EXHIBIT 3.1

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                               DOR BIOPHARMA, INC.


                                   ARTICLE I

          The name of the corporation herein referred to as the "Corporation" is
DOR BioPharma, Inc.

                                   ARTICLE II

          The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of its
registered agent at such address is United States Corporation Company.

                                  ARTICLE III

          The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law.

                                   ARTICLE IV

          The total number of shares of capital stock of all classes which the
Corporation shall have authority to issue is one hundred five million
(105,000,000) shares, of which one hundred million (100,000,000) shares, of a
par value of $.001 per share, shall be of a class designated "Common Stock,"
four million six hundred thousand (4,600,000) shares, of a par value of $.001
per share, shall be of a class designated "Preferred Stock," two hundred
thousand (200,000) shares, of a par value of $.05 per share, shall be of a class
designated "Series B Convertible Preferred Stock," and two hundred thousand
(200,000) shares, of a par value of $.05 per share, shall be of a class
designated "Series C Convertible Preferred Stock"

          The designations, powers, preferences, privileges, and relative,
participating, option, or other special rights and qualifications, limitations,
or restrictions of the above classes of capital stock shall be as follows:



     A.   Common Stock.

          1. General. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.

          2. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.

          3. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.

          4. Voting Rights. Except as otherwise required by law or this Amended
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held of record by such holder on
the books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. Except as otherwise
required by law or provided herein, holders of Common Stock shall vote together
with holders of Preferred Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.

          5. Redemption. The Common Stock is not redeemable,

     B.   Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this ARTICLE IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.

     The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:


                                       2


          1. The number of shares constituting that series and the distinctive
designation of that series;

          2. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;

          3. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;

          4. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;

          5. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;

          6. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;

          7. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights or priority, if any, of payment of shares of that series;
and

          8. Any other relative rights, preferences and limitations of that
series.

     Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.

     If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.

     C.   Series B Convertible Preferred Stock. The designations, powers,
number, preferences and relative, participating, option or other special rights,
and the qualifications, limitations or restrictions of the Series B Convertible
Preferred Stock are set forth below:

          1. Designation. 200,000 shares of the Preferred Stock shall be
designated and known as the "Series B Convertible Preferred Stock." Such number
of shares may be increased or decreased by resolution of the Board of Directors
after obtaining the consent of a majority in interest of the then outstanding
shares of Series B Convertible Preferred Stock; provided, however, that no
decrease shall reduce the number of shares of Series B Convertible

                                       3


Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.

          2. Dividend Provisions.

             (a) Subject to the prior and superior rights of any series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series B Convertible Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible solely into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Corporation) on the Common Stock of the Corporation, at the rate of
tight percent (8%) per annum. Such dividends shall be cumulative and accrue
annually on the last day of December (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable on the
next day that is not a Saturday, Sunday or legal holiday), in each year,
commencing on December 31, 1998, for each full year and each portion of a year
that the share entitled to such dividend is outstanding.

             (b) Such dividends shall be payable in shares (but not fractional
shares) of Series B Convertible Preferred Stock.

             (c) In addition, when and if the Board of Directors shall declare a
dividend or distribution payable with respect to the then outstanding shares of
Common Stock of the Corporation (other than a dividend payable solely in shares
of Common Stock), the holders of the Series B Convertible Preferred Stock shall
be entitled to the amount of dividends per share as would be payable on the
largest number of whole shares of Common Stock into which each share of Series B
Convertible Preferred Stock could then be converted pursuant to Section 5 hereof
(such member to be determined as of the record date for the determination of
holders of Common Stock entitled to receive such dividend).

          3. Liquidation Preference.

             (a) In the event of any liquidation, dissolution or winding-up of
the affairs of the Corporation, whether voluntary or involuntary (collectively,
a "Liquidation"), before any payment of cash or distribution of other property
shall be made to the holders of the Common Stock (the "Common Stockholders") or
any other class or series of stock subordinate in Liquidation Preference to the
Series B Convertible Preferred Stock, the Series B Convertible Preferred
Stockholders shall be entitled to receive out of the assets of the Corporation
legally available for distribution to its stockholders, an amount equal to the
stun of (i) the Original Purchase Price per share (as appropriately adjusted for
any combinations or divisions or similar recapitalizations affecting the Series
B Convertible Preferred Stock after issuance) (the "Series B Liquidation
Preference"), out of funds legally available therefor, and (ii) an amount equal
to any declared but unpaid dividends thereon. As used herein, the "Original
Purchase Price" is $100 per share.


                                       4


             (b) If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series B Convertible Preferred Stockholders the full amounts to which they shall
be entitled, the Series B Convertible Preferred Stockholders shall share ratably
in any distribution of assets in proportion to the respective amounts which
would be payable to them in respect of the shares held by them if all amounts
payable to them in respect of such were paid in full pursuant to Section 3(a).

             (c) After the distributions described in subsection (a) above have
been paid, subject to the rights of other series of Preferred Stock which may
from time to time come into existence, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.

             (d) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation), unless the Corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately alter such
acquisition (by virtue of securities issued as consideration for the
Corporation's acquisition) hold at least 50% of the voting power of the
surviving or acquiring entity; or (B) a sale of all or substantially all of the
assets of the Corporation.

                 (i)   In any of such events, if the consideration received by
the Corporation is other than cash, its value will be deemed its fair market
value, which shall be valued as follows:

                       (A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:

                           (1) If traded on a securities exchange or through
Nasdaq (as defined below), the average of the closing prices of the securities
on such exchange during the thirty (30) day period ending three (3) days prior
to the closing;

                           (2) If actively traded over-the-counter, the average
of the closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three (3) days prior to the closing and

                           (3) If there is no active public market, the fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Series B Convertible Preferred Stock.

                       (B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the


                                       5


holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.

                 (ii)  In the event the requirements of this subsection 3(d) are
not complied with, the Corporation shall forthwith either:

                       (A) cause such closing to be postponed until such time as
the requirements of this Section 3 have been complied with; or

                       (B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B Convertible Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 3(c)(iii) hereof.

                 (iii) The Corporation shall give each holder of record of
Series B Convertible Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 3, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.

          4. Redemption.

             (a) At any time on or after the second anniversary of the date upon
which any shares of Series B Convertible Preferred Stock were first issued (the
"Purchase Date"), the Company may, at its option, redeem the Series B
Convertible Preferred Stock on any date set by the Board of Directors (the
"Redemption Date") by paying an amount in cash equal to the then applicable
Liquidation Preference and accrued and unpaid dividends to the Redemption Date.
The Corporation may exercise such option only if (i) the Common Stock shall be
listed on The Nasdaq National Market System or The Nasdaq SmallCap Market
(collectively, "Nasdaq"), (ii) the Common Stock shall have had an average weekly
sales volume during each of the four full calendar weeks prior to the week
during which the redemption notice is given of at least 100,000 shares, and
(iii) for twenty (20) of any thirty (30) consecutive trading days during the 90
days prior to the Redemption Date, the Closing Price (as defined below) of the
Common Stock exceeds $9.75. The "Closing Price" for each trading day shall be
(i) the closing price if the security is traded on a national securities
exchange, or (ii) if the security is quoted on Nasdaq, the average of the high
bid and low asked prices on such day as reported by the National Association of
Securities Dealers, Inc. through Nasdaq, or (iii) if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common


                                       6


Stock on such day, the average of the bid and asked prices for such day as
furnished by any NYSE member firm selected from time to time by the Corporation
for such purpose.

             (b) To exercise its redemption right under this Paragraph 4, the
Corporation must, not more than ninety (90) nor less than forty-five (45) days
prior to the Redemption Date (the "Notice Period"), give notice by first class
mail, postage prepaid, to the holders of record of the Series B Convertible
Preferred Stock to be redeemed, addressed to such stockholders at their last
addresses as shown on the stock books of the Corporation. Each such notice of
redemption shall specify the Redemption Date; the redemption price; the place or
places for payment or delivery; that payment will be made upon presentation and
surrender of the certificates representing shares of Series B Convertible
Preferred Stock being redeemed; that accrued but unpaid dividends to the
Redemption Date will be paid on the Redemption Date; that the holders of Series
B Convertible Preferred Stock shall be entitled to exercise their Conversion
Rights (as defined below) until the last day of the Notice Period; and that on
and after the Redemption Date, dividends will cease to accrue on such shares. If
a dividend with respect to the Series B Convertible Preferred Stock has been
declared by the Board of Directors of the Corporation and if the Redemption Date
with respect to a redemption of Series B Convertible Preferred Stock falls after
the dividend record date established by the Board of Directors of the
Corporation with respect to such dividend, but prior to the related dividend
payment date, the record holders of the Series B Convertible Preferred Stock on
such record date will be entitled to receive the dividend payable on the Series
B Convertible Preferred Stock, notwithstanding the redemption thereof.

     Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the bolder of the Series B
Convertible Preferred Stock receives such notice; and failure to give such
notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption on of any other shares of Series B Convertible Preferred Stock.
On or after the Redemption Date, as stated in such notice, each holder of the
shares of Series B Convertible Preferred Stock called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the redemption price. If less than all shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If on the Redemption Date the funds
necessary for the redemption shall be available therefor and shall have been
irrevocably deposited with the transfer agent for the Series B Convertible
Preferred Stock, then, notwithstanding that the certificates evidencing any
shares of Series B Convertible Preferred Stock so called for redemption shall
not have been surrendered, dividends with respect to the shares of Series B
Convertible Preferred Stock so called for redemption shall cease to accrue after
the Redemption Date, such shares shall no longer be deemed outstanding, and all
rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive any Common Stock issuable and any cash
payable, without interest, upon surrender of their certificates therefor) shall
terminate.

             (c) The Corporation shall not be liable to pay any tax which may
become due or payable in respect of any transfer involved in the issue and
delivery upon redemption of shares of Series B Convertible Preferred Stock for
shares of Common Stock in a name other than that of the record bolder of the
shares of the Series B Convertible Preferred


                                       7


Stock being redeemed. In addition, the Corporation shall not be required to
issue or deliver any such shares unless and until the person or persons
requesting the issuance thereof shall have (i) paid to the Corporation the
amount of any such tax, (ii) established to the satisfaction of the Corporation
that such tax has been paid or (iii) agreed in writing to indemnify the
Corporation from and against any liability arising from a failure to pay or
withhold such tax, as well as any interest and penalty related thereto.

          5. Conversion. The holders of the Series B Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):

             (a) Right to Convert. Each share of Series B Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Series B
Liquidation Preference by the conversion price applicable to such share (the
"Conversion Price"), determined as hereafter provided, in affect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share for shares of Series B Convertible Preferred Stock shall be $7.50;
provided, however, that the Conversion Price for the Series B Convertible
Preferred Stock shall be subject to adjustment as set forth in subsection 5(d).

             (b) Automatic Conversion. Each share of Series B Convertible
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series B Convertible
Preferred Stock immediately upon the earlier of (i) at any time following the
five-year anniversary of the date of the filing of this Certificate of
Designations if, at such time, the Corporation and its Common Stock meet the
criteria set forth in the second sentence of Section 4(a) above, and (ii) the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $7.50 per share
(adjusted to reflect subsequent stock dividends, combinations, splits or
recapitalization) and with aggregate gross proceeds of not less than $10,000,000
(a "Qualified Public Offering").

             (c) Mechanics of Conversion. Before any holder of Series B
Convertible Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series B Convertible Preferred Stock, and shall give written
notice to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series B Convertible Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of


                                       8


such date. If the conversion is in connection with a Qualified Public Offering,
the conversion may, at the option of any holder tendering Series B Convertible
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Series
B Convertible Preferred Stock shall not be deemed to have converted such Series
B Convertible Preferred Stock until immediately prior to the closing of such
sale of securities.

             (d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
B Convertible Preferred Stock shall be subject to adjustment from time to time
as follows:

                 (i)

                       (A) If the Corporation shall issue, after the Purchase
Date, any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Closing Price on such date, the Conversion
Price for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price equal to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the sum of (w) the number of shares of
Common Stock outstanding immediately prior to such issuance (assuming the
conversion of all then outstanding shares of Series B Convertible Preferred
Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B))
and (x) the number of shares of Common Stock that the aggregate consideration
received by the Corporation for such issuance would purchase at such Conversion
Price; and the denominator of which shall be the sum of (y) the number of shares
of Common Stock outstanding immediately prior to such issuance (assuming the
conversion of all then outstanding shares of Series B Convertible Preferred
Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B))
and (z) the number of shares of such Additional Stock.

                       (B) No adjustment of the Conversion Price for the Series
B Convertible Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 5(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.

                       (C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.

                       (D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be


                                       9


deemed to be the fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.

                       (E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 5(d)(i) and subsection 5(d)(ii):

                           (1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (to the extent then exercisable) of such options
to purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
5(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights for the Common Stock covered thereby.

                           (2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (to the extent then
convertible or exchangeable) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 5(d)(i)(C)
and (d)(i)(D)).

                           (3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B Convertible Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.

                           (4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series B Convertible Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise


                                       10


of such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.

                           (5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
5(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
5(d)(i)(E)(3) or (4).

                 (ii)  "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 5(d)(i)(E)) by the
Corporation after the Purchase Date to Affiliates of Endorex or directors,
officers, employees or agents of such Affiliates, other than shares of Common
Stock issuable or issued to employees, consultants or directors of the
Corporation directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Corporation (provided that the sum of
such number of shares of Common Stock issuable or issued pursuant to such stock
option plan or restricted stock plan shall in no event represent more than
fifteen percent (15%) of the authorized number of Common Stock). "Affiliates"
shall mean, with respect to any party, any entity that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with such party. For purposes of this definition, "control" means
the power to direct or cause the direction of the management and policies of an
entity, whether through the ownership of voting securities, by contract or
otherwise.

                 (iii) In the event the Corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series B Convertible Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stork Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 5(d)(i)(E).

                 (iv)  If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Convertible Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.


                                       11


             (e) Other Distributions. In the event the Corporation shall declare
a distribution payable in securities of other persons. evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 5(d)(iii), then, in each such
case for the purpose of this subsection 5(e), the holders of the Series B
Convertible Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Series B Convertible
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.

             (f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 5 or Section 3) provision shall be made so that the holders of the
Series B Convertible Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series B Convertible Preferred Stock the number of shares
of stock or other securities or property of the Corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the holders of the Series B Convertible Preferred Stock
after the recapitalization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series B Convertible Preferred Stock)
shall be applicable after that event as nearly equivalent as may be practicable.

             (g) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Convertible Preferred Stock against impairment.

             (h) No Fractional Shares and Certificate as to Adjustments.

                 (i)   No fractional shares shall be issued upon the conversion
of any share or shares of the Series B Convertible Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares arc issuable upon such conversion
shall be determined on the basis of the total number of shares of Series B
Convertible Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.

                 (ii)  Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series B Convertible Preferred Stock pursuant to this
Section 5, 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 Convertible


                                       12


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 Convertible Preferred Stock, furnish or cause to be finished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series B Convertible Preferred Stock.

             (i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series B Convertible Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.

             (j) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Convertible Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series B Convertible Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation, as amended.

             (k) Notices. Any notice required by the provisions of this Section
5 to be given to the holders of shares of Series B Convertible Preferred Stock
shall be deemed given on the date of service if served personally on the party
to whom notice is to be given or on the date of transmittal of services via
telecopy to the party to whom notice is to be given and addressed to each holder
of record at his address appearing on the books of the Corporation.

          6. Voting Rights.

             (a) The holder of each share of Series B Convertible Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such share of Series B Convertible Preferred Stock could then be converted, and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be


                                       13


entitled to vote, together with holders of Common Stock, with respect to any
question upon which holders of Common Stock have the right to vote, except as
greater rights are provided by law. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Series B Convertible
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).

             (b) in any vote by the holders of the Series B Convertible
Preferred Stock acting as a class, each holder of Series B Convertible Preferred
Stock shall be entitled to one (1) vote for each share of Series B Convertible
Preferred Stock.

          7. Protective Provisions. Subject to the rights of any series of
Preferred Stock which may from time to time come into existence, so long as any
shares of Series B Convertible Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series B Convertible Preferred Stock, voting separately as two series:

             (a) increase or decrease the authorized or outstanding number of
the shares of Series B Convertible Preferred Stock, respectively, so as to
affect adversely the shares; or

             (b) authorize or issue any other equity security, or security
convertible into or exercisable for any equity security, having a preference
over, or being on a parity with, the Series B Convertible Preferred Stock with
respect to voting, dividends, liquidation or redemption, respectively.


                                       14


          8. Status of Converted or Redeemed Stock. In the event any shares of
Series B Convertible Preferred Stock shall be converted pursuant to Section 5
hereof, the shares so converted shall be cancelled and shall not be reissuable
by the Corporation. The Certificate of Incorporation, as amended, of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.

     D.   Series C Convertible Preferred Stock. The designations, powers,
number, preferences and relative, participating, option or other special rights,
and the qualifications, limitations or restrictions of the Series C Convertible
Preferred Stock are set forth below:

          1. Designation. 200,000 shares of the Preferred Stock shall be
designated and known as the "Series C Convertible Preferred Stock." Such number
of shares may be increased or decreased by resolution of the Board of Directors
after obtaining the consent of a majority in interest of the then outstanding
shares of Series C Convertible Preferred Stock; provided, however, that no
decrease shall reduce the number of shares of Series C Convertible Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.

          2. Dividend Provisions.

             (a) Subject to the prior and superior rights of any series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series C Convertible Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible solely into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Corporation) on the Common Stock of the Corporation, at the rate of
seven percent (7%) per annum. Such dividends shall be cumulative and accrue
annually on the last day of December (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable on the
next day that is not a Saturday, Sunday or legal holiday), in each year,
commencing on December 31, 1998, for each full year and each portion of a year
that the share entitled to such dividend is outstanding.

             (b) Such dividends shall be payable in shares (but not fractional
shares) of Series C Convertible Preferred Stock.

             (c) In addition, when and if the Board of Directors shall declare a
dividend or distribution payable with respect to the then outstanding shares of
Common Stock of the Corporation (other than a dividend payable solely in shares
of Common Stock), the holders of the Series C Convertible Preferred Stock shall
be entitled to the amount of dividends per share as would be payable on the
largest number of whole shares of Common Stock into which each share of Series C
Convertible Preferred Stock could then be converted pursuant to Section 5 hereof
(such number to be determined as of the record date for the determination of
holders of Common Stock entitled to receive such dividend).


                                       15


          3. Liquidation Preference.

             (a) In the event of any liquidation, dissolution or winding-up of
the affairs of the Corporation, whether voluntary or involuntary (collectively,
a "Liquidation"), before any payment of cash or distribution of other property
shall be made to the holders of the Common Stock (the "Common Stockholders") or
any other class or series of stock subordinate in Liquidation Preference to the
Series C Convertible Preferred Stock, the Series C Convertible Preferred
Stockholders shall be entitled to receive out of the assets of the Corporation
legally available for distribution to its stockholders, an amount equal to the
sum of (i) the Original Purchase Price per share (as appropriately adjusted for
any combinations or divisions or similar recapitalizations affecting the Series
C Convertible Preferred Stock of issuance) (the "Series C Liquidation
Preference"), out of funds legally available therefor, and (ii) an amount equal
to any declared but unpaid dividends thereon. As used herein, the "Original
Purchase Price" is S100 per share.

             (b) It upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series C Convertible Preferred Stockholders the full amounts to which they shall
be entitled, the Series C Convertible Preferred Stockholders shall share ratably
in any distribution of assets in proportion to the respective amounts which
would be payable to them in respect of the shares held by them if all amounts
payable to them in respect of such were paid in full pursuant to Section 3(a).

             (c) After the distributions described in subsection (a) above have
been paid, subject to the rights of other series of Preferred Stock which may
from time to time come into existence, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.

             (d) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation), unless the Corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition (by virtue of securities issued as consideration for the
Corporation's acquisition) hold at least 50% of the voting power of the
surviving or acquiring entity; or (B) a sale of all or substantially all of the
assets of the Corporation.

                 (i)   In any of such events, if the consideration received by
the Corporation is other than cash, its value will be deemed its fair market
value, which shall be valued as follows:

                       (A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:


                                       16


                           (1) If traded on a securities exchange or through
Nasdaq (as defined below), the average of the closing prices of the securities
on such exchange during the thirty (30) day period ending three (3) days prior
to the closing;

                           (2) If actively traded over-the-counter, the average
of the closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three (3) days prior to the closing; and

                           (3) If there is no active public market, the fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Series C Convertible Preferred Stock.

                       (B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.

                 (ii)  la the event the requirements of this subsection 3(d) are
not complied with, the Corporation shall forthwith either:

                       (A) cause such closing to be postponed until such time as
the requirements of this Section 3 have been complied with; or

                       (B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series C Convertible Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 3(d)(iii) hereof.

                 (iii) The Corporation shall give each holder of record of
Series C Convertible Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 3, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.


                                       17


          4. Exchange.

             (a) At any time on or after the date upon which any shares of
Series C Convertible Preferred Stock were first issued (the "Purchase Date"),
each holder of record of Series C Convertible Preferred Stock may, at its
option, on one occasion, exchange (the "Exchange Right") the Series C
Convertible Preferred Stock for shares of common stock, par value $1.00 per
share, of Endorex Newco, Ltd., a Bermuda corporation ("Newco"), formed by the
Corporation and Elan International Systems, Ltd., such that the aggregate
percentage ownership of all holders of record of Series C Convertible Preferred
Stock becomes fifty percent (50%) of the then outstanding shares of Newco common
stock (the `Newco Common Stock"), provided that all holders of record of Series
C Convertible Preferred Stock shall elect to exercise the Exchange Right at the
same time and shall have not exercised any portion of the Conversion Rights (as
defined herein).

             (b) To exercise the Exchange Right under this Paragraph 4, each
holder of record of Series C Convertible Preferred Stock, not more than ninety
(90) nor less than forty-five (45) days prior to the date on which the Exchange
Right is to be exercised (the "Exchange Date"), shall give notice by first class
mail, postage prepaid, to the Corporation. Each such notice of exchange shall
specify the Exchange Date; the place or places for delivery; that accreted but
unpaid dividends to the Exchange Date are to be paid on the Exchange Date; and
that on and after the Exchange Date, such shares of Series C Convertible
Preferred Stock shall be surrendered and extinguished, and all rights whatsoever
with respect to such shares, including any rights of conversion, shall
terminate. On or after the Exchange Date, as stated in such notice, each holder
of the shares of Series C Convertible Preferred Stock shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive such number of shares of
Newco Common Stock so as to increase the aggregate percentage ownership of all
holders of record of Series C Convertible Preferred Stock to 50% of the then
outstanding shares of Newco Common Stock.

             (c) Neither the Corporation nor Newco shall be liable to pay any
tax which may become due or payable in respect of any transfer involved in the
issue and delivery upon exchange of the Series C Convertible Preferred Stock for
the Newco Common Stock in a name other than that of the record holder of the
shares of the Series C Convertible Preferred Stock being exchanged. In addition,
neither the Corporation nor Newco shall be required to issue or deliver any such
shares unless and until the person or persons requesting the issuance thereof
shall have (i) paid to the Corporation or Newco the amount of any such tax, (ii)
established to the satisfaction of the Corporation or Newco that such tax has
been paid or (iii) agreed in writing to indemnify the Corporation and Newco from
and against any liability arising from a failure to pay or withhold such tax, as
well as any interest and penalty related thereto.

          5. Conversion. The holders of the Series C Convertible Preferred Stock
shall have conversion rights (the "Conversion Rights") as follows:

             (a) Right to Convert. Each share of Series C Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any time two
years after the date of issuance of such share, at the office of the Corporation
or any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by


                                       18


dividing the Series C Liquidation Preference by the conversion price applicable
to such share (the "Conversion Price"), determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion; provided,
however, that in no event shall any holder of Series C Convertible Preferred
Stock be entitled to convert his, her or its shares of Series C Convertible
Preferred Stock in excess of that number of Series C Convertible Preferred Stock
which, upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the holder and its affiliates to
exceed nineteen and nine-tenths percent (19.9%) of the outstanding shares of
Common Stock following such conversion. For purposes of the foregoing provision,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock with respect to
which the determination of such provision is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, nonconverted shares of Series C Convertible Preferred Stock
beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the holder and its affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
5(a), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. The initial Conversion Price
per share for shares of Series C Convertible Preferred Stock shall be $9.00;
provided, however, that the Conversion Price for the Series C Convertible
Preferred Stock shall be subject to adjustment as set forth in subsection 5(d).

             (b) Automatic Conversion. Each share of Series C Convertible
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series C Convertible
Preferred Stock immediately upon the earlier of (i) October 21, 2002 and (ii)
the Corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $9.00 per
share (adjusted to reflect subsequent stock dividends, combinations, splits or
recapitalization) and with aggregate gross proceeds of not less than $10,000,000
(a "Qualified Public Offering").

             (c) Mechanics of Conversion. Before any holder of Series C
Convertible Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series C Convertible Preferred Stock, and shall give written
notice to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such bolder of Series C Convertible Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series C Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with a Qualified Public
Offering, the conversion


                                       19


may, at the option of any holder tendering Series C Convertible Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series C Convertible
Preferred Stock shall not be deemed to have converted such Series C Convertible
Preferred Stock until immediately prior to the closing of such sale of
securities.

             (d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
C Convertible Preferred Stock shall be subject to adjustment from time to time
as follows:

                 (i)

                       (A) If the Corporation shall issue, after the Purchase
Date, any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Closing Price on such date, the Conversion
Price for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price equal to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the sum of (w) the number of shares of
Common Stock outstanding immediately prior to such issuance (assuming the
conversion of all then outstanding shares of Series C Convertible Preferred
Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B))
and (x) the number of shares of Common Stock that the aggregate consideration
received by the Corporation for such issuance would purchase at such Conversion
Price; and the denominator of which shall be the sum of (y) the number of shares
of Common Stock outstanding immediately prior to such issuance (assuming the
conversion of all then outstanding shares of Series C Convertible Preferred
Stock and including shares issued or issuable pursuant to Section 5(d)(ii)(B))
and (z) the number of shares of such Additional Stock.

                       (B) No adjustment of the Conversion Price for the Series
C Convertible Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 5(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.

                       (C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.

                       (D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.


                                       20


                       (E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 5(d)(i) and subsection 5(d)(ii):

                           (1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (to the extent then exercisable) of such options
to purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the tune such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
5(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights for the Common Stock covered thereby.

                           (2) The aggregate maximum number of shares of Common
Stock deliverable; upon conversion of or in exchange (to the extent then
convertible or exchangeable) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 5(d)(i)(C)
and (d)(i)(D)).

                           (3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series C Convertible Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.

                           (4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series C Convertible Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.


                                       21


                           (5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
5(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
5(d)(i)(E)(3) or (4).

                 (ii)  "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 5(d)(i)(E)) by the
Corporation after the Purchase Date to Affiliates of the Corporation or
directors, officers, employees or agents of such Affiliates, other than shares
of Common Stock issuable or issued to employees, consultants or directors of the
Corporation directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Corporation (provided that the sum of
such number of shares of Common Stock issuable or issued pursuant to such stock
option plan or restricted stock plan shall in no event represent more than
fifteen percent (15%) of the authorized number of shares of Common Stock).
"Affiliates" shall mean, with respect to any party, any entity that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with such party. For purposes of this definition,
"control" means the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities, by
contract or otherwise.

                 (iii) In the event the Corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series C Convertible Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 5(d)(i)(E).

                 (iv)  If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series C Convertible Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.

             (e) Other Distributions. In the event the Corporation shall declare
a distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 5(d)(iii), then, in each such
case for the purpose of this subsection 5(e), the


                                       22


holders of the Series C Convertible Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series C Convertible Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.

             (f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 5 or Section 3) provision shall be made so that the holders of the
Series C Convertible Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series C Convertible Preferred Stock the number of shares
of stock or other securities or property of the Corporation on or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the holders of the Series C Convertible Preferred Stock
after the recapitalization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series C Convertible Preferred Stock)
shall be applicable after that event as nearly equivalent as may be practicable.

             (g) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series C Convertible Preferred Stock against impairment.

             (h) No Fractional Shares and Certificate as to Adjustments.

                 (i)   No fractional shares shall be issued upon the conversion
of any share or shares of the Series C Convertible Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series C
Convertible Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.

                 (ii)  Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series C Convertible Preferred Stock pursuant to this
Section 5. 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 C Convertible 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 C Convertible Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and


                                       23


readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of Series C Convertible Preferred Stock.

             (i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series C Convertible Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

             (j) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Convertible Preferred
Stock; and if at anytime the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series C Convertible Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation, as amended.

             (k) Notices. Any notice required by the provisions of this Section
5 to be given to the holders of shares of Series C Convertible Preferred Stock
shall be deemed given (i) on the date of service if served personally on the
party to whom notice is to be given, or (ii) on the date of transmittal of such
notice if sent via telecopy to the party to whom notice is to be given and
addressed to each holder of record at his address appearing on the books of the
Corporation, or (iii) two business days following the date of mailing if such
notice is sent by recognized overnight courier or by regular postal service.


                                       24


          6. Voting Rights. In any vote by the holders of the Series C
Convertible Preferred Stock acting as a class, each holder of Series C
Convertible Preferred Stock shall be entitled to one (1) vote for each share of
Series C Convertible Preferred Stock.

          7. Protective Provisions. Subject to the rights of any series of
Preferred Stock which may from time to time come into existence, so long as any
shares of Series C Convertible Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series C Convertible Preferred Stock, voting separately as a class:

                 (i)   increase or decrease the authorized or outstanding number
of the shares of Series C Convertible Preferred Stock, respectively, so as to
affect adversely the shares; or

                 (ii)  authorize or issue any other equity security, or security
convertible into or exercisable for any equity security, having a preference
over, or being on a parity with, the Series C Convertible Preferred Stock with
respect to voting, dividends, liquidation or redemption, respectively.

          8. Status of Converted or Exchanged Stock. In the event any shares of
Series C Convertible Preferred Stock shall be exchanged pursuant to Section 4 or
converted pursuant to Section 5 hereof, the shares so exchanged or converted
shall be cancelled and shall not be reissuable by the Corporation. The
Certificate of Incorporation, as amended, of the Corporation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.

                                   ARTICLE V

     The Corporation is to have perpetual existence.

     In furtherance of and not in limitation of powers conferred by statute, it
is further provided:

          1. Election of directors need not be by written ballot.

          2. The Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.

                                   ARTICLE VI

     The number of directors of the Corporation shall be fixed from time to time
by the bylaws of the Corporation or amendment thereof duly adopted by the Board
of Directors or by the stockholders.

                                  ARTICLE VII

     Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of


                                       25


them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of the Corporation or of any creditor or
stockholder thereof, or on the application of any receiver or receivers
appointed for the Corporation under the provisions of section 291 of Title 8 of
the Delaware Code or an the application of trustees in dissolution or of any
receiver or receivers appointed for the Corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.

                                  ARTICLE VIII

     The Corporation reserves the right to amend, alter, change, or repeal any
provisions herein contained, in the manner now or hereafter prescribed by
statute, and all rights, powers, privileges, and discretionary authority granted
or conferred herein upon stockholders are granted subject to this reservation.

                                   ARTICLE IX

     A Director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of his fiduciary
duty as a Director; provided, however, this Article shall not eliminate or limit
the liability of a Director (i) for any breach of the Director's duty of loyalty
to the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for the unlawful payment of dividends or unlawful stock repurchases under
Section 174 of the General Corporation Law of the State of Delaware; or (iv) for
any transaction from which the Director derived an improper personal benefit. If
the General Corporation Law is amended after approval by the stockholders of
this Article to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.

     Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.

                                   ARTICLE X

     The Corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware, as amended from time to time, indemnify
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit


                                       26


or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.

     Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.

     The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.

     The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.

                                   ARTICLE XI

     Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.



                                       27