Document:

<PAGE>
EXHIBIT 10.57

                               SECOND AMENDMENT TO
                      AMENDED AND RESTATED CREDIT AGREEMENT

         THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is dated as of July 9, 2004 (the "Amendment Closing Date") and
entered into by and between BANK OF AMERICA, N.A., as lender (the "Lender"),
with offices at 55 South Lake Avenue, Suite 900, Pasadena, California 91101, and
Meade Instruments Corp., a Delaware corporation, and Simmons Outdoor Corp., a
Delaware corporation (such entities being referred to hereinafter each
individually as a "Borrower" and collectively, the "Borrowers").

         WHEREAS, the Lender and the Borrowers have entered into that certain
Amended and Restated Credit Agreement dated as of October 25, 2002 (as amended,
restated or modified from time to time, the "Agreement"); and

         WHEREAS, the Borrowers have requested that the Lender amend the
Agreement in certain respects, and the Lender is willing to so amend the
Agreement pursuant to the terms and conditions provided herein.

         NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01. DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.

                                   ARTICLE II

                                   AMENDMENTS

         Section 2.01. NEW DEFINITIONS. The following definitions are hereby
added to the Agreement to read as follows:

                  " `US FIXED CHARGE COVERAGE RATIO' means, with respect to any
         fiscal period of the Borrowers, the ratio of US EBITDA to US Fixed
         Charges."

<PAGE>

                  " `US FIXED CHARGES' means, with respect to any fiscal period
         of the Borrowers, solely with respect to the Borrowers' operations in
         the United States and without duplication, the Borrowers' interest
         expense, Capital Expenditures (excluding Capital Expenditures funded
         with Debt other than Revolving Loans, but including, without
         duplication, principal payments with respect to such Debt), scheduled
         principal payments of Debt, and income taxes as noted on the Borrowers'
         income statement but only to the extent that such taxes are positive."

         Section 2.02. AMENDED DEFINITIONS. The following definitions are hereby
amended and now read as follows:

                  " `APPLICABLE MARGIN' means:

         (i) with respect to Base Rate Revolving Loans, and all other
         Obligations (other than LIBOR Loans), .25%; and

         (ii) with respect to LIBOR Revolving Loans, 2.50%; and

         (iii) with respect to LIBOR Term Loans, 3.00%.

         IF FIXED CHARGE
         COVERAGE RATIO                     PRICING LEVEL
         --------------                     -------------

         Greater than 2.00 to 1.00          Level I

         Greater than 1.75 to 1.00
         but equal to or less than
         2.00 to 1.00                       Level II

         Greater than 1.50 to 1.00
         but equal to or less than
         1.75 to 1.00                       Level III

         Greater than 1.20 to 1.00
         but equal to or less than
         1.50 to 1.00                       Level IV

                               APPLICABLE MARGINS

                                    LEVEL I   LEVEL II   LEVEL III   LEVEL IV
                                    -------   --------   ---------   --------

         Base Rate Revolving Loans  0.0%      0.0%       0.0%        .25%
         LIBOR Revolving Loans      1.75%     2.00%      2.25%       2.50%
         Term Loans                 3.00%     3.00%      3.00%       3.00%

<PAGE>

         All adjustments in the Applicable Margins after July 15, 2004, shall be
         implemented quarterly on a prospective basis, commencing with the first
         day of the first calendar month that occurs more than 5 days after the
         required date of delivery to the Lender of quarterly unaudited or
         annual draft audited (as applicable) Financial Statements evidencing
         the need for an adjustment. In the event the draft audited Financial
         Statements are subsequently determined to be in error, then any
         resulting change in the Applicable Margin shall be made retroactively
         to the date when the incorrect Applicable Margin was utilized.
         Concurrently with the delivery of those Financial Statements, Meade
         shall deliver to the Lender a certificate, signed by its chief
         financial officer, setting forth in reasonable detail the basis for the
         continuance of, or any change in, the Applicable Margins. Failure to
         timely deliver such Financial Statements shall, in addition to any
         other remedy provided for in this Agreement, result in an increase in
         the Applicable Margins to the highest level set forth in the foregoing
         grid, until the first day of the first calendar month following the
         delivery of those Financial Statements demonstrating that such an
         increase is not required. If a Default or Event of Default has occurred
         and is continuing at the time any reduction in the Applicable Margins
         is to be implemented, no reduction may occur until the first day of the
         first calendar month following the date on which such Default or Event
         of Default is waived or cured."

         " `DILUTION ADJUSTMENT RESERVE' means, calculated as of the first day
         of each month, eighty-five percent (85%) of the Dilution Reserve."

         " `INVENTORY ADVANCE RATE' means fifty-five percent (55%); PROVIDED,
         HOWEVER, during the period from June 1 through September 30 of each
         year, the Inventory Advance Rate means sixty-five percent (65%)."

         " `STATED TERMINATION DATE' means September 30, 2007."

         Section 2.03. AMENDMENT TO SECTION 2.5. The first sentence of SECTION
2.5 of the Agreement is hereby amended in its entirety and replaced to read as
follows:

         "On the first day of each month after the Amendment Date and on the
         Termination Date the Borrowers agree to pay to the Lender an unused
         line fee (the "Unused Line Fee") equal to one-quarter of one percent
         (0.25%) per annum times the amount by which the Maximum Revolver Amount
         exceeded the sum of the average daily outstanding amount of Revolving
         Loans and the average daily undrawn face amount of outstanding Letters
         of Credit, during the immediately preceding month or shorter period if
         calculated on the Termination Date."

         Section 2.04. AMENDMENT TO SECTION 3.2. The table set forth in SECTION
3.2 of the Agreement is hereby amended in its entirety and replaced to read as
follows:

<PAGE>
             "PERIOD DURING WHICH EARLY
                  TERMINATION OCCURS                  EARLY TERMINATION FEE
         -----------------------------------    --------------------------------

         After the first Anniversary Date       0% of the Total Facility"

         Section 2.05. AMENDMENT TO SECTION 5.2. SECTION 5.2(K) of the Agreement
is hereby amended in its entirety and replaced to read as follows:

         " k. As soon as available, semi-monthly Borrowing Base Certificates
         supporting information in accordance with Section 9 of the Security
         Agreement, delivered as follows: (i) on or before the 20th day of each
         month as of the 15th day of such month; and (ii) on or before the 10th
         day of each month as of the last day of the prior month; PROVIDED,
         however, that if the Aggregate Revolver Outstandings are zero, the
         Borrowing Base Certificate may be provided within ten (10) Business
         Days after the end of each month; PROVIDED FURTHER, however, that if
         the Borrowing Base Certificate is delivered on a monthly basis, no
         Borrowings will be permitted until a current semi-monthly Borrowing
         Base Certificate is provided by Meade. Notwithstanding the forgoing, if
         at any time average monthly Availability is less than $3,000,000, then
         the Borrowing Base Certificate shall be delivered on a weekly basis no
         later than Wednesday for the prior week. With the delivery of each
         Borrowing Base Certificate required by this SECTION 5.2(K), the
         Borrowers will provide separate backup reports reflecting each
         Borrower's borrowing base."

         Section 2.06 AMENDMENT TO SECTION 7.22. SECTION 7.22 of the Agreement
is hereby amended in its entirety and replaced to read as follows:

         " 7.22 FIXED CHARGE COVERAGE RATIO. Meade and its consolidated
         Subsidiaries will maintain a Fixed Charge Coverage Ratio for each
         period of four consecutive fiscal quarters ending on the last day of
         each fiscal quarter of not less than 1.2 to 1.00."

         Section 2.07. AMENDMENT TO SECTION 7.24. SECTION 7.24 of the Agreement
is hereby amended in its entirety and replaced to read as follows:

         " 7.24 US FIXED CHARGE COVERAGE RATIO. Meade and its consolidated
         Subsidiaries will maintain a US Fixed Charge Coverage Ratio (a) for the
         period of four consecutive fiscal quarters ending August 31, 2004, of
         not less than 1.00 to 1.00, and (b) for each period of four consecutive
         fiscal quarters ending on the last day of each fiscal quarter
         thereafter of not less than 1.20 to 1.00."

         Section 2.08. AMENDMENT TO SECTION 12.7. CLAUSE (F) of the first
sentence of SECTION 12.7 of the Agreement is hereby amended in its entirety and
replaced to read as follows:

<PAGE>

         "(f) costs of appraisals, inspections, and verifications of the
         Collateral, including travel, lodging, and meals for inspections of the
         Collateral and the Borrowers' operations by the Lender plus the
         Lender's then customary charge for field examinations and audits and
         the preparation of reports thereof (such charge is currently $850 per
         day (or portion thereof) for each Person retained or employed by the
         Lender with respect to each field examination or audit)."

                                   ARTICLE III

         Section 3.01. CONDITIONS PRECEDENT. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent:

                  (i) The representations and warranties contained herein and in
         the Agreement, as amended hereby, shall be true and correct in all
         material respects as of the date hereof as if made on the date hereof,
         except for such representations and warranties limited by their terms
         to a specific date;

                  (ii) The Borrowers shall have delivered to the Lender an
         executed original copy of this Amendment;

                  (iii) The Borrowers shall have delivered to the Lender
         executed original copies of each of the Consents and Reaffirmations
         attached to this Amendment;

                  (iv) No Default or Event of Default shall have occurred and be
         continuing; and

                  (v) All proceedings taken in connection with the transactions
         contemplated by this Amendment and all documentation and other legal
         matters incident thereto shall be satisfactory to the Lender in its
         sole and absolute discretion.

                                   ARTICLE IV

         Section 4.01. ACKNOWLEDGMENT. Each Borrower hereby represents and
warrants that the execution and delivery of this Amendment and compliance by
such Borrower with all of the provisions of this Amendment, (i) are within its
powers and purposes, (ii) have been duly authorized or approved by such
Borrower, and (iii) when executed and delivered by or on behalf of such
Borrower, will constitute valid and binding obligations of the Borrower,
enforceable in accordance with their terms. Each Borrower reaffirms its
obligation to pay all amounts due the Lender under the Loan Documents in
accordance with the terms thereof, as modified hereby.

         Section 4.02. LOAN DOCUMENTS UNMODIFIED. Except as otherwise
specifically modified by this Amendment, all terms and provisions of the
Agreement and all other Loan Documents, as modified hereby, shall remain in full
force and effect. Nothing contained in this Amendment shall in any way impair
the validity or enforceability of the Loan Documents, as modified hereby or
alter, waive, annul, vary, affect, or impair any provisions, conditions, or
covenants contained therein or any rights, powers, or remedies granted therein.
Any lien and/or security interest granted to the Lender in the Collateral set
forth in the Agreement or any other Loan Document are and shall remain unchanged
and in full force and effect and the Agreement and the other Loan Documents
shall continue to secure the payment and performance of all of the Obligations
thereunder, as modified hereby, and the Borrowers' obligations hereunder.

<PAGE>

         Section 4.03. PARTIES, SUCCESSORS AND ASSIGNS. This Amendment shall be
binding upon and shall inure to the benefit of each of the Borrowers, the
Lender, and their respective successors and assigns.

         Section 4.04. COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
instrument.

         Section 4.05. HEADINGS. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.

         Section 4.06. EXPENSES OF THE LENDER. The Borrowers agree to pay on
demand (i) all reasonable costs and expenses incurred by the Lender in
connection with the preparation, negotiation and execution of this Amendment and
the other Loan Documents executed pursuant hereto and any and all subsequent
amendments, modifications, and supplements hereto or thereto, including, without
limitation, the costs and fees of the Lender's legal counsel and the allocated
cost of staff counsel and (ii) all costs and expenses reasonably incurred by the
Lender in connection with the enforcement or preservation of any rights under
the Agreement, this Amendment and/or other Loan Documents, including, without
limitation, the reasonable costs and fees of the Lender's legal counsel, the
allocated cost of staff counsel, and the costs and fees associated with any
environmental due diligence conducted in relation hereto.

         Section 4.07. TOTAL AGREEMENT. This Amendment, the Agreement, and all
other Loan Documents shall constitute the entire agreement between the parties
relating to the subject matter hereof, and shall rescind all prior agreements
and understandings between the parties hereto relating to the subject matter
hereof, and shall not be changed or terminated orally.

<PAGE>

         IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the day and year first above written.

                                      "BORROWERS":

                                      MEADE INSTRUMENTS CORP.
                                      SIMMONS OUTDOOR CORP.

Dated as of July 9, 2004              By: /S/ BRENT W. CHRISTENSEN
                                          --------------------------------------
                                          Name:  Brent W. Christensen
                                          Title: Senior Vice President - Finance
                                                 and Chief Financial Officer

                                      "LENDER":

                                      BANK OF AMERICA, N.A.

Dated as of July 9, 2004              By: /S/ TODD R. EGGERTSEN
                                          --------------------------------------
                                          Name: Todd R. Eggertsen
                                          Title: Vice President

<PAGE>

                           CONSENTS AND REAFFIRMATIONS

         Each of MEADE INSTRUMENTS EUROPE CORP., a California corporation and
MEADE INSTRUMENTS HOLDINGS CORP., a California corporation hereby acknowledge
the execution of, and consent to, the terms and conditions of that Second
Amendment to Amended and Restated Credit Agreement dated as of July 9, 2004,
between MEADE INSTRUMENTS CORP., SIMMONS OUTDOOR CORP. and BANK OF AMERICA, N.A.
("CREDITOR"), and reaffirms its obligations under (a) that certain Continuing
Guaranty (the "GUARANTY") dated as of September 24, 2001, made by the
undersigned in favor of the Creditor, and (b) that certain Security Agreement
(the "SECURITY AGREEMENT") dated as of September, 2001, by and between the
undersigned and the Creditor. Each of the undersigned acknowledges and agrees
that each of the Guaranty and the Security Agreement remain in full force and
effect and are hereby ratified and confirmed.

Dated as of July 9, 2004.

                                      MEADE INSTRUMENTS EUROPE CORP., a
                                      California corporation

                                      By: /S/ BRENT W. CHRISTENSEN
                                          --------------------------------------
                                          Name: Brent W. Christensen
                                          Title: Senior Vice President - Finance
                                                 and Chief Financial Officer

                                      MEADE INSTRUMENTS HOLDINGS CORP., a
                                      California corporation

                                      By: /S/ BRENT W. CHRISTENSEN
                                          --------------------------------------
                                          Name: Brent W. Christensen
                                          Title: Senior Vice President - Finance
                                                 and Chief Financial Officer

<PAGE>

                           CONSENTS AND REAFFIRMATIONS

         Each of MTSC HOLDINGS, INC., a California corporation and MC HOLDINGS,
INC., a California corporation, hereby acknowledge the execution of, and consent
to, the terms and conditions of that Second Amendment to Amended and Restated
Credit Agreement dated as of July 9, 2004, between MEADE INSTRUMENTS CORP.,
SIMMONS OUTDOOR CORP. and BANK OF AMERICA, N.A. ("CREDITOR"), and reaffirms its
obligations under that certain Continuing Guaranty (the "GUARANTY") dated as of
September 24, 2001 executed in favor of the Creditor and joined by each of the
undersigned pursuant to an Instrument of Joinder (the "INSTRUMENT") dated as of
October 25, 2002. Each of the undersigned acknowledges and agrees that each of
the Guaranty and Instrument remain in full force and effect and are hereby
ratified and confirmed.

Dated as of July 9, 2004.

                                      MTSC HOLDINGS, INC., a California
                                        corporation,

                                      By: /S/ BRENT W. CHRISTENSEN
                                          --------------------------------------
                                          Name:  Brent W. Christensen
                                          Title: Senior Vice President - Finance
                                                 and Chief Financial Officer

                                      MC HOLDINGS, INC., a California
                                        corporation

                                      By: /S/ BRENT W. CHRISTENSEN
                                          --------------------------------------
                                          Name:  Brent W. Christensen
                                          Title: Senior Vice President - Finance
                                                 and Chief Financial Officer<PAGE>

                                                                     EXHIBIT 4.1

                                                                       EXHIBIT A

                                 CITIZENS, INC.

                            AMENDMENT TO STATE SERIES

      Citizens, Inc., a Colorado corporation (hereinafter referred to as
the "Corporation") pursuant to the provisions of the Colorado Business
Corporation Act, hereby certifies to the Secretary of State of Colorado that:

      FIRST:  The name of the Corporation is Citizens, Inc.

      SECOND: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article III of the Restated and Amended Articles of
Incorporation of the Corporation, the Board of Directors has, by resolution duly
adopted on June 1, 2004, duly authorized two series of Preferred Stock
designated the Series A-1 Senior Convertible Preferred Stock and Series A-2
Senior Convertible Preferred Stock.

      THIRD:  A description of such "Series A-1 Senior Convertible Preferred
Stock" and "Series A-2 Senior Convertible Preferred Stock," including the
preferences, conversion rights, powers, restrictions, limitations,
qualifications, terms and conditions, all as set by the Board of Directors of
the Corporation, is as follows:

      1.    Designation, Amount and Stated Value. The following two (2) series
of preferred stock shall be designated as (i) the Corporation's Series A-1
Senior Convertible Preferred Stock (the "SERIES A-1 PREFERRED STOCK"), and the
number of shares so designated shall be 25,000 and (ii) the Corporation's Series
A-2 Senior Convertible Preferred Stock (the "SERIES A-2 PREFERRED STOCK"), and
the number of shares so designated shall be 5,000. The Series A-1 Preferred
Stock and Series A-2 Preferred Stock shall rank pari passu with respect to
priority on liquidation and with respect to dividends. The Series A-1 Preferred
Stock and Series A-2 Preferred Stock are sometimes collectively referred to as
the "Series A Preferred Stock." The "Stated Value" for each share of Series A-1
Preferred Stock equals the sum of (i) $500 plus (ii) any amounts delivered to
the Corporation in respect of such share pursuant to Section 12 hereof, plus
(iii) any amount added to the Stated Value pursuant to Section 2(d) of the
Registration Rights Agreement. The "Stated Value" for each share of Series A-2
Preferred Stock equals the sum of (i) $1,000 plus (ii) any amount added to the
Stated Value pursuant to Section 2(d) of the Registration Rights Agreement.

      2.    Definitions. In addition to the terms defined elsewhere in this
Amendment to State Series, (a) the terms set forth in Exhibit A hereto have the
meanings indicated therein, and (b) the following terms have the meanings
indicated:

            "COMMON STOCK" means the Class A Common Stock of the Corporation.

<PAGE>

            "CONVERSION PRICE" means the Initial Conversion Price, as adjusted
      pursuant to this Amendment to State Series.

            "EQUITY CONDITIONS" means, with respect to a specified issuance of
      Common Stock, that each of the following conditions is satisfied: (i) the
      number of authorized but unissued and otherwise unreserved shares of
      Common Stock is sufficient for such issuance; (ii) such shares of Common
      Stock are registered for resale by the Holders and may be sold by the
      Holders pursuant to an effective Underlying Shares Registration Statement
      or all such shares may be sold without volume restrictions pursuant to
      Rule 144(k) under the Securities Act; (iii) the Common Stock is listed or
      quoted (and is not suspended from trading) on an Eligible Market and such
      shares of Common Stock are approved for listing upon issuance; (iv) such
      issuance would be permitted in full without violating Section 18 hereof or
      the rules or regulations of any Trading Market; (v) no Bankruptcy Event
      has occurred; (vi) unless the Corporation has obtained shareholder
      approval in accordance with the rules and regulations of its Trading
      Market, the aggregate amount of Common Stock issued to the Purchasers
      (taking into account the current contemplated issuance of Common Stock) is
      less than 6,986,734 shares; (vii) the Corporation is not in default with
      respect to any material obligation hereunder or under any other
      Transaction Document; and (viii) none of the following events have
      occurred and are continuing (A) an event constituting a Triggering Event
      or (B) an event that with the passage of time and without being cured
      would constitute a Triggering Event other than a pending, proposed or
      intended Change of Control. For the purposes of this definition, shares of
      Series A-2 Preferred that are not outstanding shall be deemed to have a
      conversion price of $7.00 (as adjusted for stock dividends, stock splits,
      stock combinations or other similar events).

            "HOLDER" means any holder of Series A Preferred Stock.

            "INITIAL CONVERSION PRICE" means, (x) in the case of the Series A-1
      Preferred Stock, $7.24 (as adjusted for stock dividends, stock splits,
      stock combinations or other similar events) and (y) in the case of shares
      of the Series A-2 Preferred Stock, 110% of the arithmetic average of the
      Volume Weighted Average Prices of Common Stock for the thirty (30)
      consecutive Trading Days immediately prior to the exercise date of the
      relevant Additional Units (not including such exercise date) pursuant to
      which such shares of Series A-2 Preferred Stock are issued, but in no
      event shall the Initial Conversion Price of any share of the Series A-2
      Preferred Stock be greater than $11.50 per share or lower than $7.00 per
      share (in each case, as adjusted for stock dividends, stock splits, stock
      combinations or other similar events).

            "JUNIOR SECURITIES" means the Common Equity and all other equity or
      equity equivalent securities of the Corporation.

            "ORIGINAL ISSUE DATE" means the date of the first issuance of any
      shares of the Series A-1 Preferred Stock or of a particular share of
      Series A-2 Preferred Stock, as applicable, regardless of the number of
      transfers of any particular shares of such Series A Preferred Stock and
      regardless of the number of certificates that may be issued to evidence
      such Series A Preferred Stock.

                                       2
<PAGE>

            "PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated
      as of July __, 2004, among the Corporation and the original purchasers of
      the Series A Preferred Stock.

      3.    Dividends.

            (a)   Each Holder shall be entitled to receive, out of funds legally
available therefor, and the Corporation shall pay, cumulative dividends on the
Series A Preferred Stock at the rate per share (as a percentage of the Stated
Value per share) of 4% per annum, payable quarterly in arrears commencing on
September 30, 2004 and thereafter on each December 31, March 31, June 30 and
September 30, and on the Mandatory Redemption Date, except if such date is not a
Trading Day, in which case such dividend shall be payable on the next succeeding
Trading Day (each, a "DIVIDEND PAYMENT DATE"). Dividends on the Series A
Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue
daily commencing on the Original Issue Date for the applicable shares of Series
A Preferred Stock and shall be deemed to accrue from such date whether or not
earned or declared and whether or not there are profits, surplus or other funds
of the Corporation legally available for the payment of dividends.

            (b)   Subject to the conditions and limitations set forth below, the
Corporation shall pay required dividends in Common Stock, except to the extent
specifically provided in Section 3(c) below (in which case such dividends shall
be paid in cash).

            (c)   Notwithstanding Section 3(b) hereof, the Corporation may not
pay dividends by issuing Common Stock (and shall pay such dividends in cash)
unless, at such time, (i) the Equity Conditions are satisfied (or waived in
writing by the applicable Holder) with respect to such Common Stock dividend
shares and all of the Underlying Shares issuable upon conversion in full of all
the outstanding Series A Preferred Stock and upon and giving effect to the
exercise of all outstanding Warrants (assuming the full exercise of all rights
thereunder and without giving effect to any limitations on conversion or
exercise contained therein); provided that the cumulative dividends payable on
September 30, 2004 may be paid by issuing Common Stock notwithstanding that
clause (ii) of the definition of Equity Conditions may not be satisfied on such
date, and (ii) the arithmetic average of the Closing Prices for the five (5)
Trading Days preceding the Dividend Payment Date is greater than $4.00 (as
adjusted for any stock split, stock dividend, stock combination or other similar
transactions occurring after the Original Issue Date of the Series A-1 Preferred
Stock).

            (d)   So long as 1,000 or more shares of Series A Preferred Stock
are outstanding, (i) neither the Corporation nor any Subsidiary shall, directly
or indirectly, redeem, purchase or otherwise acquire any Junior Securities, Debt
or set aside any monies for such a redemption, purchase or other acquisition of
Junior Securities or Debt, and (ii) the Corporation shall not pay or declare any
dividend or make any distribution on any Junior Securities, except pro rata
stock dividends on the Common Stock payable in additional shares of Common
Stock, and only at such times as the Corporation is in compliance with its
payment and other obligations hereunder.

            (e)   The number of shares of Common Stock to be issued to each
Holder as such dividend shall be (i) determined by dividing the total dividend
then payable to such Holder

                                       3
<PAGE>

by the Dividend Conversion Price (as defined below) as of the applicable
Dividend Payment Date, and rounding up to the nearest whole share, and (ii) paid
to such Holder in accordance with Section 3(f) below. The term "DIVIDEND
CONVERSION PRICE" with respect to each series of Series A Preferred Stock, shall
mean 95% of the arithmetic average of the Volume Weighted Average Prices of
Common Stock for the fifteen (15) consecutive Trading Days immediately prior to
the applicable Dividend Payment Date (not including such date), as appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such fifteen (15) Trading Day period.

            (f)   The Corporation shall, on or before the third Trading Day
following the applicable Dividend Payment Date, (i) issue and deliver to such
Holder a certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder shall be entitled, or
(ii) at all times after the Holder has notified the Corporation that this clause
(ii) shall apply, credit the number of shares of Common Stock to which the
Holder shall be entitled to the Holder's or its designee's balance account with
The Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent
Commission System.

      4.    Registration of Series A Preferred Stock. The Corporation shall
register shares of the Series A Preferred Stock, upon records to be maintained
by the Corporation for that purpose (the "SERIES A PREFERRED STOCK REGISTER"),
in the name of the record Holders thereof from time to time. The Corporation may
deem and treat the registered Holder of shares of Series A Preferred Stock as
the absolute owner thereof for the purpose of any conversion hereof or any
distribution to such Holder, and for all other purposes, absent actual notice to
the contrary.

      5.    Registration of Transfers. The Corporation shall register the
transfer of any shares of Series A Preferred Stock in the Series A Preferred
Stock Register, upon surrender of certificates evidencing such Shares to the
Corporation at its address specified herein. Upon any such registration or
transfer, a new certificate evidencing the shares of Series A Preferred Stock so
transferred shall be issued to the transferee and a new certificate evidencing
the remaining portion of the shares not so transferred, if any, shall be issued
to the transferring Holder.

      6.    Liquidation.

            (a)   In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary (a "LIQUIDATION EVENT"), the
Holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Junior Securities or Permitted Subordinated Debt
by reason of their ownership thereof, an amount per share in cash equal to the
Stated Value for each share of Series A Preferred Stock then held by them (as
adjusted for any stock split, stock dividend, stock combination or other similar
transactions with respect to the Series A Preferred Stock), plus all accrued but
unpaid dividends on such share of Series A Preferred Stock as of the date of
such event (the "SERIES A STOCK LIQUIDATION PREFERENCE"). If, upon the
occurrence of a Liquidation Event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such Holders of the full Series A Stock Liquidation Preference, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the Holders of

                                       4
<PAGE>

the Series A Preferred Stock in proportion to the aggregate Series A Stock
Liquidation Preference that would otherwise be payable to each of such Holders.

            (b)   In the event of a Liquidation Event, following completion of
the distributions required by the first sentence of paragraph (a) of this
Section 6, if assets or surplus funds remain in the Corporation, the holders of
the Common Stock shall share ratably in all remaining assets of the Corporation,
based on the number of shares of Common Stock then outstanding.

            (c)   The Corporation shall provide written notice of any
Liquidation Event or Change of Control to each record Holder not less than
forty-five (45) days prior to the payment date or effective date thereof,
provided that such information shall be made known to the public prior to or in
connection with such notice being provided to the Holders. At the request of any
Holder, which must be delivered prior to the effective date of a Change of
Control (or, if later, within five (5) Trading Days after such Holder receives
notice of such Change of Control from the Corporation), such Change of Control
will be treated as a Liquidation Event with respect to such Holder for the
purposes of this Section 6.

            (d)   In the event that, immediately prior to the closing of a
Liquidation Event the cash distributions required by subsection 6(a) have not
been made, the Corporation shall forthwith either:

                  (i)   cause such closing to be postponed until such time as
            such cash distributions have been made, or

                  (ii)  cancel such transaction, in which event the rights,
            preferences and privileges of the holders of the Series A Preferred
            Stock shall revert to and be the same as such rights, preferences
            and privileges existing immediately prior to the date of the first
            notice by the Corporation required under subsection 6(c).

      7.    Conversion.

            (a)   Conversion at Option of Holder. At the option of any Holder,
any Series A Preferred Stock held by such Holder may be converted into Common
Stock based on the applicable Conversion Price then in effect for such share of
Series A Preferred Stock. A Holder may convert Series A Preferred Stock into
Common Stock pursuant to this paragraph at any time and from time to time after
the applicable Original Issue Date, by delivering to the Corporation a
Conversion Notice, in the form attached as Exhibit B hereto, appropriately
completed and duly signed, and the date any such Conversion Notice is delivered
to the Corporation (as determined in accordance with the notice provisions
hereof) is a "CONVERSION DATE."

            (b)   Conversion at Option of Corporation. If, at any time following
the date that is seven (7) months after the applicable Original Issue Date of
such share of Series A Preferred Stock, the Closing Price for each of any
twenty-five (25) consecutive Trading Days exceeds 135% of the applicable Initial
Conversion Price (as adjusted for any stock dividend, stock split, stock
combination or other similar transaction) (the "THRESHOLD PRICE"), the
Corporation may require the Holders to convert all shares of the applicable
Series A Preferred

                                       5
<PAGE>

Stock into Common Stock based on the applicable Conversion Price then in effect
for such shares of Series A Preferred Stock. The Corporation may require a
conversion pursuant to this paragraph by delivering an irrevocable written
notice of such election to the Holders within three Trading Days following the
occurrence of such event, and the fifteenth Trading Day after the delivery of
such notice will be the "CONVERSION DATE" for such required conversion.
Notwithstanding the foregoing, the Corporation may not require any conversion
under this paragraph (and any notice thereof will be void), unless from the
beginning of such period of twenty-five (25) consecutive Trading Days through
the Conversion Date, (i) the Holder shall have been permitted to increase the
Stated Value of the Series A Preferred Stock as provided in Section 12(b)
hereof, (ii) the Closing Price for each of the Trading Days in such period
exceeds the Threshold Price and (iii) the Equity Conditions are satisfied (or
waived in writing by the applicable Holder) with respect to all of the
Underlying Shares issuable upon conversion in full of all outstanding Series A
Preferred Stock and upon and giving effect to the full exercise of all Warrants
(without regard to any limitation on conversion or exercise or issuance, as
applicable, of shares of Common Stock).

      8.    Mechanics of Conversion.

            (a)   The number of Underlying Shares issuable upon any conversion
of any share of Series A Preferred Stock hereunder shall equal (i) the Stated
Value of such share of Series A Preferred Stock to be converted, divided by the
Conversion Price for such share on the Conversion Date, plus (ii) the amount of
any accrued but unpaid dividends on such share of Series A Preferred Stock
through the Conversion Date, divided by the applicable Dividend Conversion Price
on the Conversion Date.

            (b)   Upon conversion of any share of Series A Preferred Stock, the
Corporation shall promptly (but in no event later than three Trading Days after
the Conversion Date) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder a certificate for the Underlying Shares
issuable upon such conversion, free of restrictive legends unless a registration
statement covering the resale of the Underlying Shares and naming the Holder as
a selling stockholder thereunder is not then effective and such Underlying
Shares are not then freely transferable without volume restrictions pursuant to
Rule 144 under the Securities Act. The Holder shall be deemed to have become
holder of record of such Underlying Shares as of the Conversion Date. The
Corporation shall, upon request of the Holder, use its best efforts to deliver
Underlying Shares hereunder electronically through the DTC or another
established clearing corporation performing similar functions, and shall issue
such Underlying Shares in the same manner as dividend payment shares are issued
pursuant to Section 3(f) above.

            (c)   A Holder shall not be required to deliver the original
certificate(s) evidencing the Series A Preferred Stock being converted in order
to effect a conversion of such Series A Preferred Stock. Execution and delivery
of the Conversion Notice shall have the same effect as cancellation of the
original certificate(s) and issuance of a new certificate evidencing the
remaining shares of Series A Preferred Stock. Upon surrender of a certificate
following one or more partial conversions, the Corporation shall promptly
deliver to the Holder a new certificate representing the remaining shares of
Series A Preferred Stock.

                                       6
<PAGE>

            (d)   The Corporation's obligations to issue and deliver Underlying
Shares upon conversion of Series A Preferred Stock in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
any Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by any Holder or any other Person
of any obligation to the Corporation or any violation or alleged violation of
law by any Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Corporation to
any Holder in connection with the issuance of such Underlying Shares.

            (e)   Special Adjustment of Conversion Price. Subject to the
following sentence, in the event that the redemption rights described in Section
9(a)(i) below are exercised and the Holder Redemption Price is not paid in full
on or prior to the Holder Redemption Date, the Conversion Price of the Series A
Preferred Stock which was to be redeemed under the Holder Redemption Notice will
be adjusted (the "ADJUSTED CONVERSION PRICE") to equal the arithmetic average of
the Volume Weighted Average Prices of the Common Stock for the 10 consecutive
Trading Days immediately prior to the applicable Holder Redemption Date (as
defined in Section 9(a)(i)); provided that if the payment of the applicable
Holder Redemption Price is deferred pursuant to Section 9(a)(ii) below then the
Adjusted Conversion Price shall equal the lower of the arithmetic average of the
Volume Weighted Average Prices of the Common Stock for the 10 consecutive
Trading Days immediately prior to (i) the Holder Redemption Date, (ii) the date
that is 30 days after the Holder Redemption Date or (iii) on any date later than
the Holder Redemption Date, but not later than the date such Holder Redemption
Price is paid; provided, further, that if any Holder elects to convert any
Series A Preferred Stock held by such Holder after the Holder Redemption Date
but prior to either of the dates set forth in clauses (ii) or (iii) of this
Section 8(e), the Adjusted Conversion Price shall be lowest then determinable
pursuant to this Section 8(e). Notwithstanding the foregoing, no adjustment
pursuant to this Section 8(e) shall have the effect of (i) increasing the
Conversion Price or (ii) decreasing the Conversion Price below $4.00 (as
adjusted for any stock split, stock dividend, stock combination or other similar
transactions occurring after the Original Issue Date of the Series A-1 Preferred
Stock). Nothing contained in this paragraph shall in any manner limit or
otherwise affect (i) the obligation of the Corporation to pay the redemption
price as provided in Section 9 below, or (ii) any other rights and remedies of
the holders of Series A Preferred Stock.

      9.    Redemption Rights.

            (a)   Holders Redemption Rights.

                        (i)   If (x) the arithmetic average of the Closing
            Prices for any forty-two (42) Trading Days occurring after the
            Original Issuance Date of the applicable share of Series A Preferred
            Stock, including a period of not less than five (5) consecutive
            Trading Days, is less than $5.50 or (y) at any time while any shares
            of Series A Preferred Stock are outstanding, the Corporation or any
            Subsidiary issues Common Stock or Common Stock Equivalents (other
            than Excluded Stock as described in clause (D) of the definition of
            Excluded Stock) at an effective net price to the Corporation per
            share of Common Stock less $7.00 per share (as adjusted for stock
            dividends, stock splits, stock combinations or

                                       7
<PAGE>

            other similar events), then in each case the Holders of Series A
            Preferred Stock, upon at least ten (10) Trading Days advance notice
            (the "HOLDER REDEMPTION NOTICE") to the Corporation, shall have the
            right to require the Corporation to redeem up to that number of
            shares of Series A Preferred Stock held by such Holder as is set
            forth in the applicable Holder Redemption Notice (subject to the
            limitations set forth below) at a redemption price per share (the
            "HOLDER REDEMPTION PRICE") equal to the Stated Value of such shares
            of Series A Preferred Stock to be redeemed plus all accrued but
            unpaid dividends thereon to the date of payment. Each Holder
            Redemption Notice will specify the effective date of the redemption,
            which must be a Trading Day at least ten (10) Trading Days after the
            date such Holder Redemption Notice is delivered (each such date a
            "HOLDER REDEMPTION DATE"). Notwithstanding the foregoing, the Holder
            Redemption Rights provided in clause (x) of this Section 9(a)(i) may
            only be exercised (1) following the date that is seven (7) months
            after the Original Issue Date of the Series A-1 Preferred Stock and
            (2) in any three (3) month period thereafter, may only be exercised
            by a holder with respect to a maximum of its pro rata share of
            one-third of the aggregate number of shares of Series A Preferred
            Stock that have been issued prior to the date of the applicable
            Holder Redemption Notice (without giving effect to any prior
            redemption or conversion of such shares); provided that to the
            extent such Holder Redemption Rights are not exercised during any
            such three (3) month period, the aggregate number of shares of
            Series A Preferred Stock which may be redeemed during a subsequent
            three (3) month period shall include all shares of Series A
            Preferred Stock that could have previously been redeemed during any
            prior three (3) month period (i.e., following the date that is
            fourteen (14) months after the Original Issue Date of the Series A-1
            Preferred Stock a holder may redeem up to its pro rata share of the
            aggregate number of shares of Series A Preferred Stock that have
            been issued prior to the date of the applicable Holder Redemption
            Notice). In addition, the redemption rights described in clause (x)
            of this Section 9(a)(i) shall terminate immediately as to a
            particular share of Series A Preferred Stock upon such date as (I)
            the arithmetic average of the Closing Prices for any twenty-five
            (25) consecutive Trading Days occurring after the Original Issuance
            Date of the applicable share of Series A Preferred Stock exceeds one
            hundred and thirty percent (130%) of the Initial Conversion Price of
            such share of Series A Preferred Stock and (II) the Equity
            Conditions were satisfied (or waived in writing by the applicable
            Holder) on each Trading Day during such twenty-five (25) consecutive
            Trading Day period with respect to all of the Underlying Shares
            issuable upon conversion in full of all outstanding Series A
            Preferred Stock and upon and giving effect to the full exercise of
            all Warrants (without regard to any limitation on conversion or
            exercise or issuance, as applicable, of shares of Common Stock).

                        (ii)  Within five (5) Trading Days of receipt of a
            Holder Redemption Notice, the Corporation will deliver written
            notice to each Holder of Series A Preferred Stock (each, a
            "CORPORATION NOTICE"), confirming the Holder Redemption Date and the
            applicable Holder Redemption Price. The Corporation must indicate in
            the Corporation Notice the manner in which it intends to pay the
            Holder Redemption Price, which may be entirely in cash or entirely
            in shares of

                                       8
<PAGE>

            Common Stock or a combination thereof, provided that the Corporation
            shall have specified in writing the amount of each. If the
            Corporation fails to provide in a Corporation Notice the manner in
            which payment shall be made prior to the fifth Trading Day following
            receipt of the Holder Redemption Notice, the Holder Redemption
            Notice shall be deemed to have been confirmed, including the
            applicable Holder Redemption Price and the Holder Redemption Date
            and the Corporation shall be deemed to have made an election to make
            the payment entirely in shares of Common Stock. Each Holder of
            Series A Preferred Stock that delivers notice to the Corporation
            prior to the date that is three (3) Trading Days after delivery of
            the Corporation Notice shall have the right to participate in such
            redemption, on a pro rata basis to the extent that the aggregate
            number of shares requested for redemption exceeds the limits set
            forth in Section 9(a)(i). Notwithstanding anything to the contrary
            in Section 9(a)(i), in the event that (1) the Corporation indicates
            in the Corporation Notice that it intends to pay the Holder
            Redemption Price in shares of Common Stock and (2) the Corporation
            by written notice to each Holder of Series A Preferred Stock
            delivered not later than 5:30 P.M. two Trading Days after the
            delivery of the Holder Redemption Notice to the Corporation,
            notifies each holder of Series A Preferred Stock that it wishes to
            delay payment of the Holder Redemption Price for a period specified
            therein not to exceed thirty (30) days from the applicable Holder
            Redemption Date if the Redemption Market Price (as defined below) is
            less than $7.00 (as adjusted for stock dividends, stock splits,
            stock combinations or other similar events), then, if the Redemption
            Market Price (as defined below) is less than $7.00 (as adjusted for
            stock dividends, stock splits, stock combinations or ---- other
            similar events), the Corporation may extend the date for payment of
            the Holder Redemption Price to the date specified in such notice
            (not to exceed thirty (30) days from the applicable Holder
            Redemption Date).

                        (iii) Upon receipt of payment of the Holder Redemption
            Price, each Holder will deliver the original certificate(s)
            evidencing the Series A Preferred Stock so redeemed to the
            Corporation, unless such Holder is awaiting receipt of a new
            certificate evidencing such shares from the Corporation pursuant to
            another provision hereof. At any time on or prior to any Holder
            Redemption Date, the Holders may convert any or all of the shares of
            Series A Preferred Stock, and the Corporation shall honor any such
            conversions in accordance with the terms hereof.

                        (iv)  Subject to Section 9(a)(v) below, in the event
            that the Corporation elects to pay the Holder Redemption Price in
            shares of Common Stock, the number of shares of Common Stock to be
            issued to each Holder as payment of the Holder Redemption Price
            shall be determined by dividing the total Holder Redemption Price
            then payable to such Holder by the Redemption Market Price (as
            defined below) as of the applicable Holder Redemption Date, and
            rounding up to the nearest whole share. Such shares shall be issued
            to such Holder in the same manner as dividend payment shares are
            issued pursuant to Section 3(f) above. The term "REDEMPTION MARKET
            PRICE" with respect to each series of Series A Preferred Stock,
            shall mean the lesser of (i) the applicable

                                       9
<PAGE>

            Conversion Price and (ii) 95% of the arithmetic average of the
            Volume Weighted Average Prices of Common Stock for the fifteen (15)
            consecutive Trading Days immediately prior to the applicable Holder
            Redemption Date or Mandatory Redemption Date (or, in the case of a
            Holder Redemption Date, such later date selected by the Corporation
            pursuant to Section 9(a)(ii) which is not more than thirty (30) days
            from such Holder Redemption Date), as the case may be (not including
            such date), as appropriately adjusted for any stock dividend, stock
            split, stock combination or other similar transaction during such
            fifteen (15) Trading Day period.

                        (v)   Notwithstanding anything to the contrary in
            Section 9(a)(iv) above, in the event that the Redemption Market
            Price is less than $7.00 (as adjusted for stock dividends, stock
            splits, stock combinations or other similar events), the Corporation
            shall have the option of paying the Holder Redemption Price by
            issuing to each applicable Holder (X) a number of shares of Common
            Stock equal to the total Holder Redemption Price then payable to
            such Holder divided by $7.00 (as adjusted for stock dividends, stock
            splits, stock combinations or other similar events), plus (Y) a
            warrant in the form of Annex A to this Amendment to State Series
            having a value equal to the difference between (1) the total Holder
            Redemption Price then payable to such Holder, minus (2) the product
            of (I) the number of shares of Common Stock delivered to the Holder
            pursuant to the immediately preceding clause (X) multiplied by (II)
            the Redemption Market Price, with the value of such warrant being
            determined using Black-Sholes and calculated using Bloomberg as
            follows: Volatility shall be deemed to be twenty-five (25), the
            interest rate shall be set at 3.5% and the OV function (American
            option) shall be used to calculate value.

                        (vi)  Notwithstanding the foregoing, the Corporation may
            not pay the Holder Redemption Price by issuing Common Stock and/or
            warrants unless, (x) from the date of the Holder Redemption Notice
            through and including the Holder Redemption Date, the Equity
            Conditions are satisfied (or waived in writing by the applicable
            Holder) with respect to such Common Stock shares and all of the
            Underlying Shares issuable upon conversion or exercise in full of
            all the outstanding Series A Preferred Stock and Warrants (assuming
            and giving effect to the full exercise of all rights thereunder and
            without giving effect to any limitations on conversion or exercise
            contained therein) and (y) the arithmetic average of the Closing
            Prices for the ten (10) consecutive Trading Days prior to (and not
            including) the date that is three (3) Trading Days prior to the
            Holder Redemption Date is in excess of $4.00 (as adjusted for stock
            dividends, stock splits, stock combination, or other similar
            events).

            (b)   Mandatory Redemption.

                        (i)   On the five year anniversary of the Original Issue
            Date of the Series A-1 Preferred Stock (the "MANDATORY REDEMPTION
            DATE"), the Corporation shall redeem all of the then outstanding
            Series A Preferred Stock at a price equal to 100% of the Stated
            Value of such shares of Series A Preferred

                                       10
<PAGE>

            Stock, plus all accrued but unpaid dividends thereon to the date of
            payment (the "MANDATORY REDEMPTION PRICE").

                  (ii)  Subject to the conditions and limitations set forth
            below, the Corporation may pay the Mandatory Redemption Price (i) in
            cash or (ii) in Common Stock. The Corporation must deliver written
            notice (the "MANDATORY REDEMPTION NOTICE") to the Holders indicating
            the manner in which it intends to pay the Mandatory Redemption
            Price, if applicable, at least thirty (30) Trading Days prior to the
            Mandatory Redemption Date. Failure to timely provide such written
            notice shall be deemed an election by the Corporation to pay the
            Mandatory Redemption Price in cash.

                  (iii) Notwithstanding the foregoing, the Corporation may not
            pay the Mandatory Redemption Price by issuing shares of Common Stock
            unless, (x) from the date of the Mandatory Redemption Notice through
            and including the Mandatory Redemption Date, the Equity Conditions
            are satisfied (or waived in writing by the applicable Holder) with
            respect to such shares of Common Stock and all of the Underlying
            Shares issuable upon conversion or exercise in full of all the
            outstanding Series A Preferred Stock and Warrants (assuming and
            giving effect to the full exercise of all rights thereunder and
            without giving effect to any limitations on conversion or exercise
            contained therein) and (y) the arithmetic average of the Closing
            Prices for the ten (10) consecutive Trading Days prior to (and not
            including) the date that is three (3) Trading Days prior to the
            Mandatory Redemption Date is in excess of $4.00 (as adjusted for
            stock dividends, stock splits, stock combination, or other similar
            events).

                  (iv)  In the event that the Corporation elects to pay the
            Mandatory Redemption Price in shares of Common Stock, the number of
            shares of Common Stock to be issued to each Holder on the Mandatory
            Redemption Date shall be (i) determined by dividing the total
            Mandatory Redemption Price then payable to such Holder by the
            Redemption Market Price as of the Mandatory Redemption Date, and
            rounding up to the nearest whole share, and (ii) paid to such Holder
            in accordance with Section 3(f) above.

            (c)   Minimum Price. Notwithstanding anything to the contrary in
this Amendment to State Series, if the Corporation is prohibited from paying
either the Holder Redemption Price or the Mandatory Redemption Price in Common
Stock as a result of the failure to satisfy clause (y) of Section 9(a)(vi) or
Section 9(b)(iii), respectively, then the following shall apply.

                  (i)   Except as specifically provided in Section 9(c)(ii)
            below, the Corporation shall pay the Holder Redemption Price or the
            Mandatory Redemption Price, as the case may be, in cash.

                  (ii)  Each Holder shall have the right, but not obligation, to
            have the Redemption Market Price equal $4.00 and require the
            Corporation to pay all or part of the Holder Redemption Price or the
            Mandatory Redemption Price, as

                                       11
<PAGE>

            the case may be, in Common Stock. Such right shall be exercised by
            delivery of notice to such effect by the Holder to the Corporation
            delivered on or before 6:30 P.M. on the Trading Day prior to such
            Holder Redemption Date or Mandatory Redemption Date.

            (d)   Limitation. Notwithstanding anything to the contrary in this
Amendment to State Series, in no event shall the Corporation be permitted
pursuant to this Section 9 and Section 3 above to issue a number of shares of
common stock and/or warrants in payment of dividends or upon redemption in an
aggregate amount (assuming the full exercise of any warrants so issued) in
excess of 3,500,000 shares (as adjusted for any stock split, stock combination
or similar event) (the "Share Cap"). In the event that the preceding sentence
limits the number of shares that may be used in payment, the Corporation shall
pay the applicable Dividend, Holder Redemption Price or the Mandatory Redemption
Price, as the case may be, in cash. Notwithstanding the foregoing, the Share Cap
shall be increased on a proportional basis (additional capital invested divided
by $12,500,000 multiplied by 3,500,000) in the event of an additional payment of
capital to the Corporation by a holder of Series A-1 Preferred pursuant to
Section 12 below, up to an aggregate maximum number of shares of 6,900,000 (as
adjusted for any stock split, stock combination or similar event). In addition,
the Share Cap will be increased proportionately (based upon the fully diluted
outstanding capital stock of the Corporation) to the extent the Corporation
issues Excluded Stock (as defined in (D) or (E) of the definition of Excluded
Stock), and proportionately reduced in the event of any repurchase or redemption
of shares of the Corporation's capital stock). Each holder of shares of Series A
Preferred Stock shall have the right to waive the application of the provisions
of this Section 9(d) as to itself only. The number of shares issuable in payment
of dividends or upon redemption is also subject to the limitations provided in
Section 18 below.

      10.   Triggering Events.

            (a)   At any time or times following the occurrence of a Triggering
Event, each Holder shall have the option to elect, by notice to the Corporation
(an "EVENT NOTICE"), to require the Corporation to repurchase all or any portion
of (i) the Series A Preferred Stock then held by such Holder, at a price per
share equal to the greater of (A) 115% of the Stated Value plus all accrued but
unpaid dividends thereon through the date of payment, or (B) the product of (x)
the Event Equity Value and (y) the Underlying Shares issuable upon conversion of
such Series A Preferred Stock (including such accrued but unpaid dividends
thereon) (without regard to any limitation on conversion or issuance of such
shares), and (ii) any Underlying Shares previously issued to such Holder upon a
conversion of Series A Preferred Stock issued by the Corporation within 30
Trading Days of such Triggering Event, at a price per share equal to the Event
Equity Value of such Underlying Shares. The aggregate amount payable pursuant to
the preceding sentence is referred to as the "EVENT PRICE." The Corporation
shall pay in cash the aggregate Event Price to each Holder no later than the
third Trading Day following the date of delivery of the Event Notice, and upon
receipt thereof such Holder shall deliver original certificates evidencing the
shares of Series A Preferred Stock and Underlying Shares so repurchased to the
Corporation (to the extent such certificates have been delivered to the Holder).

                                       12
<PAGE>

            (b)   Upon the occurrence of any Bankruptcy Event, the Corporation
shall immediately be obligated, without any further action by any Holder, to
repurchase all outstanding shares of Series A Preferred Stock and all such
Underlying Shares described in paragraph 10(a) at the Event Price pursuant to
the preceding paragraph as if each Holder had delivered an Event Notice
immediately prior to the occurrence of such Bankruptcy Event.

      11.   Voting Rights. Except as otherwise provided herein or as required by
applicable law, the Holders of the Series A Preferred Stock shall be entitled to
vote on all matters on which holders of Common Stock are entitled to vote,
including, without limitation, the election of directors. For such purposes,
each Holder shall be entitled to a number of votes in respect of the shares of
Series A Preferred Stock owned by it equal to the number of shares of Common
Stock into which such shares of Series A Preferred Stock are convertible as of
the record date for the determination of stockholders entitled to vote on such
matter, or if no record date is established, at the date such vote is taken or
any written consent of stockholders is solicited. Without in any manner limiting
the foregoing and for the purposes of clarity, in no event shall the number of
votes each Holder is entitled to vote, when combined with the votes of any other
Person whose beneficial ownership of Common Stock would be aggregated with the
Holder's pursuant to any state or federal insurance law applicable to the
Corporation or Section 13(d) of the Exchange Act, exceed 9.999% of the total
number of votes entitled to be cast on any matter of the Corporation brought to
a vote of the stockholders of the Corporation, including, without limitation,
the election of directors. Except as otherwise provided herein, in any relevant
agreement or as required by applicable law, the holders of the Series A
Preferred Stock and Common Stock, respectively, shall vote together as a single
class on all matters submitted to a vote or consent of stockholders; provided
that so long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the Holders of a majority
of the shares of Series A Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend this Amendment to State Series (whether by merger,
reorganization, consolidation or otherwise), (b) authorize or create any class
of stock ranking as to dividends, redemption or distribution of assets upon a
Liquidation Event or Change of Control senior to or otherwise pari passu with
the Series A Preferred Stock, (c) amend its certificate or articles of
incorporation or other charter documents so as to affect adversely any rights of
the Holders (whether by merger, reorganization, consolidation or otherwise), (d)
increase the authorized number of shares of Series A Preferred Stock, (e)
redeem, repurchase or otherwise acquire any share of Junior Securities, or (f)
enter into any agreement with respect to the foregoing.

      12.   Increase in Stated Value.

            (a)   At any time and from time to time, the Corporation may require
each Holder of shares of Series A-1 Preferred Stock to make an additional
capital contribution to the Corporation (each a "Capital Call") in an amount per
share of Series A-1 Preferred Stock held by such Holder equal to $500 less any
amounts previously paid to the Corporation pursuant to this Section 12(a) and
Section 12(b) below in respect of such share. In order to exercise its right
under this Section 12(a), the Corporation shall deliver a written notice (the
"Call Notice") to each Holder of Series A-1 Preferred Stock indicating the
amount per share of such Capital Call. The amount of the Capital Call must be
the same for each then outstanding share of Series A-1 Preferred Stock, provided
that to the extent any Holder has exercised its rights pursuant to

                                       13
<PAGE>

Section 12(b) below, the Capital Call shall be made proportionately to each
other Holder until all Holders have made total aggregate payments to the
Corporation pursuant to this Section 12 in an equal amount per share of Series
A-1 Preferred Stock. A Call Notice may only be delivered for aggregate amounts
of not less than $3,125,000 (or, if less, the aggregate amount then available
for call by the Corporation) and each Call Notice must (i) be delivered to each
Holder of Series A-1 Preferred Stock, (ii) set forth the portion of the
aggregate amount to be paid by each such Holder and (iii) must certify that each
of the conditions set forth in Section 12(c) below have been satisfied. Subject
to the satisfaction of the conditions set forth in Section 12(c) below, each
Holder shall pay to the Corporation in cash its applicable Capital Call amount
within fifteen (15) Trading Days of its receipt of the Call Notice.

            (b)   At any time and from time to time, each Holder of shares of
Series A-1 Preferred Stock may, at its option, make an additional capital
contribution to the Corporation (each a "Capital Contribution") in an amount per
share of Series A-1 Preferred Stock held by such Holder of up to, in the
aggregate, $500 less any amounts previously paid to the Corporation pursuant to
this Section 12(b) and Section 12(a) above in respect of such share. In order to
exercise its right under this Section 12(b), the Holder shall pay to the
Corporation in cash its applicable Capital Contribution.

            (c)   The obligation of a Holder of Series A-1 Preferred Stock to
comply with a Capital Call and make a capital contribution to the Corporation
pursuant to Section 12(a) above is subject to the satisfaction of the following
conditions:

                  (i)   the Volume Weighted Average price of the Common Stock
            for each of the fifteen (15) Trading Days prior to the date of
            receipt of the Call Notice, and for each of the fifteen (15) Trading
            Days following the date of receipt of the Call Notice, must equal or
            exceed $6.00 (as adjusted for any stock dividends, stock splits,
            stock combinations or similar events);

                  (ii)  the average daily trading volume of the Common Stock on
            the Trading Market for the fifteen (15) Trading Days prior to the
            date of receipt of the Call Notice, and for each of the fifteen (15)
            Trading Days following the date of receipt of the Call Notice, must
            equal or exceed twenty thousand (20,000) shares (as adjusted for any
            stock dividends, stock splits, stock combinations or similar
            events);

                  (iii) the Common Stock shall be traded on the New York Stock
            Exchange and such trading shall not have been suspended or revoked;

                  (iv)  the applicable Call Notice must have been delivered to
            each Holder of Series A Preferred Stock; and

                  (v)   the Equity Conditions are satisfied at such time with
            respect to the Underlying Shares issuable upon conversion in full of
            all the outstanding Series A Preferred Stock and the exercise of all
            outstanding Warrants (assuming and giving effect to the full
            exercise of all rights thereunder and

                                       14
<PAGE>

            without giving effect to any limitations on conversion or exercise
            contained therein)

            (d)   Upon any payment of cash to the Corporation in accordance with
Section 12(a) or Section 12(b) above, (i) the Stated Value of the applicable
share of Series A-1 Preferred Stock shall be immediately deemed to have
increased by the amount of such payment and (ii) the Corporation shall deliver
to each Holder of Series A-1 Preferred Stock making such a payment an Additional
Warrant in respect of such payment.

      13.   Charges, Taxes and Expenses. Issuance of certificates for shares of
Series A Preferred Stock and for Underlying Shares issued on conversion of (or
otherwise in respect of) the Series A Preferred Stock shall be made without
charge to the Holders for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the registration of
any certificates for Common Stock or Series A Preferred Stock in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring the Series A
Preferred Stock or receiving Underlying Shares in respect of the Series A
Preferred Stock.

      14.   Replacement Certificates. If any certificate evidencing Series A
Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed, or
a Holder fails to deliver such certificate as may otherwise be provided herein,
the Corporation shall issue or cause to be issued in exchange and substitution
for and upon cancellation hereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of evidence reasonably
satisfactory to the Corporation of such loss, theft or destruction and customary
and reasonable indemnity, if requested. Applicants for a new certificate under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Corporation
may prescribe. Sections 8(c) and 8(d) shall in no manner limit the provisions of
this Section 14.

      15.   Reservation of Underlying Shares. The Corporation covenants that it
shall at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Underlying Shares as required hereunder, the
number of Underlying Shares which are then issuable and deliverable upon the
conversion of (and otherwise in respect of) all outstanding Series A Preferred
Stock (taking into account any adjustments made pursuant to Sections 8(e) and
16), free from preemptive rights or any other contingent purchase rights of
persons other than the Holder. The Corporation covenants that all Underlying
Shares so issuable and deliverable shall, upon issuance in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable. The Corporation covenants that it shall use its best efforts to
satisfy each of the Equity Conditions with respect to all of the Underlying
Shares issuable upon conversion in full of all the outstanding Series A
Preferred Stock and the exercise of all outstanding Warrants (assuming the full
exercise of all rights thereunder and without giving effect to any limitations
on conversion or exercise contained therein).

                                       15
<PAGE>

      16.   Certain Adjustments. The Conversion Price is subject to adjustment
from time to time as set forth in this Section 16.

            (a)   Stock Dividends and Splits. If the Corporation, at any time
while Series A Preferred Stock are outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock (other than regular dividends on the
Series A Preferred Stock), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, or (iii) combines outstanding shares of Common
Stock into a smaller number of shares, then in each such case the applicable
Conversion Price for each series of Series A Preferred Stock shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.

            (b)   Pro Rata Distributions. If the Corporation, at any time while
Series A Preferred Stock are outstanding, distributes to all holders of Common
Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii) rights
or warrants to subscribe for or purchase any security, or (iv) any cash or other
asset (in each case, "DISTRIBUTED PROPERTY"), then in each such case the
applicable Conversion Price for each series of Series A Preferred Stock in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Conversion Price times a
fraction of which the denominator shall be the average of the Closing Prices for
the five Trading Days immediately prior to (but not including) such record date
and of which the numerator shall be such average less the then fair market value
of the Distributed Property distributed in respect of one outstanding share of
Common Stock, as determined by the Corporation's independent certified public
accountants that regularly examine the financial statements of the Corporation
(an "APPRAISER"). In such event, the Holder, after receipt of the determination
by the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the applicable Conversion Price, at the request of any Holder
delivered before the 90th day after the record date fixed for determination of
stockholders entitled to receive such distribution, the Corporation will deliver
to such Holder, within five (5) Trading Days after such request (or, if later,
on the effective date of such distribution), the Distributed Property that such
Holder would have been entitled to receive in respect of the Underlying Shares
for which such Holder's Series A Preferred Stock could have been converted
immediately prior to such record date. If such Distributed Property is not
delivered to a Holder pursuant to the preceding sentence, then upon any
conversion of Series A Preferred Stock that occurs after such record date, such
Holder shall be entitled to receive, in addition to the Underlying Shares
otherwise issuable upon such conversion, the Distributed Property that such
Holder would have been entitled to receive in respect of such number of

                                       16
<PAGE>

Underlying Shares had the Holder been the record holder of such Underlying
Shares immediately prior to such record date.

            (c)   Fundamental Transactions. If, at any time while at least 1,000
shares of Series A Preferred Stock are outstanding, (i) the Corporation effects
any merger or consolidation of the Corporation with or into another Person and
the Corporation is not the surviving entity, (ii) the Corporation effects any
sale of all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the
Corporation or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Corporation effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares of
Common Stock covered by Section 16(a) above) (in any such case, a "FUNDAMENTAL
TRANSACTION"), then upon any subsequent conversion of Series A Preferred Stock,
each Holder shall have the right to receive, for each Underlying Share that
would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "ALTERNATE CONSIDERATION"). For
purposes of any such conversion, the determination of the applicable Conversion
Price for each series of Series A Preferred Stock shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Corporation shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then each Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
conversion of Series A Preferred Stock following such Fundamental Transaction.
To the extent necessary to effectuate the foregoing provisions, any successor to
the Corporation or surviving entity in such Fundamental Transaction shall issue
to the Holder a new series of preferred stock consistent with the foregoing
provisions and evidencing the Holders' right to convert such preferred stock
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that the Series A Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

            (d)   Calculations. All calculations under this Section 16 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

            (e)   Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 16, the Corporation at its expense will promptly
compute such adjustment in accordance with the terms hereof and prepare a
certificate describing in reasonable detail such

                                       17
<PAGE>

adjustment and the transactions giving rise thereto, including all facts upon
which such adjustment is based. Upon written request, the Corporation will
promptly deliver a copy of each such certificate to each Holder and to the
Corporation's Transfer Agent.

            (f)   Notice of Corporate Events. If the Corporation (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Corporation or
any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction
or (iii) authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Corporation, then the Corporation shall deliver to each Holder a
notice describing the material terms and conditions of such transaction, at
least twenty (20) calendar days prior to the applicable record or effective date
on which a Person would need to hold Common Stock in order to participate in or
vote with respect to such transaction, and the Corporation will take all steps
reasonably necessary in order to insure that each Holder is given the practical
opportunity to convert its Series A Preferred Stock prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such notice.

      17.   Change of Control.

            (a)   Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." As long as at least
1,000 shares of Series A Preferred Stock are outstanding, prior to the
consummation of any (i) sale of all or substantially all of the Corporation's
assets to an acquiring Person or (ii) other Organic Change following which the
Corporation is not a surviving entity, the Corporation will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and
substance reasonably satisfactory to the Holders of at least a majority of the
Series A Preferred Stock then outstanding) to deliver to each Holder of Series A
Preferred Stock in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Series A Preferred Stock (including, without limitation, having a stated
value and liquidation preference equal to the Stated Value and the Series A
Stock Liquidation Preference held by such Holder) and reasonably satisfactory to
the Holders of at least a majority of the Series A Preferred Stock then
outstanding. Prior to the consummation of any other Organic Change, the
Corporation shall make appropriate provision (in form and substance reasonably
satisfactory to the Holders of at least a majority of the Series A Preferred
Stock then outstanding) to insure that each of the Holders of the Series A
Preferred Stock will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such Holder's
Series A Preferred Stock such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock

                                       18
<PAGE>

which would have been acquirable and receivable upon the conversion of such
Holder's Series A Preferred Stock as of the date of such Organic Change (without
taking into account any limitations or restrictions on the convertibility of the
Series A Preferred Stock).

            (b)   Optional Redemption Upon Change of Control. In addition to the
rights of the Holders of Series A Preferred Stock under Section 17(a), upon a
Change of Control of the Corporation each Holder of Series A Preferred Stock
shall have the right, at such Holder's option during the time period described
below in this paragraph, to require the Corporation to redeem all or a portion
of such Holder's Series A Preferred Stock at a price per share of Series A
Preferred Stock equal to the greater of (A) 115% of the Stated Value plus all
accrued but unpaid dividends thereon through the date of payment, or (B) the
product of (x) 115% of the Event Equity Value and (y) the Underlying Shares
issuable upon conversion of such Series A Preferred Stock (including such
accrued but unpaid dividends thereon) (without taking into account any
limitations or restrictions on the convertibility of the Series A Preferred
Stock) (the "CHANGE OF CONTROL REDEMPTION PRICE"). No sooner than sixty (60)
days nor later than ten (10) days prior to the consummation of a Change of
Control, but not prior to the public announcement of such Change of Control, the
Corporation shall deliver written notice thereof via facsimile and overnight
courier (a "NOTICE OF CHANGE OF CONTROL") to each Holder of Series A Preferred
Stock. At any time during the period beginning after receipt of a Notice of
Change of Control (or, in the event a Notice of Change of Control is not
delivered at least ten (10) days prior to a Change of Control, at any time on or
after the date which is ten (10) days prior to a Change of Control) and ending
on the date of such Change of Control, any Holder of the Series A Preferred
Stock then outstanding may require the Corporation to redeem all or a portion of
the Holder's Series A Preferred Stock then outstanding by delivering written
notice thereof via facsimile and overnight courier (a "NOTICE OF REDEMPTION UPON
CHANGE OF CONTROL") to the Corporation, which Notice of Redemption Upon Change
of Control shall indicate (i) the number of Series A Preferred Stock that such
Holder is submitting for redemption, and (ii) the applicable Change of Control
Redemption Price, as calculated pursuant to this Section 17(b). Upon the
Corporation's receipt of a Notice(s) of Redemption Upon Change of Control from
any Holder of Series A Preferred Stock, the Corporation shall promptly, but in
no event later than two (2) Trading Days following such receipt, notify each
Holder of Series A Preferred Stock by facsimile of the Corporation's receipt of
such Notice(s) of Redemption Upon Change of Control. The Corporation shall
deliver the applicable Change of Control Redemption Price simultaneously with
the consummation of the Change of Control. Payments provided for in this Section
17(b) shall have priority to payments to other stockholders in connection with a
Change of Control.

      18.   Limitation on Conversion. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
any Holder upon any conversion of Series A Preferred Stock (or otherwise in
respect of the Series A Preferred Stock) shall be limited to the extent
necessary to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by such Holder
and its Affiliates and any other Persons whose beneficial ownership of Common
Stock would be aggregated with the Holder's for purposes of Section 13(d) of the
Exchange Act, does not exceed 9.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such conversion). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder.

                                       19
<PAGE>

      19.   Fractional Shares. The Corporation shall not be required to issue or
cause to be issued fractional Underlying Shares on conversion of Series A
Preferred Stock. If any fraction of an Underlying Share would, except for the
provisions of this Section, be issuable upon conversion of Series A Preferred
Stock, the number of Underlying Shares to be issued will be rounded up to the
nearest whole share.

      20.   Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Conversion Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Corporation, to 400 East Anderson Lane, Austin, Texas 78752-1224, facsimile:
512-836-9334, Attention: President, or (ii) if to a Holder, to the address or
facsimile number appearing on the Corporation's stockholder records or such
other address or facsimile number as such Holder may provide to the Corporation
in accordance with this Section.

      21.   Miscellaneous.

            (a)   The headings herein are for convenience only, do not
constitute a part of this Amendment to State Series and shall not be deemed to
limit or affect any of the provisions hereof.

            (b)   No provision of this Amendment to State Series may be amended,
except in a written instrument signed by the Corporation and Holders of at least
a majority of the shares of Series A Preferred Stock then outstanding.

            (c)   To the extent not otherwise provided herein, in the event of
any stock split, subdivision, dividend or distribution payable in Common Shares
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly Common Shares), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Amendment to State Series to a number of shares or a price per share shall
be amended to appropriately account for such event.

            (d)   Any of the rights of the Holders of Series A Preferred Stock
set forth herein, including any Equity Conditions, Triggering Events or any
other similar conditions for the Holders' benefit, may be waived by the
affirmative vote of Holders of at least two-thirds of the shares of Series A
Preferred Stock then outstanding. No waiver of any default with respect to any
provision, condition or requirement of this Amendment to State Series shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

                                       20
<PAGE>

      FOURTH: The Amendment was adopted on June 1, 2004.

      FIFTH:  This Amendment was duly adopted by the Board of Directors of the
Corporation.

      The (a) name or names, and (b) mailing address or addresses, of any one or
more of the individuals who cause this document to be delivered for filing and
to which the Secretary of State may deliver notice if filing of this document is
refused, are: David A. Thayer, Esq., Jones & Keller, P.C., 1625 Broadway, Suite
1600, Denver, Colorado 80202, (303) 573-1600.

                                       21
<PAGE>

                                                                       EXHIBIT A

                             ADDITIONAL DEFINITIONS

      "ADDITIONAL UNITS" means, collectively, (i) one share of Series A-2
Preferred Stock and (ii) a warrant to acquire a number of shares of Common
Stock, with respect to each Additional Unit issuable upon the exercise of the
Unit Warrants, equal to the Stated Value of each share of Series A-2 Preferred
Stock divided by the conversion price for such share, multiplied by 27.5%.

      "ADDITIONAL WARRANT" means a warrant, in the form of Exhibit C to the
Purchase Agreement, to acquire a number of shares of Common Stock equal to the
product of .037984 and the amount of any additional capital contribution made to
the Corporation by a holder of Series A-1 Preferred Stock pursuant to Section
12(a) or Section 12(b) of this Amendment to State Series.

      "AFFILIATE" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

      "BANKRUPTCY EVENT" means any of the following events: (a) the Corporation
or any Subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Corporation or any Subsidiary thereof; (b) there is commenced against the
Corporation or any Subsidiary any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Corporation or any Subsidiary is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Corporation or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Corporation or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Corporation or any Subsidiary fails to pay, or
states that it is unable to pay or is unable to pay, its debts generally as they
become due; (g) the Corporation or any Subsidiary calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or (h) the Corporation or any Subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.

      "BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to remain closed.

                                       22
<PAGE>

      "CAPITAL LEASE" means, with respect to the Corporation and its
Subsidiaries, any lease of any property that is, in accordance with GAAP,
classified and accounted for as a capital lease on a consolidated balance sheet
of the Corporation and its Subsidiaries.

      "CHANGE OF CONTROL" means the occurrence of any of the following in one or
a series of related transactions: (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than one-half of the Corporation's outstanding
securities; (ii) a replacement of more than one-half of the members of the
Corporation's board of directors that is not approved by those individuals who
are members of the board of directors on the date hereof (or other directors
previously approved by such individuals); (iii) a merger or consolidation of the
Corporation or any Subsidiary or a sale of more than one-half of the assets of
the Corporation in one or a series of related transactions, unless following
such transaction or series of transactions, the holders of the Corporation's
securities prior to the first such transaction continue to hold at least
one-half of the securities of the surviving entity or acquirer of such assets;
(iv) a recapitalization, reorganization or other transaction involving the
Corporation or any Subsidiary that constitutes or results in a transfer of more
than one-half of the outstanding equity interests of the Corporation; (v)
consummation of a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the
Exchange Act with respect to the Corporation, or (vi) the execution by the
Corporation or its controlling shareholders of an agreement providing for or
reasonably likely to result in any of the foregoing events.

      "CLOSING PRICE" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Eligible Market or any other national securities exchange, the
closing bid price per share of the Common Stock for such date (or the nearest
preceding date) on the primary Eligible Market or exchange on which the Common
Stock is then listed or quoted; (b) if prices for the Common Stock are then
quoted on the OTC Bulletin Board, the closing bid price per share of the Common
Stock for such date (or the nearest preceding date) so quoted; (c) if prices for
the Common Stock are then reported in the "Pink Sheets" published by the Pink
Sheets LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent closing bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in good faith
by the Corporation, the cost of which shall be paid by the Corporation.

      "COMMON EQUITY" means, collectively, (i) the Common Stock and (ii) the
Class B common stock of the Corporation, of no par value per share, and any
securities into which such shares may hereafter be reclassified.

      "COMMON STOCK EQUIVALENTS" shall mean, collectively, Options and
Convertible Securities.

      "CONTINGENT OBLIGATION" means, with respect to any Person, without
duplication, any obligation, contingent or otherwise under GAAP, of such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other payment obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such first Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation (whether
arising by agreement to keep well, to purchase assets, goods, securities or
services or to take-or-pay), or (ii) entered into for

                                       23
<PAGE>

the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
Contingent Obligation shall not include endorsements for collection or deposit
in the ordinary course of business obligations.

      "CONVERTIBLE SECURITIES" shall mean any evidence of indebtedness, shares,
options, warrants or other securities directly or indirectly convertible into or
exercisable or exchangeable for shares of Common Equity.

      "DEBT" means, with respect to the Corporation and its Subsidiaries at any
date and without duplication, any of the following: (i) all Debt for Money
Borrowed; (ii) all obligations to pay the deferred purchase price of property or
services of any such Person, except trade payables arising in the ordinary
course of business not more than 60 days past due; (iii) all obligations of any
such Person secured by a Lien on any asset of the Corporation and its
Subsidiaries; (iv) all Contingent Obligations of any such Person, including any
asserted claim with respect to any indemnified matter; (v) obligations in the
form of earn-out obligations to be paid in cash; (vi) all obligations of any
such Person under Capital Leases; (vii) all obligations, contingent or
otherwise, of any such Person relative to the face amount of letters of credit,
whether or not drawn, including any reimbursement obligation with respect
thereto; (viii) all obligations incurred by any such Person pursuant to Hedging
Agreements; (ix) any synthetic lease or other lease obligations of such Person;
(x) any obligations of such Person in respect of off-balance-sheet agreements or
transactions that are in the nature of, or in substitution of, financings; (xi)
any other item that would be required to be classified as a liability in an
audited financial statement under GAAP (other than the total policy and
reinsurance liabilities including by way of illustration and not of limitation,
future policy benefit reserves, dividend accumulations, premium deposits, policy
claims payable, other policyholders' funds and deposits with insurance
regulators, each as reflected in the Corporation's Consolidated Statements of
Financial Position and judgments subject to appeal and bonded); and (xii) any
indebtedness or other obligations of any other Person of the type specified in
any of the foregoing classes, the payment or collection of which such Person has
guaranteed or in respect of which such Person is liable, contingently or
otherwise, including liable by way of agreement to purchase products or
securities, to provide funds for payment, to maintain working capital or other
balance sheet conditions or otherwise to assure a creditor against loss.

      "DEBT FOR MONEY BORROWED" means, with respect to the Corporation and its
Subsidiaries at any date and without duplication, any of the following: (i) all
liabilities, obligations and indebtedness for borrowed money, including
obligations evidenced by bonds, debentures, notes or other similar instruments
of any Person; (ii) all obligations of any Person as lessee under Capital
Leases; (iii) all Contingent Obligations of any such Person with respect to Debt
for Money Borrowed; and (iv) all obligations, contingent or otherwise, of any
such Person relative to the unexpired face amount of letters of credit, whether
or not drawn, and banker's acceptances issued for the account of any such
Person.

      "ELIGIBLE MARKET" means the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market or the NASDAQ SmallCap Market.

                                       24
<PAGE>

      "EVENT EQUITY VALUE" means 115% of the arithmetic average of the Closing
Prices for the five Trading Days preceding either (a) the date of delivery of
the notice requiring payment of the Event Equity Value, or (b) the date on which
such required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in full,
whichever is greater.

      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      "EXCLUDED STOCK" means any shares of Common Stock issued or issuable (A)
upon exercise, conversion or exchange of any Common Stock Equivalents described
in Schedule 3.1(g) to the Purchase Agreement (provided that such exercise,
conversion or exchange occurs in accordance with the terms thereof, without
amendment or modification, and that the applicable exercise, conversion or
exchange price or ratio is described in such schedule); (B) to officers,
directors, employees or consultants of the Corporation pursuant to restricted
stock issuances, stock grants or stock options, in each case pursuant to any
contract, plan or other arrangement by the board of directors of the
Corporation; (C) in connection with any strategic partnership or joint venture
with a Person or other investment in the Corporation by a Person in each case
who is not engaged in the business of investing in companies and the primary
purpose of which is not to raise capital for the Corporation or any Subsidiary;
(D) in connection with a transaction involving a merger or acquisition of an
entity, business or assets, that (i) does not result in either (x) a Change of
Control of the Corporation or (y) a change in the principal line of business of
the Corporation and (ii) is not principally for the purpose of obtaining cash;
or (E) pursuant to a registered firm commitment underwritten public offering
(other than 10% of such securities as provided in Section 4.7(d) of the Purchase
Agreement).

      "GAAP" means United States generally accepted accounting principles, as
recognized by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board, consistently applied and maintained on a
consistent basis for the Corporation and its Subsidiaries throughout the period
indicated and consistent with the prior financial practice of the Corporation;
provided, however, that any accounting principle or practice required to be
changed by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board (or other appropriate board or committee of
either) in order to continue as a generally accepted accounting principle or
practice may be so changed.

      "HEDGING AGREEMENT" means any interest rate, foreign currency, commodity
or equity swap, collar, cap, floor or forward rate agreement, or other agreement
or arrangement designed to protect against fluctuations in interest rates or
currency, commodity or equity values (including any option with respect to any
of the foregoing and any combination of the foregoing agreements or
arrangements), and any confirmation executed in connection with any such
agreement or arrangement, all as amended or modified.

      "OPTIONS" means any rights, warrants or options to subscribe, directly or
indirectly for or purchase Common Equity or Convertible Securities (taking into
account all Securities that can be issued under the Transaction Documents and
assuming that prior to the issuance of the Series A-2 Preferred Stock the
conversion price is equal to $7.00 per share (as adjusted for stock splits,
stock dividends, stock combinations or other similar events)).

                                       25
<PAGE>

      "PERSON" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

      "PERMITTED SUBORDINATED DEBT" means Debt that (x) is expressly subordinate
to the Series A Preferred Stock in right of payment, whether with respect to
dividends or upon liquidation or dissolution, or otherwise, pursuant to a
subordination agreement substantially in the form attached as Exhibit G to the
Purchase Agreement and (y) does not provide at any time for the payment,
prepayment, repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until at least 91 days after the Mandatory
Redemption Date.

      "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
among the Corporation and the other parties set forth on the signature pages
thereto.

      "SECURITIES ACT" means the Securities Act of 1933, as amended.

      "SHARES" means (i) an aggregate of 25,000 shares of Series A-1 Preferred
Stock purchased pursuant to the Purchase Agreement, and (ii) an aggregate of
5,000 shares of Series A-2 Preferred Stock, which may be purchased upon the
exercise of the Unit Warrants.

      "SUBSIDIARY" means any Person in which the Corporation, directly or
indirectly, owns capital stock or holds an equity or similar interest.

      "TRADING DAY" means (a) any day on which the Common Stock is listed or
quoted, and traded, on its primary Trading Market, or (b) if the Common Stock is
not then listed or quoted, and traded, on any Eligible Market, then any Business
Day.

      "TRADING MARKET" means the New York Stock Exchange or any other national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted.

      "TRANSACTION DOCUMENTS" means this Agreement, the Registration Rights
Agreement, the Warrants, the Amendment to State Series, the Transfer Agent
Instructions, and any other documents or agreements executed or delivered in
connection with the transactions contemplated hereunder and thereunder.

      "TRIGGERING EVENT" means any of the following events: (a) immediately
prior to any Bankruptcy Event; (b) the Common Stock is not listed or quoted, or
is suspended from trading, on an Eligible Market for a period of five Trading
Days (which need not be consecutive Trading Days); (c) the Corporation fails for
any reason to deliver a certificate evidencing any Securities to a Purchaser (as
defined in the Purchase Agreement) within five Trading Days after delivery of
such certificate is required pursuant to any Transaction Document or the
exercise or conversion rights of the Holders pursuant to the Transaction
Documents are otherwise suspended for any reason; (d) the Corporation fails to
have available a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock available to issue Underlying Shares upon any
exercise of the Warrants, the Additional Units or any conversion of convertible
Securities; (e) at any time after the Required Effectiveness Date, any Common
Stock issuable pursuant to the Transaction Documents is not listed on an
Eligible Market; (f) the Corporation effects or

                                       26
<PAGE>

publicly announces its intention to effect any exchange, recapitalization or
other transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock; (g) any other Event (as defined in the
Registration Rights Agreement) occurs and remains uncured for 60 days; (h) the
Corporation fails to make any cash payment required under the Transaction
Documents and such failure is not cured within five days after notice of such
default is first given to the Corporation by a Purchaser; (i) the issuance of a
Going Concern Opinion; (j) the Corporation breaches Section 4.14 or 4.15 of the
Purchase Agreement; or (k) the Corporation defaults in the timely performance of
any other obligation under the Transaction Documents and such default continues
uncured for a period of 10 days after the date on which notice of such default
is first given to the Corporation by a Purchaser (it being understood that no
prior notice need be given in the case of a default that cannot reasonably be
cured within 10 days).

      "UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants to purchase Common
Stock (including the Warrants issuable upon exercise of the Unit Warrants) and
in satisfaction of any other obligation of the Corporation to issue shares of
Common Stock pursuant to the Transaction Documents.

      "UNDERLYING SHARES REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by the Purchasers.

      "UNIT WARRANT" means an Additional Unit warrant, in the form of Exhibit F
to the Purchase Agreement.

      "VOLUME WEIGHTED AVERAGE PRICE" means, with respect to any particular
Trading Day or for any particular period, the volume weighted average trading
price per share of Common Stock on such Trading Day or for such period on an
Eligible Market as reported by Bloomberg, L.P., or any successor performing
similar functions.

      "WARRANTS" means collectively, (i) all warrants exercisable, either
directly or indirectly, for Common Stock issuable pursuant to the Purchase
Agreement and/or this Amendment to State Series, including, without limitation,
the warrants to purchase Common Stock included in the Initial Units, the
Additional Warrants, the warrants to purchase Common Stock issuable upon
exercise of the Unit Warrants and the warrant in the form of Annex A to this
Amendment to State Series and (ii) the Unit Warrants.

                                       27
<PAGE>

                                                                       EXHIBIT B

                            FORM OF CONVERSION NOTICE

(To be executed by the registered Holder
in order to convert shares of Series A Preferred Stock)

The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below into shares of common stock, of no
par value per share (the "COMMON STOCK"), of Citizens, Inc., a Colorado
corporation (the "CORPORATION"), according to the conditions hereof, as of the
date written below.
                            ____________________________________________________
                            Date to Effect Conversion

                            ____________________________________________________
                            Number of shares of Series A Preferred Stock owned
                            prior to Conversion

                            ____________________________________________________
                            Number of shares of Series A Preferred Stock to be
                            Converted

                            ____________________________________________________
                            Stated Value of shares of Series A Preferred Stock
                            to be Converted (including [_______________ OF
                            DIVIDENDS ADDED UNDER SECTION  3(b) OF THE AMENDMENT
                            TO STATE SERIES AND] _______ added under Section
                            2(d) of the Registration Rights Agreement)

                            ____________________________________________________
                            Number of shares of Common Stock to be Issued

                            ____________________________________________________
                            Applicable Conversion Price

                            ____________________________________________________
                            Number of shares of Series A Preferred Stock
                            subsequent to Conversion

                            ____________________________________________________
                            Name of Holder
                            By: ________________________________________________
                            Name: ______________________________________________
                            Title: _____________________________________________

                                       28
<PAGE>

                                     ANNEX A

NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.

                                 CITIZENS, INC.

                                     WARRANT

Warrant No. D/R-[ ]                                       Dated: _____ __, 200__

      Citizens, Inc., a Colorado corporation (the "COMPANY"), hereby certifies
that, for value received, [Name of Holder] or its registered assigns (the
"HOLDER"), is entitled to purchase from the Company up to a total of [    ]
shares of Class A common stock (the "COMMON STOCK"), of the Company (each such
share, a "WARRANT SHARE" and all such shares, the "WARRANT SHARES") at an
exercise price equal to $[    ](1) per share (as adjusted from time to time as
provided in Section 9, the "EXERCISE PRICE"), at any time and from time to time
from and after the date hereof and through and including the seven (7) year
anniversary of the date hereof (the "EXPIRATION DATE"), and subject to the
following terms and conditions. This Warrant (this "WARRANT") is one of a series
of similar warrants issued pursuant to the Amendment to State Series to the
Company's Restated and Amended Articles of Incorporation dated as of July __,
2004. All such warrants are referred to herein, collectively, as the "WARRANTS."

      1.    Definitions. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in that certain Securities Purchase Agreement,
dated as of July __ 2004, by and among the Company and the Purchasers identified
therein.

      2.    Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the

----------------------------
(1) 110% of the arithmetic average of the Volume Weighted Average Prices of
Common Stock for the fifteen (15) consecutive Trading Days immediately prior to
the date of issuance, but in no event lower than $7.00 per share (as adjusted
for stock dividends, stock splits, stock combinations or other similar events).

<PAGE>

record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.

      3.    Registration of Transfers. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at its address specified herein. Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.

      4.    Exercise and Duration of Warrant.

            (a)   This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value; provided that, if the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a "cashless exercise" basis (if then permitted) at 6:30 P.M. New York City
time on the Expiration Date.

            (b)   A Holder may exercise this Warrant by delivering to the
Company (i) an exercise notice, in the form attached hereto (the "EXERCISE
NOTICE"), appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised (which may take the form of a "cashless exercise" if so
indicated in the Exercise Notice and if a "cashless exercise" may occur at such
time pursuant to Section 10 below) and the date such items are delivered to the
Company (as determined in accordance with the notice provisions hereof) is an
"EXERCISE DATE." The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice shall have the same effect as cancellation of the original
Warrant and issuance of a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.

      5.    Delivery of Warrant Shares.

            (a)   Upon exercise of this Warrant, the Company shall promptly (but
in no event later than three Trading Days after the Exercise Date) issue or
cause to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
unless a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the

                                        2
<PAGE>

Securities Act. The Holder, or any Person so designated by the Holder to receive
Warrant Shares, shall be deemed to have become holder of record of such Warrant
Shares as of the Exercise Date. The Company shall, upon request of the Holder,
use its best efforts to deliver Warrant Shares hereunder electronically through
the Depository Trust Corporation or another established clearing corporation
performing similar functions.

            (b)   This Warrant is exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. Upon surrender of
this Warrant following one or more partial exercises, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.

            (c)   In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Warrant Shares
by the third Trading Day the date on which delivery of such certificate is
required by this Warrant, and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares that the
Holder anticipated receiving from the Company (a "BUY-IN"), then in the Holder's
sole discretion, the Company shall within three Trading Days after the Holder's
request, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.

            (d)   The Company's obligations to issue and deliver Warrant Shares
in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of this Warrant as required pursuant to the
terms hereof.

      6.    Charges, Taxes and Expenses. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant

                                       3
<PAGE>

Shares or Warrants in a name other than that of the Holder or an Affiliate
thereof. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.

      7.    Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.

      8.    Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.

      9.    Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

            (a)   Stock Dividends and Splits. If the Company, at any time while
this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

            (b)   Pro Rata Distributions. If the Company, at any time while this
Warrant is outstanding, distributes to holders of Common Stock (i) evidences of
its indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each

                                       4
<PAGE>

case, "DISTRIBUTED PROPERTY"), then in each such case the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Exercise Price times a
fraction of which the denominator shall be the average of the Closing Prices for
the five Trading Days immediately prior to (but not including) such record date
and of which the numerator shall be such average less the then fair market value
of the Distributed Property distributed in respect of one outstanding share of
Common Stock, as determined by the Company's independent certified public
accountants that regularly examine the financial statements of the Company (an
"APPRAISER"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Exercise Price, at the request of the Holder delivered before
the 90th day after such record date, the Company will deliver to such Holder,
within five Trading Days after such request (or, if later, on the effective date
of such distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of this Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.

            (c)   Fundamental Transactions. If, at any time while this Warrant
is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person in which the Company is not the surviving
entity, (ii) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "FUNDAMENTAL TRANSACTION"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
of securities, cash or property as it would have been entitled to receive upon
the occurrence of such Fundamental Transaction if it had been, immediately prior
to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "ALTERNATE CONSIDERATION").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof.

                                       5
<PAGE>

The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (c) and insuring that this Warrant
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If any
Fundamental Transaction constitutes or results in a Change of Control, then at
the request of the Holder delivered before the tenth (10th) day after the
consummation of such Change of Control, the Company (or any such successor or
surviving entity) will purchase this Warrant from the Holder for a purchase
price, payable in cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction), equal to the Black
Scholes value of the remaining unexercised portion of this Warrant on the date
of such request.

            (d)   Subsequent Equity Sales.

                  (i)   If, at any time while this Warrant is outstanding, the
      Company or any Subsidiary issues additional shares of Common Stock or
      rights, warrants, options or other securities or debt convertible,
      exercisable or exchangeable for shares of Common Stock or otherwise
      entitling any Person to acquire shares of Common Stock (collectively,
      "COMMON STOCK EQUIVALENTS") at an effective net price (excluding customary
      investment banking fees) to the Company per share of Common Stock (the
      "EFFECTIVE PRICE") less than the Exercise Price (as adjusted hereunder to
      such date), then the Exercise Price shall be reduced to equal the product
      of (A) the Exercise Price in effect immediately prior to such issuance of
      Common Stock or Common Stock Equivalents times (B) a fraction, the
      numerator of which is the sum of (1) the number of shares of Common Stock
      outstanding immediately prior to such issuance, plus (2) the number of
      shares of Common Stock which the aggregate Effective Price of the Common
      Stock issued (or deemed to be issued) would purchase at the Exercise
      Price, and the denominator of which is the aggregate number of shares of
      Common Stock outstanding or deemed to be outstanding immediately after
      such issuance. For purposes of this paragraph, in connection with any
      issuance of any Common Stock Equivalents, (A) the maximum number of shares
      of Common Stock potentially issuable at any time upon conversion, exercise
      or exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall
      be deemed to be outstanding upon issuance of such Common Stock
      Equivalents, (B) the Effective Price applicable to such Common Stock shall
      equal the minimum dollar value of consideration payable to the Company to
      purchase such Common Stock Equivalents and to convert, exercise or
      exchange them into Common Stock (net of any discounts, fees, commissions
      and other expenses), divided by the Deemed Number, and (C) no further
      adjustment shall be made to the Exercise Price upon the actual issuance of
      Common Stock upon conversion, exercise or exchange of such Common Stock
      Equivalents.

                  (ii)  If, at any time while this Warrant is outstanding, the
      Company or any Subsidiary issues Common Stock Equivalents with an
      Effective Price or a number of underlying shares that floats or resets or
      otherwise varies or is subject to adjustment based (directly or
      indirectly) on market prices of the Common Stock (a "FLOATING PRICE
      SECURITY"), then for purposes of applying the preceding paragraph in
      connection with any subsequent exercise, the Effective Price will be
      determined separately on each Exercise Date and will be deemed to equal
      the lowest Effective Price at which any holder of such

                                       6
<PAGE>

      Floating Price Security is entitled to acquire Common Stock on such
      Exercise Date (regardless of whether any such holder actually acquires any
      shares on such date).

                  (iii) Notwithstanding the foregoing, no adjustment will be
      made under this paragraph (d) in respect of any Excluded Stock.

            (e)   Number of Warrant Shares. Simultaneously with any adjustment
to the Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section,
the number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.

            (f)   Calculations. All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.

            (g)   Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.

            (h)   Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 15 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.

      10.   Payment of Exercise Price. The Holder shall pay the Exercise Price
in immediately available funds; provided, however, if the Registration Statement
is not effective as of the Exercise Date (which shall not be before the 120th
day after the Closing Date) or as of the Expiration Date, the Holder may then
satisfy its obligation to pay the Exercise Price through a

                                       7
<PAGE>

"cashless exercise," in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:

                            X = Y [(A-B)/A]
                  where:

                            X = the number of Warrant Shares to be issued to the
                            Holder.

                            Y = the number of Warrant Shares with respect to
                            which this Warrant is being exercised.

                            A = the average of the Closing Prices for the five
                            Trading Days immediately prior to (but
                            not including) the Exercise Date.

                            B = the Exercise Price.

            For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.

      11.   Limitation on Exercise. (a) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act does not exceed 9.99% (the
"MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares requested in such Exercise Notice is permitted
under this paragraph. The Company's obligation to issue shares of Common Stock
in excess of the limitation referred to in this Section shall be suspended (and
shall not terminate or expire notwithstanding any contrary provisions hereof)
until such time, if any, as such shares of Common Stock may be issued in
compliance with such limitation. By written notice to the Company, the Holder
may waive the provisions of this Section or increase or decrease the Maximum
Percentage to any other percentage specified in such notice, but (i) any such
waiver or increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Warrants.

                                       8
<PAGE>

            (b)   Notwithstanding anything to the contrary contained herein, the
maximum number of shares of Common Stock that the Company may issue pursuant to
the Transaction Documents at an effective purchase price less than the Closing
Price on the Trading Day immediately preceding the Closing Date equals 6,986,734
shares (the "ISSUABLE MAXIMUM"), unless the Company obtains shareholder approval
in accordance with the rules and regulations of the Trading Market. If, at the
time any Holder requests an exercise of any of the Warrants, the Actual Minimum
(excluding any shares issued or issuable at an effective purchase price in
excess of the Closing Price on the Trading Day immediately preceding the Closing
Date) exceeds the Issuable Maximum (and if the Company has not previously
obtained the required shareholder approval), then the Company shall issue to the
Holder requesting such exercise a number of shares of Common Stock not exceeding
such Holder's pro-rata portion of the Issuable Maximum (based on such Holder's
share (vis-a-vis other Holders) of the aggregate purchase price paid under the
Purchase Agreement and taking into account any Warrant Shares previously issued
to such Holder), and the remainder of the Warrant Shares issuable in connection
with such exercise or conversion (if any) shall constitute "Excess Shares"
pursuant to Section 11(c) below. For the purposes hereof, "ACTUAL MINIMUM" shall
mean, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise in full of all
Warrants, ignoring any limits on the number of shares of Common Stock that may
be owned by a Holder at any one time.

            (c)   In the event that any Holder's receipt of shares of Common
Stock upon exercise of this Warrant is restricted based on the Issuable Maximum,
the Company shall either: (i) use best efforts to obtain the required
shareholder approval necessary to permit the issuance of such Excess Shares as
soon as is reasonably possible, but in any event not later than the 60th day
after the event giving rise to such Excess Shares, or (ii) within five Trading
Days after such event, pay cash to such Holder, as liquidated damages and not as
a penalty, in an amount equal to the Black Scholes value of this Warrant with
respect to the portion of this Warrant which is unexercisable due to the
Issuable Maximum after giving effect to the limitations in Section 11(b),
measured as of the date of such event or, if greater, the date of payment (such
difference, the "CASH AMOUNT"). No shares of Common Stock that were issued
pursuant to the Transaction Documents may be entitled to vote to approve the
issuance of such Excess Shares. If the Company elects the first option under the
first sentence of this Section 11(c) and the Company fails to obtain the
required shareholder approval on or prior to the 60th day after such event, then
within five Trading Days after such 60th day, the Company shall pay the Cash
Amount to such Holder, as liquidated damages and not as a penalty. The portion
of this Warrant in respect of which the Cash Amount has been paid shall be
cancelled and retired and the Company shall have no further obligation with
respect thereto.

      12.   Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant. If
any fraction of a Warrant Share would, except for the provisions of this
Section, be issuable upon exercise of this Warrant, the number of Warrant Shares
to be issued will be rounded up to the nearest whole share.

      13.   Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is

                                       9
<PAGE>

delivered via facsimile at the facsimile number specified in this Section prior
to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices or
communications shall be as set forth in the Purchase Agreement.

      14.   Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

      15.   Miscellaneous.

            (a)   Subject to the restrictions on transfer set forth on the first
page hereof, this Warrant may be assigned by the Holder. This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.

            (b)   The Company will not, by amendment of its governing documents
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.

            (c)   GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE

                                       10
<PAGE>

EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY AND HOLDER HEREBY WAIVE ALL RIGHTS TO A TRIAL BY
JURY.

            (d)   The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.

            (e)   In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                            SIGNATURE PAGE FOLLOWS]

                                       11
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

                            CITIZENS, INC.

                            By: /s/ Mark A. Oliver
                            Name: Mark A. Oliver
                            Title: President

                                       12
<PAGE>

                             FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To: Citizens, Inc.

The undersigned is the Holder of Warrant No. _______ (the "WARRANT") issued by
Citizens, Inc., a Delaware corporation (the "COMPANY"). Capitalized terms used
herein and not otherwise defined have the respective meanings set forth in the
Warrant.

1.    The Warrant is currently exercisable to purchase a total of ______________
      Warrant Shares.

2.    The undersigned Holder hereby exercises its right to purchase
      _________________ Warrant Shares pursuant to the Warrant.

3.    The Holder intends that payment of the Exercise Price shall be made as
      (check one):

                  ____  "Cash Exercise"

                  ____  "Cashless Exercise"

4.    If the holder has elected a Cash Exercise, the holder shall pay the sum of
      $____________ to the Company in accordance with the terms of the Warrant.

5.    Pursuant to this exercise, the Company shall deliver to the holder
      _______________ Warrant Shares in accordance with the terms of the
      Warrant.

6.    Following this exercise, the Warrant shall be exercisable to purchase a
      total of ______________ Warrant Shares.

Dated: ___________, ______              Name of Holder:

                                        (Print) ________________________________

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of the Warrant)

<PAGE>

                               FORM OF ASSIGNMENT

      [To be completed and signed only upon transfer of Warrant]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Citizens, Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Citizens, Inc. with full power of
substitution in the premises.

Dated: ___________, ______

                                        ________________________________________
                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of the Warrant)

                                        ________________________________________
                                        Address of Transferee

                                        ________________________________________

                                        ________________________________________

In the presence of:

__________________________

                                       14

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