorse the Series C
Convertible Stock Certificate to reflect such conversion.

        If, within three (3) business days of the Corporation's receipt of the
Conversion Notice and the Series C Convertible Stock Certificate(s) to be
converted, the Corporation 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 Convertible Preferred Stock or to issue a
new Series C Convertible Stock Certificate representing the number of shares of
Series C Convertible Preferred Stock to which such Holder is entitled pursuant
to this Section 4(d)(i), in addition to all other available remedies which such
Holder may pursue hereunder and under the Purchase Agreement, the Corporation
shall pay additional damages to such Holder on each business day after such
third (3rd)

                                       6
<PAGE>
business day that such conversion is not timely effected in an amount equal to
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 this Section 4(b)(i) and to
which such Holder is entitled, and, in the event the Corporation has failed to
deliver a Series C Convertible Stock Certificate to the Holder on a timely basis
pursuant to this Section 4(b)(i), the number of shares of Common Stock issuable
upon conversion of the shares of Series C Convertible Preferred Stock
represented by such Series C Convertible Stock Certificate, as of the last
possible date which the Corporation could have issued such Series C Convertible
Stock Certificate to such Holder without violating Section 4(b)(i) and (B) the
VWAP of the Common Stock on the last possible date which the Corporation could
have issued such Common Stock and such Series C Convertible Stock Certificate,
as the case may be, to such Holder without violating this Section 4(b)(i). If
the Corporation fails to pay the additional damages set forth in this Section
4(b)(i) within five (5) business days of the date incurred, then such payment
shall bear interest at the rate of 2% per month (pro rated for partial months)
until such payments are made.

        (ii) Upon conversion due to the event specified in Section 4(b) above,
the holders of Series C Convertible Preferred Stock shall surrender the Series C
Preferred Stock Certificate(s) representing such shares at the office of the
Corporation or the Transfer Agent. Thereupon, there shall be issued and
delivered to such holder in the manner described in Section 4(d)(i) the number
of shares of Common Stock into which the shares of Series C Convertible
Preferred Stock surrendered were convertible on the date on which such automatic
conversion occurred. Upon such automatic conversion, the outstanding shares of
Series C Convertible Preferred Stock shall be converted automatically into
shares of Common Stock without any further action on the part of the holders of
such shares whether or not the certificates representing such shares are
surrendered to the Corporation or its Transfer Agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series C Convertible Preferred Stock are either
delivered to the Corporation or its Transfer Agent or, if such Series C
Convertible Stock Certificate(s) have been lost, stolen or destroyed, the Holder
has executed and delivered to the Corporation an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with the shares of the Series C Convertible Preferred Stock
represented by such Series C Convertible Stock Certificate(s).

        (e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock or shares of Common Stock held in treasury, or both,
solely for the purpose of effecting the conversion of the Series C Convertible
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of the Series C Convertible
Preferred Stock and all other securities of the Corporation convertible or
exchangeable into Common Stock.

                                       7
<PAGE>

        (f) Adjustment to Conversion Price; Maximum Share Issuance.

               (i) If, prior to the conversion of all shares of the Series C
Convertible Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend of shares of Common Stock or other
shares of capital stock, reclassification or other similar event, the Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares or
other similar event, the Conversion Price shall be proportionately increased, in
each case, such that a Holder will have the right to receive upon conversion of
shares of the Series C Convertible Preferred Stock the number of shares of
Common Stock (or other shares of capital stock) of the Corporation that such
Holder would have been entitled to receive had the Holder converted such shares
of the Series C Convertible Preferred Stock immediately prior to such action.
The Threshold Appreciation Price and the Maximum Share Issuance (as defined in
Sections 4(b) and 4(c) above, respectively) shall likewise be proportionately
adjusted upon any increase in the number of outstanding shares of Common Stock
on account of any stock split, stock dividend of shares of Common Stock or other
shares of capital stock, reclassification or other similar event or upon any
decrease in number of outstanding shares of Common Stock on account of any
combination or reclassification of shares or other similar event.

               (ii) In addition to the adjustments set forth above, if the
Corporation distributes to all holders of its Common Stock any of its assets or
debt securities or any rights or warrants to purchase securities other than
Common Stock, then the Conversion Prices shall be adjusted in such a manner as
shall be agreed to by the Corporation and the Holders of at least ninety percent
(90%) of the outstanding shares of Series C Convertible Preferred Stock
(excluding the shares of Series C Preferred Stock beneficially owned by Robert
W. Duggan (the "Duggan Shares")) as shall fairly preserve the economic rights
and benefits of each Holder as contemplated by this Certificate of Designations.
In the event that within 15 days of any such event, the Corporation and such
Holders do not reach an agreement as to the appropriate adjustment, the
Corporation shall retain, and pay for, a nationally recognized investment bank
or accounting firm to determine the appropriate adjustment as soon as possible,
but in any event not later than 45 days, after the date of such event; provided
that such investment bank or accounting firm is mutually agreeable to the
Corporation and at least ninety percent (90%) of the Holders of the outstanding
shares of Series C Convertible Preferred Stock (excluding the Duggan Shares).

               (iii) In the event that, after the Initial Issuance Date, the
Corporation shall (other than (A) upon the exercise, exchange or conversion of
any securities of the Corporation that are exercisable or exchangeable for, or
convertible into, shares of Common Stock and that are outstanding as of the
Initial Issuance Date, (B) upon the issuance of shares of Common Stock to
strategic partners and/or in connection with a strategic merger or acquisition,
(C) upon the issuance of shares of Common Stock or options to purchase shares of
Common Stock to employees, officers, directors, consultants and vendors in
accordance with the Issuer's equity incentive plans in effect on the Initial
Issuance Date, (D) upon the issuance of securities pursuant to a shareholder
rights plan in effect on the Initial Issuance Date, (E) upon the conversion of
any shares of Series C Convertible Preferred Stock or (F) upon the issuance of
shares of Common

                                       8
<PAGE>
Stock to pay dividends as described in Section 2(a) above) at any time while any
shares of the Series C Convertible Preferred Stock are outstanding (x) issue
shares of Common Stock without consideration or at a price per share less than
the then effective Conversion Price (such Conversion Price, the "Minimum Trigger
Price"), (y) issue options, rights or warrants to subscribe for or purchase
Common Stock that provide for (upon the exercise thereof) the issuance of shares
of Common Stock without consideration or at a price per share, which when added
to the price or other consideration received for such options, rights or
warrants, is less than the Minimum Trigger Price or (z) issue securities
convertible into Common Stock having a conversion price less than the Minimum
Trigger Price, the Conversion Price to be in effect after the date of such
issuance shall be adjusted by multiplying the Conversion Price in effect
immediately prior to the date of any such issuances referenced above by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the date of such issuance plus the number of shares of Common
Stock that the aggregate offering price of the total number of shares of Common
Stock so to be issued (or the aggregate issue price of the convertible
securities so to be issued) would purchase at the Minimum Trigger Price and of
which the denominator shall be the number of shares of Common Stock outstanding
on the date of such issuance plus the number of additional shares of Common
Stock to be issued (or into which the convertible securities so to be issued are
initially convertible). In case the price for such securities may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be conclusive. Such
adjustment shall be made successively whenever the date of such issuance is
fixed and, in the event that such options, rights, warrants or convertible
securities (or portions thereof) expire or are otherwise discharged or redeemed
without being exercised or converted, any adjustment in the Conversion Price on
account of the issuance of the same shall be reversed.

               (iv) Adjustments pursuant to this Section 4(f) shall be permanent
unless further adjustments are required pursuant to the terms of this Section
4(f). No adjustment to the Conversion Price pursuant to any of the events or
circumstances set forth herein shall be made unless such adjustment shall be in
an amount of at least one cent ($0.01); provided, however, that any adjustment
that would otherwise be required to be made hereunder but for the fact that it
is less than one cent ($0.01) shall be carried forward and made part of any
subsequent adjustment that (a) when aggregated with prior adjustment(s) that
have not been made because it was (or each of them was) less than one cent
($0.01) or (b) is in excess of one cent ($0.01).

               (v) If any adjustment under this Section 4(f) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.

        (g) Restrictions on Conversion.

               (i) Notwithstanding anything to the contrary set forth in Section
4 of this Certificate of Designations, at no time may a Holder convert shares of
the Series C

                                       9
<PAGE>
Convertible 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 owning more than 4.99% of all of
the Common Stock outstanding at such time; provided, however, that upon a Holder
providing the Corporation with sixty-one (61) days notice (the "Waiver Notice")
that such Holder would like to waive Section 4(g) of this Certificate of
Designations with regard to any or all shares of Common Stock issuable upon
conversion of the Series C Convertible Preferred Stock, this Section 4(g) shall
be of no force or effect with regard to those shares of Series C Convertible
Preferred Stock reference in the Waiver Notice.

               (ii) Notwithstanding anything to the contrary set forth in
Section 4 of this Certificate of Designations, at no time may a Holder convert
shares of the Series C Convertible 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 9.999% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however,
that upon a Holder providing the Corporation with a Waiver Notice that such
Holder would like to waive Section 4(g) of this Certificate of Designations with
regard to any or all shares of Common Stock issuable upon conversion of the
Series C Convertible Preferred Stock, this Section 4(g) shall be of no force or
effect with regard to those shares of Series C Convertible Preferred Stock
reference in the Waiver Notice.

        SECTION 5. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALE OF ASSETS.

        If at any time or from time to time after the Initial Issuance Date,
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in Section 4(f)), then, as part of
such capital reorganization, provisions shall be made so that the holders of
Series C Convertible Preferred Stock shall thereafter have the right to receive
upon conversion of shares of the Series C Convertible Preferred Stock, upon the
basis and the terms and conditions specified herein, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore receivable upon the
conversion of such shares of the Series C Convertible Preferred Stock, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of the holders of Series C Convertible Preferred Stock such that
the provisions hereof shall thereafter be applicable in relation to any shares
of stock or securities thereafter deliverable upon the conversion of shares of
the Series C Convertible Preferred Stock; provided, however, that this Section 5
shall not apply to any Change of Control Transaction (as defined in Section 6)
in respect of which the Holders exercise their rights under Section 6. The
Corporation shall not effect any such capital reorganization unless the
resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligation to deliver to the holders of Series C
Convertible Preferred Stock such shares of stock and/or securities as such
holder is entitled to receive upon conversion in accordance with the foregoing.

                                       10
<PAGE>
        SECTION 6. CHANGE OF CONTROL.

        A "Change of Control Transaction" shall mean, (i) the sale, conveyance
or disposition of all or substantially all of the assets of the Corporation,
(ii) a consolidation or merger of the Corporation with or into any other
"Person" (as defined in the Exchange Act) (whether or not the Corporation is the
surviving Person, but other than a consolidation or merger in which the
surviving corporation (x) is listed on the NASDAQ National Market, the New York
Stock Exchange or the American Stock Exchange and (y) the value of the
consideration to be paid to the stockholders of the Corporation is at least
$1.40 per share of Common Stock (as adjusted for stock dividends, stock splits
or recapitalizations)), or (iii) any Person or any "group" (as such term is used
in Section 13(d) of the Exchange Act), becomes the beneficial owner or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Corporation's
voting power of the capital stock of the Corporation normally entitled to vote
in the election of directors of the Corporation (other than (A) any Person or
any such group that held such voting power as of the Initial Issuance Date or
(B) any group that holds such voting power subsequent to the Initial Issuance
Date, provided that the Persons that constitute such group include the Person or
a majority of the members of, and at least 50% of the voting power held by, a
group referenced in the foregoing clause (A)).

        Upon the notice or occurrence of, or announcement of the Corporation's
intent (or a third party's or parties' intent in the case of Change of Control
Transaction of the type set forth in clause (iii) of the definition of a Change
of Control Transaction) to engage in a Change of Control Transaction, the Series
C Convertible Preferred Stock shall, at the option of the Holder thereof, be
convertible in full upon the terms set forth below; provided that the Holder's
ability to convert the Series C Convertible Preferred Stock pursuant to this
Section 6 shall cease three (3) Trading Days prior to the consummation of a
Change of Control Transaction of the type set forth in clauses (i) and (ii) of
the definition thereof. Upon either the notice of, or the announcement of the
Corporation's intent to engage in, a Change of Control Transaction (of the type
set forth in clauses (i) and (ii) of the definition thereof), the Holder shall
have the right, up to and including the third Trading Day prior to the date of
effectiveness of such Change of Control Transaction, to elect to convert the
Series C Convertible Preferred Stock into a number of shares equal to 135% of
the amount into which such Series C Convertible Preferred Stock would otherwise
be convertible, which conversion, in the case of such Change of Control
Transaction, shall be conditioned upon and shall be effective immediately prior
to consummation of such Change of Control Transaction. Any such election shall
be effectuated by delivery of a Notice of Conversion in accordance with Section
4(d). If the Holder does not make such an election, the provisions of Section 5
shall apply.

        The Corporation shall promptly mail written notice to the Holder of
either the occurrence of, or the announcement of the Corporation's intent to
engage in, a Change of Control Transaction (with a copy sent by facsimile), but
in any event such notice (other than, if applicable, in the case of a Change of
Control Transaction of the type set forth in clause (iii) of the definition of a
Change of Control Transaction) shall not be given less than twenty (20) days
prior to the effective date of such Change of Control Transaction.

                                       11
<PAGE>
        SECTION 7. REACQUIRED SHARES.

        Any shares of the Series C Convertible Preferred Stock redeemed,
purchased, converted or otherwise acquired by the Corporation in any manner
whatsoever shall not be reissued as part of the Series C Convertible Preferred
Stock and shall be retired promptly after the acquisition thereof. All such
shares of the Series C Convertible Preferred Stock upon their retirement and the
filing of any certificate required in connection therewith pursuant to the
Delaware General Corporation Law shall become authorized but unissued shares of
Preferred Stock.

        SECTION 8. EQUALITY.

        All Holders of Series C Convertible Preferred Stock shall be subject to
the same terms and conditions as set forth herein. No Holders of Series C
Convertible Preferred Stock shall be entitled to or receive terms that are more
favorable than those given to any other Holder of Series C Convertible Preferred
Stock. In the event a Holder of Series C Convertible Preferred Stock is given by
the Corporation or receives from the Corporation terms more favorable than those
given by the Corporation or received from the Corporation by any other Holder of
Series C Convertible Preferred Stock, then in such event all Holders of Series C
Convertible Preferred Stock shall be given and entitled to those more favorable
terms.

        SECTION 9. REGISTERED HOLDER.

        The Corporation may for all purposes treat the holder of shares of the
Series C Convertible Preferred Stock registered on the books of the Corporation
as the Holder, notwithstanding any notice or claim by any other Person with
respect to any interest in such shares.

        SECTION 10. VOTING RIGHTS.

        (a) Prior to conversion thereof, Holders of the Series C Convertible
Preferred Stock shall not be entitled to any of the rights of a holder of Common
Stock, including without limitation, the right to vote or to attend any meetings
of common stockholders or any other proceedings of the Corporation and shall
only be entitled to such voting rights as are provided by Delaware law and as
set forth in clause (b) below.

        (b) So long as any shares of Series C Convertible Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval of
the Holders of at least ninety percent (90%) of the outstanding shares of Series
C Convertible Preferred Stock (excluding the Duggan Shares): (A) authorize,
create or issue any class or series of stock ranking prior to the Series C
Convertible Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up as provided in Section 12 below; or (B)
sell all or substantially all of the assets of the Corporation or enter into any
transaction related to the sale of the Corporation, including any merger,
consolidation or similar transaction, where the proceeds from such sale to be
distributed to, or received by, the holders of Series C Convertible Preferred
Stock are less than an amount that is sufficient to cover the Liquidation
Preference.

                                       12
<PAGE>
        SECTION 11. RANK.

        All shares of the Series C Convertible Preferred Stock shall rank (i)
prior to the Common Stock, the Corporation's Series A Junior Participating
Convertible Preferred Stock, the Corporation's Series B Convertible Preferred
Stock and prior to any class or series of capital stock of the Corporation
hereafter created other than any series or class of capital stock of the
Corporation (A) that has been consented to by the Holders of at least ninety
percent (90%) of the outstanding shares of Series C Convertible Preferred Stock
(excluding the Duggan Shares), and (B) that specially, by its terms, ranks
senior to or pari passu with the Series C Convertible Preferred Stock (the
Common Stock, the Corporation's Series A Junior Participating Convertible
Preferred Stock, the Corporation's Series B Convertible Preferred Stock and any
class or series of capital stock of the Corporation hereafter created that does
not specifically, by its terms, and in accordance with the terms of this Section
11, rank senior to or pari passu with the Series C Convertible Preferred Stock
being hereinafter referred to collectively as "Junior Securities"); (ii) pari
passu with any class or series of capital stock of the Corporation hereafter
created (A) that has been consented to by the Holders of at least ninety percent
(90%) of the outstanding shares of Series C Convertible Preferred Stock
(excluding the Duggan Shares) and (B) that, specifically by its terms and in
accordance with the terms of this Section 10, ranks on parity with the Series C
Convertible Preferred Stock (the "Pari Passu Securities"); and (iii) junior to
any class or series of capital stock of the Corporation hereafter created (A)
that has been consented to by the Holders of at least ninety percent (90%) of
the outstanding shares of Series C Convertible Preferred Stock (excluding the
Duggan Shares) and (B) that specifically, by its terms, ranks senior to the
Series C Convertible Preferred Stock (all of the foregoing, collectively, the
"Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.

        SECTION 12. LIQUIDATION PREFERENCE.

        (a) If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities
and,

                                       13
<PAGE>
together with the Holders of Series C Convertible Preferred Stock, the Pari
Passu Securities) upon liquidation, dissolution or winding up unless prior
thereto the Holders shall have received the Liquidation Preference (as
hereinafter defined) with respect to each share of Series C Convertible
Preferred Stock. If, upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the Holders and holders of Pari Passu
Securities shall be insufficient to permit the payment to such Holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series C Convertible
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.

        (b) The purchase or redemption by the Corporation of stock of any class
or series, in any manner permitted by law, shall not, for the purposes hereof,
be regarded as a liquidation, dissolution or winding up of the Corporation.
Neither the consolidation or merger of the Corporation with or into any other
entity nor the sale or transfer by the Corporation of all or substantially all
of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation.

        (c) The "Liquidation Preference" with respect to a share of Series C
Convertible Preferred Stock means an amount equal to the Stated Value thereof
plus a premium equal to thirty five percent (35%) of the Stated Value thereof,
and any other amounts that may be due from the Corporation with respect thereto
pursuant to this Certificate of Designations (including, without limitation,
accrued and unpaid dividends), the Purchase Agreement or the Registration Rights
Agreement. The Liquidation Preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Designations filed in respect
thereof and, as applicable, any other agreements related thereto.

        SECTION 13. LOST OR DESTROYED CERTIFICATES.

        If a Series C Convertible Stock Certificate shall be mutilated, lost,
stolen or destroyed, the Corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of such mutilated Series C Convertible
Stock Certificate, or in lieu of or in substitution for a lost, stolen or
destroyed Series C Convertible Stock Certificate, a new Series C Convertible
Stock Certificate for the Series C Convertible Stock Certificate so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such Series C Convertible Stock Certificate, and of the
ownership thereof, and indemnity, if requested, all reasonably satisfactory to
the Corporation.

        SECTION 14. CERTAIN DEFINITIONS.

        (a) Business Day. For purposes hereof, the term "business day" shall
mean any day on which banks are generally open for business in the City of New
York.

                                       14
<PAGE>
        (b) Trading Day. For purposes hereof, the term "trading day" shall mean
any day on which the principal market on which the Common Stock is traded is
open for business.

        (c) Person. For purposes hereof, the term "Person" means an individual
or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, governmental authority or other
entity of any kind.

        SECTION 15. WAIVER AND AMENDMENTS.

        Any waiver by the Corporation or a Holder of a breach of any provision
of this Certificate of Designations shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of the Series C Convertible Preferred Stock. The failure of the
Corporation or the Holder to insist upon strict adherence to any term of this
Certificate of Designations on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Certificate of Designations of
the Series C Convertible Preferred Stock. Any waiver must be in writing. The
provisions of this Certificate of Designations may not be amended, modified or
supplemented unless the same shall be in writing and signed by the Company and
the Holders of at least ninety percent (90%) of the outstanding shares of Series
C Convertible Preferred Stock (excluding the Duggan Shares); provided, however,
any amendment or modification of Section 2 of this Certificate of Designations
shall require the written consent of the Company and at least ninety percent
(90%) of the outstanding shares of Series C-1 Convertible Preferred Stock
(excluding the Duggan Shares) and all of the outstanding shares of Series C-2
Convertible Preferred Stock.

        SECTION 16. UNENFORCEABLE PROVISIONS.

        If any provision of this Certificate of Designations is invalid, illegal
or unenforceable, the remaining provisions of thereof shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and circumstances.

        SECTION 17. COPIES OF AGREEMENTS, INSTRUMENTS, DOCUMENTS.

        Copies of any of the agreements, instruments or other documents referred
to in this Certificate of Designations shall be furnished to any Holder of
Series C Convertible Preferred Stock upon written request to the Corporation at
its principal place of business.

        SECTION 18. NOTICES.

        All notices, demands, requests, consents, approvals or other
communications required or permitted to be given hereunder or that are given
with respect to the Series C Convertible Preferred Stock shall be in writing and
shall be personally served or deposited in the mail, registered or certified,
return receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below: (i) if to the Corporation, to:
Computer Motion, Inc., 130 Cremona Drive, Goleta, California 93117,

                                       15
<PAGE>
Attention: Larry Redfern, Facsimile No.: (805) 685-9277 (or to such other
address of which notice has been given as herein provided, with copies (which
shall not constitute notice) to: Stradling, Yocca, Carlson & Rauth, 302 Olive
Street Santa Barbara, CA 93101, Attention: David Lafitte, Facsimile No.: (805)
564-1044; and (ii) if to the Holder, to the address of the registered holder
according to the books and records of the Corporation or its transfer agent.
Notice shall be deemed given on the date so served, deposited for mailing,
transmitted by hand delivery, telegram, telex or facsimile or delivered to a
reputable air courier for delivery as contemplated above and shall be deemed
received on the date so served, if served or transmitted by hand delivery,
telegram, telex or facsimile, one business day after being so delivered to a
reputable air courier for delivery as contemplated above or three business days
after being so mailed as contemplated above.

                                       16
<PAGE>

        IN WITNESS WHEREOF, COMPUTER MOTION, INC. has caused this Certificate of
Designations to be executed by its Chief Executive Officer and attested to by
its Secretary this 31st day of October, 2002.

                                      COMPUTER MOTION, INC.

                                      /s/ Robert W. Duggan
                                      --------------------------------------
                                      Robert W. Duggan, Chief Executive Officer

ATTEST:

/s/ Eugene W. Teal
----------------------------------
Eugene W. Teal, Secretary

                                       17

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