Document:

CERTIFICATE OF DESIGNATION
                          OF RIGHTS AND PREFERENCES OF
                           SERIES B PREFERRED STOCK OF
                                AXM PHARMA, INC.

Pursuant to N.R.S.  78.1955,  AXM Pharma, Inc. (the "Company") hereby amends its
Articles of Incorporation as follows:

         I.  Article IV of the  Company's  Articles  of  Incorporation  shall be
amended by adding the following after the existing provisions of such article:

         1.  DESIGNATION,  AMOUNT,  PAR  VALUE,  AND RANK.  The  Company  hereby
designates the issuance of a series of Preferred  Stock to be called the "Series
B  Convertible  Preferred  Stock" (the  "Series B Preferred  Stock").  The total
number of shares of Series B Preferred Stock that the corporation shall have the
authority to issue is  2,000,000.  Each share of Series B Preferred  Stock shall
have a par value of $.001 per share.

         2.  VOTING  RIGHTS.  The holder of each share of the Series B 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 B  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 B Preferred  Stock held by each holder could
be converted)  shall be rounded to the nearest whole number (with one-half being
rounded upward).

         3.  DIVIDEND  PROVISIONS.  The holders of the Series B Preferred  Stock
shall be entitled to  receive,  when and as declared by the Board of  Directors,
dividends in such amounts as may be  determined  by the Board of Directors  from
time to time out of funds legally available  therefor.  No dividends (other than
those  payable  solely in Common Stock) shall be paid on the Common Stock during
any fiscal year of the Company  until there shall have been paid or declared and
set apart  during  that  fiscal  year for the  holders of the Series B Preferred
Stock a  dividend  in an amount  per share  equal to (i) the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock times (ii)
the  amount  per  share  of  the  dividend  to be  paid  on  the  Common  Stock.
Notwithstanding the foregoing, the holders of Series B Preferred Stock shall not
be entitled to paid any dividends  dividends (other than those payable solely in
Common  Stock) until such time as there shall have been paid or declared and set
apart during that fiscal year for the holders of the Series A Preferred  Stock a
dividend  in an  amount  per share  equal to (i) the  number of shares of Common

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Stock  issuable upon  conversion of the Series A Preferred  Stock times (ii) the
amount per share of the dividend to be paid on the Series B Preferred Stock.

         4. PREFERENCE AS TO LIQUIDATION.  (a) In the event of any  liquidation,
dissolution or winding up of the Company, either voluntary and involuntary,  the
holders of each share of the  Series B  Preferred  Stock  shall be  entitled  to
receive,  prior and in  preference to any  distribution  of any of the assets or
surplus  funds  of the  Company  to the  Common  Stock  holders  but  after  any
distribution  of the  assets or  surplus  funds of the  Company  to the Series A
Preferred  Stock  holders,  an  amount  equal  to (i) all  declared  and  unpaid
dividends on each such share;  plus (ii) an amount per share equal to greater of
(A) the original  issue price ($2.25),  as adjusted for any stock splits,  stock
dividends,  recapitalizations  or similar  occurrences,  as set forth in Section
5(d)  herein,  plus  interest of 8% per annum on such  original  issue price (as
adjusted) accumulated, but not compounded, from the date of issuance to the date
on which the  liquidation  preference  is paid or (B) the  amount  that would be
receivable if the Series B Preferred  Stock had been converted into Common Stock
immediately prior to such liquidation distribution.  In the event the assets and
funds of the Company are insufficient to pay the entire  liquidation  preference
of the Series B Preferred  Stock,  the holders thereof will share ratably in the
assets and funds of the Company in  proportion to the  preferential  amount each
such holder is otherwise entitled to receive.

         (b) A  consolidation  or merger of the  Company  with or into any other
corporation or corporations  wherein the Company is not the surviving company or
the Company's  shareholders do not constitute a majority of the  shareholders of
the surviving  company,  or a sale of all or substantially  all of the assets of
the  Company  to a  company  in which  the  Company's  shareholders  are not the
majority  shareholders,  shall be deemed  to be a  liquidation,  dissolution  or
winding up for purposes of this section.

         5. CONVERSION RIGHTS

         (a) Right to Convert.  Each share of Series B Preferred  Stock shall be
convertible,  at the option of the holder thereof, at any time after the date of
issuance  of such share at the office of the Company or any  transfer  agent for
such stock,  into such number of fully paid and  nonassessable  shares of Common
Stock as is  determined  by  dividing  $2.25 by the  Series B  Conversion  Price
applicable to such share,  determined as hereinafter  provided, in effect on the
date the certificate is surrendered for conversion. The price at which shares of
Common  Stock shall be  deliverable  upon  conversion  of shares of the Series B
Preferred  Stock (the "Series B Conversion  Price") shall initially be $2.25 per
share of Common Stock.  Such initial Series B Conversion Price shall be adjusted
as hereinafter provided.

         (b)  Mechanics of  Conversion.  Before any holder of Series B Preferred
Stock shall be entitled  to convert  the same into  shares of Common  Stock,  he
shall surrender the certificate or certificates  thereof,  duly endorsed, at the
office of the Company or of any  transfer  agent for such stock,  and shall give
written  notice to the Company at such office that he elects to convert the same
and shall state therein the name or names in which he wishes the  certificate or
certificates for shares of Common Stock to be issued. The Company shall, as soon
as  practicable  thereafter,  issue and deliver at such office to such holder of
Series B Preferred Stock, a certificate or certificates for the number of shares

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of Common  Stock to which he shall be entitled  as  aforesaid.  Such  conversion
shall be deemed to have been made immediately  prior to the close of business on
the date of surrender of the shares of Series B Preferred Stock to be converted,
and 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.

         (c)  Adjustments  to Series B  Conversion  Price for  Certain  Diluting
Issues.

                  (i) For purposes of this Section,  the  following  definitions
apply:

                           (a) "Options" shall mean rights, options, or warrants
                  to subscribe for,  purchase or otherwise acquire either Common
                  Stock or Convertible Securities.

                           (b)  "Original  Issue  Date"  shall  mean the date on
                  which a share of Series B Preferred Stock was first issued.

                           (c) "Convertible Securities" shall mean any evidences
                  of indebtedness,  shares (other than Common Stock and Series B
                  Preferred  Stock)  or  other  securities  convertible  into or
                  exchangeable for Common Stock.

                           (d)  "Additional  Shares of Common  Stock" shall mean
                  all shares of Common  Stock  issued  (or,  pursuant to Section
                  5(c)(iii),  deemed  to be  issued)  by the  Company  after the
                  Original Issue Date,  other than shares of Common Stock issued
                  or issuable:

                                    (1) upon  conversion of shares of the Series
                           A or Series B Preferred Stock;

                                    (2) to  officers,  directors  or  bona  fide
                           employees of, or consultants to, the Company pursuant
                           to stock option or stock  purchase plans and reserved
                           for issuance upon exercise of warrants outstanding on
                           the   Original   Issue  Date  and  for  issuance  for
                           services,   on  terms   approved   by  the  Board  of
                           Directors,  but not  exceeding  1,300,000  shares  of
                           Common Stock (net of any repurchases of such shares),
                           subject  to  adjustment  for  all   subdivisions  and
                           combinations;

                                    (3) as a  dividend  or  distribution  on the
                           Series A or Series B Preferred Stock; or

                                    (4) for which  adjustment of the Series A or
                           Series B Conversion Price is made pursuant to Section
                           5(d) or otherwise.

                  (ii) No adjustment  in the Series B Conversion  Price shall be

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         made in respect of the  issuance of  Additional  Shares of Common Stock
         unless the  consideration  per share  (determined  pursuant  to Section
         5(c)(v)  hereof)  for an  Additional  Share of Common  Stock  issued or
         deemed to be issued by the Company is less than the Series B Conversion
         Price in effect on the date of and immediately prior to such issue.

                  (iii) In the  event  the  Company  at any time or from time to
         time  after  the  Original  Issue  Date  shall  issue  any  Options  or
         Convertible Securities or shall fix a record date for the determination
         of holders of any class of securities then entitled to receive any such
         Options or  Convertible  Securities,  then the maximum number of shares
         (as set forth in the instrument  relating thereto without regard to any
         provisions  contained  therein designed to protect against dilution) of
         Common Stock issuable upon the exercise of such Options or, in the case
         of  Convertible  Securities  and Options  therefor,  the  conversion or
         exchange  of  such  Convertible  Securities,  shall  be  deemed  to  be
         Additional  Shares of Common  Stock issued as of the time of such issue
         or, in case such a record date shall have been  fixed,  as of the close
         of business on such record date,  provided  that  Additional  Shares of
         Common  Stock  shall  not be  deemed to have  been  issued  unless  the
         consideration per share (determined pursuant to Section 5(c)(v) hereof)
         of such Additional Shares of Common Stock would be less than the Series
         B Conversion  Price in effect on the date of and  immediately  prior to
         such  issue,  or such  record  date,  as the case may be, and  provided
         further  that in any such  case in which  Additional  Shares  of Common
         Stock are deemed to be issued:

                           (a) No further adjustments in the Series B Conversion
                  Price shall be made upon the  subsequent  issue of Convertible
                  Securities or shares of Common Stock upon the exercise of such
                  Options  or  conversion   or  exchange  of  such   Convertible
                  Securities;

                           (b) If such  options  or  Convertible  Securities  by
                  their terms  provide,  with the passage of time or  otherwise,
                  for any increase in the consideration  payable to the Company,
                  or decrease in the number of shares of Common Stock  issuable,
                  upon the exercise,  conversion or exchange thereof, the Series
                  B Conversion  Price  computed upon the original  issue thereof
                  (or  upon  the  occurrence  of  a  record  date  with  respect
                  thereto), and any subsequent adjustments based thereon, shall,
                  upon any such  increase or  decrease  becoming  effective,  be
                  recomputed to reflect such increase or decrease  insofar as it
                  affects such Options or the rights of  conversion  or exchange
                  under such Convertible Securities (provided,  however, that no
                  such adjustment of the Series B Conversion  Price shall effect
                  Common Stock previously issued upon conversion of the Series B
                  Preferred Stock); and

                           (c) Upon the  expiration  of any such  Options or any
                  rights  of  conversion  or  exchange  under  such  Convertible
                  Securities  which shall not have been exercised,  the Series B
                  Conversion  Price computed upon the original issue thereof (or
                  upon the  occurrence  of a record date with respect  thereto),

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                  and any subsequent adjustments based thereon, shall, upon such
                  expiration, be recomputed as if:

                                    (1) In the case of Convertible Securities or
                           Options for Common Stock the only  Additional  Shares
                           of  Common  Stock  issued  were the  share of  Common
                           Stock,  if any,  actually issued upon the exercise of
                           such  Options or the  conversion  or exchange of such
                           Convertible Securities and the consideration received
                           therefor was the  consideration  actually received by
                           the  Company  for  the  issue  of all  such  Options,
                           whether  or not  exercised,  plus  the  consideration
                           actually  received by the Company upon such exercise,
                           or for the issue of all such  Convertible  Securities
                           which were actually converted or exchanged,  plus the
                           additional  consideration,  if any, actually received
                           by the Company upon such conversion or exchange and

                                    (2) In the case of Options  for  Convertible
                           Securities only the Convertible  Securities,  if any,
                           actually issued upon the exercise thereof were issued
                           at the  time  of  issue  of  such  Options,  and  the
                           consideration  received  by the Company for the issue
                           of all such Options,  whether or not exercised,  plus
                           the consideration deemed to have been received by the
                           Company  (determined  pursuant to Section  5(c)(viii)
                           upon the  issue of the  Convertible  Securities  with
                           respect  to  which   such   Options   were   actually
                           exercised.

                  (iv) In the event the Company,  at any time after the Original
         Issue Date shall issue  Additional  Shares of Common  Stock  (including
         Additional  Shares of Common  Stock  deemed  to be issued  pursuant  to
         Section  5(c)(iii))  without  consideration or for a consideration  per
         share less than the Series B Conversion  Price in effect on the date of
         and immediately prior to such issue, then and in such event, the Series
         B Conversion Price shall be reduced, concurrently with such issue, to a
         price  (calculated to the nearest cent)  determined by multiplying such
         Series B Conversion  Price by a fraction,  the numerator of which shall
         be the number of shares of Common Stock  outstanding  immediately prior
         to such  issue  plus the  number of shares  of Common  Stock  which the
         aggregate consideration received by the Company for the total number of
         Additional  Shares of Common  Stock so issued  would  purchase  at such
         Series B Conversion  Price,  and the  denominator of which shall be the
         number of shares of Common Stock outstanding  immediately prior to such
         issue  plus the  number of such  Additional  Shares of Common  Stock so
         issued. For the purpose of the above calculation,  the number of shares
         of Common Stock  outstanding  immediately  prior to such issue shall be
         calculated  on a fully  diluted  basis,  as if all  shares  of Series B
         Preferred Stock and all convertible securities had been fully converted
         into shares of Common Stock and any  outstanding  warrants,  options or
         other  rights  for the  purchase  of  shares  of stock  or  convertible
         securities had been fully exercised (and the resulting securities fully
         converted into shares of Common Stock,  if so  convertible)  as of such

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         date, but not including any such  calculation  of additional  shares of
         Common  Stock  issuable  with  respect to shares of Series B  Preferred
         Stock,  Convertible  Securities,  or outstanding  options,  warrants or
         other  rights  for the  purchase  of  shares  of stock  or  convertible
         securities,  solely as a result  of the  adjustment  of the  respective
         conversion  prices  (or other  conversion  ratios)  resulting  from the
         issuances of Additional Shares of Common Stock causing such adjustment.

                  (v) For  purposes  of this  Section  5(c),  the  consideration
         received  by the  Company  for the  issue of any  Additional  Shares of
         Common Stock shall be computed as follows:

                           (a) Cash and property shall:

                                    (1)  insofar  as it  consists  of  cash,  be
                           computed at the aggregate  amount of cash received by
                           the  Company  excluding  amounts  paid or payable for
                           accrued interest or accrued dividends;

                                    (2) insofar as it consists of property other
                           than cash,  be computed at the fair value  thereof at
                           the time of such issue,  as  determined in good faith
                           by,  and  reflected  in a formal  resolution  of, the
                           Board of Directors; and

                                    (3) in the event Additional Shares of Common
                           Stock  are  issued  together  with  other  shares  or
                           securities   or  other  assets  of  the  Company  for
                           consideration which covers both, be the proportion of
                           such consideration so received,  computed as provided
                           in clauses (A) and (B) above,  as  determined in good
                           faith by, and  reflected in a formal  resolution  of,
                           the Board of Directors.

                           (b)  The  consideration  per  share  received  by the
                  Company for  Additional  Shares of Common Stock deemed to have
                  been issued pursuant to Section  5(c)(iii)(c)(1),  relating to
                  Options and  Convertible  Securities,  shall be  determined by
                  dividing

                                    (1) the total  amount,  if any,  received or
                           receivable  by the Company as  consideration  for the
                           issue of such Options or Convertible Securities, plus
                           the   minimum    aggregate   amount   of   additional
                           consideration   (as  set  forth  in  the  instruments
                           relating  thereto,  without  regard to any  provision
                           contained   therein   designed  to  protect   against
                           dilution) payable to the Company upon the exercise of
                           such  Options or the  conversion  or exchange of such
                           Convertible Securities, or in the case of Options for
                           Convertible Securities,  the exercise of such Options
                           for  Convertible  Securities  and the  conversion  or
                           exchange of such Convertible Securities by

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                                    (2) the  maximum  number of shares of Common
                           Stock  (as  set  forth  in the  instruments  relating
                           thereto,  without  regard to any provision  contained
                           therein  designed to protect  against  the  dilution)
                           issuable   upon  the  exercise  of  such  Options  or
                           conversion   or   exchange   of   such    Convertible
                           Securities.

                  (vi) The  rights  of the  Series  B  Preferred  Stock  Holders
         provided in this Section 5(c) shall expire on the date that is one year
         from the Original Issue Date.

         (d)  Adjustments  to  Series B  Conversion  Price for  Combinations  or
Subdivisions  of Common Stock. In the event that the Company at any time or from
time to time after the Original  Issue Date shall declare or pay any dividend on
the  Common  Stock  payable in Common  Stock or in any right to  acquire  Common
Stock, or shall effect a subdivision of the  outstanding  shares of Common Stock
into  a  greater   number  of   shares   of  Common   Stock  (by  stock   split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common  Stock  shall  be  combined  or  consolidated,   by  reclassification  or
otherwise,  into a lesser  number of shares of Common  Stock,  then the Series B
Conversion Price in effect  immediately prior to such event shall,  concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as  appropriate.  In the event that the Company  shall  declare or pay,  without
consideration,  any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration  then the Company shall be deemed to have made
a dividend  payable in Common  Stock in an amount of shares equal to the maximum
number of shares issuable upon exercises of such rights to acquire Common Stock.

         (e)  Adjustments  for  Reclassifications  and  Reorganizations.  If the
Common Stock issuable upon  conversion of the Series B Preferred  Stock shall be
changed  into the same or a  different  number of  shares of any other  class or
classes  of  stock,  whether  by  capital  reorganization,  reclassification  or
otherwise  (other than a subdivision or  combination  of shares  provided for in
Section  5(d) above or a merger or other  reorganization  referred to in Section
4(b) above),  the Series B Conversion  Price then in effect shall,  concurrently
with  the  effectiveness  of  such   reorganization  or   reclassification,   be
proportionately  adjusted  so  that  the  Series  B  Preferred  Stock  shall  be
convertible  into,  in lieu of the  number of shares of Common  Stock  which the
holders would  otherwise  have been  entitled to receive,  a number of shares of
such  other  class or  classes  of stock  equivalent  to the number of shares of
Common  Stock  that would have been  subject  to  receipt  by the  holders  upon
conversion of the Series B Preferred Stock immediately before that change.

         (f) Beneficial  Ownership.  The Company shall not effect any conversion
of the  Series B  Preferred  Stock,  and no  person  who is a holder of Series B
Preferred  Stock shall have the right to convert  its Series B  Preferred  Stock
into Common Stock,  to the extent that after giving  effect to such  conversion,
such person (together with such person's  affiliates) would  beneficially own in
excess of 4.99% of the shares of the Common Stock outstanding  immediately after

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giving effect to such conversion.  For purposes of the foregoing  sentence,  the
aggregate number of shares of Common Stock beneficially owned by such Person and
its affiliates shall include, without limitation, the number of shares of Common
Stock issuable upon  conversion of the Series B Preferred  Stock with respect to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i)  conversion  of the  remaining,
unconverted shares of Series B Preferred Stock beneficially owned by such person
and its  affiliates,  and (ii)  exercise or  conversion  of the  unexercised  or
unconverted portion of any other securities of the Company beneficially owned by
such Person and its affiliates (including,  without limitation,  any debentures,
convertible  notes or  convertible  preferred  stock or  warrants)  subject to a
limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein.  Except as set forth in the  preceding  sentence,  for  purposes of this
paragraph,  beneficial  ownership shall be calculated in accordance with Section
13(d) of the Securities  Exchange Act of 1934, as amended.  For purposes of this
Section 5(f), in determining the number of outstanding shares of Common Stock, a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the  Company's  most recent Form 10-Q,  Form 10-K or other public  filing
with the  Securities  and  Exchange  Commission,  as the case may be, (2) a more
recent  public  announcement  by the  Company,  or (3) any  other  notice by the
Company or its transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of any
holder of Series B Preferred  Stock,  the Company shall within two business days
confirm  orally  and in  writing  to such  holder the number of shares of Common
Stock then outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined  after giving effect to the  conversion or exercise of
securities of the Company by such holder and its affiliates since the date as of
which  such  number  of  outstanding  shares of Common  Stock was  reported.  In
effecting the conversion of the Series B Preferred  Stock,  the Company shall be
entitled  to rely on a  representation  by the holder of such shares of Series B
Preferred  Stock  as to the  number  of  shares  that it  beneficially  owns for
purposes of the above 4.99% limitation calculation.

         By written  notice to the Company,  the holder may waive the provisions
of this  Section but any such waiver  will not be  effective  until the 65th day
after such notice is delivered to the Company.

         6. AMENDMENT.  Any term relating to the Series B Preferred Stock may be
amended and the observance of any term relating to the Series B Preferred  Stock
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively or prospectively) only with the vote or written consent of holders
of at least  fifty-one  percent  (51%)  of all  Series B  Preferred  Stock  then
outstanding;  provided,  however, that in determining whether the holders of the
requisite  shares of Series B  Preferred  Stock have given any vote,  consent or
other authorization,  shares of Series B Preferred Stock owned by the Company or
any subsidiary thereof shall be disregarded and not be deemed to be outstanding.
Any  amendment  or waiver so effected  shall be binding upon the Company and all
holders of Series B Preferred Stock.

         7. NO  REISSUANCE  OF SERIES B PREFERRED  STOCK.  No share or shares of
Series B Preferred  Stock  acquired by the  Company by reason of  conversion  or

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otherwise shall be reissued, and all such shares shall be canceled,  retired and
eliminated from the shares which the Company shall be authorized to issue.

         8.  RESTRICTIONS  AND  LIMITATIONS.  So long as any  shares of Series B
Preferred Stock remain  outstanding,  the Company shall not, without the vote or
written consent by the holders of at least  fifty-one  percent (51%) of the then
outstanding shares of Series B Preferred Stock:

         (a) Effect any reclassification,  recapitalization or other change with
respect to any  outstanding  shares of stock  which  results in the  issuance of
shares of stock having any  preference  or priority as to dividend or redemption
rights, liquidation preferences, conversion rights or otherwise, superior to any
such preference or priority of the Series B Preferred Stock, or

         (b) Authorize or issue, or obligate  itself to issue,  any other equity
security  senior  to or on a parity  with the  Series  B  Preferred  Stock as to
dividend or redemption  rights,  liquidation  preferences,  conversion rights or
otherwise, or create any obligation or security convertible into or exchangeable
for, or having any option rights to purchase,  any such equity security which is
senior to the Series B Preferred Stock, or

         (c) Amend,  alter or repeal the  preferences,  special  rights or other
powers of the  Series B  Preferred  Stock,  or  otherwise  amend  the  Company's
Articles  of  Incorporation,  so as to effect  adversely  the Series B Preferred
Stock.

         For purposes of this Section 8, in  determining  whether the holders of
the requisite shares of Series B Preferred Stock have given any vote, consent or
other authorization,  shares of Series B Preferred Stock owned by the Company or
any subsidiary thereof shall be disregarded and not be deemed to be outstanding

         9.  MISCELLANEOUS  PROVISIONS.  (a) The  Company  shall not engage in a
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action, in order to avoid or seek to avoid the
observance  or  performance  of any of the  terms to be  observed  or  performed
hereunder  by the  Company  and will at all  times in good  faith  assist in the
carrying  out of all the  provisions  of and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.

         (b) The Company  shall at all times  reserve and keep  available out of
its  authorized but unissued  shares of Common Stock,  solely for the purpose of
effecting  the  conversion of the shares of the Series B Preferred  Stock,  such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued  shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding  shares
of the Series B Preferred  Stock, the Company will take such corporate action as
may, in the opinion of its counsel,  be necessary to increase its authorized but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to

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obtain the  requisite  shareholder  approval of any  necessary  amendment to its
Articles of Incorporation.

         (c) No  fractional  share  shall be issued upon the  conversion  of any
share or  shares of  Series B  Preferred  Stock.  All  shares  of  Common  Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series B Preferred Stock by a holder thereof shall be aggregated for purposes of
determining  whether  the  conversion  would  result  in  the  issuance  of  any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the  issuance  of a fraction of a share of Common  Stock,  the Company
shall,  round the number of shares to be issued upon  conversion  up to the next
whole number.

         (d) Any  notice  required  by the  provisions  of this  Certificate  of
Designation  to be given to the  holders of Series B  Preferred  Stock  shall be
deemed given if  deposited  in the United  States  mail,  postage  prepaid,  and
addressed to each holder of record at his address  appearing on the books of the
Company.

         IN WITNESS WHEREOF, the undersigned,  being the Chief Executive Officer
and President of the Company,  has executed this Certificate of Designation this
30th day of December, 2003.

-----------------------
Name: Peter Cunningham
Title:   Chief Executive Officer and President

                                       10<PAGE>

                                LICENSE AGREEMENT

         THIS LICENSE AGREEMENT is made and entered into on December 9, 1993 by
and between DR. BUDIMIR S. DRAKULIC, a resident of California, residing at 10751
Wilshire Boulevard, PH. 9, Los Angeles, California 90024 ("Drakulic" or
"Licensor") and Teledyne Electronic Technologies, a division of Teledyne
Industries, Inc. ("Teledyne"), a California corporation, having the offices of
its Marina del Rey facility at 12964 Panama Street, Los Angeles, California
90066, Telecopier No. (310) 822-4692.

         WHEREAS, Licensor possesses certain technology and owns valuable
know-how which generally pertains to the manufacture, assembly, sale,
distribution, servicing, installing, use, leasing and testing of brain wave
sensing and recording analysis equipment;

         Teledyne desires to obtain the right to use certain of such technology
and know-how for the manufacture and sale of certain products;

         NOW, THEREFORE, in consideration of the premises and mutual promises,
terms and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties do hereby agree as follows:

I.       DEFINITIONS

         As used herein, the following terms shall have the following
definitions,

         1.1 Affiliates. "Affiliates" shall mean any business entity controlled
by, controlling or under common control with any party hereto, with "control"
being interpreted broadly.

         1.2 Business Day. "Business Day" shall mean a day on which banks are
open for business in Los Angeles, California.

         1.3 Dollars. "Dollars" or "$" shall mean lawful money of the United
States of America in immediately available funds.

         1.4 Effective Date. "Effective Date" shall mean the date on which the
Agreement is executed by the last of Drakulic and Teledyne.

         1.5 Invoice Price. "Invoice Price" shall mean the invoiced sale price
of a Product F.O.B. common carrier in Los Angeles, California, of Teledyne (or
Teledyne's sublicense or assignee in the event of a sublicense or assignment),
but shall exclude: (i) any taxes, freight, shipping, transport, handling,
packaging, insurance, export fees, duties, discounts, rebates, and similar such
charges when listed separately; and (ii) the amounts paid to Drakulic for any
components, parts or the materials purchased in connection with the manufacture
or assembly of such Product.

         1.6 Payment Period. "Payment Period" shall mean the period commencing
on the Effective Date and ending on the next March 31, June 30, September 30, or
December 31, whichever occurs first, and then each tree (3) month period
thereafter for as long as Teledyne sells Product.

         1.7 Product. "Product" shall mean the products, and only the products,
described in Exhibit A attached hereto and made a part hereof.

<PAGE>

         1.8 Technology. "Technology" shall mean any and all inventions and
discoveries, whether patentable or not (including without limitation any and all
patents and patent applications resulting therefrom), processes, trade secrets,
copyrights, mask work rights, know-how, computer programs and software and
hardware relating thereto, computer source codes, methods, contrivances, plans,
processes, specifications, experiments, circuit descriptions, suggested circuit
board layouts, parts lists, test fixtures and procedures, manuals, instruction
devices, layouts, schematics, drawings, prototypes, system operating maintenance
and instruction manuals and other intellectual property rights which have been
created by or at the direction of Licensor or any person or entity on behalf of
Licensor or directly or indirectly engaged by Licensor and (including without
limitation all subcontractors, consultants and R&D partners or team members)
which have been, are or will be used to manufacture, assemble, sell, distribute,
use, install, service or test the Product. A description of the Product is set
forth in Exhibit A attached hereto and made a part hereof.

II. GRANTS OF RIGHTS

         2.1      Ownership of Technology and Products.

                  (a) Licensor represents and warrants to Teledyne that all
right, title and interest in and to the Technology and the Products is currently
owned by Licensor.

                  (b) Licensor hereby represents and warrants to Teledyne that
Licensor has and shall maintain full power and authority to use, license, grant
rights to or otherwise dispose of the Technology and the Products without
infringing a third party's patent or other rights in the Technology.

                  (c) Licensor shall deliver to Teledyne an opinion of
Licensor's patent counsel that Licensor has the right to grant the licenses
granted hereunder.

                  (d) The failure of Licensor to comply with any of the
representations or warranties in Article 2.1(a) or (b) hereof at any time after
the Effective Date shall constitute a material breach of this Agreement.

         2.2      Exclusive License of Technology and Products.

                  (a) Licensor hereby grants to Teledyne during the term of the
Agreement the world-wide right and license to use and practice the Technology in
order to make, use and sell the Products and only the Products. This right and
license includes, without limitation, the rights: (i) to manufacture, assemble,
sell, distribute, lease, install, test, repair, service and use any and all
Products; (ii) to maintain the Products; (iii) to practice the methods and
processes involved in the use of the Products; (iv) to make and have made, to
use and have used, and to maintain and have maintained machines, tools,
instrumentalities and materials in connection with the manufacture, assembly,
installation, testing, repair, servicing and use of the Products; and (v) to use
and have used methods and processes insofar as such machines, tools,
instrumentalities, materials, methods and processes are involved in or
incidental to the development, manufacture, installation, testing or repair of
the Products. The rights granted with respect to the manufacture of the Products
for sale or lease shall be exclusive but Licensor shall have full right and
license to use and practice the Technology and any improvements and to make, use
and sell products incorporating the Technology as long as such products do not
directly compete with the Products.

                  (b) Teledyne agrees that Licensor shall retain all patent
rights for the Technology and the Products.

                  (c) As soon as practicable after the Effective Date, but in no
event later that sixty (60) days after the Effective Date, Licensor shall
provide to Teledyne, at no additional cost to Teledyne, all of the information
and other documentation in Licensor's possession with respect to the Technology.

                  (d) Teledyne shall have the right to sublicense or assign any
of the rights and licenses granted hereunder, so long as each sublicense or
assignee agrees to be bound by all of the terms and conditions contained in this
Agreement as if any reference herein to Teledyne referred also to such
sublicense or assignee.

                                       2
<PAGE>

         III. COMPENSATION PAYABLE TO LICENSOR

         3.1      Royalty.

                  (a) Teledyne agrees to pay Licensor, for granting the rights
and licenses described in Article II hereof.

                           (1) Eighty-five Thousand ($85,000) on or before
December 1, 1993, plus

                           (2) a royalty for each and every Product manufactured
or sold by or on behalf of Teledyne, its sublicensees or its assigns (excluding
returns) during the term of the Agreement. Such royalty for a Product shall be
equal to the amount which is five percent (5%) of the Invoice Price for such
product, plus

                           (3) Patent application fees including legal fees (for
Ellsworth Roston of Roston & Schwartz or, in the event he is unavailable, such
other patent counsel as shall be mutually agreed upon by the parties) on an
"actual cost basis" as billed, in an amount not to exceed $25,000, for the
Products covered in this Agreement.

                  (b) If a Product and several other items are sold and invoiced
together (including without limitation those situations where the Product is a
component of a larger product or system), the discount on such sale shall be
computed as a fraction, the numerator of which is the then-current list price of
such Product and the denominator of which is the sum of Teledyne's then-current
list price for such Product and other items. Upon the sale of such Product and
other items or such larger product or system, the royalty payable to Licensor
pursuant to this Article III for such Product shall be the percentage royalty
otherwise provided for under this Article 3.1 applied to the following amount:
(i) Teledyne's then-current list price for such Product and other items or such
larger product or system, multiplied by (ii) the discount, as computed above.

                  (c) Teledyne shall not be required to pay any royalty with
respect to any Product sold or leased to Licensor or any of Licensor's
Affiliates. In addition, it is contemplated that up to five (5) development or
beta site contracts may be entered into primarily for the purposes of
development and testing at rates which will not include profit for Teledyne
(hereinafter "Development Contracts"). It is understood and agreed that Teledyne
will be relieved of royalty payment obligations with respect to these
Development Contracts.

         3.2 Contents of Teledyne's Reports. Teledyne shall deliver to Licensor
within thirty (3) days after the end f each Payment Period a written report
describing, for the applicable Payment Period: (a) the number and full
description of each Product manufactured and sold by or on behalf of Teledyne,
its sublicensees or its assigns during such Payment Period; (b) the Invoice
Price for each such Product; (c) the name and address of the Purchases; and (d)
the total royalty due on such Invoice Prices under Article 3.1 hereof.

         3.3 Royalties Mistakenly Paid on Returned Products. If Teledyne pays a
royalty on a Product which has been or is subsequently returned to Teledyne, its
sublicensees or its assigns, the amount of the royalty so paid shall be deemed a
credit against royalties payable by Teledyne for subsequent Payment Periods. If
no royalties are payable for a subsequent Payment Period, the remaining balance
of such credits shall be refunded to Teledyne within thirty (30) days after
Licensor's receipt of Teledyne's report for such Payment Period prepared
pursuant to Article 3.2 hereof. Licensor is liable for the full amount of such
refund.

         3.4      Payments of Fees and Royalties.

                  (a) All payments under Article 3.1 hereof shall be made by
wire transfer, to Sanwa Bank California, Account No. 0444-18984. Such bank and
account may only be changed by a written notice to Teledyne which is signed by
Licensor.

                                       3
<PAGE>

                  (b) Whenever any payment hereunder shall be stated to be due
on a day which is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.

                  (c) Payments hereunder shall be considered to be made as of
the day on which they are received in Licensor's designated account.

                  (d) If the Invoice Price of a Product is stated in a currency
other than Dollars, Teledyne may elect to either (i) pay the royalty on such
Product in such other currency; or (ii) convert such Invoice Price into Dollars
at the highest purchase price for Dollars quoted in the Wall Street Journal for
a prime commercial customer to buy Dollars in New York with such other currency
for spot value at or about eleven a.m. (New York time) five (5) Business Days
immediately preceding the date on which the royalty with respect to such Invoice
Price becomes due (the "Payment Date"); provided, however, that: (i) if no such
commercial rate is or can be quoted at such time, such Invoice Price shall be
converted into Dollars at the highest purchase price for Dollars most recently
quoted in the Wall Street Journal for a prime commercial customer to buy Dollars
in New York with such other currency for spot value prior to the Payment Date;
and (ii) if no such commercial rate has been quoted at any time during the
twelve (12) month period preceding the Payment Date, such Invoice Price shall be
deemed to be equal to the Invoice Price (in Dollars) most recently charged by
Teledyne in a sale of such Product in the United States.

         3.5 Teledyne's Books and Records. Teledyne agrees to make and keep full
and accurate books and records in sufficient detail to enable royalties payable
hereunder to be determined.

         3.6 Licensor's Right to Audit.On seven (7) days' prior written notice
to Teledyne, Licensor and Licensor's certified public accountants and other
auditors shall have full access to the books and records of Teledyne pertaining
to activities under this Agreement and shall have the right to make copies
therefrom. Except as provided below, any audit and related expenses shall be at
Licensor's sole expense. Licensor, Licensor's certified public accountants and
other auditors shall have such access at all reasonable times and from time to
time during normal business hours. Prompt adjustment shall be made by the proper
party to compensate for any errors or omissions disclosed by such audit. Only
one such audit may be conducted during any calendar year. If any audit by
Licensor or Licensor's certified public accountant indicates that Teledyne has
underpaid Licensor by at least en percent (10%) for any Payment Period, Teledyne
shall reimburse Licensor for the cost of such audit within thirty (30) after the
completion of such audit and after the written notification by Licensor to
Teledyne of the results of such audit. Teledyne shall also pay Licensor within
such thirty (30) day period any under payment indicated in such audit. If any
such audit indicates that Teledyne has overpaid Licensor by at least ten percent
(10%) for any Payment Period, Licensor shall pay Teledyne within thirty (30)
days after completion of the audit any such overpayment indicated in the audit.

         3.7 Audit Information Confidential. Licensor agrees to hold
confidential all information learned in the course of any examination of
Teledyne's books and records hereunder, except when it is necessary for Licensor
to reveal such information in order to enforce its rights under this Agreement
in court, or similar dispute resolution or enforcement proceeding or action, or
except when compelled by law.

         3.8 Teledyne's Reports Conclusively Correct. All quarterly reports and
payments not disputed as to correctness by Licensor within two (2) years after
receipt thereof shall thereafter conclusively be deemed correct for all
purposes.

IV. PROTECTION OF TECHNOLOGY AND PRODUCTS

         4.1      Infringements.

                  (a) Licensor shall take any and all actions, legal or
otherwise, which it considers necessary or desirable to terminate infringements
of the Technology or any Product or any unfair competition with the Product.
Teledyne shall have the right to be kept informed of the status and progress of
all actions instituted by Licensor pursuant to this Article. Licensor shall
support all motions and other efforts by Teledyne to become a party jointly with
Licensor to such action.

                                       4
<PAGE>

                  (b) Except as is provided in Article 4.1(c) below, each party
hereto shall pay all the fees and expenses of its respective legal counsel
incurred in connection with actions initiated pursuant to this Article. If the
parties hereto agree to use the same legal counsel in any such action, they
shall also agree on their respective responsibilities with respect to payment of
the fees and expenses of such counsel.

                  (c) If Licensor does not institute an action within one
hundred twenty (120) days after receiving notice from Teledyne of an
infringement of the Technology or any Product or any unfair competition with the
Product, Teledyne may institute an action with respect thereto. Licensor shall
have the right to be kept informed of the status and progress of all such
actions instituted by Teledyne pursuant to this Article. Teledyne shall support
all motions and other efforts by Licensor to become a party jointly with
Teledyne to such action. Teledyne shall not be under any obligation to institute
any such action.

                  (d) Any recoveries or settlement proceeds (or parts thereof)
received from suits or settlements involving an action initiated pursuant to
this Article by either party or agreed to relating to the Technology or Products
shall be applied first to reimbursing each party for such fees, expenses and
other costs as it may have incurred (either directly or through the other party
pursuant to Article 4.1(c) above) in connection with such action or settlement,
and then the balance, if any, to be divided between Licensor, on one hand, and
Teledyne, on the other hand, according to a fair determination of each party's
actual and potential losses and damages to which the recovery relates. In the
event Licensor and Teledyne cannot agree on the division between them, the issue
shall be decided by arbitration pursuant to Article 7.3.

         4.2 Use of Name in Suit. Where, in the judgment of the party
prosecuting an action under Article 4.1 hereof, it is necessary to use the other
party's name to prosecute such action, such other party agrees to allow the
prosecuting party to so use the name of such other party; provided, however,
that the prosecuting party agrees to hold such other party harmless against any
award of court costs or damages resulting solely from the use of such other
party's name by the prosecuting party in such action.

         4.3 Detect and Report Infringements. Each party agrees to keep watch to
detect any actual or suspected unauthorized use of the Technology or any Product
and any attempted passing-off by imitation of any Product, and shall notify the
other party in writing of any such actual or suspected unauthorized use and any
such attempted passing-off within thirty (30) days after receiving knowledge of
the actual or suspected unauthorized use or the attempted passing-off; provided,
however, that it shall not be a material breach of this Agreement for mere
negligence of a party in failing to provide such written notice to the other
party as required hereby.

V. DEFENSIVE LITIGATION

         5.1      Actions Brought by Third Parties.

                  (a) Licensor shall indemnify and hold Teledyne harmless from
and against any adverse final monetary judgment rendered against Teledyne in any
action brought against any party asserting the infringement by Teledyne or any
licensee or assignee of Teledyne of rights of a third party (including without
limitation patent rights) due to the use or practice by Teledyne or any licensee
or assignee of Teledyne of the Technology or any Product.

                  (b) Licensor shall, at its own expense, defend Teledyne from
and against any such claim; provided, however, that Licensor shall not settle
any action without the prior written consent of Teledyne which consent shall not
be unreasonably withheld.

                                       5
<PAGE>

         5.2      Notification of suits.

                  (a) Teledyne shall give Licensor written notice of any suit or
action described in Article 5.1 hereof wherein Teledyne is named as a party.
Teledyne shall give such written notice within ten (10) days after acquiring
such knowledge or prior to the expiration of time which is reasonably necessary
to prepare a response for filing with a court, which ever occurs first.

                  (b) Licensor shall give Teledyne written notice of any suit or
action brought against Licensor with respect to the Technology or any Product
asserting the infringement on rights of a third party (including without
limitation patent rights) due to the use or practice of the Technology or any
Product. Licensor shall give such written notice within ten (10) days after
acquiring such knowledge or prior to the expiration of time which is reasonably
necessary to prepare a motion to intervene for filing with a court or other
judicial body, whichever is first to occur.

VI.      TERMINATION

         6.1 Term of Agreement. Unless it is terminated on an earlier date
pursuant to Article VI of this Agreement, the license granted hereunder shall be
perpetual. The obligation of Teledyne to pay royalties shall terminate on the
later of (a) December 31, 2013, or (b) the date upon which the Product and
Technology become a part of the public domain such that the public and third
parties are legally entitled to use and exploit the Products and Technology,
whether such entitlement results from the expiration of any patent rights,
independent discovery or through any other lawful means.

         6.2      Notice of Termination.

                  (a) Upon the occurrence of a material breach or default as to
any obligation hereunder by either party and the failure of such party, within
sixty (60) days after receiving written notice thereof from the other party, to
cure (or to provide adequate assurance of cure of) such material breach or
default, this Agreement may be terminated by the other party by giving written
notice to the breaching party of such termination, such termination being
immediately effective upon the giving of such notice of termination to the
breaching party.

                  (b) In the event of a material breach of any of the provisions
hereof by either party, the other party may seek to recover monetary damages
against the breaching party in accordance with the provisions of Article 7.3
hereof.

                  (c) Notwithstanding anything to the contrary herein, Teledyne
shall be entitled to prevent termination by Licensor hereunder by providing such
adequate assurance of its performance of any prospective award for damages in
favor of Licensor in such amount and in such manner, including but not limited
to the posting of a bond, as shall be determined by the arbitrator pursuant to
Article 7.3 acting on an expedited preliminary basis prior to actual full
arbitration proceedings.

VII. MISCELLANEOUS

         7.1      Assignments.

                  (a) Except as is permitted under article 2.2 above, this
Agreement and any and all of the rights and obligations of either party
hereunder shall not be assigned, delegated, sold, transferred, sublicensed or
otherwise disposed of, by operation of law or otherwise, without the prior
written consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that (i) Licensor's consent shall not be required
with respect to any assignment, delegation, sale, transfer, sublicense or other
disposition by Teledyne to any of its Affiliates; and (ii) withholding one's
consent because the proposed assignee, delegate, transferee, sublicense or
dispose is a competitor of such party shall not be deemed to be unreasonable,
for the purposes of this Article. Any attempted assignment, delegation, sale,
transfer, sublicense or other disposition, by operation of law or otherwise, of
this Agreement or any rights or obligations hereunder contrary to this Article
7.1 shall be a material breach of this Agreement by the attempting party, shall
be void and shall be of no force or effect.

                                       6
<PAGE>

                  (b) This Agreement shall be binding upon, and inure to the
benefit of, Licensor and Teledyne and their respective successors and assigns,
to the extent such assignments are in accordance with this Article 7.1.

         7.2 Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of California, U.S.A.

         7.3      Arbitration.

                  (a) Any dispute, controversy or claim arising out of or
relating to this Agreement or to a breach thereof, including its interpretation,
performance or termination, shall be submitted to and finally resolved by
arbitration. The arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association, which shall administer
the arbitration and act as appointing authority. The arbitration, including the
rendering of the award, shall take place in Los Angeles, California, and shall
be the exclusive forum for resolving such dispute, controversy or claim. For the
purposes of this arbitration, the provisions of this Agreement and all rights
and obligations thereunder shall be governed and construed in accordance with
the laws of the State of California. The decision of the arbitrators shall be
executory, final and binding upon the parties hereto, and the expense of the
arbitration (including without limitation the award of attorneys' fees to the
prevailing party) shall be paid as the arbitrators determine. Judgment based on
the decision of the arbitrators may be entered by any court of competent
jurisdiction. Notwithstanding this, judgment upon the award of the arbitration
may be entered in any court where the arbitration takes place or any court
having jurisdiction thereof, and application may be made to any court for a
judicial acceptance of the award or order of enforcement.

                  (b) Notwithstanding anything contained in subparagraph (a)
above to the contrary, each party shall have the right to institute judicial
proceedings against the other party or anyone acting by, through or under such
other party in order to enforce the instituting party's rights hereunder through
reformation of contract, specific performance, injunction or similar equitable
relief.

         7.4 Waiver. A waiver of any breach of any provision of this Agreement
shall not be construed as a continuing waiver of other breaches of the same or
other provisions of this Agreement.

         7.5 No Other Relationship. Nothing herein contained shall be deemed to
create an agency, joint venture or partnership relationship between the parties
hereto. At no time shall either party make commitments or incur any charges or
expenses for or in the name of the other party.

         7.6 Notices. Each notice required or permitted to be given or sent
under this Agreement shall be given by telecopy transmission or by postage
prepaid letter, return receipt requested, to the parties at the addresses and
telecopy numbers indicated above. Any party may change its address and/or its
telecopy number, for purposes of this Agreement, by giving the other party
written notice of its new address and/or telecopy number. Any notice if given or
made by postage prepaid letter, return receipt requested, shall be deemed to
have been received on the earlier of the date actually received and the date
five (5) days after the same was posted (and in proving such it shall be
sufficient to prove that the envelope containing the same was properly addressed
and posted as aforesaid) and if given or made by telecopy transmission shall be
deemed to have been received at the time of dispatch, unless such date of deemed
receipt is not a Business Day, in which case the date of deemed receipt shall be
the next succeeding Business Day.

         7.7 Entire Understanding. This Agreement and all exhibits hereto
together embody the entire understanding between the parties relating to the
subject matter hereof, whether written or oral, and there are no prior
representations, warranties or agreements between the parties not contained in
this Agreement.

                                       7
<PAGE>

         7.8 Invalidity. If any provision of this Agreement is declared invalid
or unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The parties hall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonably substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.

         7.9 Amendments. Any amendment or modification of any provision of this
Agreement must be in writing, dated and signed by each party hereto.

         7.10 Feed Payable. Licensor and Teledyne acknowledge that there is no
broker's commission, finder's fee or other amount payable with regard to this
transaction, and Licensor and Teledyne agree to indemnify and hold the other
harmless from and against all liability, claims, demands, damages or costs of
any kind arising from or connected with any broker's or finder's fee, commission
or charge claimed to be due any person arising from the indemnitor's conduct
with respect to this Agreement and the transactions contemplated herein.

         7.11 Attorneys' Fees. In the event of any dispute with respect to this
Agreement, the prevailing party shall be entitled to its reasonable attorneys'
fees and other costs and expenses incurred in resolving such dispute.

         7.12 Survival of Contents. Notwithstanding anything else in this
Agreement to the contrary, the parties agree that Articles 2.1, 2.2, 3.8, 4.1,
4.2, 4.3, 5.1, 5.2, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10, 7.11, 7.12,
7.15 and 7.16 shall survive the termination of this Agreement to the extent
required thereby for the full observation and performance by one or both of the
parties hereto.

         7.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original. Such counterparts shall
together constitute but one and the same instrument.

         7.14 Table of Contents and Headings. Any table of contents accompanying
this Agreement and any headings contained herein are for directory purposes
only, do not constitute a part of this Agreement, and shall not be employed in
interpreting this Agreement.

         7.15 Parties to Agreement. The parties to this Agreement are Drakulic
and Teledyne, and no other persons or entities.

         7.16     Publicity.

                  (a) Except as may otherwise be required by law, no party to
this Agreement shall without the other party's, prior written consent, which
consent shall not be unreasonably withheld, (i) make any news releases, public
announcements, denials or confirmations of this Agreement or its subject
matters; or (ii) in any manner advertise or publish the fact that they have
contracted hereunder. Provided, however, that notwithstanding anything to the
contrary herein, Licensor shall have the right to publish, speak, and present in
and to scientific, technical, and professional journals and conferences.

                  (b) The contents and substance of this Agreement shall in no
event be disclosed by any party or by their employees to third parties, except
(i) by the prior written consent of the other party hereto, (ii) in connection
with filings or submissions to governmental agencies or instrumentalities for
the purposes of establishing intellectual or industrial property rights
(including without limitation patent, trademark, copyright and mask work rights)
or perfecting security interests, or (iii) as may otherwise be required by law.

VIII. DEVELOPMENT OF PRODUCTS

         8.1 Funds Provided by Teledyne. Drakulic shall perform research and
development work on the Products as mutually agreed upon by Drakulic and
Teledyne and Drakulic and Teledyne shall use their best efforts to develop the
Products which can be manufactured and sold commercially by Teledyne. Before
commencing any work, the parties shall mutually agree as to the appropriate
scope. Drakulic shall submit an invoice to Teledyne, within thirty (30) days
after the end of each month, for the services performed by Drakulic, and the
out-of-pocket expenses incurred by Drakulic, in connection with such research
and development during such month. Within thirty (30) days after an invoice from
Drakulic for any month, Teledyne shall compensate Drakulic for such research and
development work and the out-of-pocket expenses incurred by Drakulic in
connection with such work. Drakulic shall be compensated by Teledyne at the rate
of $15,000 per month for the period from September 1, 1993 to August 31, 1994.
It is contemplated that Teledyne and Drakulic may extend the development period
and the compensation therefore upon mutual agreement.

                                       8
<PAGE>

         8.2 Rights to Development of Products. Any inventions, improvements and
developments in the Technology and any know-how, including trade secrets and
confidential information in the Technology developed by Drakulic and Teledyne
during the research and development specified in Article 8.1, shall be included
in the Technology which is licensed hereunder and may be used and practiced by
Teledyne for the purpose of manufacture and sale of the Products without further
payment to Licensor beyond the regular royalty payments provided for in Article
3.1. Any patent applications filed on such inventions, improvements and
discoveries and any patents issued from such patent applications shall also be
included in Technology which is licensed hereunder.

         8.3 Confidentiality. The parties agree that the value of the Technology
licensed in this agreement is reduced to the extent that it does not remain
secret. Accordingly, each party agrees to take all steps reasonably necessary to
protect the Technology and prevent it from entering the public domain or falling
into the hands or others not bound by this License Agreement or not pledged to
maintain secrecy of the Technology.

         IN WITNESS WHEREOF, the parties hereto have signed this Agreement.

                              /s/ Budimir S. Drakulic
                              ------------------------------------------------
                              DR. BUDIMIR S. DRAKULIC

                              TELEDYNE ELECTRONIC TECHNOLOGIES

                              A Division of Teledyne Industries, Inc.

                              By: /s/ Marvin H. Fink
                                  --------------------------------------------

                                  Name:  Marvin H. Fink
                                         -------------------------------------

                                  Title: President
                                         -------------------------------------

                                       9
<PAGE>

                                    EXHIBIT A

         The following are the Products licensed hereunder:

                  1. A 256 Channel EEG/EP recording system consisting of eight
32-channel patient modules and a DSPM (digital signal processing module) box
developed for sale to UCLA and as described in UCLA Purchase Order No. 0125271MC
dated 01/05/93, together with any generational improvements in this specific
product from the product as described in the UCLA purchase order.

                  2. A solid state physiological data recorder consisting of a
portable analog signal processing unit, A/D converter, microcontroller and solid
state memory to store the physiological data obtained from portable analog
signal processing unit for ambulatory/in-flight use capable of recording EEG,
EOG and EMG signals at a minimum, by means of miniature preamplifiers, mounted
near electrodes and a multichannel postamplifier mounted on the subject together
with any generational improvements made in this specific product from the
product as presently described in documentation at Teledyne.

                  3. Component parts such as amplifiers and preamplifiers
designed for use in, and comprising, the two Products described in 1 and 2
above.

                                       10

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