ARTICLES OF INCORPORATION

 

                                       OF

 

                       METROPOLITAN HEALTH NETWORKS, INC.

 

      The undersigned incorporator hereby forms a corporation under Chapter 607

of the laws of the State of Florida.

 

                                 ARTICLE I. NAME

 

      The name of the corporation shall be:

 

                       METROPOLITAN HEALTH NETWORKS, INC.

 

The address of the principal office of this corporation shall be 5816 North

University Drive, Tamarac, Florida 33321, and the mailing address of the

corporation shall be the same.

 

                         ARTICLE II. NATURE OF BUSINESS

 

      This corporation may engage or transact in any or all lawful activities or

business permitted under the laws of the United States, the State of Florida or

any other state, country, territory or nation.

 

                           ARTICLE III. CAPITAL STOCK

 

      The maximum number of shares of stock that this corporation is authorized

to have outstanding at any one time is 50,000,000 shares of common stock having

no par value per share.

 

<PAGE>

 

                          ARTICLE IV. REGISTERED AGENT

 

      The street address of the initial registered office of the corporation

shall be 1201 Hays Street, Tallahassee, Florida 32301, and the name of the

initial registered agent of the corporation at that address is Corporation

Service Company.

 

                          ARTICLE V. TERM OF EXISTENCE

 

      This corporation is to exist perpetually.

 

                              ARTICLE VI. DIRECTORS

 

      All corporate powers shall be exercised by or under the authority of, and

the business and affairs of the corporation managed under the direction of its

Board of Directors, subject to any limitation set forth in these Articles of

Incorporation. This corporation shall have one Director, initially. The name and

address of the initial member of the Board of Directors are:

 

Noel J. Guillma                                     5816 North University Drive,

Dir.                                                Tamarac, Florida 33321

 

<PAGE>

 

                            ARTICLE VII. INCORPORATOR

 

      The name and street address of the incorporator to these Articles of

Incorporation:

 

                             Corporate Agents, Inc.

                                1201 Hays Street

                           Tallahassee, Florida 32301

 

      The undersigned incorporator has executed these Articles of Incorporation

on January 15, 1996.

 

                             /s/ Gail Shelby

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

                             Its Agent, Gail Shelby

                                  Incorporator

 

     ACCEPTANCE OF REGISTERED AGENT DESIGNATED IN ARTICLES OF INCORPORATION

 

      Corporation Service Company, a Delaware corporation authorized to transact

business in this State, having a business office identical with the registered

office of the corporation named above, and having been designated as the

Registered Agent in the above and foregoing Articles, is familiar with and

accepts the obligations of the position of Registered Agent under Section

607.0505, Florida Statutes.

 

                          By: /s/ Gail Shelby

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

                              Its Agent, Gail Shelby

                              Authorized Service Representative

                                Corporation Service Company

 

ACG

 

<PAGE>

 

                                                               FILED

 

                                                        96 MAY -6 PM  3:54

 

                                                        SECRETARY OF STATE

                                                        TALLAHASSEE, FLORIDA

 

                              ARTICLES OF AMENDMENT

                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                       METROPOLITAN HEALTH NETWORKS, INC.

 

      Pursuant to Section 607.1006 of the Business Corporation Act of the State

of Florida, the undersigned officer of METROPOLITAN HEALTH NETWORKS, INC., a

corporation organized and existing under and by virtue of the Business

Corporation Act of the State of Florida, does hereby certify.

 

      The foregoing Article III was amended in its entirety and adopted by all

of the Directors of the Corporation pursuant to a unanimous written consent of

the Board of Directors on April 27, 1996, and by a majority of the Shareholders

of the Common Stock of the Corporation acting by written consent pursuant to

Section 607.0821 of the Florida Business Corporation Act, which shares voting at

such meeting represented a majority of the total issued and outstanding

capital stock of the Corporation entitled to vote. Therefore, the number of cast

for the amendment to the Corporation's Articles of Incorporation was sufficient

for approval.

 

      The following Article should be amended to read:

 

                           ARTICLE III - CAPITAL STOCK

 

            The maximum number of shares of stock that the Corporation is

            authorized to issue and have outstanding at any one time shall be

            forty million (40,000,000) shares of Common Stock, $.001 par value

            per share and Ten Million (10,000,000) shares of Preferred Stock

            having a par value of $.001 per share. The Preferred Stock may be

            issued from time to time, with such designations, preferences,

            conversion rights, cumulative, relative, participating, optional or

            other rights, including voting rights, qualifications, limitations

            or restrictions thereof as shall be stated and expressed in the

            resolution or resolutions providing for the creation and issuance of

            such series of Preferred Stock as adopted by the Board of Directors

            pursuant to the authority in this paragraph given.

 

      IN WITNESS WHEREOF, the undersigned has executed these Articles of

Amendment as of this 27 day of April, 1996.

 

                                        METROPOLITAN HEALTH NETWORKS, INC.

 

                                        By: /s/ Noel J. Guillama

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

                                         Its: President & CEO.

                                              NOEL J. GUILLAMA

 

                                        JOEL D. MAYERSOHN, Esq. 10093492

                                        (954) 766-7843

                                        Atlas, Pearlman, Trop and Borkson

                                        200 E. Las Olas, Suite 1900

                                        Ft Lauderdale FL

 

<PAGE>

 

                           P96000004953

                    FLORIDA DIVISION OF CORPORATIONS

                          PUBLIC ACCESS SYSTEM

(((H96000006191)))   ELECTRONIC FILING COVER SHEET

 

TO: DIVISION OF CORPORATIONS          FROM: ATLAS, PEARLMAN, TROP & BORKSON, P.A

    DEPARTMENT OF STATE                     PO BOX :4610

    STATE OF FLORIDA

    409 EAST GAINES STREET                  FT LAUDERDALE FL 33302-4610

    TALLAHASSEE, FL 32399          CONTACT: KATHY E RASLER

 FAX: (904) 922-4000                 PHONE: (305) 763-1200

                                       FAX: (305) 523-1952

(((H96000006191)))           DOCUMENT TYPE: BASIC AMENDMENT

               NAME: METROPOLITAN HEALTH NETWORKS, INC.

 FAX AUDIT NUMBER: H96000006191                 CURRENT STATUS: REQUESTED

   DATE REQUESTED: 05/01/1996                   TIME REQUESTED: 16:05:11

 CERTIFIED COPIES: 1                     CERTIFICATE OF STATUS: 0

  NUMBER OF PAGES: 1                        METHOD OF DELIVERY: FAX

 ESTIMATED CHARGE: $87.50                       ACCOUNT NUMBER: 076247002423

 

Note: Please print this page and use it as a cover sheet when submitting

documents to the Division of Corporations. Your document cannot be processed

without the information contained on this page. Remember to type the Fax Audit

number on the top and bottom of all pages of the document.

 

(((H96000006191)))

** ENTER 'M' FOR MENU. **

 

ENTER SELECTION AND [CR]:

[#1] [ ] COMPUSER[ ] MENU      [ ]0:05:33[ ]        04:12p[ ]        Capture Off

 

                                                              FILED

 

                                                        96 MAY -6 PM  3:54

 

                                                        SECRETARY OF STATE

                                                        TALLAHASSEE, FLORIDA

 

                                    RECEIVED

 

                               96 MAY -2 AM 11:16

 

                              MANSION CORPORATIONS

 

<PAGE>

 

                           FLORIDA DIVISION OF CORPORATIONS

                                PUBLIC ACCESS SYSTEM

( ( (H96000006191) ) )      ELECTRONIC FILING COVER SHEET

TO: DIVISION OF CORPORATIONS         FROM: ATLAS, PEARLMAN, TROP & BORKSON, P.A

    DEPARTMENT OF STATE                    PO BOX 14610

    STATE OF FLORIDA

    409 EAST GAINES STREET                 FT LAUDERDALE FL 33302-4610

    TALLAHASSEE, FL 32399         CONTACT: KATHY E RASLER

 FAX: (904) 922-4000                PHONE: (305) 763-1200

                                      FAX: (305) 523-1952

( ( (H96000006191) ) )     DOCUMENT TYPE:  BASIC AMENDMENT

                  NAME: METROPOLITAN HEALTH NETWORKS, INC.

FAX AUDIT NUMBER: H96000006191                 CURRENT STATUS: REQUESTED

  DATE REQUESTED: 05/01/1996                   TIME REQUESTED: 16:05:11

CERTIFIED COPIES: 1                     CERTIFICATE OF STATUS: 0

 NUMBER OF PAGES: 1                        METHOD OF DELIVERY: FAX

ESTIMATED CHARGE: $87.50                       ACCOUNT NUMBER: 076247002423

 

Note: Please print this page and use it as a cover sheet when submitting

documents to the Division of Corporations. Your document cannot be processed

without the information contained on this page. Remember to type the Fax Audit

number on the top and bottom of all pages of the document.

(((H96000006191)))

 

**ENTER 'M' FOR MENU. **

ENTER SELECTION AND [CR]:

[#1] [ ] COMPUSER [ ]MENU       [ ] 0:05:33[ ]        04:12p[ ]      Capture Off

 

                                    RECEIVED

 

                               96 MAY -6 PM 1:29

 

                              MANSION CORPORATIONS

 

<PAGE>

 

                       [FLORIDA DEPARTMENT OF STATE LOGO]

 

                          FLORIDA DEPARTMENT OF STATE

                               Sandra B. Mortham

                               Secretary of State

 

May 2, 1996

 

METROPOLITAN HEALTH NETWORKS, INC.

5816 NORTH UNIVERSITY DRIVE

TAMARAC, FL 33321

 

SUBJECT: METROPOLITAN HEALTH NETWORKS, INC.

REF: P96000004953

 

We received your electronically transmitted document. However, the document has

not been filed and needs the following corrections.

 

The name and capacity of the person signing the document must be noted beneath

or opposite the signature.

 

Please return your document, along with a copy of this letter, within 60 days or

your filing will be considered abandoned.

 

If you have any questions concerning the filing of your document, please call

(904) 487-6902.

 

Linda Stitt                                     FAX And. #: H96000006191

Corporate Specialist                            Letter Number: 896200021312

 

<PAGE>

 

                                                              FILED

 

                                                        97 DEC 30 AM 11:25

 

                                                        SECRETARY OF STATE

                                                        TALLAHASSEE, FLORIDA

 

                             ARTICLES OF AMENDMENT

                                     TO THE

                           ARTICLES OF INCORPORATION

                                       OF

                       METROPOLITAN HEALTH NETWORKS, INC.

 

      Pursuant to Section 607.10025, of the Business Corporation Act of the

State of Florida, the undersigned President of METROPOLITAN HEALTH NETWORKS,

INC., a corporation organized and existing under and by virtue of the Business

Corporation Act of the State of Florida ("Corporation"), bearing document number

P96000004953, does hereby certify that the following is a true and correct copy

of resolutions duly adopted by the Board of Directors of the Company (the "Board

of Directors") by unanimous written consent dated July 28, 1997, which

constituted all requisite action on the part of the Company for adoption of such

resolutions.

 

      WHEREAS, the Articles of Incorporation of the Corporation authorizes

10,000,000 shares of preferred stock, par value $.001 per share, of which no

shares are issued and outstanding.

 

      WHEREAS, the Board of Directors is authorized at any time and from time to

time, to provide for the issuance of shares of preferred stock in one or more

series, with such voting powers, full or limited, or without voting powers, and

with such designations, preferences and relations, participating, optional or

other special rights, qualifications, limitations or restrictions thereof.

 

      WHEREAS, the Board of Directors desires, pursuant to its authority as

aforesaid, to designate a new series of preferred stock, set the number of

shares constituting such series and fix the rights, preferences, privileges and

restrictions of such series.

<PAGE>

 

            NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby

designates a new series of preferred stock and, in accordance therewith, Article

III entitled, "Capital Stock" of the Articles of Incorporation of this

Corporation is revised to include the number of shares constituting such series

and the rights, preferences, privileges and restrictions relating to such series

as follows:

 

      C. Series A Preferred Stock.

 

            1. Designation and Number of Shares. The Preferred Stock shall be

      designated "Series A Convertible Stock" of a par value of $.001 per share,

      and the number of shares constituting the Series A Preferred Stock shall

      be 30,000 shares.

 

            2. Dividend Rights. Holders of the Series A Preferred Stock shall be

      entitled to receive, when and as declared by the Board of Directors out of

      funds legally available therefor, and the Company shall pay, cumulative

      dividends at the rate per share, as a percentage of the stated value of

      $100.00 per share ("STATED VALUE") equal to 10% percent per annum

      ("INITIAL DIVIDENDS"), payable, in cash or shares of Common Stock (subject

      to the terms and conditions hereof) at the option of the Company quarterly

      in arrears, but in no event later than conversion applicable to such share

      of Series A Preferred Stock. Dividends on the Series A Preferred Stock

      shall be calculated on the basis of a 360-day year, shall accrue daily

      commencing the date of issuance and shall be deemed to accrue on such date

      whether or not earned or declared and whether or not there are profits,

      surplus or other funds of the Company legally available for the payment of

      dividends. The party that holds the Series A Preferred Stock of record on

      an applicable record date for any dividend payment will be entitled to

      receive such dividend

 

<PAGE>

 

      payment and any other accrued and unpaid dividends which accrued prior to

      such dividend payment date, without regard to any sale or disposition of

      such Series A Preferred Stock subsequent to the applicable record date but

      prior to the applicable dividend payment date. Except as otherwise

      provided herein, if at any time the Company pays less than the total

      amount of dividends then accrued on account of the Preferred Stock, such

      payment shall be distributed ratably among the holders of the Preferred

      Stock based upon the number of shares held by each holder.

 

            3. Conversion.

 

            (a) Each share of Series A Preferred Stock shall be convertible into

      shares of Common Stock at the Conversion Ratio (as defined herein) at the

      option of the holder in whole or in part as at any time commencing seven

      months after the date of issuance. "CONVERSION RATIO" means, at any time,

      a fraction, of which the numerator is Stated Value plus accrued but unpaid

      dividends (including any accrued but unpaid interest thereon) but only to

      the extent not paid in shares of Common Stock in accordance with the terms

      hereof, and of which the denominator is the Conversion Price at such time.

      The holder shall effect conversions by surrendering the certificate or

      certificates representing the shares of Series A Preferred Stock to be

      converted to the legal counsel for the Company, with a copy thereof to the

      Company, together with the form of conversion notice attached hereto as

      Exhibit A (the "CONVERSION NOTICE"), provided, however, that the holder

      shall not convert more than 7,500 shares of Series A Preferred Stock in

      any one quarter. Each Conversion Notice shall specify the number of shares

      of Series A Preferred Stock to be converted and the date on which such

 

<PAGE>

 

      conversion is to be effected, which date may not be prior to the date the

      holder delivers such Conversion Notice by facsimile (the "CONVERSION

      DATE")- If no Conversion Date is specified in a Conversion Notice, the

      Conversion Date shall be the date that the Conversion Notice is delivered.

      Each Conversion Notice, once given, shall be irrevocable. If the holder is

      converting less than all shares of Series A Preferred Stock represented by

      the certificate or certificates tendered by the holder with the Conversion

      Notice, or if a conversion hereunder cannot be effected in full for any

      reason, the Company shall convert up to the number of shares of Series A

      Preferred Stock which can be so converted and shall promptly deliver to

      such holder a certificate for such number of shares as have not been

      converted. Notwithstanding anything to the contrary contained herein, the

      Company shall have the right to deny conversion of the Series A Preferred

      Stock, at which time the holder shall be entitled to receive and the

      Company shall pay additional cumulative dividends at the rate per share

      (as a percentage of the Stated Value) equal to 5% per annum, and together

      with the Initial Dividend rate, to equal fifteen (15%) percent per annum

      payable under the same terms as the Initial Dividends. No fractional share

      or scrip representing a fractional share will be issued upon conversion of

      the Series A Preferred Stock. In the event of any reclassification,

      merger, consolidation or change of shares of the Series A Preferred Stock

      and/or the Common Stock of the Corporation, the Corporation shall make

      adjustments to the conversion ratio that shall be as nearly equivalent to

      that stated above as may be practical.

 

            (b) The conversion price for each share of Series A Preferred Stock

      (the "CONVERSION PRICE") in effect on any Conversion Date shall be the

 

<PAGE>

 

      lesser of (a) 85% of the average closing bid price of the Common Stock

      reported by the principal exchange on which the Common Stock is traded,

      the NASDAQ Small Cap Market or any other exchange the Common Stock is then

      traded, for the ten (10) trading days immediately preceding the Conversion

      Date, or (b) $6.00.

 

            (c) The Company covenants that it will at all times reserve and keep

      available out of its authorized and unissued Common Stock solely for the

      purpose of issuance upon conversion of Preferred Stock and payment of

      dividends on Preferred Stock, each as herein provided, free from

      preemptive rights or any other actual contingent purchase rights of

      persons other than the holders of Preferred Stock, not less than such

      number of shares of Common Stock as shall (subject to any additional

      requirements of the Company as to reservation of such shares set forth in

      the Purchase Agreement) be issuable upon the conversion of all outstanding

      shares of Preferred Stock and payment of dividends hereunder. The Company

      covenants that all shares of Common Stock that shall be so issuable shall,

      upon issue, be duly and validly authorized, issued and fully paid,

      nonassessable and freely tradeable.

 

            (d) The Conversion Price will be subject to adjustment in certain

      events, including (i) the issuance of capital stock as a dividend or

      distribution on Common Stock, (ii) subdivision, combinations, reverse

      stock splits and reclassification of the Common Stock, (iii) the fixing of

      a record date for the issuance to all holders of Common Stock of rights or

      warrants entitling them (for a period expiring within 45 days of such

      record date) to subscribe for Common Stock and (iv) the fixing of a record

      date for the distribution to all

 

<PAGE>

 

      holders of Common Stock of evidence of indebtedness or assets (other than

      cash dividends) of the Corporation or subscription rights or warrants

      (other than those referred to above).

 

            (e) Shares of Series A Preferred Stock converted into Common Stock

      shall be canceled and shall have the status of authorized but unissued

      shares of undesignated preferred stock.

 

            4. Redemption. The Company shall have the right, exercisable at any

      time upon 10 trading days notice to the holders of the Series A Preferred

      Stock given at any time after the expiration of two years after the date

      of issuance to redeem, from funds legally available therefor at the time

      of such redemption, all or any portion of the shares of Series A Preferred

      Stock which have not previously been converted or redeemed, at a price

      equal to 105% of the product of (i) the number of shares of Preferred

      Stock then held by the holder, and (ii) the Stated Value.

 

            5. Voting Rights. Except as provided by law, the Series A Preferred

      Stock shall not be entitled to vote on matters submitted to a vote of the

      shareholders of the Corporation. Unless the vote or consent of the holders

      of a greater number of shares is required by law, the consent of the

      holders of at least a majority of all of the Series A Preferred Stock at

      the time outstanding shall be necessary to change, alter or revoke the

      rights and preferences conferred on the Series A Preferred Stock by the

      Articles of Incorporation or to adopt any amendment to the Articles of

      Incorporation materially adversely affecting the rights of the holders of

      the Series A Preferred Stock.

 

            6. Liquidation Rights. In the event of any liquidation, dissolution

 

 

<PAGE>

 

      or winding up of the Corporation, holders of the Series A Preferred Stock

      shall be entitled to receive, after due payment or provision for payment

      for the debts and other liabilities of the Corporation, a liquidating

      distribution before any distribution may be made to holders of Common

      Stock of the Corporation. The holders of the Series A Preferred Stock

      outstanding shall be entitled to receive an amount equal to the Stated

      Value, plus declared dividends to the date of the final distribution,

      whether or not such liquidation, dissolution or winding up is voluntary or

      involuntary on the part of the Corporation.

 

            7. Miscellaneous. The Series A Preferred Stock has no preemptive

      rights. The Corporation reserves the right to issue up to an additional

      9,970,000 shares of preferred stock, representing the balance of the

      authorized preferred stock, with designations and preferences as the Board

      of Directors shall determine. The Series A Preferred Stock and the Common

      Stock into which such Series A Preferred Stock is convertible, when issued

      will be legally issued, fully paid and non-assessable.

 

      IN WITNESS WHEREOF, the undersigned, being the President of this

Corporation, has executed these Articles of Amendment as of July 29, 1997.

 

                                    METROPOLITAN  HEALTH NETWORKS, INC.

 

                                    By: /s/ Noel J. Guillama

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

                                        Noel J. Guillama, Chairman and President

 

                                    By: /s/ Donald B. Cohen

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

                                        Donald B. Cohen, Secretary

 

<PAGE>

 

                                    EXHIBIT A

 

                              NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder

in order to Convert shares of 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, par

value $.01 per share (the "Common Stock"), of Metropolitan Health Networks, Inc.

(the "Company") according to the conditions hereof, as of the date written

below. If shares are to be issued in the name of a person other than

undersigned, the undersigned will pay all transfer taxes payable with respect

thereto and is delivering herewith such certificates and opinions as reasonably

requested by the Company in accordance therewith. No fee will be charged to the

holder for any conversion, except for such transfer taxes, if any.

 

Conversion calculations:

 

                             Date to Effect Conversion

 

                             ___________________________________________________

                             Number of shares of Preferred Stock to be Converted

 

                             ___________________________________________________

                             Number of shares of Common Stock to be Issued

 

                             ___________________________________________________

                             Applicable Conversion Price

 

                             ___________________________________________________

                             Signature

 

                             ___________________________________________________

                             Name

 

                             ___________________________________________________

                             Address

 

The Company undertakes to promptly upon its receipt of this conversion notice

(and, in any case prior to the time it effects the conversion requested hereby),

notify the converting holder by facsimile of the number of shares of Common

Stock outstanding on such date and the number of shares of Common Stock which

would be issuable to the holder if the conversion requested in this conversion

notice were effected in full, whereupon, if the Company determines that such

conversion would result in it owning in excess of 4.9% of the outstanding shares

of Common Stock on such date, the Company shall convert up to an amount equal to

4.9% of the outstanding shares of Common Stock and issue to the holder one or

more certificates representing shares of Preferred Stock which have not been

converted as a result of this provision.

 

<PAGE>

 

                                                                   FILED

                                                             98 APR 27 AM 11:59

                                                             SECRETARY OF STATE

                                                            TALLAHASSEE, FLORIDA

 

                              ARTICLES OF AMENDMENT

                                     TO THE

                           ARTICLES OF INCORPORATION

                                       OF

                       METROPOLITAN HEALTH NETWORKS, INC.

 

                      (Pursuant to Section 607.0602 of the

                        Florida Business Corporation Act)

 

      Metropolitan Health Networks, Inc., a corporation organized and existing

under the Florida Business Corporation Act (the "Corporation") bearing document

no. P96000004953, hereby certifies that the following resolutions were adopted

by the Board of Directors of the Corporation on April 16, 1998 pursuant to

authority of the Board of Directors:

 

      RESOLVED, that pursuant to the authority granted to and vested in the

Board of Directors of this Corporation (the "Board of Directors" or the "Board")

in accordance with the provisions of its Articles of Incorporation, the Board of

Directors hereby authorizes a series of the Corporation's previously authorized

Preferred Stock, par value $.001 per share (the "Preferred Stock"), and hereby

amends Article 3 of the Articles of Incorporation to include the following which

states the designation and number of shares, and fixes the relative rights,

preferences, privileges, powers and restrictions thereof as follows:

 

      Series B Convertible Preferred Stock:

 

I.    Designation and Amount

 

      The designation of this series, which consists of 2,000 shares of

Preferred Stock, is Series B Convertible Preferred Stock (the "Series B

Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)

per share (the "Stated Value").

 

II.   Rank

 

      The Series B Preferred Stock shall rank (i) prior to the Corporation's

common stock, par value $.001 per share (the "Common Stock"); (ii) prior to any

class or series of capital stock of the Corporation hereafter created (unless,

with the consent of the holders of Series B Preferred Stock obtained in

accordance with Article IX hereof, such class or series of capital stock

specifically, by its terms, ranks senior to or pari passu with the Series B

Preferred Stock) (collectively, with the Common Stock, "Junior Securities");

(iii) pari passu with any class or series of capital stock of the Corporation

hereafter created (with the consent of the holders of Series B Preferred Stock

obtained in accordance with Article IX hereof) specifically ranking, by its

terms, on parity with the Series B Preferred Stock ("Pari Passu Securities");

and (iv) junior

 

This document prepared by:

ROXANNE K. BEILLY, ESQ., Florida Bar No. 851450

Atlas, Pearlman, Trop & Borkson, P.A.

200 E. Las Olas Blvd., Suite 1900

Ft. Lauderdale, FL 33301 Phone: (954) 763-1200

 

                                      -1-

<PAGE>

 

to any class or series of capital stock of the Corporation hereafter created

(with the consent of the holders of Series B Preferred Stock obtained in

accordance with Article IX hereof) specifically ranking, by its terms, senior to

the Series B Preferred Stock ("Senior Securities"), in each case as to

distribution of assets upon liquidation, dissolution or winding up of the

Corporation, whether voluntary or involuntary.

 

III.  Dividends

 

      The Series B Preferred Stock shall not bear any dividends. In no event, so

long as any Series B Preferred Stock shall remain outstanding, shall any

dividend whatsoever be declared or paid upon, nor shall any distribution be made

upon, any Junior Securities, nor shall any shares of Junior Securities be

purchased or redeemed by the Corporation nor shall any moneys be paid to or made

available for a sinking fund for the purchase or redemption of any Junior

Securities (other than a distribution of Junior Securities), without, in each

such case, the written consent of the holders of a majority of the outstanding

shares of Series B Preferred Stock, voting together as a class.

 

IV.   Liquidation Preference

 

      A. If the Corporation shall commence a voluntary case under the Federal

bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency

or similar law, or consent to the entry of an order for relief in an involuntary

case under any law or to the appointment of a receiver, liquidator, assignee,

custodian, trustee, sequestrator (or other similar official) of the Corporation

or of any substantial part of its property, or make an assignment for the

benefit of its creditors, or admit in writing its inability to pay its debts

generally as they become due, or if a decree or order for relief in respect of

the Corporation shall be entered by a court having jurisdiction in the premises

in an involuntary case under the Federal bankruptcy laws or any other applicable

Federal or state bankruptcy, insolvency or similar law resulting in the

appointment of a receiver, liquidator, assignee, custodian, trustee,

sequestrator (or other similar official) of the Corporation or of any

substantial part of its property, or ordering the winding up or liquidation of

its affairs, and any such decree or order shall be unstayed and in effect for a

period of thirty (30) consecutive days and, on account of any such event, the

Corporation shall liquidate, dissolve or wind up, or if the Corporation shall

otherwise liquidate, dissolve or wind up (each such event being considered a

"Liquidation Event"), no distribution shall be made to the holders of any shares

of capital stock of the Corporation (other than Senior Securities) upon

liquidation, dissolution or winding up unless prior thereto, the holders of

shares of Series B Preferred Stock, subject to Article VI, shall have received

the Liquidation Preference (as defined in Article IV.C) with respect to each

share. If upon the occurrence of a Liquidation Event, the assets and funds

available for distribution among the holders of the Series B Preferred Stock and

holders of Pari Passu Securities (including any dividends or distribution paid

on any Pari Passu Securities after the date of filing of this Certificate of

Designation) shall be insufficient to permit the payment to such holders of the

preferential amounts payable thereon, then the entire assets and funds of the

Corporation legally available for distribution to the Series B Preferred Stock

and the Pari Passu Securities shall be distributed ratably among such shares in

proportion to the ratio that the Liquidation Preference payable on each such

share bears to the aggregate

 

                                       -2-

<PAGE>

 

liquidation preference payable on all such shares. Any prior dividends or

distribution made after the date of filing of this Certificate of Designation

shall offset, dollar for dollar, the amount payable to the class or series to

which such distribution was made.

 

      B. At the option of any holder of Series B Preferred Stock, the sale,

conveyance or disposition of all or substantially all of the assets of the

Corporation, the effectuation by the Corporation of a transaction or series of

related transactions in which more than 50% of the voting power of the

Corporation is disposed of, or the consolidation, merger or other business

combination of the Corporation with or into any other Person (as defined below)

or Persons when the Corporation is not the survivor shall either: (i) be deemed

to be a liquidation, dissolution or winding up of the Corporation pursuant to

which the Corporation shall be required to distribute upon consummation of such

transaction an amount equal to 120% of the Liquidation Preference with respect

to each outstanding share of Series B Preferred Stock in accordance with and

subject to the terms of this Article IV or (ii) be treated pursuant to Article

VI.C(b) hereof. "Person" shall mean any individual, corporation, limited

liability company, partnership, association, trust or other entity or

organization.

 

      C. For purposes hereof, the "Liquidation Preference" with respect to a

share of the Series B Preferred Stock shall mean an amount equal to the sum of

(i) the Stated Value thereof plus (ii) and amount equal to five percent (5%) per

annum of such Stated Value for the period beginning on the date of issuance of

the Series B Preferred Stock (the "Issue Date") and ending on the date of final

distribution to the holder thereof (prorated for any portion of such period).

The liquidation preference with respect to any Pari Passu Securities shall be

as set forth in the Certificate of Designation filed in respect thereof.

 

V.    Redemption

 

      A. If any of the following events (each, a "Mandatory Redemption Event")

shall occur:

 

            (i) The Corporation fails to issue shares of Common Stock to the

holders of Series B Preferred Stock upon exercise by the holders of their

conversion rights in accordance with the terms of this Certificate of

Designation (for a period of at least sixty (60) days if such. failure is solely

as a result of the circumstances governed by the second paragraph of Article

VI.F below and the Corporation is using all commercially reasonable efforts to

authorize a sufficient number of shares of Common Stock as soon as practicable),

fails to transfer or to cause its transfer agent to transfer (electronically or

in certificated form) any certificate for shares of Common Stock issued to the

holders upon conversion of the Series B Preferred Stock as and when required by

this Certificate of Designation or the Registration Rights Agreement, dated as

of April 24, 1998, by and among the Corporation and the other signatories

thereto (the "Registration Rights Agreement"), fails to remove any restrictive

legend (or to withdraw any stop transfer instructions in respect thereof) on any

certificate or any shares of Common Stock issued to the holders of Series B

Preferred Stock upon conversion of the Series B Preferred Stock as and when

required by this Certificate of Designation, the Securities Purchase Agreement

dated as of April 24, 1998, by and between the Corporation and the other

signatories thereto (the "Purchase Agreement") or the Registration Rights

Agreement, or fails to fulfill its obligations pursuant to Sections 4(c), 4(e),

4(h), 4(i), 4(j) or 5 of the Purchase Agreement (or

 

                                      -3-

<PAGE>

 

makes any announcement, statement or threat that it does not intend to honor the

obligations described in this paragraph) and any such failure shall continue

uncurred (or any announcement, statement or threat not to honor its obligations

shall not be rescinded in writing) for ten (10) business days;

 

            (ii) The Corporation fails to obtain effectiveness with the

Securities and Exchange Commission (the "SEC") of the Registration Statement (as

defined in the Registration Rights Agreement) prior to October 31, 1998 or such

Registration Statement lapses in effect (or sales otherwise cannot be made

thereunder, whether by reason of the Company's failure to amend or supplement

the prospectus included therein in accordance with the Registration Rights

Agreement or otherwise) for more than thirty (30) consecutive days or sixty (60)

days in any twelve (12) month period after such Registration Statement becomes

effective;

 

            (iii) The Corporation shall make an assignment for the benefit of

creditors, or apply for or consent to the appointment of a receiver or trustee

for it or for all or substantially all of its property or business; or such a

receiver or trustee shall otherwise be appointed;

 

            (iv) Bankruptcy, insolvency, reorganization or liquidation

proceedings or other proceedings for relief under any bankruptcy law or any law

for the relief of debtors shall be instituted by or against the Corporation or

any subsidiary of the Corporation;

 

            (v) The Corporation shall fail to maintain the listing of the Common

Stock on the Nasdaq National Market, the Nasdaq SmallCap Market ("Nasdaq

SmallCap"), the New York Stock Exchange or the American Stock Exchange and such

failure shall remain uncured for at least ten (10) business days, then, upon the

occurrence and during the continuation of any Mandatory Redemption Event

specified in subparagraphs (i), (ii) or (v) at the option of the holders of at

least 50% of the then outstanding shares of Series B Preferred Stock by written

notice (the "Mandatory Redemption Notice") to the Corporation of such Mandatory

Redemption Event, or upon the occurrence of any Mandatory Redemption Event

specified in subparagraphs (iii) or (iv), the Corporation shall purchase each

holder's shares of Series B Preferred Stock for an amount per share equal to the

greater of (1) 120% multiplied by the sum of (a) the Stated Value of the shares

to be redeemed plus (b) an amount equal to five (5%) percent per annum of such

Stated Value for the period beginning on the Issue Date and ending on the date

of payment of the Mandatory Redemption Amount (the "Mandatory Redemption Date"),

and (2) the "parity value" of the shares to be redeemed, where parity value

means the product of (a) the number of shares of Common Stock issuable upon

conversion of such shares in accordance with Article VI below (without giving

any effect to any limitations or conversions of shares set forth in Article

VI.A(b)) below , and treating the Trading Day (as defined  in Article VI.B.)

immediately preceding the Mandatory Redemption Date as the "Conversion Date" (as

defined in Article VI.B(a)) unless the Mandatory Redemption Event arises as a

result of a breach in respect of a specific Conversion Date in which case such

Conversion Date shall be the Conversion Date), multiplied by (b) the Closing

Price (as defined in Article VI.A(b)) for the Common Stock on such "Conversion

Date" (the greater of such amounts being referred to as the "Mandatory

Redemption Amount").

 

      In the case of a Mandatory Redemption Event, if the Corporation fails to

pay the Mandatory Redemption Amount for each share within five (5) business days

of written notice

 

                                       -4-

<PAGE>

 

that such amount is due and payable, then (assuming there are sufficient

authorized shares) in addition to all other available remedies, each holder of

Series B Preferred Stock Shall have the right at any time, so long as the

Mandatory Redemption Event continues, to require the Corporation, upon written

notice, to immediately issue (in accordance with and subject to the terms of

Article VI below), in lieu of the Mandatory Redemption Amount, with respect to

each outstanding share of Series B Preferred Stock held by such holder, the

number of shares of Common Stock of the Corporation equal to the Mandatory

Redemption Amount divided by the Conversion Price then in effect.

 

      B. If the Series B Preferred Stock ceases to be convertible as a result of

the limitations described in the second paragraph of Article VI.A below (a

"19.99% Redemption Event"), and the Corporation has not prior to, or within

thirty (30) days of, the date that such 19.99% Redemption Event arises, (i)

obtained approval of the issuance of the additional shares of Common Stock by

the requisite vote of the holders of the then-outstanding Common Stock (not

including any shares of Common Stock held by present or former holders of Series

B Preferred Stock that were issued upon conversion of Series B Preferred Stock)

or (ii) received other permission pursuant to Nasdaq Marketplace Rule 4460(i)

allowing the Corporation to resume issuances of shares of Common Stock upon

conversion of Series B Preferred Stock, then the Corporation shall be obligated

to redeem immediately all of the then outstanding Series B Preferred Stock, in

accordance with this Article V.B. An irrevocable Redemption, Notice shall be

delivered promptly to the holders of Series B Preferred Stock at their

registered address appearing on the records of the Corporation and shall state

(1) that 19.99% of the Outstanding Common Amount (as defined in Article VI.A)

has been issued upon exercise of the Series B Preferred Stock, (2) that the

Corporation is obligated to redeem all of the outstanding Series B Preferred

Stock and (3) the Mandatory Redemption Date, which shall be a date within five

(5) business days of the Date of the Redemption Notice. On the Mandatory

Redemption Date, the Corporation shall make payment of the Mandatory Redemption

Amount (as defined in Article V.A. above) in cash. If the Corporation fails to

redeem in accordance with this Article V.B., then, in addition to all other

remedies available to the holders of the Series B Preferred Stock, upon request

of a majority-in-interest of the Series B Preferred Stock, the Corporation shall

terminate the listing of its Common Stock on Nasdaq Small Cap (and any other

exchange or quotation system with a rule substantially similar to Rule 4460(i))

and cause its Common Stock to be eligible for trading on the over-the-counter

electronic bulletin board.

 

      C. Notwithstanding anything to the contrary contained in this Article V,

so long as no Mandatory Redemption. Event shall have occurred and be continuing,

the Corporation shall have the right, on the date which is the third (3rd)

anniversary of the date on which the Registration Statement is declared

effective by the SEC, exercisable on not less than twenty (20) Trading Days

prior written notice to the holders of Series B Preferred Stock, to redeem all

of the outstanding shares of Series B Preferred Stock in accordance with this

Article V. Any notice of redemption hereunder (an "Optional Redemption") shall

be delivered to the holders of Series B Preferred Stock at their registered

addresses appearing on the books and records of the Corporation and shall state

(1) that the Corporation is exercising its right to redeem all of the

outstanding shares of Series B Preferred Stock issued on the Issue Date and (2)

the date of redemption (the "Optional Redemption Notice"). On the date fixed for

redemption (the "Optional Redemption Date"), the Corporation shall make payment

of the Optional Redemption Amount (as defined below) to or upon the order of the

holders as specified by the holders in

 

                                       -5-

<PAGE>

 

writing to the Corporation at least one (1) business day prior to the Optional

Redemption Date. If the Corporation exercises its right to redeem the Series B

Preferred Stock, the Corporation shall make payment to the holders of an amount

in cash (the "Optional Redemption Amount") equal to 120% multiplied by the sum

of (i) the Stated Value of the shares of Series B Preferred Stock to be redeemed

and (ii) an amount equal to five percent (5%) per annum of such Stated Value for

the period beginning on the Issue Date and ending on the Optional Redemption

Date, for each share of Series B Preferred Stock then held. Notwithstanding

notice of an Optional Redemption, the holders shall at all times prior to the

Optional Redemption Date maintain the right to convert all or any shares of

Series B Preferred Stock in accordance with Article VI and any shares of Series

B Preferred Stock so converted after receipt of an Optional Redemption Notice

and prior to the Optional Redemption Date set forth in such notice and payment

of the aggregate Optional Redemption Amount shall be deducted from the shares of

Series B Preferred Stock which are otherwise subject to redemption pursuant to

such notice.

 

      From time to time following the Issue Date, the holders may request

advance notice as to whether the Corporation intends to redeem the shares of

Series B Preferred Stock. Such request shall be made in writing and the

Corporation shall respond in writing as promptly as practicable but prior to

5:00 p.m. Eastern Standard Time one (1) business day after receipt of the

request. The Corporation will be bound by such response for a period of twenty

(20) Trading Days (the "Term") from the date of its response. A failure to

respond within one (1) business day shall be deemed to be an election not to

redeem the Series B Preferred Stock during the Term. The holders may not request

such notice in the event that the Corporation files a registration statement

where the use of proceeds set forth in such registration statement are

identified for purposes of redemption of the outstanding Series B Preferred

Stock.

 

VI.   Conversion at the Option of the Holder

 

      A (a) Each holder of shares of Series B Preferred Stock may, at its

option at any time and from time to time, upon surrender of the certificates

therefor, convert any or all of its shares of Series B Preferred Stock into

Common Stock as follows (an "Optional Conversion"). Each share of Series B

Preferred Stock shall be convertible into such number of fully paid and

nonassessable Shares of Common Stock as is determined by dividing (1) the sum of

(a) the Stated Value thereof plus (b) the Premium Amount (as defined below), by

(2) the then effective Conversion Price (as defined below); provided,, however,

that, unless the holder delivers a waiver in accordance with the immediately

following sentence, in no event (other than pursuant to the Automatic Conversion

(as defined herein)) shall a holder of shares of Series B Preferred Stock be

entitled to convert any such shares in excess of that number of shares upon

conversion of which the sum of (x) the number of shares of Common Stock

beneficially owned by the holder and its affiliates (other than shares of Common

Stock which may be deemed beneficially owned through the ownership of the

unconverted portion of the shares of Series B Preferred Stock) and (y) the

number of shares of Common Stock issuable upon the conversion of the shares of

Series B Preferred Stock with respect to which the determination of this proviso

is being made, would result in beneficial ownership by a bolder and such

holder's affiliates of more than 4.9% of the outstanding shares of Common Stock.

For purposes of the proviso to the immediately preceding sentence, (i)

beneficial ownership shall be determined in accordance with Section 13(d) of the

Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,

except as otherwise provided in clause (x) of such proviso and (ii) a holder may

 

                                      -6-

<PAGE>

 

waive the limitations set forth therein by written notice to the Corporation

upon not less than sixty-one (61) days prior written notice (with such waiver

taking effect only upon the expiration of such sixty-one (61) day notice

period).

 

            (b)   The "Premium Amount" means the product of the Stated Value,

multiplied by .05, multiplied by (N/365), where "N" equals the number of days

elapsed from the Issue Date to and including the Conversion Date (as defined in

Article VLB, below).

 

            (c)   So long as the Common Stock is listed for trading on Nasdaq

SmallCap or an exchange or quotation system with a rule substantially similar to

Rule 4460(i) then, notwithstanding anything to the contrary contained herein if,

at any time, the aggregate number of shares of Common Stock then issued upon

conversion of the Series B Preferred Stock (including any shares of capital

stock or rights to acquire shares of capital stock issued by the Corporation

which are aggregated or integrated with the Common Stock issued or issuable upon

conversion of the Series B Preferred Stock for purposes of such rule) equals

19.99% of the "Outstanding Common Amount" (as hereinafter defined), the Series B

Preferred Stock shall, from that time forward, cease to be convertible into

Common Stock in accordance with the terms of this Article VI and Article VII

below, unless the Corporation (i) has obtained approval of the issuance of the

Common Stock upon conversion of the Series B Preferred Stock by a majority of

the total votes cast on such proposal, in person or by proxy, by the holders of

the then-outstanding Common Stock (not including any shares of Common Stock held

by present or former holders of Series B Preferred Stock that were issued upon

conversion of Series B Preferred Stock), or (ii) shall have otherwise obtained

permission to allow such issuances from Nasdaq SmallCap in accordance with

Nasdaq SmallCap Rule 4460(i). If the Corporation's Common Stock is not then

listed on Nasdaq SmallCap or an exchange or quotation system that has a rule

substantially similar to Rule 4460(i) limitations set forth herein shall be

inapplicable and of no force and effect. For purposes of this paragraph,

"Outstanding Common Amount" means (i) the number of shares of the Common Stock

outstanding on the date of issuance of the Series B Preferred Stock pursuant to

the Purchase Agreement plus (ii) any additional shares of Common Stock issued

thereafter in respect of such shares pursuant to a stock dividend, stock split

or similar event. The maximum number of shares of Common Stock issuable as a

result of the 19.99% limitation set forth herein is hereinafter referred to as

the "Maximum Share Amount." With respect to each holder of Series B Preferred

Stock, the Maximum Share Amount shall refer to such holder's pro rata share

thereof determined in accordance with Article X below. In the event that

Corporation obtains Stockholder Approval or the approval of Nasdaq SmallCap, by

reason of the inapplicability of the rules of Nasdaq SmallCap or otherwise and

concludes that it is able to increase the number of shares to be issued above

the Maximum Share Amount (such increased number being the "New Maximum Share

Amount"), the references to Maximum Share Amount, above, shall be deemed to be,

instead, references to the greater New Maximum Share Amount. In the event that

Stockholder Approval is not obtained, there are insufficient reserved or

authorized shares or a registration statement covering the additional shares of

Common Stock which constitute the New Maximum Share Amount is not effective

prior to the Maximum Share Amount being issued (if such registration statement

is necessary to allow for the public resale of such securities), the Maximum

Share Amount shall remain unchanged; provided, however, that the Holder may

grant an extension to obtain a sufficient reserved or authorized amount of

shares or of the effective date of such registration statement. In the event

that (a) the aggregate number of shares of Common Stock issued pursuant to the

 

                                       -7-

<PAGE>

 

outstanding Series B Preferred Stock represents at least twenty percent (20%) of

the Maximum Share Amount and (b) the sum of (x) the aggregate number of shares

of Common Stock issued upon conversion of Series B Preferred Stock plus (y) the

aggregate number of shares of Common Stock that remain issuable upon conversion

of Series B Preferred Stock, represents at least one hundred percent (100%) of

the Maximum Share Amount (the "Triggering Event"), the Corporation will use its

best efforts to seek and obtain Stockholder Approval (or obtain such other

relief as will allow conversions hereunder in excess of the Maximum Share

Amount) as soon as practicable following the Triggering Event and before the

Mandatory Redemption Date.

 

            B.    (a) Subject to subparagraph (b) below, the "Conversion Price"

shall be the lesser of the Market Price (as defined herein) and the Fixed

Conversion Price (as defined herein), subject to adjustments pursuant to the

provisions of Article VI.C below. "Market Price" shall mean the average of the

three (3) lowest Closing Bid Prices during the twelve (12) consecutive Trading

Day period ending one (1) Trading Day prior to the date (the "Conversion Date")

the Conversion Notice is sent by a holder to the Corporation via facsimile (the

"Pricing Period"). The "Fixed Conversion Price" shall mean $4.00. "Closing Bid

Price" means, for any security as of any date, the closing bid price on Nasdaq

SmallCap as reported by Bloomberg Financial Markets or an equivalent reliable

reporting service mutually acceptable to and hereafter designated by the holders

of a majority in interest of the shares of Series B Preferred Stock and the

Corporation ("Bloomberg") or, if Nasdaq SmallCap is not the principal trading

market for such security, the closing bid price of such security on the

principal securities exchange or trading market where such security is listed or

traded as reported by Bloomberg, or if the foregoing do not apply, the closing

bid price of such security in the over-the-counter market on the electronic

bulletin board for such security as reported by Bloomberg, or, if no closing bid

price of such security in the over-the-counter market on the electronic

bulletin board for such security or in any of the foregoing manners, the

average of the bid prices of any market makers for such security or as reported

in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid

Price cannot be calculated for such security on such date in the manner provided

above, the Closing Bid Price shall be the fair market value as mutually

determined by the Corporation and the holders of a majority in interest of

shares of Series B Preferred Stock being converted for which the calculation of

the Closing Bid Price is required in order to determine the Conversion Price of

such Series B Preferred Stock. "Trading Day" shall mean any day on which the

Common Stock is traded for any period on Nasdaq SmallCap, or on the principal

securities exchange or other securities market on which the Common Stock is then

being traded.

 

            (b)   Notwithstanding anything contained in subparagraph (a) of this

Paragraph B to the contrary, in the event the Corporation (i) makes a public

announcement that it intends to consolidate or merge with any other corporation

(other than a merger in which the Corporation is the surviving or continuing

corporation and its capital stock is unchanged) or sell or transfer all or

substantially all of the assets of the Corporation or (ii) any person, group or

entity (including the Corporation) publicly announces a tender offer to purchase

50% or more of the Corporation's Common Stock or otherwise publicly announces an

intention to replace a majority of the corporation's Board of Directors by

waging a proxy battle or otherwise (the date of the announcement referred to in

clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then

the Conversion Price shall, effective upon the Announcement Date and continuing

through the Adjusted Conversion Price Termination Date (as defined below), be

equal to the lower of (x) the Conversion Price which would have been applicable

for an Optional

 

                                       -8-

<PAGE>

 

Conversion occurring on the Announcement Date and (y) the Conversion Price that

would otherwise be in effect. From and after the Adjusted Conversion Price

Termination Date, the Conversion Price shall be determined as set forth in

subparagraph (a) of this Article VI.B. For purposes hereof, "Adjusted Conversion

Price Termination Date" shall mean, with respect to any proposed transaction,

tender offer or removal of the majority of the Board of Directors which a public

announcement as contemplated by this subparagraph (b) has been made, the date

upon which the Corporation (in the case of clause (i) above) or the person,

group or entity (in the case of clause (ii) above) publicly announces the

termination or abandonment of the proposed transaction or tender offer which

caused this subparagraph (b) to become operative.

 

                                      -9-

<PAGE>

 

      C.    The Conversion Price shall be subject to adjustment from time to

time as follows:

 

            (a)   Adjustment to Conversion Price Due to Stock Split, Stock

Dividend, Etc. If at any time when Series B Preferred Stock is issued and

outstanding, the number of outstanding shares of Common Stock is increased or

decreased by a stock split, stock dividend, combination, reclassification,

rights offering below the Trading Price (as defined below) to all holders of

Common Stock or other similar event, which event shall have taken place during

the reference period for determination of the Conversion Price for any Optional

Conversion or Automatic Conversion of the Series B Preferred Stock, then the

Conversion Price shall be calculated giving appropriate effect to the stock

split, stock dividend, combination, reclassification or other similar event. In

such event, the Corporation shall notify the Transfer Agent of such change on or

before the effective date thereof.

 

            (b)   Adjustment Due to Merger, Consolidation, Etc. If, at any time

when Series B Preferred Stock is issued and outstanding and prior to the

conversion of all Series B Preferred Stock, there shall be any merger,

consolidation, exchange of shares, recapitalization, reorganization, or other

similar event, as a result of which shares of Common Stock of the Corporation

shall be changed into the same or a different number of shares of another class

or classes of stock or securities of the Corporation or another entity, or in

case of any sale or conveyance of all or substantially all of the assets of the

Corporation other than in connection, with a plan of complete liquidation of the

Corporation, then the holders of Series B Preferred Stock shall thereafter have

the right to receive upon conversion of the Series B Preferred Stock, upon the

bases and upon the terms and conditions specified herein and in lieu of the

shares of Common Stock immediately theretofore issuable upon conversion, such

stock, securities or assets which the holders of Series B Preferred Stock would

have been entitled to receive in such transaction had the Series B Preferred

Stock been converted in full (without regard to any limitations on conversion

contained herein) immediately prior to such transaction, and in any such case

appropriate provisions shall be made with respect to the rights and interests of

the holders of Series B Preferred Stock to the end that the provisions hereof

(including, without limitation, provisions for adjustment of the Conversion

Price and of the number of shares of Common Stock issuable upon conversion of

the Series B Preferred Stock) shall thereafter be applicable, as nearly as may

be practicable in relation to any securities or assets thereafter deliverable

upon the conversion of Series B Preferred Stock. The Corporation shall not

effect any transaction described in this subsection (b) unless (a) it first

gives, to the extent practical, thirty (30) days' prior written notice (but in

any event at least fifteen (15) business days prior written notice) of such

merger, consolidation, exchange of shares, recapitalization, reorganization or

other similar event or sale of assets (during which time the holders of Series B

Preferred Stock shall be entitled to convert the Series B Preferred Stock) and

(b) the resulting successor or acquiring entity (if not the Corporation) assumes

by written instrument the obligations of this subsection (b). The above

provisions shall similarly apply to successive consolidations, mergers, sales,

transfers or share exchanges.

 

            (c)   Other Securities Offerings. If, at any time after the Issue

Date, the Corporation sells Common Stock or securities convertible into, or

exchangeable for, Common Stock, other than a sale pursuant to a bona fide firm

commitment underwritten public offering of Common Stock by the Corporation (not

including a continuous offering pursuant to Rule 415 under the Securities Act of

1933, as amended), (collectively, the "Other Common Stock"), then,

 

                                      -10-

<PAGE>

 

if the effective or maximum sales price of the Common Stock with respect to such

transaction (including the effective or maximum conversion, or exchange price)

("Other Price") is less than the effective Conversion Price of the Series B

Preferred Stock at such time and such Other Common Stock is eligible for resale

prior to December 31, 1999, the Corporation shall adjust the Conversion Price

applicable to the Series B Preferred Stock not yet converted in form and

substance reasonably satisfactory to the holders of Series B Preferred Stock so

that the Conversion Price applicable to the Series B Preferred Stock shall not,

in any event, be greater, after giving effect to all other adjustments contained

herein, than the Other Price.

 

            (d)   Adjustment Due to Distribution. Subject to Article III, if the

Corporation shall declare or make any distribution of its asses (or rights to

acquire its assets) to holders of Common Stock as a dividend, stock repurchase,

by way of return of capital or otherwise (including any dividend or distribution

to the Corporation's shareholders in cash, or shares (or rights to acquire

shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),

then the holders of Series B Preferred Stock shall be entitled, upon any

conversion of shares of Series B Preferred Stock after the date of record for

determining shareholders entitled to such Distribution, to receive the amount of

such assets which would have been payable to the holder with respect to the

shares of Common Stock issuable upon such conversion had such holder been the

holder of such shares of Common Stock on the record date for the determination

of shareholders entitled to such Distribution.

 

            (e)   Purchase Rights. Subject to Article III, if at any time when

any Series B Preferred Stock is issued and outstanding, the Corporation issues

any convertible securities or rights to purchase stock, warrants, securities or

other property (the "Purchase Rights") pro rata to the record holders of any

class of Common Stock, then the holders of Series B Preferred Stock will be

entitled to acquire, upon the terms applicable to such Purchase Rights, the

aggregate Purchase Rights which such holder could have acquired if such holder

had held the number of shares of Common Stock acquirable upon complete

conversion of the Series B Preferred Stock (without regard to any limitations on

conversion contained herein) immediately before the date on which a record is

taken for the grant, issuance or sale of such Purchase Rights, or, if no such

record is taken, the date as of which the record holders of Common Stock are to

be determined for the grant, issue or sale of such Purchase Rights.

 

            (f)   Adjustment for Restricted Periods. In the event that (1) the

Corporation fails to obtain effectiveness with the Securities and Exchange

Commission of the Registration Statement (as defined in the Registration Rights

Agreement) prior to one hundred twenty (120) days following the Issue Date, or

(2) such Registration Statement lapses in effect, or sales otherwise cannot be

made thereunder, whether by reason of the Corporation's failure or inability to

amend or supplement the prospectus (the "Prospectus") included therein in

accordance with the Registration Rights Agreement or otherwise, after such

Registration Statement becomes effective (including, without limitation, during

an Allowed Delay (as defined in Section 3(f) of the Registration Rights

Agreement), then the Pricing Period shall be comprised of, (i) in the case of an

event described in clause (1), the twenty (20) Trading Days preceding the 120th

day following the Issue Date plus all Trading Days through and including the

third Trading Day following the date of effectiveness of the Registration

Statement; and (ii) in the case of an event described in clause (2), the number

of Trading Days preceding the date on which the holder of the Series B Preferred

Stock is first notified that sales may not be made under the Prospectus

 

                                      -11-

<PAGE>

 

that would otherwise then be included in the Pricing Period in accordance with

the definition thereof set forth in Article VI.B(a), plus all Trading Days

through and including the third Trading Day following the date on which the

Holder is first notified that such sales may again be made under the Prospectus.

If a holder of Series B Preferred Stock determines that sales may not be made

pursuant to the Prospectus (whether by reason of the Corporation's failure or

inability to amend or supplement the Prospectus) it shall so notify the

Corporation in writing and, unless the Corporation provides such holder with a

written opinion of the Corporation's counsel to the contrary, such determination

shall be binding for purposes of this paragraph.

 

            (g)   Notice of Adjustments. Upon the occurrence of each adjustment

or readjustment of the Conversion Price pursuant to this Article VI.C, the

Corporation, at its expense, shall promptly compute such adjustment or

readjustment and prepare and furnish to each holder of Series B Preferred Stock

a certificate setting forth such adjustment or readjustment and showing in

detail the facts upon which such adjustment or readjustment is based. The

Corporation shall, upon the written request at any time of any holder of Series

B Preferred Stock, furnish to such holder a like certificate setting forth (i)

such adjustment or readjustment, (ii) the Conversion Price at the time in effect

and (iii) the number of shares of Common Stock and the amount, if any, of other

securities or property which at the time would be received upon conversion of a

share of Series B Preferred Stock.

 

      D.    For purposes of Article VI. C(a) above, "Trading Price," which shall

be measured as of the record date in respect of the rights offering means (i)

the average of the last reported sale prices for the shares of Common Stock on

Nasdaq SmallCap as reported by Bloomberg, as applicable, for the five (5)

Trading Days immediately preceding such date, or (ii) if Nasdaq SmallCap is not

the principal trading market for the shares of Common Stock, the average of the

last reported sale prices on the principal trading market for the Common Stock

during the same period as reported by Bloomberg, or (iii) if market value cannot

be calculated as of such date on any of the foregoing bases, the Trading Price

shall be the fair market value as reasonably determined in good faith by (a) the

Board of Directors of the Corporation or, (b) at the option of a

majority-in-interest of the holders of the outstanding Series B Preferred Stock

by an independent investment bank of nationally recognized standing in the

valuation of businesses similar to the business of the Corporation.

 

      E.    In order to convert Series B Preferred Stock into full shares of

Common Stock, a holder of Series B Preferred Stock shall: (i) submit a copy of

the fully executed notice of conversion in the form attached hereto as Exhibit A

("Notice of Conversion") to the Corporation by facsimile dispatched on the

Conversion Date (or by other means resulting in notice to the Corporation on the

Conversion Date) at the office of the Corporation or its designated Transfer

Agent for the Series B Preferred Stock that the holder elects to convert the

same, which notice shall specify the number of shares of Series B Preferred

Stock to be converted, the applicable Conversion Price and a calculation of the

number of shares of Common Stock issuable upon such conversion (together with a

copy of the first page of each certificate to be converted) prior to Midnight,

New York City time (the "Conversion Notice Deadline") on the date of conversion

specified on the Notice of Conversion; and (ii) surrender the original

certificates representing the Series B Preferred Stock being converted (the

"Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice

of Conversion to the office of the Corporation or the Transfer Agent for the

Series B Preferred Stock as soon as practicable thereafter. The Corporation

shall

 

                                      -12-

<PAGE>

 

not be obligated to issue certificates evidencing the shares of Common Stock

issuable upon such conversion, unless either the Preferred Stock Certificates

are delivered to the Company or its Transfer Agent as provided above, or the

holder notifies the Corporation or its Transfer Agent that such certificates

have been lost, stolen or destroyed (subject to the requirements of subparagraph

(a) below). In the case of a dispute as to the calculation of the Conversion

Price, the Corporation shall promptly issue such number of shares of Common

Stock that are not disputed in accordance with, subparagraph (b) below. The

Corporation shall submit the disputed calculations to its outside accountant via

facsimile within two (2) business days of receipt of the Notice of Conversion.

The accountant shall audit the calculations and notify the Corporation and the

holder of the results no later than 48 hours from the time it receives the

disputed calculations. The accountant's calculation shall be deemed conclusive

absent manifest error.

 

            (a)   Lost or Stolen Certificates. Upon receipt by the Corporation

of evidence of the loss, theft, destruction or mutilation of any Preferred Stock

Certificates representing shares of Series B Preferred Stock, and (in the case

of loss, theft or destruction) of indemnity reasonably satisfactory to the

Corporation, and upon surrender and cancellation of the Preferred Stock

Certificate(s), if mutilated, the Corporation shall execute and deliver new

Preferred Stock Certificate(s) of like tenor and date.

 

            (b)   Delivery of Common Stock Upon Conversion. Upon the surrender

of certificates as described above together with a Notice of Conversion, the

Corporation shall issue and, within two (2) business days after such surrender

(or, in the case of lost, stolen or destroyed certificates, after provision of

agreement and indemnification pursuant to subparagraph (a) above) (the

"Delivery Period"), deliver (or cause its Transfer Agent to so issue and

deliver) to or upon the order of the holder (i) that number of shares of Common

Stock for the portion of the shares of Series B Preferred Stock converted as

shall be determined in accordance herewith and (ii) a certificate representing

the balance of the shares of Series B Preferred Stock not converted, if any. In

addition to any other remedies available to the holder, including actual damages

and/or equitable relief, the Corporation shall pay to a holder $2,000 per day in

cash for each day beyond a two (2) day grace period following the Delivery

Period that the Corporation fails to deliver Common Stock (a "Conversion

Default") issuable upon surrender of shares of Series B Preferred Stock with a

Notice of Conversion until such time as the Corporation has delivered all such

Common Stock (the "Conversion Default Payments") Such cash amount shall be

paid to such holder by the fifth day of the month following the month in which,

it has accrued or, at the option of the holder (by written notice to the

Corporation by the first day of the month following the month in which it has

accrued), shall be convertible into Common Stock in accordance with the terms of

this Article VI.

 

      In lien of delivering physical certificates representing the Common Stock

issuable upon conversion, provided the Corporation's Transfer Agent is

participating in the Depository Trust Company ("DTC") Fast Automated Securities

Transfer ("FAST") program, upon request of the holder and its compliance with

the provisions contained in Article VI.A. and in this Article VI.E., the

Corporation shall use its best efforts to cause its Transfer Agent to

electronically transmit the Common Stock issuable upon conversion to the holder

by crediting the account of holder's Prime Broker with DTC through its Deposit

Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and

penalties described in the immediately preceding paragraph shall apply to the

electronic transmittals described herein.

 

                                      -13-

<PAGE>

 

            (c)   No Fractional Shares. If any conversion of Series B Preferred

Stock would result in a fractional share of Common Stock or the right to acquire

a fractional share of Common Stock such issuable share shall be disregarded

and the number of shares of Common Stock issuable upon Conversion of the

Series B Preferred Stock shall be the next higher number of shares.

 

            (d)   Conversion Date. The "Conversion Date" shall be the date

specified in the Notice of Conversion, provided that the Notice of Conversion is

submitted by facsimile (or by other means resulting in notice) to the

Corporation or its Transfer Agent before Midnight, New York City time, on the

Conversion Date. The person or persons entitled to receive the shares of Common

Stock issuable upon conversion shall be treated for all purposes as the record

holder or holders of such securities as of the Conversion Date and all rights

with respect to the shares of Series B Preferred Stock surrendered shall

forthwith terminate except the right to receive the shares of Common Stock or

other securities or property issuable on such conversion and except that the

holders preferential rights as a holder of Series B Preferred Stock shall

survive to the extent the corporation fails to deliver such securities.

 

            F.    A number of shares of the authorized but unissued Common Stock

sufficient to provide for the conversion of the Series B Preferred Stock

outstanding at the then current Conversion Price shall at all times be reserved

by the Corporation free from preemptive rights, for such conversion or

exercise. As of the date of issuance of the Series B Preferred Stock, 750,000

authorized and unissued shares of Common Stock have been duly reserved for

issuance upon conversion of the Series B Preferred Stock (the "Reserved

Amount"). The Reserved Amount shall be increased from time to time in accordance

with the Company's obligations pursuant to Section 4(h) of the Purchase

Agreement. In addition, if the Corporation shall issue any securities or make

any change in its capital structure which would change the number of shares of

Common Stock into which each share of the Series B Preferred Stock shall be

convertible at the then current Conversion Price, the Corporation shall at the

same time also make proper provision so that thereafter there shall be a

sufficient number of shares of Common Stock authorized and reserved, free from

preemptive rights, for conversion of the outstanding Series B Preferred Stock.

 

      If at any time a holder of shares of Series B Preferred Stock submits a

Notice of Conversion, and the Corporation does not have sufficient authorized

but unissued shares of Common Stock available to effect such conversion in

accordance with the provisions of this Article VI (a "Conversion Default"), the

Corporation shall issue to the holder (or holders, if more than one holder

submits a Notice of Conversion in respect of the same Conversion Date, pro rata

based on the ratio that the number of shares of Series B Preferred Stock then

held by each such holder bears to the aggregate number of such shares held by

such holders) all of the shares of Common Stock which are available to effect

such conversion. The number of shares of Series B Preferred Stock included in

the Notice of Conversion which exceeds the amount which is then convertible into

available shares of Common Stock (the "Excess Amount") shall, notwithstanding

anything to the contrary contained herein, not be convertible into Common Stock

in accordance with the terms hereof until (and at the holder's option at any

time after) the date additional shares of Common Stock are authorized by the

Corporation to permit such conversion, at which time the Conversion Price in

respect thereof shall be the lesser of (i) the Conversion Price on the

Conversion Default Date (as defined below) and (ii) the Conversion Price on the

 

                                      -14-

<PAGE>

 

Conversion Date elected by the holder in respect thereof. The Corporation shall

use its best efforts to effect an increase in the authorized number of shares of

Common Stock as soon as possible following a Conversion Default. In addition,

the Corporation shall pay to the holder payments ("Conversion Default Payments")

for a Conversion Default in the amount of (a) (N/365), multiplied by (b) the sum

of the Stated Value plus the Premium Amount per share of Series B Preferred

Stock through the Authorization Date (as defined below), multiplied by (c) the

Excess Amount on the day the holder submits a Notice of Conversion giving rise

to a Conversion Default (the "Conversion Default Date"), multiplied by (d). 24,

where (i) N = the number of days from the Conversion Default Date to the date

(the "Authorization Date") that the Corporation authorizes a sufficient number

of shares of Common Stock to effect conversion of the full number of shares of

Series B Preferred Stock. The Corporation shall send notice to the holder of the

authorization of additional shares of Common Stock, the Authorization Date and

the amount of holder's accrued Conversion Default Payments. The accrued

Conversion Default Payment for each calendar month shall be paid in cash or

shall be convertible into Common Stock at the Conversion Price, at the holder's

option, as follows:

 

            (a)   In the event the holder elects to take such payment in cash,

cash payment shall be made to holder by the fifth day of the month following the

month in which it has accrued; and

 

            (b)   In the event the holder elects to take-such payment in Common

Stock, the holder may convert such payment amount into Common Stock at the

Conversion Price (as in effect at the time of Conversion) at any time after the

fifth day of the month following the month in which it has accrued in accordance

with The terms of this Article VI (so long as there is then A sufficient number

of authorized shares).

 

      Nothing herein shall limit the holder's right to pursue actual damages for

the Corporation's failure to maintain a sufficient number of authorized shares

of Common Stock, and each holder shall have the right to pursue all remedies

available at law or in equity (including a decree of specific performance and/or

injunctive relief).

 

            G.    Upon the occurrence of each adjustment or readjustment of the

Conversion Price pursuant to mis Article VI, the Corporation, at its expense,

shall promptly compute such adjustment or readjustment in accordance with the

terms hereof and prepare and furnish to each holder of Series B Preferred Stock

a certificate setting forth such adjustment or readjustment and showing in

detail the facts upon which such adjustment or readjustment is based. The

Corporation shall, upon the written request at any time of any holder of Series

B Preferred Stock, furnish or cause to be furnished to such holder a like

certificate setting forth (i) such adjustment or readjustment, (ii) the

Conversion Price at the time in effect and (iii) the number of shares of Common

Stock and the amount, if any, of other securities or property which at the time

would be received upon conversion of a share of Series B Preferred Stock

 

            H.    Upon submission of a Notice of Conversion by a holder of

Series B Preferred

 

                                      -15-

<PAGE>

 

Stock, (i) the shares covered thereby (other than the shares, if any, which

cannot be issued because their issuance would exceed such holder's allocated

portion of the Reserved Amount) shall be deemed converted into shares of Common

Stock and (ii) the holder's rights as a holder of such converted shares of

Series B Preferred Stock shall cease and terminate, excepting only the right to

receive certificates for such shares of Common Stock and to any remedies

provided herein or otherwise available at law or in equity to such holder

because of a failure by the Corporation to comply with the terms of this

Certificate of Designation. Notwithstanding the foregoing, if a holder has not

received certificates for all shares of Common Stock prior to the tenth (10th)

business day after the expiration of the Delivery Period with respect to a

conversion of shares of Series B Preferred Stock for any reason, then (unless

the holder otherwise elects to retain its status as a holder of Common Stock by

so notifying the Corporation) the holder shall regain the rights of a holder of

such shares of Series B Preferred Stock with respect to such unconverted shares

of Series B Preferred Stock and the Corporation shall, as soon as practicable,

return such unconverted shares of Series B Preferred Stock to the holder or, if

such shares of Series B Preferred Stock have not been surrendered, adjust its

records to reflect that such shares of Series B Preferred Stock have not been

converted. In all cases, the holder shall retain all of its rights and remedies

(including, without limitation, the right to receive Conversion Default Payments

pursuant to Article IV.E. to the extent required thereby for such Conversion

Default and any subsequent Conversion Default).

 

VII. Automatic Conversion

 

      So long as the Registration Statement is effective and there is not then a

continuing Mandatory Redemption Event, each share of Series B Preferred Stock

issued and outstanding on April 24, 2003, subject to any adjustment pursuant to

Article V.A.(ii) (the "Automatic Conversion Date"), automatically shall be

converted into shares of Common Stock on such date at the then effective

Conversion Price in accordance with, and subject to, the provisions of Article

VI hereof (the "Automatic Conversion"). The Automatic Conversion Date shall be

delayed by one (1) Trading Day each for each Trading Day occurring prior thereto

and prior to the full conversion of the Series B Preferred Stock that (i) sales

cannot be made pursuant to the Registration Statement (whether by reason of the

Company's failure to properly supplement or amend the prospectus included

therein in accordance with the terms of the Registration Rights Agreement or

otherwise including any Allowed Delays (as defined in Section 3(f) of the

Registration Rights Agreement) or (ii) any Default Event (as defined in Article

V.A.) exists, without regard to whether any cure periods shall have run. The

Automatic Conversion Date shall be the Conversion Date for purposes of

determining the Conversion Price and the time within which certificates

representing the Common Stock must be delivered to the holder.

 

VIII. Voting Rights

 

      The holders of the Series B Preferred Stock have no voting power

whatsoever, except as otherwise provided by the Florida Corporation Law ("FCL"),

in this Article VIII, and in Article IX below.

 

      Notwithstanding the above, the Corporation shall provide each holder of

Series B Preferred Stock with prior notification of any meeting of the

shareholders (and copies of proxy materials and other information sent to

shareholders). In the event of any taking by the

 

                                      -16-

<PAGE>

 

Corporation of a record of its shareholders for the purpose of determining

shareholders who are entitled to receive payment of any dividend or other

distribution, any right to subscribe for, purchase or otherwise acquire

(including by way of merger, consolidation or recapitalization) any share of any

class or any other securities or property, or to receive any other right, or for

the purpose of determining shareholders who are entitled to vote in connection

with any proposed sale, lease or conveyance of all or substantially all of the

assets of the Corporation, or any proposed liquidation, dissolution or winding

up of the Corporation, the Corporation shall mail a notice to each holder, at

least ten (10) days prior to the record date specified therein (or thirty (30)

days prior to the consummation of the transaction or event, whichever is

earlier), of the date on which any such record is to be taken for the purpose of

such dividend, distribution, right or other event, and a brief statement

regarding the amount and character of such dividend, distribution, right or

other event to the extent known at such time.

 

      To the extent that under the FCL the vote of the holders of the Series B

Preferred Stock, voting separately as a class or series as applicable, is

required to authorize a given action of the Corporation, the affirmative vote or

consent of the holders of at least a majority of the shares of the Series B

Preferred Stock represented at a duly held meeting at which a quorum is present

or by written consent of a majority of the shares of Series B Preferred Stock

(except as otherwise may be required under the FCL) shall constitute the

approval of such action by the class. To the extent that under the FCL holders

of the Series B Preferred Stock are entitled to vote on a matter with holders of

Common Stock, voting together as one class, each share of Series B Preferred

Stock shall be entitled to a number of votes equal to the number of shares of

Common Stock into which it is then convertible using the record date for the

taking of such vote of shareholders as the date as of which the Conversion Price

is calculated. Holders of the Series B Preferred Stock shall be entitled to

notice of all shareholder meetings or written consents (and copies of proxy

materials and other information sent to shareholders) with respect to which they

would be entitled to vote, which notice would be provided pursuant to the

Corporation's bylaws and the FCL.

 

IX.   Protective Provisions

 

      So long as shares of Series B Preferred Stock are outstanding, the

Corporation shall not, without first obtaining the approval (by vote or written

consent, as provided by the FCL) of the holders of at least a majority of the

then outstanding shares of Series B Preferred Stock:

 

            (a) alter or change the rights, preferences or privileges of the

Series B Preferred Stock or any Senior Securities so as to affect adversely the

Series B Preferred Stock;

 

            (b) create any new class or series of capital stock having a

preference over the Series B Preferred Stock as to distribution of assets upon

liquidation, dissolution or winding up of the Corporation (as previously

defined in Article II hereof, "Senior Securities");

 

            (c) create any new class or series of capital stock ranking pari

passu with the Series B Preferred Stock as to distribution of assets upon

liquidation, dissolution or winding up of the Corporation (as previously defined

in Article II hereof, "Pari Passu Securities");

 

            (d) increase the authorized number of shares of Series B Preferred

Stock; or

 

                                      -17-

<PAGE>

 

            (e) do any act or thing not authorized or contemplated by this

Certificate of Designation which would result in taxation of the holders of

shares of the Series B Preferred Stock under Section 305 of the Internal Revenue

Code of 1986, as amended (or any comparable provision of the Internal Revenue

Code as hereafter from time to time amended).

 

      In the event holders of at least a majority of the then outstanding shares

of Series B Preferred Stock agree to allow the Corporation to alter or change

the rights, preferences or privileges of the shares of Series B Preferred Stock,

pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,

then the Corporation will deliver notice of such approved change to the holders

of the Series B Preferred Stock that did not agree to such alteration or change

(the "Dissenting Holders") and Dissenting Holders shall have the right for a

period of thirty (30) days to convert pursuant to the terms of this Certificate

of Designation as they exist prior to such alteration or change or continue to

hold their shares of Series B Preferred Stock.

 

X.    Pro Rata Allocations

 

      The Maximum Share Amount and the Reserved Amount (including any increases

thereto) shall be allocated by the Corporation pro rata among the holders of

Series B Preferred Stock based on the number of shares of Series B Preferred

Stock then held by each holder relative to the total aggregate number of shares

of Series B Preferred Stock then outstanding.

 

                      (THIS PAGE INTENTIONALLY LEFT BLANK)

 

                                      -18-

<PAGE>

 

            IN WITNESS WHEREOF, this Certificate of Designation is executed on

behalf of the Corporation this 24th day of April, 1998.

 

                                              METROPOLITAN HEALTH NETWORKS, INC.

 

                                              By: /s/ Anthony J. Gigiliotti

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

                                                  Name: Anthony J. Gigiliotti

                                                  Title: Chairman

 

<PAGE>

 

                                                        JUL-8 AM 10:2[ILLEGIBLE]

 

                                                             SECRETARY OF STATE

                                                            TALLAHASSEE, FLORIDA

 

                              ARTICLES OF AMENDMENT

                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                       METROPOLITAN HEALTH NETWORKS, INC.

 

                      (Pursuant to Section 607.0602 of the

                        Florida Business Corporation Act)

 

      Metropolitan Health Networks, Inc., a corporation organized and existing

under the Florida Business Corporation Act (the "Corporation") bearing document

no. P96000004953, hereby certifies that the following resolutions were adopted

by the Board of Directors of the Corporation on June 30, 1998 pursuant to

authority of the Board of Directors:

 

      RESOLVED, that pursuant to the authority granted to and vested in the

Board of Directors of this Corporation (the "Board of Directors" or the "Board")

in accordance with the provisions of its Articles of Incorporation on April

16, 1998, the Board of Directors authorized a series of the Corporation's

previously authorized Preferred Stock, par value $.001 per share, as Series B

Preferred Stock, in the aggregate amount of 2,000 shares; and

 

      RESOLVED, that pursuant to the unanimous Written Consent of the Board of

Directors and sole Series B Preferred Stockholder, the Corporation increased the

authorized amount of Series B Preferred Stock from 2,000 shares to 7,000 shares

and hereby amends Article 3 of the Articles of Amendment to replace the

description of the Series B Preferred Stock with the following which, states the

designation and number of shares, and fixes the relative rights, preferences,

privileges, powers and restrictions of the Series B Preferred Stock thereof as

follows:

 

      Series B Convertible Preferred Stock:

 

I.    Designation and Amount

 

      The designation of this series, which consists of 7,000 shares of

Preferred Stock, is Series B Convertible Preferred Stock (the "Series B

Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)

per share (the "Stated Value").

 

This document prepared by:

ROXANNE K. BEILLY, ESQ., Florida Bar No. 851450

Atlas, Pearlman, Trop & Borkson, P.A.

200 E. Las Olas Blvd., Suite 1900

Ft. Lauderdale, FL 33301 Phone: (954) 763-1200

 

                                      -1-

<PAGE>

 

II.   Rank

 

      The Series B Preferred Stock shall rank (i) prior to the Corporation's

common stock, par value $.001 per share (the "Common Stock"); (ii) prior to any

class or series of capital stock of the Corporation hereafter created (unless,

with the consent of the holders of Series B Preferred Stock obtained in

accordance with Article IX hereof, such class or series of capital stock

specifically, by its terms, ranks senior to or pari passu with the Series B

Preferred Stock) (collectively, with the Common Stock, "Junior Securities");

(iii) pari passu with any class or series of capital stock of the Corporation

hereafter created (with the consent of the holders of Series B Preferred Stock

obtained in accordance with Article IX hereof) specifically ranking, by its

terms, on parity with the Series B Preferred Stock ("Pari Passu Securities");

and (iv) junior to any class or series of capital stock of the Corporation

hereafter created (with the consent of the holders of Series B Preferred Stock

obtained in accordance with Article IX hereof) specifically ranking, by its

terms, senior to the Series B Preferred Stock ("Senior Securities"), in each

case as to distribution of assets upon liquidation, dissolution or winding up of

the Corporation, whether voluntary or involuntary.

 

III.  Dividends

 

      Holders of the Series B Preferred Stock shall be entitled to receive,

whether or not declared by the Board of Directors out of funds legally available

therefor, and the Company shall pay, cumulative dividends at the rate per share,

as a percentage of the Stated Value equal to 5% percent per annum, payable, in

cash or shares of Common Stock (subject to the terms and conditions hereof) at

the option of the Company quarterly in arrears, but in no event later than

conversion applicable to such share of Series B Preferred Stock. Dividends on

the Series B Preferred Stock shall be calculated on the basis of a 360-day year,

shall accrue daily commencing the date of issuance and shall be deemed to accrue

on such date whether or not earned or declared and whether or not there are

profits, surplus or other funds of the Company legally available for the payment

of dividends. The party that holds the Series B Preferred Stock of record on an

applicable record date for any dividend payment will be entitled to receive such

dividend payment and any other accrued and unpaid dividends which accrued prior

to such dividend payment date, without regard to any sale or disposition of such

Series B Preferred Stock subsequent to the applicable record date but prior to

the applicable dividend payment date. Except as otherwise provided herein, if at

any time the Company pays less than the total amount of dividends then accrued

on account of the Series B Preferred Stock, such payment shall be distributed

ratably among the holders of the Series B Preferred Stock based upon the number

of shares held by each holder.

 

      In no event, so long as any Series B Preferred Stock shall remain

outstanding, shall any dividend whatsoever be declared or paid upon, nor shall

any distribution be made upon, any Junior Securities, nor shall any shares of

Junior Securities be purchased or redeemed by the Corporation nor shall any

moneys be paid to or made available for a sinking fund for the purchase or

redemption of any Junior Securities (other than a distribution of Junior

Securities), without, in each such case, the written consent of the holders of a

majority of the outstanding shares of Series B Preferred Stock, voting together

as a class.

 

                                      -2-

<PAGE>

 

IV.   Liquidation Preference

 

      A. If the Corporation shall commence a voluntary case under the Federal

bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency

or similar law, or consent to the entry of an order for relief in an involuntary

case under any law or to the appointment of a receiver, liquidator, assignee,

custodian, trustee, sequestrator (or other similar official) of the Corporation

or of any substantial part of its property, or make an assignment for the

benefit of its creditors, or admit in writing its inability to pay its debts

generally as they become due, or if a decree or order for relief in respect of

the Corporation shall be entered by a court having jurisdiction in the premises

in an involuntary case under the Federal bankruptcy laws or any other applicable

Federal or state bankruptcy, insolvency or similar law resulting in the

appointment of a receiver, liquidator, assignee, custodian, trustee,

sequestrator (or other similar official) of the Corporation or of any

substantial part of its property, or ordering the winding up or liquidation of

its affairs, and any such decree or order shall be unstayed and in effect for a

period of thirty (30) consecutive days and, on account of any such event, the

Corporation shall liquidate, dissolve or wind up, or if the Corporation shall

otherwise liquidate, dissolve or wind up (each such event being considered a

"Liquidation Event"), no distribution shall be made to the holders of any shares

of capital stock of the Corporation (other than Senior Securities) upon

liquidation, dissolution or winding up unless prior thereto, the holders of

shares of Series B Preferred Stock, subject to Article VI, shall have received

the Liquidation Preference (as defined in Article IV.C) with respect to each

share. If upon the occurrence of a Liquidation Event, the assets and funds

available for distribution among the holders of the Series B Preferred Stock and

holders of Pari Passu Securities (including any dividends or distribution paid

on any Pari Passu Securities after the date of filing of this Articles of

Amendment) shall be insufficient to permit the payment to such holders of the

preferential amounts payable thereon, then the entire assets and funds of the

Corporation legally available for distribution to the Series B Preferred Stock

and the Pari Passu Securities shall be distributed ratably among such shares in

proportion to the ratio that the Liquidation Preference payable on each such

share bears to the aggregate liquidation preference payable on all such shares.

Any prior dividends or distribution made after the date of filing of this

Articles of Amendment shall offset, dollar for dollar, the amount payable to the

class or series to which such distribution was made.

 

      B. At the option of any holder of Series B Preferred Stock, the sale,

conveyance or disposition of all or substantially all of the assets of the

Corporation, the effectuation by the Corporation of a transaction or series of

related transactions in which more than 50% of the voting power of the

Corporation is disposed of, or the consolidation, merger or other business

combination of the Corporation with or into any other Person (as defined below)

or Persons when the Corporation is not the survivor shall either: (i) be deemed

to be a liquidation, dissolution or winding up of the Corporation pursuant to

which the Corporation shall be required to distribute upon consummation of such

transaction an amount equal to 120% of the Liquidation Preference with respect

to each outstanding share of Series B Preferred Stock in accordance with and

subject to the terms of this Article IV or (ii) be treated pursuant to Article

VI.C(b) hereof. "Person" shall mean any individual, corporation, limited

liability company, partnership, association, trust or other entity or

organization.

 

      C. For purposes hereof, the "Liquidation Preference" with respect to a

share of the Series B Preferred Stock shall mean an amount equal to the sum of

(i) the Stated Value thereof

 

                                      -3-

<PAGE>

 

plus (ii) and amount equal to five percent (5%) per annum of such Stated Value

for the period beginning on the date of issuance of the Series B Preferred Stock

(the "Issue Date") and ending on the date of final distribution to the holder

thereof (prorated for any portion of such period). The liquidation preference

with respect to any Pari Passu Securities shall be as set forth in the Articles

of Incorporation filed in respect thereof.

 

V.    Redemption

 

      A. If any of the following events (each, a "Mandatory Redemption Event")

shall occur:

 

            (i) The Corporation fails to issue shares of Common Stock to the

holders of Series B Preferred Stock upon exercise by the holders of their

conversion rights in accordance with the terms of this Articles of Amendment

(for a period of at least sixty (60) days if such failure is solely as a result

of the circumstances governed by the second paragraph of Article VI.F below and

the Corporation is using all commercially reasonable efforts to authorize a

sufficient number of shares of Common Stock as soon as practicable), fails to

transfer or to cause its transfer agent to transfer (electronically or in

certificated form) any certificate for shares of Common Stock issued to the

holders upon conversion of the Series B Preferred Stock as and when required by

this Articles of Amendment or the Registration Rights Agreement, dated as of

April 24, 1998, by and among the Corporation and the other signatories thereto

(the "Registration Rights Agreement"), fails to remove any restrictive legend

(or to withdraw any stop transfer instructions in respect thereof) on any

certificate or any shares of Common Stock issued to the holders of Series B

Preferred Stock upon conversion of the Series B Preferred Stock as and when

required by this Articles of Amendment, the Securities Purchase Agreement dated

as of April 24, 1998, by and between the Corporation and the other signatories

thereto (the "Purchase Agreement") or the Registration Rights Agreement, or

fails to fulfill its obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i),

4(j) or 5 of the Purchase Agreement (or makes any announcement, statement or

threat that it does not intend to honor the obligations described in this

paragraph) and any such failure shall continue uncured (or any announcement,

statement or threat not to honor its obligations shall not be rescinded in

writing) for ten (10) business days;

 

            (ii) In connection with the Securities Purchase Agreement dated

April 24, 1998, the Corporation fails to obtain effectiveness with the

Securities and Exchange Commission (the "SEC") of the Registration Statement (as

defined in the Registration Rights Agreement) prior to November 7, 1998 or such

Registration Statement lapses in effect (or sales otherwise cannot be made

thereunder, whether by reason of the Company's failure to amend or supplement

the prospectus included therein in accordance with the Registration Rights

Agreement or otherwise) for more than thirty (30) consecutive days or sixty (60)

days in any twelve (12) month period after such Registration Statement becomes

effective. In connection with shares of Series B Preferred Stock issued pursuant

to any other securities purchase agreement, the Corporation fails to obtain

effectiveness with the Securities and Exchange Commission (the "SEC") of the

Registration Statement (as defined in the Registration Rights Agreement) prior

to the expiration of six (6) months from the date of issuance of the Series B

Preferred Stock or such Registration Statement lapses in effect (or sales

otherwise cannot be made thereunder, whether by reason of the Company's failure

to amend or supplement the prospectus included therein in accordance with the

Registration Rights Agreement or otherwise) for more than

 

                                      -4-

<PAGE>

 

thirty (30) consecutive days or sixty (60) days in any twelve (12) month period

after such Registration Statement becomes effective;

 

            (iii) The Corporation shall make an assignment for the benefit of

creditors, or apply for or consent to the appointment of a receiver or trustee

for it or for all or substantially all of its property or business; or such a

receiver or trustee shall otherwise be appointed;

 

            (iv) Bankruptcy, insolvency, reorganization or liquidation

proceedings or other proceedings for relief under any bankruptcy law or any law

for the relief of debtors shall be instituted by or against the Corporation or

any subsidiary of the Corporation;

 

            (v) The Corporation shall fail to maintain the listing of the Common

Stock on the Nasdaq National Market, the Nasdaq SmallCap Market ("Nasdaq

SmallCap"), the New York Stock Exchange or the American Stock Exchange and such

failure shall remain uncured for at least ten (10) business days, then, upon the

occurrence and during the continuation of any Mandatory Redemption Event

specified in subparagraphs (i), (ii) or (v) at the option of the holders of at

least 50% of the then outstanding shares of Series B Preferred Stock by written

notice (the "Mandatory Redemption Notice") to the Corporation of such Mandatory

Redemption Event, or upon the occurrence of any Mandatory Redemption Event

specified in subparagraphs (iii) or (iv), the Corporation shall purchase each

holder's shares of Series B Preferred Stock for an amount per share equal to the

greater of (1) 120% multiplied by the sum of (a) the Stated Value of the shares

to be redeemed (the "Mandatory Redemption Date"), and (2) the "parity value" of

the shares to be redeemed, where parity value means the product of (a) the

number of shares of Common Stock issuable upon conversion of such shares in

accordance with Article VI below (without giving any effect to any limitations

or conversions of shares set forth in Article VI.A(b) below, and treating the

Trading Day (as defined in Article VI.B.) immediately preceding the date of

payment of the Mandatory Redemption Amount ("Mandatory Redemption Date") as the

"Conversion Date" (as defined in Article VI.B(a)) unless the Mandatory

Redemption Event arises as a result of a breach in respect of a specific

Conversion Date in which case such Conversion Date shall be the Conversion

Date), multiplied by (b) the Closing Price (as defined in Article VI.A(b)) for

the Common Stock on such "Conversion Date" (the greater of such amounts being

referred to as the "Mandatory Redemption Amount").

 

      In the case of a Mandatory Redemption Event, if the Corporation fails to

pay the Mandatory Redemption Amount for each share within five (5) business days

of written notice that such amount is due and payable, then (assuming there are

sufficient authorized shares) in addition to all other available remedies, each

holder of Series B Preferred Stock shall have the right at any time, so long as

the Mandatory Redemption Event continues, to require the Corporation, upon

written notice, to immediately issue (in accordance with and subject to the

terms of Article VI below), in lieu of the Mandatory Redemption Amount, with

respect to each outstanding share of Series B Preferred Stock held by such

holder, the number of shares of Common Stock of the Corporation equal to the

Mandatory Redemption Amount divided by the Conversion Price then in effect.

 

      B. If the Series B Preferred Stock ceases to be convertible as a result of

the limitations described in the second paragraph of Article VI.A below (a

"19.99% Redemption Event"), and the Corporation has not prior to, or within

thirty (30) days of, the date that such

 

                                      -5-

<PAGE>

 

19.99% Redemption Event arises, (i) obtained approval of the issuance of the

additional shares of Common Stock by the requisite vote of the holders of the

then-outstanding Common Stock (not including any shares of Common Stock held by

present or former holders of Series B Preferred Stock that were issued upon

conversion of Series B Preferred Stock) or (ii) received other permission

pursuant to Nasdaq Marketplace Rule 4460(i) allowing the Corporation to resume

issuances of shares of Common Stock upon conversion of Series B Preferred Stock,

then the Corporation shall be obligated to redeem immediately all of the then

outstanding Series B Preferred Stock, in accordance with this Article V.B. An

irrevocable Redemption Notice shall be delivered promptly to the holders of

Series B Preferred Stock at their registered address appearing on the records of

the Corporation and shall state (1) that 19.99% of the Outstanding Common Amount

(as defined in Article VI.A) has been issued upon exercise of the Series B

Preferred Stock, (2) that the Corporation is obligated to redeem all of the

outstanding Series B Preferred Stock and (3) the Mandatory Redemption Date,

which shall be a date within five (5) business days of the date of the

Redemption Notice. On the Mandatory Redemption Date, the Corporation shall make

payment of the Mandatory Redemption Amount (as defined in Article V.A. above) in

cash. If the Corporation fails to redeem in accordance with this Article V.B.,

then, in addition to all other remedies available to the holders of the Series B

Preferred Stock, upon request of a majority-in-interest of the Series B

Preferred Stock, the Corporation shall terminate the listing of its Common Stock

on Nasdaq SmallCap (and any other exchange or quotation system with a rule

substantially similar to Rule 4460(i)) and cause its Common Stock to be eligible

for trading on the over-the-counter electronic bulletin board.

 

      C. Notwithstanding anything to the contrary contained in this Article V,

so long as no Mandatory Redemption Event shall have occurred and be continuing,

the Corporation shall have the right, on the date which is the third (3rd)

anniversary of the date on which the Registration Statement is declared

effective by the SEC, exercisable on not less than twenty (20) Trading Days

prior written notice to the holders of Series B Preferred Stock, to redeem all

of the outstanding shares of Series B Preferred Stock in accordance with this

Article V. Any notice of redemption hereunder (an "Optional Redemption") shall

be delivered to the holders of Series B Preferred Stock at their registered

addresses appearing on the books and records of the Corporation and shall state

(1) that the Corporation is exercising its right to redeem all of the

outstanding shares of Series B Preferred Stock issued on the Issue Date and (2)

the date of redemption (the "Optional Redemption Notice"). On the date fixed for

redemption (the "Optional Redemption Date"), the Corporation shall make payment

of the Optional Redemption Amount (as defined below) to or upon the order of the

holders as specified by the holders in writing to the Corporation at least one

(1) business day prior to the Optional Redemption Date. If the Corporation

exercises its right to redeem the Series B Preferred Stock, the Corporation

shall make payment to the holders of an amount in cash (the "Optional Redemption

Amount") equal to 120% of the Stated Value of the shares of Series B Preferred

Stock to be redeemed plus any unpaid dividend for each share of Series B

Preferred Stock then held. Notwithstanding notice of an Optional Redemption, the

holders shall at all times prior to the Optional Redemption Date maintain the

right to convert all or any shares of Series B Preferred Stock in accordance

with Article VI and any shares of Series B Preferred Stock so converted after

receipt of an Optional Redemption Notice and prior to the Optional Redemption

Date set forth in such notice and payment of the aggregate Optional Redemption

Amount shall be deducted from the shares of Series B Preferred Stock which are

otherwise subject to redemption pursuant to such notice.

 

                                      -6-

<PAGE>

 

      From time to time following the Issue Date, the holders may request

advance notice as to whether the Corporation intends to redeem the shares of

Series B Preferred Stock. Such request shall be made in writing and the

Corporation shall respond in writing as promptly as practicable but prior to

5:00 p.m. Eastern Standard Time one (1) business day after receipt of the

request. The Corporation will be bound by such response for a period of twenty

(20) Trading Days (the "Term") from the date of its response. A failure to

respond within one (1) business day shall be deemed to be an election not to

redeem the Series B Preferred Stock during the Term. The holders may not request

such notice in the event that the Corporation files a registration statement

where the use of proceeds set forth in such registration statement are

identified for purposes of redemption of the outstanding Series B Preferred

Stock.

 

VI.   Conversion at the Option of the Holder

 

      A. (a) Each holder of shares of Series B Preferred Stock may, at its

option at any time and from time to time, upon surrender of the certificates

therefor, convert any or all of its shares of Series B Preferred Stock into

Common Stock as follows (an "Optional Conversion"). Each share of Series B

Preferred Stock shall be convertible into such number of fully paid and

nonassessable shares of Common Stock as is determined by dividing (1) the Stated

Value thereof by (2) the then effective Conversion Price (as defined below);

provided, however, that, unless the holder delivers a waiver in accordance with

the immediately following sentence, in no event (other than pursuant to the

Automatic Conversion (as defined herein)) shall a holder of shares of Series B

Preferred Stock be entitled to convert any such shares in excess of that number

of shares upon conversion of which the sum of (x) the number of shares of Common

Stock beneficially owned by the holder and its affiliates (other than shares of

Common Stock which may be deemed beneficially owned through the ownership of the

unconverted portion of the shares of Series B Preferred Stock) and (y) the

number of shares of Common Stock issuable upon the conversion of the shares of

Series B Preferred Stock with respect to which the determination of this

proviso is being made, would result in beneficial ownership by a holder and such

holder's affiliates of more than 4.9% of the outstanding shares of Common

Stock. For purposes of the proviso to the immediately preceding sentence, (i)

beneficial ownership shall be determined in accordance with Section 13(d) of the

Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,

except as otherwise provided in clause (x) of such proviso and (ii) a holder may

waive the limitations set forth therein by written notice to the Corporation

upon not less than sixty-one (61) days prior written notice (with such waiver

taking effect only upon the expiration of such sixty-one (61) day notice

period).

 

         (b) So long as the Common Stock is listed for trading on Nasdaq

SmallCap or an exchange or quotation system with a rule substantially similar to

Rule 4460(i) then, notwithstanding anything to the contrary contained herein if,

at any time, the aggregate number of shares of Common Stock then issued upon

conversion of the Series B Preferred Stock (including any shares of capital

stock or rights to acquire shares of capital stock issued by the Corporation

which are aggregated or integrated with the Common Stock issued or issuable upon

conversion of the Series B Preferred Stock for purposes of such rule) equals

19.99% of the "Outstanding Common Amount" (as hereinafter defined), the Series B

Preferred Stock shall, from that time forward, cease to be convertible into

Common Stock in accordance with the terms of this Article VI and Article VII

below, unless the Corporation (i) has obtained approval of the issuance of the

Common Stock upon conversion of the Series B Preferred Stock by a majority

 

                                      -7-

<PAGE>

 

of the total votes cast on such proposal, in person or by proxy, by the holders

of the then-outstanding Common Stock (not including any shares of Common Stock

held by present or former holders of Series B Preferred Stock that were issued

upon conversion of Series B Preferred Stock), or (ii) shall have otherwise

obtained permission to allow such issuances from Nasdaq SmallCap in accordance

with Nasdaq SmallCap Rule 4460(i). If the Corporation's Common Stock is not then

listed on Nasdaq SmallCap or an exchange or quotation system that has a rule

substantially similar to Rule 4460(i) limitations set forth herein shall be

inapplicable and of no force and effect. For purposes of this paragraph,

"Outstanding Common Amount" means (i) the number of shares of the Common Stock

outstanding on the date of issuance of the Series B Preferred Stock pursuant to

the Purchase Agreement plus (ii) any additional shares of Common Stock issued

thereafter in respect of such shares pursuant to a stock dividend, stock split

or similar event. The maximum number of shares of Common Stock issuable as a

result of the 19.99% limitation set forth herein is hereinafter referred to as

the "Maximum Share Amount." With respect to each holder of Series B Preferred

Stock, the Maximum Share Amount shall refer to such holder's pro rata share

thereof determined in accordance with Article X below. In the event that

Corporation obtains Stockholder Approval or the approval of Nasdaq SmallCap, by

reason of the inapplicability of the rules of Nasdaq SmallCap or otherwise and

concludes that it is able to increase the number of shares to be issued above

the Maximum Share Amount (such increased number being the "New Maximum Share

Amount"), the references to Maximum Share Amount, above, shall be deemed to be,

instead, references to the greater New Maximum Share Amount. In the event that

Stockholder Approval is not obtained, there are insufficient reserved or

authorized shares or a registration statement covering the additional shares of

Common Stock which constitute the New Maximum Share Amount is not effective

prior to the Maximum Share Amount being issued (if such registration statement

is necessary to allow for the public resale of such securities), the Maximum

Share Amount shall remain unchanged; provided, however, that the Holder may

grant an extension to obtain a sufficient reserved or authorized amount of

shares or of the effective date of such registration statement. In the event

that (a) the aggregate number of shares of Common Stock issued pursuant to the

outstanding Series B Preferred Stock represents at least twenty percent (20%) of

the Maximum Share Amount and (b) the sum of (x) the aggregate number of shares

of Common Stock issued upon conversion of Series B Preferred Stock plus (y) the

aggregate number of shares of Common Stock that remain issuable upon conversion

of Series B Preferred Stock, represents at least one hundred percent (100%) of

the Maximum Share Amount (the "Triggering Event"), the Corporation will use its

best efforts to seek and obtain Stockholder Approval (or obtain such other

relief as will allow conversions hereunder in excess of the Maximum Share

Amount) as soon as practicable following the Triggering Event and before the

Mandatory Redemption Date.

 

        B. (a) Subject to subparagraph (b) below, the "Conversion Price" shall

be the lesser of the Market Price (as defined herein) and the Fixed Conversion

Price (as defined herein), subject to adjustments pursuant to the provisions of

Article VI.C below. "Market Price" shall mean 90% of the average of the two (2)

lowest Closing Bid Prices during the twelve (12) consecutive Trading Day period

ending one (1) Trading Day prior to the date (the "Conversion Date") the

Conversion Notice is sent by a holder to the Corporation via facsimile (the

"Pricing Period"). The "Fixed Conversion Price" shall mean $4.00. "Closing Bid

Price" means, for any security as of any date, the closing bid price on Nasdaq

SmallCap as reported by Bloomberg Financial Markets or an equivalent reliable

reporting service mutually acceptable to and hereafter designated by the holders

of a majority in interest of the shares of Series B Preferred stock and

 

                                       -8-

<PAGE>

 

calculated giving appropriate effect to the stock split, stock dividend,

combination, reclassification or other similar event. In such event, the

Corporation shall notify the Transfer Agent of such change on or before the

effective date thereof.

 

            (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time

when Series B Preferred Stock is issued and outstanding and prior to the

conversion of all Series B Preferred Stock, there shall be any merger,

consolidation, exchange of shares, recapitalization, reorganization, or other

similar event, as a result of which shares of Common Stock of the Corporation

shall be changed into the same or a different number of shares of another class

or classes of stock or securities of the Corporation or another entity, or in

case of any sale or conveyance of all or substantially all of the assets of the

Corporation other than to connection with a plan of complete liquidation of the

Corporation, then the holders of Series B Preferred Stock shall thereafter have

the right to receive upon conversion of the Series B Preferred Stock, upon the

bases and upon the terms and conditions specified herein and in lieu of the

shares of Common Stock immediately theretofore issuable upon conversion, such

stock, securities or assets which the holders of Series B Preferred Stock would

have been entitled to receive in such transaction had the Series B Preferred

Stock been converted in full (without regard to any limitations on conversion

contained herein) immediately prior to such transaction, and in any such case

appropriate provisions shall be made with respect to the rights and interests of

the holders of Series B Preferred Stock to the end that the provisions hereof

(including, without limitation, provisions for adjustment of the Conversion

Price and of the number of shares of Common Stock issuable upon conversion of

the Series B Preferred Stock) shall thereafter be applicable, as nearly as may

be practicable in relation to any securities or assets thereafter deliverable

upon the conversion of Series B Preferred Stock. The Corporation shall not

effect any transaction described in this subsection (b) unless (a) it first

gives, to the extent practical, thirty (30) days' prior written notice (but in

any event at least fifteen (15) business days prior written notice) of such

merger, consolidation, exchange of shares, recapitalization, reorganization or

other similar event or sale of assets (during which time the holders of Series B

Preferred Stock shall be entitled to convert the Series B Preferred Stock) and

(b) the resulting successor or acquiring entity (if not the Corporation) assumes

by written instrument the obligations of this subsection (b). The above

provisions shall similarly apply to successive consolidations, mergers, sales,

transfers or share exchanges.

 

            (c) Other Securities Offerings. If, at any time after the Issue

Date, the Corporation sells Common Stock or securities convertible into, or

exchangeable for, Common Stock, other than a sale pursuant to a bona fide firm

commitment underwritten public offering of Common Stock by the Corporation (not

including a continuous offering pursuant to Rule 415 under the Securities Act of

1933, as amended), (collectively, the "Other Common Stock"), then, if the

effective or maximum sales price of the Common Stock with respect to such

transaction (including the effective or maximum conversion, or exchange price)

("Other Price") is less than the effective Conversion Price of the Series B

Preferred Stock at such time and such Other Common Stock is eligible for resale

prior to December 31, 1999, the Corporation shall adjust the Conversion Price

applicable to the Series B Preferred Stock not yet converted in form and

substance reasonably satisfactory to the holders of Series B Preferred Stock so

that the Conversion Price applicable to the Series B Preferred Stock shall not,

in any event, be greater, after giving effect to all other adjustments contained

herein, than the Other Price.

 

                                       -10-

<PAGE>

 

the Corporation ("Bloomberg") or, if Nasdaq SmallCap is not the principal

trading market for such security, the closing bid price of such security on the

principal securities exchange or trading market where such security is listed or

traded as reported by Bloomberg, or if the foregoing do not apply, the closing

bid price of such security in the over-the-counter market on the electronic

bulletin board for such security as reported by Bloomberg, or, if no closing bid

price of such security in the over-the-counter market on the electronic bulletin

board for such security or in any of the foregoing manners, the average of the

bid prices of any market makers for such security or as reported in the "pink

sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot

be calculated for such security on such date in the manner provided above, the

Closing Bid Price shall be the fair market value as mutually determined by the

Corporation and the holders of a majority in interest of shares of Series B

Preferred Stock being converted for which the calculation of the Closing Bid

Price is required in order to determine the Conversion Price of such Series B

Preferred Stock. "Trading Day" shall mean any day on Which the Common Stock is

traded for any period on Nasdaq SmallCap, or on the principal securities

exchange or other securities market on which the Common Stock is then being

traded.

 

            (b) Notwithstanding anything contained in subparagraph (a) of this

Paragraph B to the contrary, in the event the Corporation (i) makes a public

announcement that it intends to consolidate or merge with any other corporation

(other than a merger in which the Corporation is the surviving or continuing

corporation and its capital stock is unchanged) or sell or transfer all or

substantially all of the assets of the Corporation or (ii) any person, group or

entity (including the Corporation) publicly announces a tender offer to purchase

50% or more of the Corporation's Common Stock or otherwise publicly announces an

intention to replace a majority of the corporation's Board of Directors by

waging a proxy battle or otherwise (the date of the announcement referred to in

clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then

the Conversion Price shall, effective upon the Announcement Date and continuing

through the Adjusted Conversion Price Termination Date (as defined below), be

equal to the lower of (x) the Conversion Price which would have been applicable

for an Optional Conversion occurring on the Announcement Date and (y) the

Conversion Price that would otherwise be in effect. From and after the Adjusted

Conversion Price Termination Date, the Conversion Price shall be determined as

set forth in subparagraph (a) of this Article VI.B. For purposes hereof,

"Adjusted Conversion Price Termination Date" shall mean, with respect to any

proposed transaction, tender offer or removal of the majority of the Board of

Directors which a public announcement as contemplated by this subparagraph (b)

has been made, the date upon which the Corporation (in the case of clause (i)

above) or the person, group or entity (in the case of clause (ii) above)

publicly announces the termination or abandonment of the proposed transaction or

tender offer which caused this subparagraph (b) to become operative.

 

      C. The Conversion Price Shall be subject to adjustment from time to time

as follows:

 

            (a) Adjustment to Conversion Price Due to Stock Split, Stock

Dividend, Etc. If at any time when Series B Preferred Stock is issued and

outstanding, the number of outstanding shares of Common Stock is increased or

decreased by a stock split, stock dividend, combination, reclassification,

rights offering below the Trading Price (as defined below) to all holders of

Common Stock or other similar event, which event shall have taken place during

the reference period for determination of the Conversion Price for any Optional

Conversion or Automatic Conversion of the Series B Preferred Stock, then the

Conversion Price shall be

 

                                      -9-

<PAGE>

 

            (d) Adjustment Due to Distribution. Subject to Article III, if the

Corporation shall declare or make any distribution of its assets (or rights to

acquire its assets) to holders of Common Stock as a dividend, stock repurchase,

by way of return of capital or otherwise (including any dividend or distribution

to the Corporation's shareholders in cash or shares (or rights to acquire

shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),

then the holders of Series B Preferred Stock shall be entitled, upon any

conversion of shares of Series B Preferred Stock after the date of record for

determining shareholders entitled to such Distribution, to receive the amount of

such assets which would have been payable to the holder with respect to the

shares of Common Stock issuable upon such conversion had such holder been the

holder of such shares of Common Stock on the record date for the determination

of shareholders entitled to such Distribution.

 

            (e) Purchase Rights. Subject to Article III, if at any time when any

Series B Preferred Stock is issued and outstanding, the Corporation issues any

convertible securities or rights to purchase stock, warrants, securities or

other property (the "Purchase Rights") pro rata to the record holders of any

class of Common Stock, then the holders of Series B Preferred Stock will be

entitled to acquire, upon the terms applicable to such Purchase Rights, the

aggregate Purchase Rights which such holder could have acquired if such holder

had held the number of shares of Common Stock acquirable upon complete

conversion of the Series B Preferred Stock (without regard to any limitations on

conversion contained herein) immediately before the date on which a record is

taken for the grant, issuance or sale of such Purchase Rights, or, if no such

record is taken, the date as of which the record holders of Common Stock are to

be determined for the grant, issue or sale of such Purchase Rights.

 

            (f) Adjustment for Restricted Periods. In the event that (1) the

Corporation fails to obtain effectiveness with the Securities and Exchange

Commission of the Registration Statement (as defined in the Registration Rights

Agreement) prior to one hundred twenty (127) days following the Issue Date, or

(2) such Registration Statement lapses in effect, or sales otherwise cannot be

made thereunder, whether by reason of the Corporation's failure or inability to

amend or supplement the prospectus (the "Prospectus") included therein in

accordance with the Registration Rights Agreement or otherwise, after such

Registration Statement becomes effective (including, without limitation, during

an Allowed Delay (as defined in Section 3(f) of the Registration Rights

Agreement), then the Pricing Period shall be comprised of, (i) in the case of an

event described in clause (1), the twenty (20) Trading Days preceding the 127th

day following the Issue Date plus all Trading Days through and including the

third Trading Day following the date of effectiveness of the Registration

Statement; and (ii) in the case of an event described in clause (2), the number

of Trading Days preceding the date on which the holder of the Series B Preferred

Stock is first notified that sales may not be made under the Prospectus that

would otherwise then be included in the Pricing Period in accordance with the

definition thereof set forth in Article VI-B(a), plus all Trading Days through

and including the third Trading Day following the date on which the Holder is

first notified that such sales may again be made under the Prospectus. If a

holder of Series B Preferred Stock determines that sales may not be made

pursuant to the Prospectus (whether by reason of the Corporation's failure or

inability to amend or supplement the Prospectus) it shall so notify the

Corporation in writing and, unless the Corporation provides such holder with a

written opinion of the Corporation's counsel to the contrary, such determination

shall be binding for purposes of this paragraph.

 

                                      -11-

<PAGE>

 

            (g) Notice of Adjustments. Upon the occurrence of each adjustment or

readjustment of the Conversion Price pursuant to this Article VI.C, the

Corporation, at its expense, shall promptly compute such adjustment or

readjustment and prepare and furnish to each holder of Series B Preferred Stock

a certificate setting forth such adjustment or readjustment and showing in

detail the facts upon which such adjustment or readjustment is based. The

Corporation shall, upon the written request at any time of any holder of Series

B Preferred Stock, furnish to such holder a like certificate setting forth (i)

such adjustment or readjustment, (ii) the Conversion Price at the time in effect

and (iii) the number of shares of Common Stock and the amount, if any, of other

securities or property which at the time would be received upon conversion of a

share of Series B Preferred Stock.

 

      D. For purposes of Article VI.C(a) above, "Trading Price," which shall be

measured as of the record date in respect of the rights offering means (i) the

average of the last reported sale prices for the shares of Common Stock on

Nasdaq SmallCap as reported by Bloomberg, as applicable, for the five (5)

Trading Days immediately preceding such date, or (ii) if Nasdaq SmallCap is not

the principal trading market for the shares of Common Stock, the average of the

last reported sale prices on the principal trading market for the Common Stock

during the same period as reported by Bloomberg, or (iii) if market value cannot

be calculated as of such date on any of the foregoing bases, the Trading Price

shall be the fair market value as reasonably determined in good faith by (a) the

Board of Directors of the Corporation or, (b) at the option of a

majority-in-interest of the holders of the outstanding Series B Preferred Stock

by an independent investment bank of nationally recognized standing in the

valuation of businesses similar to the business of the Corporation.

 

      E. In order to convert Series B Preferred Stock into full shares of Common

Stock, a holder of Series B Preferred Stock shall: (i) submit a copy of the

fully executed notice of conversion in the form attached hereto as Exhibit A

("Notice of Conversion") to the Corporation by facsimile dispatched on the

Conversion Date (or by other means resulting in notice to the Corporation on the

Conversion Date) at the office of the Corporation or its designated Transfer

Agent for the Series B Preferred Stock that the holder elects to convert the

same, which notice shall specify the number of shares of Series B Preferred

Stock to be converted, the applicable Conversion Price and a calculation of the

number of shares of Common Stock issuable upon such conversion (together with a

copy of the first page of each certificate to be converted) prior to Midnight,

New York City time (the "Conversion Notice Deadline") on the date of conversion

specified on the Notice of Conversion; and (ii) surrender the original

certificates representing the Series B Preferred Stock being converted (the

"Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice

of Conversion to the office of the Corporation or the Transfer Agent for the

Series B Preferred Stock as soon as practicable thereafter. The Corporation

shall not be obligated to issue certificates evidencing the shares of Common

Stock issuable upon such conversion, unless either the Preferred Stock

Certificates are delivered to the Company or its Transfer Agent as provided

above, or the holder notifies the Corporation or its Transfer Agent that such

certificates have been lost, stolen or destroyed (subject to the requirements of

subparagraph (a) below). In the case of a dispute as to the calculation of the

Conversion Price, the Corporation shall promptly issue such number of shares of

Common Stock that are not disputed in accordance with subparagraph (b) below.

The Corporation shall submit the disputed calculations to its outside accountant

via facsimile within two (2) business days of receipt of the Notice of

Conversion, The accountant shall audit the calculations and notify the

Corporation

 

                                      -12-

<PAGE>

 

and the holder of the results no later than 48 hours from the time it receives

the disputed calculations. The accountant's calculation shall be deemed

conclusive absent manifest error.

 

            (a) Lost or Stolen Certificates. Upon receipt by the Corporation of

evidence of the loss, theft, destruction or mutilation of any Preferred Stock

Certificates representing shares of Series B Preferred Stock, and (in the case

of loss, theft or destruction) of indemnity reasonably satisfactory to the

Corporation, and upon surrender and cancellation of the Preferred Stock

Certificate(s), if mutilated, the Corporation shall execute and deliver new

Preferred Stock Certificate(s) of like tenor and date.

 

            (b) Delivery of Common Stock Upon Conversion. Upon the surrender of

certificates as described above together with a Notice of Conversion, the

Corporation shall issue and, within two (2) business days after such surrender

(or, in the case of lost, stolen or destroyed certificates, after provision of

agreement and indemnification pursuant to subparagraph (a)above) (the "Delivery

Period"), deliver (or cause its Transfer Agent to so issue and deliver) to or

upon the order of the holder (i) that number of shares of Common Stock for the

portion of the shares of Series B Preferred Stock converted as shall be

determined in accordance herewith and (ii) a certificate representing the

balance of the shares of Series B Preferred Stock not converted, if any. In

addition to any other remedies available to the holder, including actual damages

and/or equitable relief, the Corporation shall pay to a holder $2,000 per day in

cash for each day beyond a two (2) day grace period following the Delivery

Period that the Corporation fails to deliver Common Stock (a "Conversion

Default") issuable upon surrender of shares of Series B Preferred Stock with a

Notice of Conversion until such time as the Corporation has delivered all such

Common Stock (the "Conversion Default Payments"). Such cash amount shall be paid

to such holder by the fifth day of the month following the month in which it

has accrued or, at the option of the holder (by written notice to the

Corporation by the first day of the month following the month in which it has

accrued), shall be convertible into Common Stock in accordance with the terms of

this Article VI.

 

      In lieu of delivering physical certificates representing the Common Stock

issuable upon conversion, provided the Corporation's Transfer Agent is

participating in the Depository Trust Company ("DTC") Fast Automated Securities

Transfer ("FAST") program, upon request of the holder and its compliance with

the provisions contained in Article VI.A. and in this Article VI.E., the

Corporation shall use its best efforts to cause its Transfer Agent to

electronically transmit the Common Stock issuable upon conversion to the holder

by crediting the account of holder's Prime Broker with DTC through its Deposit

Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and

penalties described in the immediately preceding paragraph shall apply to the

electronic transmittals described herein.

 

            (c) No Fractional Shares. If any conversion of Series B Preferred

Stock would result in a fractional share of Common Stock or the right to acquire

a fractional share of Common Stock, such fractional share shall be disregarded

and the number of shares of Common Stock issuable upon Conversion of the Series

B Preferred Stock shall be the next higher number of shares.

 

            (d) Conversion Date. The "Conversion Date" shall be the date

specified in the Notice of Conversion, provided that the Notice of Conversion is

submitted by facsimile (or

 

                                      -13-

<PAGE>

 

by other means resulting in notice) to the Corporation or its Transfer Agent

before Midnight, New York City time, on the Conversion Date. The person or

persons entitled to receive the shares of Common Stock issuable upon conversion

shall be treated for all purposes as the record holder or holders of such

securities as of the Conversion Date and all rights with respect to the shares

of Series B Preferred Stock surrendered shall forthwith terminate except the

right to receive the shares of Common Stock or other securities or property

issuable on such conversion and except that the holders preferential rights as a

holder of Series B Preferred Stock shall survive to the extent the corporation

fails to deliver such securities.

 

      F. A number of shares of the authorized but unissued Common Stock

sufficient to provide for the conversion of the Series B Preferred Stock

outstanding at the then current Conversion Price shall at all times be reserved

by the Corporation, free from preemptive rights, for such conversion or

exercise. As of the date of issuance of the Series B Preferred Stock, 750,000

authorized and unissued shares of Common Stock have been duly reserved for

issuance upon conversion of the Series B Preferred Stock (the "Reserved

Amount"). The Reserved Amount shall be increased from time to time in accordance

with the Company's obligations pursuant to Section 4(h) of the Purchase

Agreement. In addition, if the Corporation shall issue any securities or make

any change in its capital structure which would change the number of shares of

Common Stock into which each share of the Series B Preferred Stock shall be

convertible at the then current Conversion Price, the Corporation shall at the

same time also make proper provision so that thereafter there shall be a

sufficient number of shares of Common Stock authorized and reserved, free from

preemptive rights, for conversion of the outstanding Series B Preferred Stock.

 

      If at any time a holder of shares of Series B Preferred Stock submits a

Notice of Conversion, and the Corporation does not have sufficient authorized

but unissued shares of Common Stock available to effect such conversion in

accordance with the provisions of this Article VI (a "Conversion Default"), the

Corporation shall issue to the holder (or holders, if more than one holder

submits a Notice of Conversion in respect of the same Conversion Date, pro rata

based on the ratio that the number of shares of Series B Preferred Stock then

held by each such holder bears to the aggregate number of such shares held by

such holders) all of the shares of Common Stock which are available to effect

such conversion. The number of shares of Series B Preferred Stock included in

the Notice of Conversion which exceeds the amount which is then convertible into

available shares of Common Stock (the "Excess Amount") shall, notwithstanding

anything to the contrary contained herein, not be convertible into Common Stock

in accordance with the terms hereof until (and at the holder's option at any

time after) the date additional shares of Common Stock are authorized by the

Corporation to permit such conversion, at which time the Conversion Price in

respect thereof shall be the lesser of (i) the Conversion Price on the

Conversion Default Date (as defined below) and (ii) the Conversion Price on the

Conversion Date elected by the holder in respect thereof. The Corporation shall

use its best efforts to effect an increase in the authorized number of shares of

Common Stock as soon as possible following a Conversion Default. In addition,

the Corporation shall pay to the holder payments ("Conversion Default Payments")

for a Conversion Default in the amount of (a)(N/365), multiplied by (b) the sum

of the Stated Value plus the Premium Amount per share of Series B Preferred

Stock through the Authorization Date (as defined below), multiplied by (c) the

Excess Amount on the day the holder submits a Notice of Conversion giving rise

to a Conversion Default (the "Conversion Default Date"), multiplied by (d) .24,

where (i) N = the

 

                                      -14-

<PAGE>

 

number of days from the Conversion Default Date to the date (the "Authorization

Date") that the Corporation authorizes a sufficient number of shares of Common

Stock to effect conversion of the full number of shares of Series B Preferred

Stock. The Corporation shall send notice to the holder of the authorization of

additional shares of Common Stock, the Authorization Date and the amount of

holder's accrued Conversion Default Payments. The accrued Conversion Default

Payment for each calendar month shall be paid in cash or shall be convertible

into Common Stock at the Conversion Price, at the holder's option, as follows:

 

            (a) In the event the holder elects to take such payment in cash,

cash payment shall be made to holder by the fifth day of the month following

the month in which it has accrued; and

 

            (b) In the event the holder elects to take such payment in Common