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<SEC-DOCUMENT>/in/edgar/work/20000821/0000950153-00-001182/0000950153-00-001182.txt : 20000922
<SEC-HEADER>0000950153-00-001182.hdr.sgml : 20000922
ACCESSION NUMBER:		0000950153-00-001182
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		12
CONFORMED PERIOD OF REPORT:	20000814
ITEM INFORMATION:		
ITEM INFORMATION:		
FILED AS OF DATE:		20000821

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TITAN MOTORCYCLE CO OF AMERICA INC
		CENTRAL INDEX KEY:			0001053691
		STANDARD INDUSTRIAL CLASSIFICATION:	 [7600
]		IRS NUMBER:				860776876
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		8-K
			SEC ACT:		
			SEC FILE NUMBER:	000-24477
			FILM NUMBER:		707005
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		2222 WEST PEORIA AVE
				CITY:			PHOENIX
				STATE:			AZ
				ZIP:			85029
				BUSINESS PHONE:		6028616977
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		2222 WEST PEORIA AVE
					CITY:			PHOENIX
					STATE:			AZ
					ZIP:			85029
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>e8-k.txt
<DESCRIPTION>8-K
<TEXT>

<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                    FORM 8-K

                                 CURRENT REPORT
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported)                August 14, 2000

                        Titan Motorcycle Co. of America

               (Exact Name of Registrant as Specified in Charter)


          Nevada                   000-24477                    86-0776876

(State or Other Jurisdiction      (Commission                 (IRS Employer
  of Incorporation)               File Number)              Identification No.)


2222 West Peoria Avenue, Phoenix, Arizona                           85029
(Address of Principal Executive Offices)                         (Zip Code)


Registrant's telephone number, including area code               (602) 861-6977

          (Former Name or Former Address, if Changed Since Last Report)
<PAGE>   2
ITEM 5.  OTHER EVENTS.

         SALE OF CONVERTIBLE SECURITIES

         On August 14, 2000, Titan Motorcycle Co. of America sold $375,000 in
principal amount of its 12% Convertible Debentures and a Warrant to purchase
512,580 shares of Titan's common stock to Esquire Trade & Finance and $375,000
in principal amount of its 12% Convertible Debentures and a Warrant to purchase
512,580 shares of Titan's common stock to Celeste Trust Reg. in a private
placement for a total of $750,000 in gross proceeds to Titan. The terms and
conditions of the private placement are described more fully in the Securities
Purchase Agreement attached as Exhibit 10.1 to this report.

         Unless and until shareholder approval is obtained, the Debentures are
convertible at any time into a maximum of 3,500,235 shares of Titan's common
stock. The Debentures are convertible at the lower of a fixed conversion price
or a variable conversion price. The fixed conversion price is equal to 70% of
the average of the closing bid price of Titan's common stock for the five
trading days immediately preceding the closing date, or $0.42 per share. The
variable conversion price is equal to 70% of the average of the five lowest
closing bid prices (which need not be consecutive days) of Titan's common stock
during the 22 trading days immediately preceding the applicable conversion date.
As of the closing date, the variable conversion price was $0.32 per share. The
conversion price and the number of shares of common stock underlying the
Debentures are subject to adjustment for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to Titan's
common stock.

         The Debentures are secured by the grant of a security interest in all
of Titan's assets, subject to a senior security interest in favor of Wells Fargo
Credit, Inc., Titan's senior lender, as more fully described in the Security
Interest and Pledge Provisions in the form attached as Exhibit 4.4 to this
report.

         The Debentures are redeemable at any time by the holders in the event
of default by Titan. Each of the following constitutes an "Event of Default"
pursuant to the terms of the Debentures:

- -        Titan defaults in the payment of principal or interest on the
         Debentures and continues to do so for a period of 5 business days;

- -        Any of the representations or warranties made by Titan in the
         Debentures, the Securities Purchase Agreement, the Registration Rights
         Agreement or in any certificate or financial or other written
         statements furnished by Titan in connection with the execution and
         delivery of the Debentures or the Securities Purchase Agreement are
         deemed to be false or misleading in any material respect at the time
         made;

- -        Titan fails to authorize or to cause its transfer agent to issue shares
         of Common Stock upon exercise by the Holder of the conversion rights of
         the Holder in accordance with the terms of the Debentures, fails to
         transfer or to cause its transfer agent to transfer any certificate for
         shares of Common Stock issued to the Holder upon conversion of the
         Debentures and when required by the Debentures or the Registration
         Rights


                                      -2-
<PAGE>   3
         Agreement, and such transfer is otherwise lawful, or fails to remove
         any restrictive legend on any certificate or fails to cause its
         transfer agent to remove such restricted legend, in each case where
         such removal is lawful, as and when required by the Debentures, or the
         Registration Rights Agreement, and any such failure continues uncured
         for 5 business days;

- -        Titan fails to perform or observe, in any material respect, any other
         covenant, term, provision, condition, agreement or obligation of the
         Debentures and such failure continues uncured for a period of 30 days
         after written notice from the Holder;

- -        Titan fails to perform or observe, in any material respect, any
         covenant, term, provision, condition, agreement or obligation of Titan
         under the Securities Purchase Agreement or the Registration Rights
         Agreement and such failure continues uncured for a period of 30 days
         after written notice from the Holder (other than a failure to cause the
         Registration Statement to become effective no later than the Required
         Effective Date, as defined and provided in the Registration Rights
         Agreement, as to which no such cure period shall apply);

- -        Titan (1) admits in writing its inability to pay its debts generally as
         they mature; (2) makes an assignment for the benefit of creditors or
         commences proceedings for its dissolution; or (3) applies for or
         consents to the appointment of a trustee, liquidator or receiver for
         its or for a substantial part of its property or business;

- -        A trustee, liquidator or receiver is appointed for Titan or for a
         substantial part of its property or business without its consent and is
         not discharged within 60 days after such appointment;

- -        Any governmental agency or any court of competent jurisdiction at the
         instance of any governmental agency assumes custody or control of the
         whole or any substantial portion of the properties or assets of Titan
         and is not dismissed within 60 days thereafter;

- -        Any money judgment, writ or warrant of attachment, or similar process
         in excess of $200,000 in the aggregate is entered or filed against
         Titan or any of its properties or other assets and remains unpaid,
         unvacated, unbonded or unstayed for a period of 60 days or in any event
         later than 5 days prior to the date of any proposed sale thereunder;

- -        Bankruptcy, reorganization, insolvency or liquidation proceedings or
         other proceeding for relief under any bankruptcy law or any law for the
         relief of debtors is instituted by or against Titan and, if
         instituted against Titan, is not dismissed within 60 days after such
         institution or Titan by any action or answer approves of, consents
         to, or acquiesces in any such proceedings or admit the material
         allegations of, or defaults in answering a petition filed in any such
         proceeding;


                                      -3-
<PAGE>   4
- -        Titan is in default to its senior lender under the terms of the then
         applicable agreements between Titan and its senior lender and any such
         failure continues uncured for 30 days; or

- -        Titan has its Common Stock suspended or delisted from trading on the
         Nasdaq/SmallCap Market for in excess of 20 trading days.

         The terms and conditions of the Debentures are more fully described in
the form of Debenture attached as Exhibit 4.1 to this report.

         The Warrants are exercisable at a price equal to 105% of the market
price of the Common Stock as of the closing date, or $.643125 per share, and
expire August 31, 2005. The terms and conditions of the Warrants are more fully
described in the form of warrant attached as Exhibit 4.2 to this report.

         Under the Registration Rights Agreement attached as Exhibit 4.3 to this
report, Titan has agreed to file a registration statement with the SEC covering
the resale of the shares underlying the Debentures and the Warrants. Titan also
has agreed to file a pre-effective amendment with the SEC to its existing
registration statement on Form S-3 covering the resale of the shares of Common
Stock underlying the Series C Convertible Preferred Stock and warrants issued in
connection with that offering, which registration statement must be declared
effective by August 29, 2000.

    AMENDMENTS TO THE SERIES A AND B CERTIFICATES AND SUBSCRIPTION AGREEMENTS

         As a condition to the sale of the Debentures and the Warrants, Titan
was required to obtain the consent of the holders of its Series A and Series B
Convertible Preferred Stock. In exchange for this consent, and a waiver of
certain preemptive rights, Titan agreed to amend certain provisions of the
Series A and Series B Subscription Agreements and the respective Amended and
Restated Certificates of Designations for the Series A and Series B Convertible
Preferred Stock. These amendments included accelerating the initial reset dates
and shortening the respective reset periods used in determining the variable
conversion price at which the Series A and Series B Convertible Preferred Stock
may be converted into shares of common stock. The effect of these amendments is
to accelerate the ability of the holders of the Series A and Series B
Convertible Preferred Stock to convert their shares of preferred stock at a
variable conversion price, which in each case is based on the current market
price of Titan's common stock. Because the price of Titan's common stock has
declined significantly since the closing of the Series A and Series B
Convertible Preferred Stock, the price at which the holders of the Series A and
Series B Convertible Preferred Stock may convert their shares of preferred stock
on their respective initial reset dates also will decline significantly from
their fixed conversion prices, resulting in the possibility of a substantially
increased number of shares that may be issued upon conversion.

         The specific amendments are more fully described in the Amended and
Restated Certificates of Designations for the Series A and Series B Convertible
Preferred Stock attached as Exhibits 3.1 and 3.2 to this report.

         AMENDMENTS TO THE SERIES C CERTIFICATE

         As a condition to the sale of the Debentures, the purchasers of the
Debentures (who currently are the same investors as the holders of the Series C
Convertible Preferred Stock)


                                       -4-
<PAGE>   5
         required that Titan agree to amend certain provisions of the
Certificate of Designations for the Series C Convertible Preferred Stock and
agree to accelerate effectiveness of the registration statement covering the
shares of Common Stock underlying the Series C Convertible Preferred Stock to a
date not later than 15 days after the Closing Date, or August 29, 2000. The
principal amendments to the Certificate of Designations for the Series C
Convertible Preferred Stock include a change in the method of determining the
conversion price applicable to the conversion of the Series C Convertible
Preferred Stock and a change in the ranking of the Series C Convertible
Preferred Stock relative to the ranking of the Series A and Series B Convertible
Preferred Stock.

         Prior to the amendment, the Series C Convertible Preferred Stock was
convertible at a fixed conversion price equal to $0.95 per share for the first
six months from the date of issuance. Thereafter, the conversion price was
adjusted every three months to be the lower of (a) 80% of the average market
price for the lowest three trading days during the last ten trading days prior
to the adjustment date and (b) either (i) the current conversion price if 80% of
the average market price was less than or equal to 200% of the current
conversion price, or (ii) $.95 if 80% of the average market price was more than
200% of the current conversion price. The Certificate of Designations was
amended to provide for a new conversion price equal to the lesser of a fixed
conversion price equal to 70% of the average of the closing bid price for the 5
trading days immediately preceding the Closing Date, or $0.42 per share,  or a
variable conversion price equal to 70% of the average of the closing bid price
for the lowest 5 trading days (which need not be consecutive) during the 22
consecutive trading days ending on the trading day immediately preceding the
relevant conversion date. As of the closing date, the variable conversion price
was $0.32 per share.

         Prior to the amendment, the Series C Convertible Preferred Stock was
junior to the Series A and Series B Convertible Preferred Stock in terms of
liquidation preference and payment of dividends. The Certificate of Designations
was amended (with the consent of the holders of the Series A and Series B
Convertible Preferred Stock) to subordinate the rights of the Series A and
Series B Convertible Preferred Stock to the rights of the Series C Convertible
Preferred Stock from the date of the amendment until the effective date of a
registration statement covering the shares underlying the Series C Convertible
Preferred Stock and related warrants. Once this registration statement is
declared effective, the Series A and Series B Convertible Preferred Stock will
once again be senior to the Series C Convertible Preferred Stock.

         The specific amendments to the Series C Convertible Preferred Stock are
more fully described in the First Amended and Restated Certificate of
Designations for the Series C Convertible Preferred Stock attached as Exhibit
3.3 to this report.

         AMENDMENT TO THE WELLS FARGO CREDIT FACILITY

         As a condition to the sale of the Debentures, Titan was required to
obtain the consent of its senior lender, Wells Fargo Credit, Inc. In connection
with obtaining that consent, Titan and the holders of the Debentures were
required to enter into an Intercreditor Agreement with Wells Fargo in the form
attached as Exhibit 10.2 to this report, which provides generally for the
respective rights of the holders of the Debentures and Wells Fargo as secured
lenders. In addition, Titan and Wells Fargo entered into a Second Amendment to
the Amended and Restated Loan and Security Agreement in the form attached as
Exhibit 10.3 to this report, pursuant to which Wells Fargo (1) consented to the
transaction described herein; (2) agreed to modify certain financial covenants
regarding minimum net worth and net income; and (3) agreed to extend the time
that Titan had to deliver certain financial information to Wells Fargo.


                                      -5-
<PAGE>   6
         ASSOCIATED RISKS

         Despite the recent cash infusion from the sale of the Debentures, Titan
is still experiencing a liquidity crisis.

         As described in a report on Form 8-K filed by Titan on July 20, 2000,
Titan currently is experiencing a liquidity crisis. Despite the raising of
additional funds from the sale of the Debentures, Titan must raise substantial
additional capital and replace its credit facility with a new senior lender in
order to survive. The line of credit with Wells Fargo terminates on September
11, 2000. If Titan is unable to raise substantial additional capital and replace
its existing credit facility before it becomes due, it may be forced to
liquidate or file for reorganization under federal bankruptcy laws. Even if
Titan is able to avoid liquidation or reorganization, its inability to raise
additional capital is likely to continue to have a material adverse effect on
its operations as more fully described in the report on Form 8-K filed July 20,
2000.

         The amendments to the Certificates of Designations are likely to cause
substantial additional dilution to holders of Titan's common stock.

         Because the market price of Titan's common stock has declined
significantly since the dates of issuance of the Series A, Series B and Series C
Convertible Preferred Stock, and because the conversion prices of the Series A,
Series B and Series C Convertible Preferred Stock are equal to the lesser of a
fixed conversion price or a variable conversion price, which is based on a
percentage ranging from 70% to 100% of the market price immediately prior to a
conversion, the overall effect of the changes described in this report is to
accelerate the ability of the holders of the Series A, Series B, and Series C
Convertible Preferred Stock to convert their shares at significantly lower
variable conversion prices than their respective fixed conversion prices,
resulting in a corresponding significant increase in the number of shares of
Titan's common stock that may be issued upon conversion. If all shares of Series
A, Series B and Series C Convertible Preferred Stock were converted as of the
date of this report (assuming the initial reset date of the Series B Convertible
Preferred Stock was August 14, 2000 rather than January 1, 2000), Titan would be
required to issue a total of 14,865,775 additional shares of its Common Stock.
As a result, the amendments to the Series A, Series B and Series C Convertible
Preferred Stock may result in substantial dilution to the holders of Titan's
Common Stock. Even if the price of Titan's Common Stock rises above the fixed
conversion prices of the Series A, Series B and Series C Convertible Preferred
Stock, the method of calculating the conversion prices will cap the conversion
price at the fixed conversion price.

         If the market price of Titan's Common Stock continues to decline, the
number of shares issuable upon conversion of the Series A, Series B and Series C
Convertible Preferred Stock will continue to increase, resulting in further
dilution to the holders of Titan's Common Stock. The issuance and resale of
significant additional shares of Common Stock may result in further price
declines.

         Titan anticipates a significant loss for second quarter.

         Titan anticipates that, due to substantial adjustments in inventory
levels and valuations and the establishment of a significant reserve in the
second quarter of 2000, taken in conjunction with certain affiliated store
receivables and motorcycle repossession and resale, it will report a significant
loss in the second quarter of 2000 and continue to be unprofitable in the third
quarter of 2000. Although not finalized as of the Closing Date, writedowns,
adjustments and reserves could have a combined adverse effect on second quarter
results of up to $2.0 million. Depending on final resolution of these issues,
this number could be more or less than what Titan is anticipating. In addition,
the establishment of additional reserves could cause Titan to be in default
under its revised financial covenants with Wells Fargo, which Titan will
attempt to cure through obtaining a waiver from the bank or agreeing to an
additional amendment to the Amended and Restated Loan and Security Agreement.
There can be no assurance that Titan will be successful in this regard.

         If Titan defaults on its obligations, it may be forced to redeem
certain securities.

         The terms of the Securities Purchase Agreement for the Debentures and
the Series C Convertible Preferred Stock include covenants that require Titan,
among other things, to:


                                      -6-
<PAGE>   7
         -        obtain shareholder approval to issue shares upon conversions
                  greater than 20% of Titan's currently outstanding Common
                  Stock;

         -        maintain its Nasdaq SmallCap Market listing

         -        issue shares of Common Stock upon conversion on a timely
                  basis;

         -        file and obtain effectiveness of registration statements by
                  specific dates; and

         -        avoid defaults under its credit facility with Wells Fargo.

If Titan defaults on any of these covenants, it may be required to redeem the
Debentures or the Series C Convertible Preferred Stock at a time when it does
not have sufficient funds to do so. In this case, Titan may be forced into
liquidation or reorganization under the federal bankruptcy laws.

         Titan's Common Stock may be delisted from Nasdaq.

         As described in a previous report on Form 8-K filed with the SEC on
July 20, 2000, Titan was notified by Nasdaq that it was not in compliance with
Nasdaq's continued SmallCap Market criteria. Specifically, Nasdaq noted that
Titan did not have either $2 million in net tangible assets, $35 million of
market capitalization or $5 million in net income. Nasdaq also inquired into the
reasons why the report of the independent accountants on the financial
statements included in Titan's Form 10-KSB for the fiscal year ended January 1,
2000 included an explanatory paragraph discussing going concern issues.
Subsequent to Nasdaq's notification, Titan's Series A and Series B Convertible
Preferred Stockholders agreed to modify the terms of their preferred stock so
that the preferred stock would be characterized under generally accepted
accounting principles as equity rather than as mezzanine instruments, which had
the effect of increasing Titan's net tangible assets. Titan's management
currently is evaluating the accounting consequences of the amendments to the
Series A, Series B, and Series C Convertible Preferred Stock, which may
negatively impact Titan's net tangible assets for Nasdaq compliance purposes.
Titan also advised Nasdaq that the explanatory paragraph discussing going
concern issues arose principally because its primary financing source, its line
of credit with Wells Fargo, expired on April 10, 2000 and at year-end Titan did
not have another facility available to refinance this debt and Titan continued
to incur losses from operations. Although Titan has received an extension of its
credit facility with Wells Fargo until September 11, 2000, there can be no
assurance that Titan will be able to secure a replacement credit facility by the
extended termination date or that Titan can comply with the financial and other
covenants as modified. As of the date of this report, Nasdaq had not advised
Titan whether its plan of compliance was acceptable to maintain Titan's Nasdaq
listing. As a result, it is unclear whether Nasdaq will take action to delist
Titan's securities and, if so, what the timing of such an action would be.

         If Titan fails to maintain its Nasdaq SmallCap Market listing for its
securities, trading in its stock is likely to be materially adversely effected.
Among other things, Titan's Common Stock would then constitute "penny stock,"
which would place increased regulatory burden upon brokers, making them less
likely to make a market in the stock.

         In addition, if Titan is delisted, it will constitute a default under
the terms of the Securities Purchase Agreements covering the Debentures and the
Series C Convertible Preferred Stock, and, if such delisting is deemed to be
within Titan's control, it also will trigger redemption under the terms of the
Series A and Series B Convertible Preferred Stock. As a result, Titan may be
required to redeem the Debentures and the Series A, Series B, and Series C
Convertible


                                      -7-
<PAGE>   8
Preferred Stock at a time when it does not have sufficient funds to do so. In
this case, Titan may be forced into liquidation or reorganization under the
federal bankruptcy laws.

         Titan must replace its existing credit facility by September 11, 2000
to continue in operation.

         Titan may not be able to replace its credit facility with a new lender
before the termination of its existing credit facility on September 11, 2000. If
Titan is unable to replace its existing credit facility on a timely basis or
otherwise defaults on its existing credit facility, Titan will be forced into
liquidation or reorganization under the federal bankruptcy laws.

         Titan could lose its commercial flooring arrangements.

     In July 2000, Titan was notified of default under and cancellation of
flooring arrangements for certain affiliated dealerships. Under the terms of
the wholesale financing agreement with the flooring company, Titan was required
to repurchase approximately $1.3 million in motorcycles sold to these
affiliated dealerships and held in inventory.

     In connection with the repurchase of $1.3 million in motorcycle inventory,
Titan entered into a forbearance agreement with its commercial flooring company
that requires Titan to repurchase the related motorcycles over a maximum three
month period with a required minimum payment in three equal installments. The
final installment is due on October 17, 2000. Titan has delivered
approximately one-third of the related motorcycles and satisfied the required
first installment in August 2000.

     There can be no assurance that Titan will be able to sell the remaining
motorcycles or meet the installment payment requirements. If Titan is unable to
comply with the terms of the forbearance agreement, its ability to sell
motorcycles funded with commercial flooring may be eliminated, which would have
a material adverse impact on Titan's financial condition.

ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(c)      Exhibits.

EXHIBIT
NUMBER   DESCRIPTION

3.1      Amended and Restated Certificate of Designations for Series A Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

3.2      Amended and Restated Certificate of Designations for Series B Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

3.3      Amended and Restated Certificate of Designations for Series C Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

4.1      Form of Debenture issued to Esquire Trade & Finance, Inc. and Celeste
         Trust Reg.

4.2      Form of Warrant issued to Esquire Trade & Finance, Inc. and Celeste
         Trust Reg.

4.3      Registration Rights Agreement with Esquire Trade & Finance Inc. and
         Celeste Trust Reg., dated as of August 14, 2000

4.4      Security Interest and Pledge Provisions, dated as of August 14, 2000 by
         and among the Company, Esquire Trade & Finance Inc. and Celeste Trust
         Reg.

10.1     Securities Purchase Agreement with Esquire Trade & Finance Inc. and
         Celeste Trust Reg., dated as of August 14, 2000

10.2     Intercreditor Agreement dated as of August 14, 2000 by and among the
         Company, Esquire Trade & Finance, Inc. , Celeste Trust Reg. and Wells
         Fargo Credit, Inc.

10.3     Second Amendment to Amended and Restated Loan and Security Agreement
         dated as of August 14, 2000 by and between the Company and Wells Fargo
         Credit, Inc.

10.4     Consent and Waiver Agreement, dated as of August 14, 2000 by and among
         the Company, Advantage Fund II Ltd. and Koch Investment Group Limited


                                      -8-
<PAGE>   9
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                                          Titan Motorcycle Co. of America

                                          /s:/Francis S. Keery
                                          -------------------------------------
                                          Francis S. Keery
                                          Chief Executive Officer

Dated: August 14, 2000


                                      -9-
<PAGE>   10
                                 EXHIBIT INDEX


EXHIBIT
NUMBER   DESCRIPTION

3.1      Amended and Restated Certificate of Designations for Series A Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

3.2      Amended and Restated Certificate of Designations for Series B Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

3.3      Amended and Restated Certificate of Designations for Series C Preferred
         Stock to be filed August 16, 2000 with the Nevada Secretary of State

4.1      Form of Debenture issued to Esquire Trade & Finance, Inc. and Celeste
         Trust Reg.

4.2      Form of Warrant issued to Esquire Trade & Finance, Inc. and Celeste
         Trust Reg.

4.3      Registration Rights Agreement with Esquire Trade & Finance Inc. and
         Celeste Trust Reg., dated as of August 14, 2000

4.4      Security Interest and Pledge Provisions, dated as of August 14, 2000 by
         and among the Company, Esquire Trade & Finance Inc. and Celeste Trust
         Reg.

10.1     Securities Purchase Agreement with Esquire Trade & Finance Inc. and
         Celeste Trust Reg., dated as of August 14, 2000

10.2     Intecreditor Agreement dated as of August 14, 2000 by and among the
         Company, Esquire Trade & Finance, Inc. , Celeste Trust Reg. and Wells
         Fargo Credit, Inc.

10.3     Second Amendment to Amended and Restated Loan and Security Agreement
         dated as of August 14, 2000 by and between the Company and Wells Fargo
         Credit, Inc.

10.4     Consent and Waiver Agreement, dated as of August 14, 2000 by and among
         the Company, Advantage Fund II Ltd. and Koch Investment Group Limited


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>ex3-1.txt
<DESCRIPTION>EX-3.1
<TEXT>

<PAGE>   1
                                                              Exhibit 3.1
                         TITAN MOTORCYCLE CO. OF AMERICA

       SECOND AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS OF SERIES A
                           CONVERTIBLE PREFERRED STOCK

             (Pursuant to Section 78.1955 of the General Corporation
                           Law of the State of Nevada)


                  Titan Motorcycle Co. of America, a Nevada corporation (the
"Corporation"), in accordance with the provisions of Section 78.1955 of the
General Corporation Law of the State of Nevada (the "NGCL"), DOES HEREBY
CERTIFY:

                  That pursuant to authority vested in the Board of Directors of
the Corporation by the Restated Articles of Incorporation of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent dated
September 10, 1999, adopted a resolution providing for the creation of a series
of the Corporation's Preferred Stock, $.001 par value, which series is
designated as "Series A Convertible Preferred Stock"; and

                  That upon the recommendation of the Board of Directors of the
Corporation, an amendment to such resolution setting forth the terms of the
Series A Convertible Preferred Stock was duly approved by the holders of the
Series A Convertible Preferred Stock pursuant to a written consent dated June 1,
2000, which resolution as so amended and restated was set forth in an Amended
and Restated Certificate of Designations which was filed with the Secretary of
State of the State of Nevada on July 19, 2000; and

                  That upon the recommendation of the Board of Directors of the
Corporation, a second amendment to such resolution setting forth the terms of
the Series A Convertible Preferred Stock was duly approved by the holders of the
Series A Convertible Preferred Stock pursuant to a written consent dated as of
August 11, 2000, which resolution as so amended and restated is as follows:

                  RESOLVED, that pursuant to authority vested in the Board of
Directors by the Restated Articles of Incorporation of the Corporation, the
Board of Directors does hereby amend and restate the terms of the following
series of Preferred Stock, $.001 par value (hereinafter called the "Preferred
Stock"), of the Corporation, and to the extent that the voting powers and the
designations, preferences and relative, participating, optional or other special
rights thereof and the qualifications, limitations or restrictions of such
rights have not been set forth in the Restated Articles of Incorporation of the
Corporation, does hereby fix the same as follows:

<PAGE>   2


                      SERIES A CONVERTIBLE PREFERRED STOCK

                  SECTION 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings:

                  "Accrual Amount" means with respect to any share of Series A
Convertible Preferred Stock on any date the amount of all accrued but unpaid
dividends on such share from the Issuance Date to the date of determination.

                  "Affiliate" means, with respect to any person, any other
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the subject person;
for purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise.

                  "Aggregated Person" means, with respect to any person, any
person whose beneficial ownership of shares of Common Stock would be aggregated
with the beneficial ownership of shares of Common Stock by such person for
purposes of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.

                  "AMEX" means the American Stock Exchange, Inc.

                  "Average Market Price" for any date means the arithmetic
average of the Market Price for each of the Trading Days during the applicable
Measurement Period.

                  "Bimonthly Reset Date" means the date occurring every two
months after the Second Reset Date on the 17th day of each such month through
the third anniversary of the Issuance Date (for example, the first three
Bimonthly Reset Dates shall occur on November 17, 2000, January 17, 2001 and
March 17, 2001).

                  "Blackout Period" means the period of up to 30 consecutive
days after the date the Corporation notifies holders of shares of Series A
Convertible Preferred Stock who are bound by any Registration Rights Agreement
that such holders are required, pursuant to Section 4(d) of the Registration
Rights Agreements, to suspend offers and sales of Registrable Securities
pursuant to the Registration Statement as a result of an event or circumstance
described in Section 3(f)(1) of the Registration Rights Agreements, during which
period, by reason of Section 3(f)(2) of the Registration Rights Agreements, the
Corporation is not required to amend the Registration Statement or to supplement
the related prospectus.

                  "Board of Directors" or "Board" means the Board of Directors
of the Corporation.


                                      -2-
<PAGE>   3

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

                  "Cash and Cash Equivalent Balances" of any person on any date
shall be determined from such person's books maintained in accordance with
Generally Accepted Accounting Principles, and means, without duplication, the
sum of (1) the cash accrued by such person and its subsidiaries on a
consolidated basis on such date and available for use by such person and its
subsidiaries on such date and (2) all assets which would, on a consolidated
balance sheet of such person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
or cash equivalents.

                  "Common Stock" means the Common Stock, $.001 par value, of the
Corporation.

                  "Computation Date" means, if a Redemption Limitation Event
occurs, any of (1) the date which is 30 days after such Redemption Limitation
Event occurs, if any Redemption Limitation Event is continuing on such date, (2)
each date which is 30 days after a Computation Date, if any Redemption
Limitation Event is continuing on such date, and (3) the date on which all
Redemption Limitation Events cease to continue.

                  "Control Notice" means a notice given by the Corporation to
the holders of shares of the Series A Convertible Preferred Stock, in accordance
with Section 7(a)(5) or Section 11(b)(4), stating that an Inconvertibility Day
or an Optional Redemption Event, as the case may be, has occurred by reason of
events which are not solely within the control of the Corporation.

                  "Conversion Agent" means Signature Stock Transfer, Inc., or
its duly appointed successor, as conversion agent for the Series A Convertible
Preferred Stock pursuant to the Transfer Agent Agreement.

                  "Conversion Amount" initially shall be equal to $1,000.00,
subject to adjustment as herein provided.

                  "Conversion Date" means, with respect to each conversion of
shares of Series A Convertible Preferred Stock pursuant to Section 10, the date
on which the Conversion Notice relating to such conversion is actually received
by the Conversion Agent, whether by mail, courier, personal service, telephone
line facsimile transmission or other means.

                  "Conversion Notice" means a written notice, duly signed by or
on behalf of a holder of shares of Series A Convertible Preferred Stock, stating
the number of shares of Series A Convertible Preferred Stock to be converted in
the form specified in the Subscription Agreements.

                  "Conversion Price" means:

                  (1) for any Conversion Date during the period from the
         Issuance Date through the date immediately prior to the Initial Reset
         Date, the Fixed Conversion Price;


                                      -3-
<PAGE>   4

                  (2) for any Conversion Date during the Reset Period commencing
         on the Initial Reset Date, the lesser of:

                           (a) 130% of the Fixed Conversion Price; and

                           (b) 90% of the Average Market Price during the
                  Measurement Period for the Initial Reset Date; and

                  (3) for any Conversion Date during each Reset Period
         commencing on the Second Reset Date and on each successive Bimonthly
         Reset Date thereafter, the lesser of:

                           (a) 130% of the Conversion Price in effect for the
                  previous Reset Period; and

                           (b) 90% of the Average Market Price during the
                  Measurement Period for such Bimonthly Reset Date;

provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6); and
provided further, however, that if a Redemption Limitation Event occurs, then,
in addition to any other right or remedy of any holder of shares of Series A
Convertible Preferred Stock, thereafter the Conversion Price for the shares not
redeemed shall be reduced on each Computation Date by an amount equal to five
percent of the amount that the Conversion Price otherwise would have been
without any reduction pursuant to this proviso (pro rated in the case of any
Computation Date which is less than 30 days after a Redemption Limitation Event
occurs or less than 30 days after another Computation Date), such reduction not
to exceed a maximum aggregate reduction for all Computation Dates of 30% of the
amount that the Conversion Price otherwise would have been without any reduction
pursuant to this proviso, such reduction to remain in effect for 30 days after
the end of the Redemption Limitation Event.

                  "Conversion Rate" shall have the meaning provided in Section
10(a).

                  "Converted Market Price" means, for any share of Series A
Convertible Preferred Stock as of any date of determination, an amount equal to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, at the time of such determination, be issuable on conversion in
accordance with Section 10(a) of one share of Series A Convertible Preferred
Stock if a Conversion Notice were given by the holder of such share of Series A
Convertible Preferred Stock on the date of such determination (determined
without regard to any limitation on conversion based on beneficial ownership
contained in Section 10(a)) times (y) the Average Market Price of the Common
Stock during the Measurement Period for the date of such determination.

                  "Corporation Optional Redemption Notice" means a notice given
by the Corporation to the holders of shares of Series A Convertible Preferred
Stock pursuant to Section 9(a) which notice shall state (1) that the Corporation
is exercising its right to redeem all or a


                                      -4-
<PAGE>   5

portion of the outstanding shares of Series A Convertible Preferred Stock
pursuant to Section 9(a), (2) the number of shares of Series A Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Redemption
Price per share of Series A Convertible Preferred Stock to be redeemed or the
formula for determining the same, determined in accordance herewith, and (4) the
applicable Redemption Date.

                  "Current Price" means with respect to any date the arithmetic
average of the Market Price of the Common Stock on the ten consecutive Trading
Days commencing 15 Trading Days before such date.

                  "Debenture Closing Date" means the date the holders of the
Series C Convertible Preferred Stock purchase from the Corporation $750,000
aggregate principal amount of convertible debentures in accordance with the
Consent and Waiver Agreement, dated as of August 9, 2000, between the
Corporation and the holders of the Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock.

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

                  "Final Redemption Date" means the date of redemption of shares
of Series A Convertible Preferred Stock pursuant to Section 9(b), determined in
accordance therewith.

                  "Final Redemption Notice" means a notice given by the
Corporation to each holder of Series A Convertible Preferred Stock pursuant to
Section 9(b), which notice shall state (1) that the Corporation is exercising
its right to redeem all outstanding shares of Series A Convertible Preferred
Stock pursuant to Section 9(b), (2) the number of shares of Series A Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Final
Redemption Price per share of Series A Convertible Preferred Stock held by such
holder which are to be redeemed, determined in accordance herewith, and (4) the
Final Redemption Date.

                  "Final Redemption Price" means, for any share of Series A
Convertible Preferred Stock on any date, an amount equal to the sum of (i)
$1,000 plus (ii) an amount equal to the Accrual Amount on the share of Series A
Convertible Preferred Stock to be redeemed to the Final Redemption Date, plus
(iii) an amount equal to the accrued and unpaid interest on cash dividends in
arrears on such share of Series A Convertible Preferred Stock to the Final
Redemption Date (determined as provided in Section 5).

                  "Fixed Conversion Price" means $2.6812 (subject to equitable
adjustments from time to time on terms reasonably determined by the Board of
Directors for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events occurring or with respect to which "ex-"
trading commences on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Nevada).

                  "Generally Accepted Accounting Principles" for any person
means the generally accepted accounting principles and practices applied by such
person from time to time in the preparation of its audited financial statements.


                                      -5-
<PAGE>   6

                  "Inconvertibility Day" means any Trading Day on which the
Corporation would not have been required to convert in accordance with Section
10(a) any shares of Series A Convertible Preferred Stock as a consequence of the
limitations set forth in Section 7(a)(1) had all outstanding shares of Series A
Convertible Preferred Stock held by such holder on such Trading Day been
converted into Common Stock on such Trading Day (without regard to the
limitation, if any, on beneficial ownership by such holder contained in Section
10(a)).

                  "Inconvertibility Notice" shall have the meaning provided in
Section 7(a)(2).

                  "Indebtedness" as used in reference to any person means all
indebtedness of such person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such person and
all indebtedness secured by mortgage or other lien upon property owned by such
person, although such person has not assumed or become liable for the payment of
such indebtedness, and, for all purposes hereof, such indebtedness shall be
treated as though it has been assumed by such person, but excluding specifically
accounts payable and accrued expenses.

                  "Initial Reset Date" means the earlier of (i) the Debenture
Closing Date and (ii) August 17, 2000.

                  "Issuance Date" means September 17, 1999.

                  "Junior Dividend Stock" means, collectively, the Common Stock
and any other class or series of capital stock of the Corporation ranking junior
as to dividends to the Series A Convertible Preferred Stock.

                  "Junior Liquidation Stock" means the Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series A Convertible Preferred Stock.

                  "Junior Stock" shall have the meaning provided in Section
10(b)(8).

                  "Liquidation Preference" means, for each share of Series A
Convertible Preferred Stock, the sum of (i) an amount equal to the Accrual
Amount thereon to the date of final distribution to such holders and (ii)
$1,000.00.

                  "Majority Holders" means at any time the holders of shares of
Series A Convertible Preferred Stock which shares constitute a majority of the
outstanding shares of Series A Convertible Preferred Stock.

                  "Market Price" of the Common Stock on any date means the
closing bid price for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes


                                      -6-
<PAGE>   7

the principal market for the Common Stock on such date, or (c) the Nasdaq
SmallCap, if the Nasdaq SmallCap constitutes the principal securities market for
the Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:

                  (i) The Corporation shall declare or pay a dividend or make a
         distribution to all holders of the outstanding Common Stock in shares
         of Common Stock or fix any record date for any such action, then the
         Market Price for each day in such Measurement Period or such other
         period which day is prior to the earlier of (1) the date fixed for the
         determination of stockholders entitled to receive such dividend or
         other distribution and (2) the date on which ex-dividend trading in the
         Common Stock with respect to such dividend or distribution begins shall
         be reduced by multiplying the Market Price (determined without regard
         to this proviso) for each such day in such Measurement Period or such
         other period by a fraction, the numerator of which shall be the number
         of shares of Common Stock outstanding at the close of business on the
         earlier of (1) the record date fixed for such determination and (2) the
         date on which ex-dividend trading in the Common Stock with respect to
         such dividend or distribution begins and the denominator of which shall
         be the sum of such number of shares and the total number of shares
         constituting such dividend or other distribution;

                  (ii) The Corporation shall issue rights or warrants to all
         holders of its outstanding shares of Common Stock, or fix a record date
         for such issuance, which rights or warrants entitle such holders (for a
         period expiring within forty-five (45) days after the date fixed for
         the determination of stockholders entitled to receive such rights or
         warrants) to subscribe for or purchase shares of Common Stock at a
         price per share less than the Market Price (determined without regard
         to this proviso) for any day in such Measurement Period or such other
         period which day is prior to the end of such 45-day period, then the
         Market Price for each such day shall be reduced so that the same shall
         equal the price determined by multiplying the Market Price (determined
         without regard to this proviso) by a fraction, the numerator of which
         shall be the number of shares of Common Stock outstanding at the close
         of business on the record date fixed for the determination of
         stockholders entitled to receive such rights or warrants plus the
         number of shares which the aggregate offering price of the total number
         of shares so offered would purchase at such Market Price, and the
         denominator of which shall be the number of shares of Common Stock
         outstanding on the close of business on such record date plus the total
         number of additional shares of Common Stock so offered for subscription
         or purchase. In determining whether any rights or warrants entitle the
         holders to subscribe for or purchase shares of Common Stock at less
         than the Market Price (determined without regard to this proviso), and
         in determining the aggregate offering price of such shares of Common
         Stock, there shall be taken into account any consideration received for
         such rights or warrants, the value of such consideration, if other than
         cash, to be determined in good faith by a resolution of the Board of
         Directors of the Corporation;

                  (iii) The outstanding shares of Common Stock shall be
         subdivided into a greater number of shares of Common Stock or a record
         date for any such subdivision shall be fixed, then the Market Price of
         the Common Stock for each day in such


                                      -7-
<PAGE>   8

         Measurement Period or such other period which day is prior to the
         earlier of (1) the day upon which such subdivision becomes effective
         and (2) the date on which ex-dividend trading in the Common Stock with
         respect to such subdivision begins shall be proportionately reduced,
         and conversely, in case the outstanding shares of Common Stock shall be
         combined into a smaller number of shares of Common Stock, the Market
         Price for each day in such Measurement Period or such other period
         which day is prior to the earlier of (1) the date on which such
         combination becomes effective and (2) the date on which trading in the
         Common Stock on a basis which gives effect to such combination begins,
         shall be proportionately increased;

                  (iv) The Corporation shall, by dividend or otherwise,
         distribute to all holders of its Common Stock shares of any class of
         capital stock of the Corporation (other than any dividends or
         distributions to which clause (i) of this proviso applies) or evidences
         of its indebtedness, cash or other assets including securities (but
         excluding any rights or warrants referred to in clause (ii) of this
         proviso, dividends and distributions paid exclusively in cash and any
         capital stock, evidences of indebtedness, cash or assets distributed
         upon a merger or consolidation) (the foregoing hereinafter in this
         clause (iv) of this proviso called the "Securities"), or fix a record
         date for any such distribution, then, in each such case, the Market
         Price for each day in such Measurement Period or such other period
         which day is prior to the earlier of (1) the record date for such
         distribution and (2) the date on which ex-dividend trading in the
         Common Stock with respect to such distribution begins shall be reduced
         so that the same shall be equal to the price determined by multiplying
         the Market Price (determined without regard to this proviso) by a
         fraction, the numerator of which shall be the Market Price (determined
         without regard to this proviso) for such date less the fair market
         value (as determined in good faith by resolution of the Board of
         Directors of the Corporation) on such date of the portion of the
         Securities so distributed or to be distributed applicable to one share
         of Common Stock and the denominator of which shall be the Market Price
         (determined without regard to this proviso) for such date; provided,
         however, that in the event the then fair market value (as so
         determined) of the portion of the Securities so distributed applicable
         to one share of Common Stock is equal to or greater than the Market
         Price (determined without regard to this clause (iv) of this proviso)
         for any such Trading Day, in lieu of the foregoing adjustment, adequate
         provision shall be made so that the holders of shares of Series A
         Convertible Preferred Stock shall have the right to receive upon
         conversion of the shares of Series A Convertible Preferred Stock the
         amount of Securities the holders of shares of Series A Convertible
         Preferred Stock would have received had the number of shares of Common
         Stock to be issued in payment of such dividends on the shares of Series
         A Convertible Preferred Stock been issued, or had the holders of shares
         of Series A Convertible Preferred Stock converted the shares of Series
         A Convertible Preferred Stock, in either such case immediately prior to
         the record date for such distribution (provided, however, that if such
         Securities are not then available, the Corporation shall substitute
         cash or securities or other property of equivalent value on terms
         reasonably satisfactory to the holders of shares of Series A
         Convertible Preferred Stock). If the Board of Directors of the
         Corporation determines the fair market value of any distribution for
         purposes of this clause (iv) by reference to the actual or when issued
         trading market for any securities comprising all or part of such
         distribution, it must in


                                      -8-
<PAGE>   9

         doing so consider the prices in such market on the same day for which
         an adjustment in the Market Price is being determined.

                  For purposes of this clause (iv) and clauses (i) and (ii) of
         this proviso, any dividend or distribution to which this clause (iv) is
         applicable that also includes shares of Common Stock, or rights or
         warrants to subscribe for or purchase shares of Common Stock to which
         clause (i) or (ii) of this proviso applies (or both), shall be deemed
         instead to be (1) a dividend or distribution of the evidences of
         indebtedness, assets, shares of capital stock, rights or warrants other
         than such shares of Common Stock or rights or warrants to which clause
         (i) or (ii) of this proviso applies (and any Market Price reduction
         required by this clause (iv) with respect to such dividend or
         distribution shall then be made) immediately followed by (2) a dividend
         or distribution of such shares of Common Stock or such rights or
         warrants (and any further Market Price reduction required by clauses
         (i) and (ii) of this proviso with respect to such dividend or
         distribution shall then be made), except that any shares of Common
         Stock included in such dividend or distribution shall not be deemed
         "outstanding at the close of business on the date fixed for such
         determination" within the meaning of clause (i) of this proviso;

                  (v) The Corporation or any subsidiary of the Corporation shall
         (x) by dividend or otherwise, distribute to all holders of its Common
         Stock cash in (or fix any record date for any such distribution), or
         (y) repurchase or reacquire shares of its Common Stock (other than an
         Option Share Surrender) for, in either case, an aggregate amount that,
         combined with (1) the aggregate amount of any other such distributions
         to all holders of its Common Stock made exclusively in cash after the
         Issuance Date and within the 12 months preceding the date of payment of
         such distribution, and in respect of which no adjustment pursuant to
         this clause (v) has been made, (2) the aggregate amount of any cash
         plus the fair market value (as determined in good faith by a resolution
         of the Board of Directors of the Corporation) of consideration paid in
         respect of any repurchase or other reacquisition by the Corporation or
         any subsidiary of the Corporation of any shares of Common Stock (other
         than an Option Share Surrender) made after the Issuance Date and within
         the 12 months preceding the date of payment of such distribution or
         making of such repurchase or reacquisition, as the case may be, and in
         respect of which no adjustment pursuant to this clause (v) has been
         made, and (3) the aggregate of any cash plus the fair market value (as
         determined in good faith by a resolution of the Board of Directors of
         the Corporation) of consideration payable in respect of any Tender
         Offer by the Corporation or any of its subsidiaries for all or any
         portion of the Common Stock concluded within the 12 months preceding
         the date of payment of such distribution or completion of such
         repurchase or reacquisition, as the case may be, and in respect of
         which no adjustment pursuant to clause (vi) of this proviso has been
         made (such aggregate amount combined with the amounts in clauses (1),
         (2) and (3) above being the "Combined Amount"), exceeds 10% of the
         product of the Market Price (determined without regard to this proviso)
         for any day in such Measurement Period or such other period which day
         is prior to the earlier of (A) the record date with respect to such
         distribution and (B) the date on which ex-dividend trading in the
         Common Stock with respect to such distribution begins or the date of
         such repurchase or reacquisition, as the case may be, times the number
         of shares of Common Stock outstanding on such date,


                                      -9-
<PAGE>   10

         then, and in each such case, the Market Price for each such day shall
         be reduced so that the same shall equal the price determined by
         multiplying the Market Price (determined without regard to this
         proviso) for such day by a fraction (i) the numerator of which shall be
         equal to the Market Price (determined without regard to this proviso)
         for such day less an amount equal to the quotient of (x) the excess of
         such Combined Amount over such 10% and (y) the number of shares of
         Common Stock outstanding on such day and (ii) the denominator of which
         shall be equal to the Market Price (determined without regard to this
         proviso) for such day; provided, however, that in the event the portion
         of the cash so distributed or paid for the repurchase or reacquisition
         of shares (determined per share based on the number of shares of Common
         Stock outstanding) applicable to one share of Common Stock is equal to
         or greater than the Market Price (determined without regard to this
         clause (v) of this proviso) of the Common Stock for any such day, then
         in lieu of the foregoing adjustment with respect to such day, adequate
         provision shall be made so that the holders of shares of Series A
         Convertible Preferred Stock shall have the right to receive upon
         conversion of shares of Series A Convertible Preferred Stock the amount
         of cash the holders of shares of Series A Convertible Preferred Stock
         would have received had the holders of shares of Series A Convertible
         Preferred Stock converted shares of Series A Convertible Preferred
         Stock immediately prior to the record date for such distribution or the
         payment date of such repurchase, as applicable; or

         (vi) A Tender Offer made by the Corporation or any of its subsidiaries
         for all or any portion of the Common Stock shall expire and such Tender
         Offer (as amended upon the expiration thereof) shall require the
         payment to stockholders (based on the acceptance (up to any maximum
         specified in the terms of the Tender Offer) of Purchased Shares (as
         defined below)) of an aggregate consideration having a fair market
         value (as determined in good faith by resolution of the Board of
         Directors of the Corporation) that combined together with (1) the
         aggregate of the cash plus the fair market value (as determined in good
         faith by a resolution of the Board of Directors of the Corporation), as
         of the expiration of such Tender Offer, of consideration paid or
         payable in respect of any other Tender Offers by the Corporation or any
         of its subsidiaries for all or any portion of the Common Stock expiring
         within the 12 months preceding the expiration of such Tender Offer and
         in respect of which no adjustment pursuant to this clause (vi) has been
         made, (2) the aggregate amount of any cash plus the fair market value
         (as determined in good faith by a resolution of the Board of Directors
         of the Corporation) of consideration paid in respect of any repurchase
         or other reacquisition by the Corporation or any subsidiary of the
         Corporation of any shares of Common Stock (other than an Option Share
         Surrender) made after the Issuance Date and within the 12 months
         preceding the expiration of such Tender Offer and in respect of which
         no adjustment pursuant to clause (v) of this proviso has been made, and
         (3) the aggregate amount of any distributions to all holders of Common
         Stock made exclusively in cash within 12 months preceding the
         expiration of such Tender Offer and in respect of which no adjustment
         pursuant to clause (v) of this proviso has been made, exceeds 10% of
         the product of the Market Price (determined without regard to this
         proviso) for any day in such period times the number of shares of
         Common Stock outstanding on such day, then, and in each such case, the
         Market Price for such day shall be reduced so that the same shall equal
         the price determined by multiplying the Market Price (determined
         without regard to this proviso) for any day in such period times the
         number of shares of Common Stock outstanding on such day, then, and in
         each such case, the Market Price for such day shall be reduced so that
         the same shall equal the price determined by multiplying the Market
         Price (determined without regard to this proviso)


                                      -10-
<PAGE>   11
         for such day by a fraction, the numerator of which shall be the number
         of shares of Common Stock outstanding on such day multiplied by the
         Market Price (determined without regard to this proviso) for such day
         and the denominator of which shall be the sum of (x) the fair market
         value (determined as aforesaid) of the aggregate consideration paid or
         payable to stockholders based on the acceptance (up to any maximum
         specified in the terms of the Tender Offer) of all shares validly
         tendered and not withdrawn as of the last time tenders could have been
         made pursuant to such Tender Offer (the "Expiration Time") (the shares
         deemed so accepted, up to any such maximum, being referred to as the
         "Purchased Shares") and (y) the product of the number of shares of
         Common Stock outstanding (less any Purchased Shares) on such day times
         the Market Price (determined without regard to this proviso) of the
         Common Stock on the Trading Day next succeeding the Expiration Time.

                  "Maximum Share Amount" means 3,429,400 shares of Common Stock,
or such greater number of shares as permitted by the rules of the Nasdaq
SmallCap or other securities market on which the Common Stock is then listed
(such amount to be subject to equitable adjustment from time to time on terms
reasonably determined by the Board of Directors for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring or with respect to which "ex-" trading commences
after the date of filing this Certificate of Designations with the Secretary of
State of the State of Nevada).

                  "Measurement Period" means, with respect to any date, the
period of ten consecutive Trading Days ending on the Trading Day prior to such
date.

                  "Nasdaq" means the Nasdaq National Market.

                  "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

                  "Net Cash and Cash Equivalent Balances" of any person on any
date means an amount not less than zero equal to the consolidated Cash and Cash
Equivalent Balances of such person and its subsidiaries on such date less the
amount of any outstanding Indebtedness of such person or any of its subsidiaries
which, directly or indirectly, is secured in whole or in part by, or restricts
the use of, the consolidated Cash and Cash Equivalent Balances of such person
and its subsidiaries.

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

                  "NYSE" means the New York Stock Exchange, Inc.

                  "Option Share Surrender" means the surrender of shares of
Common Stock to the Corporation in payment of the exercise price or tax
obligations incurred in connection with the exercise of a stock option granted
by the Corporation to any of its employees, directors or consultants.

                  "Optional Redemption Event" means any one of the following
events:


                                      -11-
<PAGE>   12

                  (1) For any period of five consecutive Trading Days there
         shall be no closing bid price of the Common Stock on the Nasdaq, the
         Nasdaq SmallCap, the NYSE or the AMEX;

                  (2) The Common Stock ceases to be listed for trading on any of
         the Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX and is not
         simultaneously listed on one of the other such markets or exchanges;

                  (3) The inability for 30 or more days (whether or not
         consecutive) of any holder of shares of Series A Convertible Preferred
         Stock to sell such shares of Common Stock issued or issuable on
         conversion of shares of Series A Convertible Preferred Stock pursuant
         to the Registration Statement for any reason other than a Blackout
         Period on each of such 30 days;

                  (4) The Corporation shall (A) default in the timely
         performance of the obligation to issue shares of Common Stock upon
         conversion of shares of Series A Convertible Preferred Stock as and
         when required by Section 10 or (B) fail or default in the timely
         performance of any material obligation (other than as specifically set
         forth elsewhere in this definition) to a holder of shares of Series A
         Convertible Preferred Stock under the terms of this Certificate of
         Designations or under the Subscription Agreements, the Registration
         Rights Agreements, the Warrants or any other agreement or document
         entered into in connection with the issuance of shares of Series A
         Convertible Preferred Stock, as such instruments may be amended from
         time to time; provided, however, that (i) with respect to the first two
         occurrences of an event described in clause (A) above, each of such
         events shall be an Optional Redemption Event only if such default shall
         have continued for a period of three Trading Days after notice thereof
         is given to the Corporation by any holder of shares of Series A
         Convertible Preferred Stock and (ii) an event described in clause (B)
         above shall be an Optional Redemption Event only if such failure or
         default shall have continued for a period of 30 days after notice
         thereof is given to the Corporation by any holder of shares of Series A
         Convertible Preferred Stock.

                  (5) (A) Any consolidation or merger of the Corporation with or
         into another entity (other than a merger or consolidation of a
         subsidiary of the Corporation with or into the Corporation or a
         wholly-owned subsidiary of the Corporation) where the shareholders of
         the Corporation immediately prior to such transaction do not
         collectively own at least 51% of the outstanding voting securities of
         the surviving corporation of such consolidation or merger immediately
         following such transaction and (i) such transaction materially and
         adversely affects the rights of any holder of shares of Series A
         Convertible Preferred Stock or (ii) the common stock of the surviving
         corporation is not listed for trading on the NYSE, the AMEX, the Nasdaq
         or the Nasdaq SmallCap; or (B) any sale or other transfer of all or
         substantially all of the assets of the Corporation unless (i) the
         shareholders of the Corporation immediately prior to such transaction
         own at least 51% of the outstanding voting securities of the transferee
         of such assets, (ii) the common stock of such transferee is listed for
         trading on the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap and
         (iii) such transferee assumes all of the obligations of the Corporation
         to the holders of the Series A Convertible Preferred Stock under this


                                      -12-
<PAGE>   13

         Certificate of Designations, the Subscription Agreements and the other
         instruments contemplated hereby and thereby; or

                  (6) The adoption of any amendment to the Corporation's
         Articles of Incorporation, without the consent of the Majority Holders,
         which materially and adversely affects the rights of any holder of
         shares of Series A Convertible Preferred Stock.

                  "Optional Redemption Notice" means a notice from a holder of
shares of Series A Convertible Preferred Stock to the Corporation which states
(1) that the holder delivering such notice is thereby requiring the Corporation
to redeem shares of Series A Convertible Preferred Stock pursuant to Section 11,
(2) to such holder's knowledge, a summary of the circumstances constituting the
Optional Redemption Event giving rise to such redemption, and (3) the number of
shares of Series A Convertible Preferred Stock held by such holder which are to
be redeemed.

                  "Optional Redemption Price" means the greater of (i) the
Premium Price on the applicable redemption date and (ii) the Converted Market
Price on the applicable redemption date.

                  "Parity Dividend Stock" means any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Convertible Preferred Stock, including, without limitation, the Series
B Convertible Preferred Stock.

                  "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Convertible Preferred Stock, including, without limitation, the Series
B Convertible Preferred Stock.

                  "Premium Percentage" means 120%.

                  "Premium Price" means, for any share of Series A Convertible
Preferred Stock as of any date of determination, the sum of (a) the product
obtained by multiplying (x) the sum of (1) the Conversion Amount plus (2) an
amount equal to the Accrual Amount on such share of Series A Convertible
Preferred Stock to the date of determination, times (y) the Premium Percentage
plus (b) an amount equal to the accrued and unpaid interest on cash dividends in
arrears (as provided in Section 5) to the date of determination.

                  "Redemption Date" means the date of a redemption of shares of
Series A Convertible Preferred Stock pursuant to Section 9(a), determined in
accordance therewith.

                  "Redemption Limitation Event" means the failure of the
Corporation to pay the applicable redemption price when due for some or all of
the shares of Series A Convertible Preferred Stock required to be redeemed
pursuant to Section 7 or Section 11 by reason of a restriction contained in the
Company's loan agreements or facilities with Wells Fargo Credit, Inc., or with
any other institutional lender, whether such agreements or facilities are now
existing or hereafter created; and such Redemption Limitation Event shall be
deemed to continue until


                                      -13-
<PAGE>   14

such redemption price is paid in full in accordance with the terms of this
Certificate of Designations.

                  "Redemption Price" means the greater of (i) the Premium Price
on the applicable Redemption Date and (ii) the Converted Market Price on the
applicable Redemption Date; provided, however, that if the Corporation, as
certified by an officer of the Corporation in the Corporation Optional
Redemption Notice, has Net Cash and Cash Equivalent Balances which, together
with the amount of all definitive, binding commitments available to the
Corporation (which may include available borrowing capacity under instruments
which also reflect outstanding Indebtedness) on or prior to the applicable
Redemption Date to fund payment of the Redemption Price (as defined in this
proviso) of the shares of Series A Convertible Preferred Stock to be redeemed,
are sufficient, after taking into account the Corporation's net cash
requirements during the period from the date the Corporation Optional Redemption
Notice is given to the Redemption Date, to pay such Redemption Price of the
shares of Series A Convertible Preferred Stock to be redeemed, the "Redemption
Price" means the Premium Price on the applicable Redemption Date.

                  "Registration Rights Agreements" means the several
Registration Rights Agreements entered into between the Corporation and the
original holders of the shares of Series A Convertible Preferred Stock, as
amended or modified from time to time in accordance with their respective terms.

                  "Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 2(a) of
the Registration Rights Agreements.

                  "Reorganization Event" means a capital reorganization,
reclassification, or similar transaction involving the capital stock of the
Corporation (other than with a wholly-owned subsidiary of the Corporation), a
consolidation, merger or business combination of the Corporation with another
corporation or entity, or the sale or conveyance of all or substantially all of
the assets of the Corporation.

                  "Reset Period" means (i) with respect to the Reset Period
commencing on the Initial Reset Date, the period commencing on the Initial Reset
Date and ending on September 16, 2000, and (ii) with respect to each subsequent
Reset Period, the applicable two month period commencing on the Second Reset
Date and on each Bimonthly Reset Date thereafter and ending on the day
immediately prior to the next Bimonthly Reset Date.

                  "SEC" means the United States Securities and Exchange
Commission.

                  "SEC Effective Date" means the date the Registration Statement
is first declared effective by the SEC.

                  "Second Reset Date" means September 17, 2000.

                  "Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series A
Convertible Preferred Stock.


                                      -14-
<PAGE>   15

                  "Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series A Convertible Preferred Stock.

                  "Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Series B Convertible Preferred Stock" means the Series B
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Series C Convertible Preferred Stock" means the Series C
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Share Limitation Redemption Date" means each date on which
the Corporation is required to redeem shares of Series A Convertible Preferred
Stock as provided in Section 7(a).

                  "Share Limitation Redemption Price" means the greater of (a)
the Premium Price on the applicable Share Limitation Redemption Date and (b) the
Converted Market Price on the applicable Share Limitation Redemption Date.

                  "Stockholder Approval" shall mean the approval by a majority
of the votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Corporation (duly convened at
which a quorum was present), or a written consent of holders of shares of Common
Stock entitled to such number of votes given without a meeting, of the issuance
by the Corporation of 20% or more of the Common Stock of the Corporation
outstanding on the Issuance Date for less than the greater of the book or market
value of such Common Stock on conversion of the Series A Convertible Preferred
Stock, as and to the extent required under Rule 4310(c)(25)(H) of the Nasdaq
SmallCap as in effect from time to time or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading.

                  "Subordination Period" means the period commencing on the date
this Second Amended and Restated Certificate of Designations is filed with and
accepted by the Secretary of State of the State of Nevada and ending on the date
the SEC first declares effective Registration Statement No. 333-41868 (or any
successor registration statement) filed by the Corporation with the SEC which,
among other things, registers for resale the shares of Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock.

                  "Subscription Agreements" means the several Subscription
Agreements by and between the Corporation and the original holders of shares of
Series A Convertible Preferred Stock pursuant to which the shares of Series A
Convertible Preferred Stock were issued.

                  "Tender Offer" means a tender offer or exchange offer.


                                      -15-
<PAGE>   16

                  "Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap, which at the
time constitutes the principal securities market for the Common Stock, is open
for general trading.

                  "Transfer Agent Agreement" means the Transfer Agent Agreement,
dated as of September 15, 1999, by and among the Corporation, the Conversion
Agent and the original holders of the Series A Convertible Preferred Stock for
the benefit of the holders from time to time of shares of Series A Convertible
Preferred Stock.

                  "Warrants" means the Common Stock Purchase Warrants issued by
the Corporation in connection with the issuance of the shares of Series A
Convertible Preferred Stock.

                  SECTION 2. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Convertible Preferred Stock", and the number of
shares constituting the Series A Convertible Preferred Stock shall be 4,000, and
shall not be subject to increase. The Corporation shall not issue any shares of
Series A Convertible Preferred Stock other than pursuant to the Subscription
Agreements, unless such issuance shall have been approved by the Majority
Holders. Any shares of Series A Convertible Preferred Stock which are redeemed
by the Corporation and retired and any shares of Series A Convertible Preferred
Stock which are converted in accordance with Section 10 shall be restored to the
status of authorized, unissued and undesignated shares of the Corporation's
class of Preferred Stock and shall not be subject to issuance, and may not
thereafter be outstanding, as shares of Series A Convertible Preferred Stock.

                  SECTION 3. [RESERVED.]

                  SECTION 4. RANK. Subject to Section 12(b), all Series A
Convertible Preferred Stock shall rank (i) senior to the Common Stock, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, (ii) on a parity with the Series B Convertible Preferred Stock as
to payment of dividends and distribution of assets upon liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, (iii)
subject to the proviso to this clause (iii), senior to the Series C Convertible
Preferred Stock and any additional series of the class of Preferred Stock which
series the Board of Directors may from time to time authorize, both as to
payment of dividends and distribution of assets upon liquidation, dissolution,
or winding up of the Corporation, whether voluntary or involuntary; provided,
however, that during the Subordination Period only and at no other time, the
Series C Convertible Preferred Stock shall rank senior to the Series A
Convertible Preferred Stock as to such payment of dividends and distribution of
assets, and (iv) senior to any additional class of preferred stock (or series of
preferred stock of such class) which the Board of Directors or the stockholders
may from time to time authorize in accordance herewith.

                  SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series A Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors out of funds legally
available for such purpose, dividends at the rate of $60.00 per


                                      -16-
<PAGE>   17

annum per share, and no more, which shall be fully cumulative, shall accrue
without interest (except as otherwise provided herein as to dividends in
arrears) from the date of original issuance of each share of Series A
Convertible Preferred Stock and shall be payable quarterly on March 1, June 1,
September 1 and December 1 of each year commencing December 1, 1999 (except that
if any such date is a Saturday, Sunday, or legal holiday, then such dividend
shall be payable on the next succeeding day that is not a Saturday, Sunday, or
legal holiday) to holders of record as they appear on the stock books of the
Corporation on such record dates, which record dates must be not more than 20
nor less than 10 days preceding the payment dates for such dividends, as shall
be fixed by the Board. Dividends on the Series A Convertible Preferred Stock
shall be paid in cash or, in lieu of paying such dividends and subject to the
limitations in Section 5(b) hereof, the amount of such dividends shall be
included in the Accrual Amount for each share, at the option of the Corporation
as hereinafter provided. The amount of the dividends payable per share of Series
A Convertible Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount by four. The amount of dividends
payable for the initial dividend period and any period shorter than a full
quarterly dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends required to be paid in cash pursuant to Section
5(b) which are not paid on a payment date, whether or not such dividends have
been declared, will bear interest at the rate of 14% per annum until paid (or
such lesser rate as shall be the maximum rate allowable by applicable law). No
dividends or other distributions, other than the dividends payable solely in
shares of any Junior Dividend Stock, shall be paid or set apart for payment on
any shares of Junior Dividend Stock, and no purchase, redemption, or other
acquisition shall be made by the Corporation of any shares of Junior Dividend
Stock (except for Option Share Surrenders), unless and until all accrued and
unpaid cash dividends on the Series A Convertible Preferred Stock and interest
on dividends in arrears at the rate specified herein shall have been paid or
declared and set apart for payment.

                  If at any time any dividend on any Senior Dividend Stock shall
be in arrears, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Series A Convertible Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend
Stock, including the full dividends for the then current dividend period, shall
have been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series A Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series A Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series A
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series A Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on


                                      -17-
<PAGE>   18

the shares of Series A Convertible Preferred Stock and the Parity Dividend Stock
bear to each other.

                  Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.

                  (b) If (x) prior to any dividend payment date the Corporation
notifies the holders of Series A Convertible Preferred Stock that the dividends
with respect to such date will be paid in cash or (y) on any dividend payment
date the Corporation is not in compliance in all material respects with its
obligations to the holders of the Series A Convertible Preferred Stock
(including, without limitation, its obligations under the Subscription
Agreements, the Registration Rights Agreements, the Warrants and this
Certificate of Designations) and such noncompliance continues for a period of
ten days after notice thereof is given to the Corporation by any holder of
Series A Convertible Preferred Stock, such dividends must be timely paid in
cash. If clauses (x) or (y) of the foregoing sentence do not apply on any
dividend payment date, the Corporation may, but shall not be required to, pay
the applicable dividends in cash. The amount of any dividends not paid in cash
shall be included in the Accrual Amount for each share of Series A Convertible
Preferred Stock.

                  (c) Neither the Corporation nor any subsidiary of the
Corporation shall redeem, repurchase or otherwise acquire in any one transaction
or series of related transactions any shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock if the number of shares so repurchased,
redeemed or otherwise acquired in such transaction or series of related
transactions (excluding any Option Share Surrender) is more than 10% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions unless the Corporation or such subsidiary offers
to purchase for cash from each holder of shares of Series A Convertible
Preferred Stock at the time of such redemption, repurchase or acquisition the
same percentage of such holder's shares of Series A Convertible Preferred Stock
as the percentage of the number of outstanding shares of Common Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, to be so
redeemed, repurchased or acquired at a purchase price per share of Series A
Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(c) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(c).

                  (d) Neither the Corporation nor any subsidiary of the
Corporation shall (1) make any Tender Offer for 10% or more of the outstanding
shares of Common Stock, unless the Corporation contemporaneously therewith makes
an offer, or (2) enter into an agreement regarding such a Tender Offer for
outstanding shares of Common Stock by any person other than the Corporation or
any subsidiary of the Corporation, unless such person agrees with the
Corporation to make an offer, in either such case to each holder of outstanding
shares of Series A Convertible Preferred Stock to purchase for cash at the time
of purchase in such Tender Offer the same percentage of shares of Series A
Convertible Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock actually purchased in such Tender Offer at a price per
share of Series A Convertible Preferred Stock equal to the greater of (i) the
Premium


                                      -18-
<PAGE>   19

Price in effect on the date of purchase pursuant to this Section 5(d) and (ii)
the Converted Market Price on the date of purchase pursuant to this Section
5(d).

                  SECTION 6. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series A Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series A Convertible Preferred Stock equal to the Liquidation Preference, and no
more, before any payment shall be made or any assets distributed to the holders
of Junior Liquidation Stock; provided, however, that such rights shall accrue to
the holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series A Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.

                  SECTION 7. MAXIMUM SHARE AMOUNT REDEMPTION.

                  (a) REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, the Nasdaq SmallCap, or other securities market on which the Common
Stock is then listed, so long as the Common Stock is listed on the Nasdaq, the
Nasdaq SmallCap, the NYSE or the AMEX the Corporation shall not be required to
issue upon conversion of shares of Series A Convertible Preferred Stock pursuant
to Section 10 more than the Maximum Share Amount. The Maximum Share Amount shall
be allocated among the shares of Series A Convertible Preferred Stock at the
time of initial issuance thereof pro rata based on the initial issuance of 4,000
shares of Series A Convertible Preferred Stock. Each certificate for shares of
Series A Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series A Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. Upon surrender of any
certificate for shares of Series A Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series A Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series A Convertible Preferred Stock evidenced by
such new certificate. If any certificate for shares of Series A Convertible
Preferred Stock is surrendered for split-up into two or more certificates


                                      -19-
<PAGE>   20

representing an aggregate number of shares of Series A Convertible Preferred
Stock equal to the number of shares of Series A Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any contemporaneous
conversion of shares of Series A Convertible Preferred Stock represented by the
certificate so surrendered), each certificate issued on such split-up shall bear
a notation of the portion of the Maximum Share Amount allocated thereto
determined by pro rata allocation from among the remaining portion of the
Maximum Share Amount allocated to the certificate so surrendered. If any shares
of Series A Convertible Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series A Convertible Preferred Stock
which remains unissued after such conversion shall be re-allocated pro rata to
the outstanding shares of Series A Convertible Preferred Stock held of record by
the holder of record at the close of business on the date of such conversion of
the shares of Series A Convertible Preferred Stock so converted, and if there
shall be no other shares of Series A Convertible Preferred Stock held of record
by such holder at the close of business on such date, then such portion of the
Maximum Share Amount shall be allocated pro rata among the shares of Series A
Convertible Preferred Stock outstanding on such date.

                  (2) The Corporation shall promptly, but in no event later than
five Business Days after the occurrence, give notice to each holder of shares of
Series A Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series A Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series A Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series A Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required to be given, the holder receiving or giving, as the case may be,
such Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series A Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series A
Convertible Preferred Stock) as shall not, on the Business Day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a)), within 15
Trading Days after such holder so directs the Corporation, at a price per share
equal to the Share Limitation Redemption Price. If a holder of shares of Series
A Convertible Preferred Stock directs the Corporation to redeem outstanding
shares of Series A Convertible Preferred Stock and, prior to


                                      -20-
<PAGE>   21

the date the Corporation is required to redeem such shares of Series A
Convertible Preferred Stock, the Corporation would have been able, within the
limitations set forth in Section 7(a)(1), to convert all of such holder's shares
of Series A Convertible Preferred Stock (determined without regard to the
limitation, if any, on beneficial ownership of shares of Common Stock by such
holder contained in the proviso to the second sentence of Section 10(a)) on any
ten Trading Days within any period of 15 consecutive Trading Days commencing
after the period of 20 consecutive Trading Days which gave rise to the
applicable Inconvertibility Notice from the Corporation or such holder of shares
of Series A Convertible Preferred Stock, as the case may be, had all of such
holder's shares of Series A Convertible Preferred Stock been surrendered for
conversion into Common Stock on each of such ten Trading Days within such 15
Trading Day period, then the Corporation shall not be required to redeem any
shares of Series A Convertible Preferred Stock by reason of such
Inconvertibility Notice.

                  (3) Notwithstanding the giving of any Inconvertibility Notice
by the Corporation to the holders of Series A Convertible Preferred Stock
pursuant to Section 7(a)(2) or the giving or the absence of any notice by the
holders of the Series A Convertible Preferred Stock in response thereto or any
redemption of shares of Series A Convertible Preferred Stock pursuant to Section
7(a)(2), thereafter the provisions of Section 7(a)(2) shall continue to be
applicable on any occasion unless the Stockholder Approval shall have been
obtained from the stockholders of the Corporation or waived by the Nasdaq, the
Nasdaq SmallCap, or other securities market on which the Common Stock is then
listed.

                  (4) On each Share Limitation Redemption Date (or such later
date as a holder of shares of Series A Convertible Preferred Stock shall
surrender to the Corporation the certificate(s) for the shares of Series A
Convertible Preferred Stock being redeemed pursuant to this Section 7(a)), the
Corporation shall make payment in immediately available funds of the applicable
Share Limitation Redemption Price to such holder of shares of Series A
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one Business
Day prior to such Share Limitation Redemption Date. Upon redemption of less than
all of the shares of Series A Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series A Convertible Preferred
Stock evidenced by such certificate which have not been redeemed. Only whole
shares of Series A Convertible Preferred Stock may be redeemed.

                  (5) (A) Notwithstanding any other provision of this
Certificate of Designations, if an Inconvertibility Day occurs by reason of
events which are not solely within the control of the Corporation, the
Corporation shall have the right to give a Control Notice to the holders of
Series A Convertible Preferred Stock at any time after such Inconvertibility Day
occurs and prior to the earlier of (1) the date on which all holders of shares
of Series A Convertible Preferred Stock who had the right (other than as limited
by this Section 7(a)(5)) to require redemption of any shares of Series A
Convertible Preferred Stock by reason of the occurrence of such Inconvertibility
Day no longer have such right and (2) the applicable Share Limitation Redemption
Date by reason of the earliest notice given by any holder of shares of Series A
Convertible Preferred Stock directing the Corporation to redeem such shares in


                                      -21-
<PAGE>   22

accordance with Section 7(a)(2) by reason of such Inconvertibility Day. For
purposes of this Section 7(a)(5), an Inconvertibility Day shall be deemed to
have occurred by reason of events which are not solely within the control of the
Corporation if a requirement of the Corporation to redeem, or a right of any
holder of shares of Series A Convertible Preferred Stock to require redemption
of, shares of Series A Convertible Preferred Stock by reason thereof would
result in the Corporation being required to classify the Series A Convertible
Preferred Stock as redeemable preferred stock on a balance sheet of the
Corporation prepared in accordance with Generally Accepted Accounting Principles
and Regulation S-X of the SEC. If the Corporation timely gives a Control Notice
to the holders of shares of Series A Convertible Preferred Stock, then in lieu
of payment of the Share Limitation Redemption Price pursuant to a redemption
notice given by any holder of shares of Series A Convertible Preferred Stock in
accordance with Section 7(a)(2) by reason of such Inconvertibility Day and
commencing on such Inconvertibility Day the Conversion Price for all outstanding
shares of Series A Convertible Preferred Stock will be 80% of the amount the
Conversion Price would otherwise be. Such adjustment of the Conversion Price
shall continue in effect until the earliest of (x) the date which is 90 days
after the Stockholder Approval shall have been obtained from the stockholders of
the Corporation or waived by the Nasdaq SmallCap or other securities market on
which the Common Stock is then listed, (y) the date any further adjustments are
made following a failure to obtain the Stockholder Approval as provided below,
and (z) the date when shares of Series A Convertible Preferred Stock are no
longer outstanding. On or after the date the Corporation gives such Control
Notice, upon notice from the Majority Holders, the Corporation promptly shall
call a special meeting of its stockholders, to be held not later than 90 days
after such notice is given, to seek the Stockholder Approval for the issuance of
all shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock in accordance with Section 10 and shall use its best efforts to
obtain the Stockholder Approval. The Corporation shall prepare and file with the
SEC within 20 days after such notice is given preliminary proxy materials which
set forth a proposal to seek such Stockholder Approval. The Corporation shall
provide the Majority Holders an opportunity to consult with the Corporation
regarding the content of such proxy materials insofar as it relates to the
Stockholder Approval by providing copies of such preliminary proxy materials and
any revised preliminary proxy materials to the Majority Holders a reasonable
period of time prior to their filing with the SEC. The Corporation shall furnish
to each holder of shares of Series A Convertible Preferred Stock a copy of its
definitive proxy materials for such special meeting and any amendments or
supplements thereto promptly after the same are mailed to stockholders or filed
with the SEC. Upon the earlier of (i) the failure to obtain the Stockholder
Approval at the special meeting or (ii) the failure to hold the special meeting
within such 90-day period, the Corporation shall so notify the holders of shares
of Series A Convertible Preferred Stock and such of the following as shall be
specified by notice to the Corporation from the Majority Holders shall occur:
(1) commencing on the Business Day following the Corporation's receipt of such
notice, the Conversion Price of the outstanding shares of Series A Convertible
Preferred Stock will be 60% of the amount the Conversion Price would otherwise
be without regard to other adjustments pursuant to this Section 7(a)(5) or
Section 11(b)(4) and (2) the Corporation shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock and (ii) upon filing such
applications, request the immediate removal of the Common Stock from listing on
the securities market on


                                      -22-
<PAGE>   23

which it is then listed which restricts the issuance of shares of Common Stock
upon conversion of shares of Series A Convertible Preferred Stock without the
Stockholder Approval.

                  (B) If and for so long as an adjustment of the Conversion
Price is simultaneously required by this Section 7(a)(5) and by Section
11(b)(4), the applicable Conversion Price shall be the lower of the two amounts
required by each such section.

                  (C) The rights of holders of shares of Series A Convertible
Preferred Stock to require redemption of their shares and exercise other rights
pursuant to Sections 7(a)(1) through 7(a)(4) by reason of an Inconvertibility
Day as to which the Corporation does not have a right to give a Control Notice,
or fails to exercise such right on a timely basis, shall not be limited by the
operation of this Section 7(a)(5).

                  (b) NO OTHER REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to redemption by the Corporation at the
option of the Holders except as provided in this Section 7 and in Section 11.

                  SECTION 8. NO SINKING FUND. The shares of Series A Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.

                  SECTION 9. OPTIONAL REDEMPTION.

                  (a) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation
shall be in compliance in all material respects with its obligations to the
holders of shares of Series A Convertible Preferred Stock (including, without
limitation, its obligations under the Subscription Agreements, the Registration
Rights Agreements, the Warrants and the provisions of this Certificate of
Designations), (2) on the date the Corporation Optional Redemption Notice is
given and at all times until the Redemption Date, the Registration Statement is
effective and available for use by each holder of shares of Series A Convertible
Preferred Stock for the resale of shares of Common Stock acquired by such holder
upon conversion of all shares of Series A Convertible Preferred Stock held by
such holder and (3) no Optional Redemption Event shall have occurred with
respect to which, on the date a Corporation Optional Redemption Notice is to be
given or on the Redemption Date, any holder of shares of Series A Convertible
Preferred Stock (A) shall be entitled to exercise optional redemption rights
under Section 11 by reason of such Optional Redemption Event or (B) shall have
exercised optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder, then the Corporation shall have the right, exercisable by
giving a Corporation Optional Redemption Notice not less than 30 days or more
than 50 days prior to the Redemption Date to all holders of record of the shares
of Series A Convertible Preferred Stock, at any time to redeem all or from time
to time to redeem any part of the outstanding shares of Series A Convertible
Preferred Stock in accordance with this Section 9(a). If the Corporation shall
redeem less than all outstanding shares of Series A Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series A Convertible Preferred Stock. Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series A Convertible Preferred Stock at their addresses
appearing on the records of the Corporation;


                                      -23-
<PAGE>   24

provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series A Convertible Preferred Stock of any other holder. On the
Redemption Date (or such later date as a holder of shares of Series A
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series A Convertible Preferred Stock to be redeemed pursuant to this
Section 9(a)), the Corporation shall make payment of the applicable Redemption
Price to each holder of shares of Series A Convertible Preferred Stock to be
redeemed in immediately available funds to such account as specified by such
holder in writing to the Corporation at least one Business Day prior to the
Redemption Date. A holder of shares of Series A Convertible Preferred Stock to
be redeemed pursuant to this Section 9(a) shall be entitled to convert such
shares of Series A Convertible Preferred Stock in accordance with Section 10 (x)
through the day prior to the Redemption Date and (y) if the Corporation shall
fail to pay the Redemption Price of any share of Series A Convertible Preferred
Stock when due, at any time after the due date thereof until such date as the
Corporation pays the Redemption Price of such share of Series A Convertible
Preferred Stock. No share of Series A Convertible Preferred Stock as to which
the holder exercises the right of conversion pursuant to Section 10 or the
optional redemption right pursuant to Section 11 may be redeemed by the
Corporation pursuant to this Section 9(a) on or after the date of exercise of
such conversion right or optional redemption right, as the case may be,
regardless of whether the Corporation Optional Redemption Notice shall have been
given prior to, or on or after, the date of exercise of such conversion right or
optional redemption right, as the case may be.

                  (b) FINAL REDEMPTION. The Corporation shall have the right to
redeem all, but not less than all, outstanding shares of Series A Convertible
Preferred Stock at any time on or after the third anniversary of the Issuance
Date so long as (1) the Corporation shall be in compliance in all material
respects with its obligations to the holders of the Series A Convertible
Preferred Stock (including, without limitation, its obligations under the
Subscription Agreements, the Registration Rights Agreements, the Warrants and
this Certificate of Designations) and (2) no Optional Redemption Event shall
have occurred with respect to which on the date a Final Redemption Notice is to
be given or on the Final Redemption Date, any holder of shares of Series A
Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder. In order to exercise its rights
under this Section 9(b), the Corporation shall give a Final Redemption Notice
not less than 30 days or more than 50 days prior to the Final Redemption Date to
all holders of record of the shares of Series A Convertible Preferred Stock. Any
Final Redemption Notice shall be given to the holders of record of the shares of
Series A Convertible Preferred Stock by telephone line facsimile transmission to
such number as shown on the records of the Corporation for such purpose;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series A Convertible Preferred Stock of any other holder. On the Final
Redemption Date (or such later date as a holder of shares of Series A
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series A Convertible Preferred Stock to be redeemed pursuant to this
Section 9(b)), the Corporation shall make payment of the applicable Final
Redemption Price to each holder of shares of Series A Convertible Preferred


                                      -24-
<PAGE>   25

Stock to be redeemed in immediately available funds to such account as specified
by such holder in writing to the Corporation at least one Business Day prior to
the Final Redemption Date. A holder of shares of Series A Convertible Preferred
Stock to be redeemed pursuant to this Section 9(b) shall be entitled to convert
such shares of Series A Convertible Preferred Stock in accordance with Section
10 (x) through the day prior to the Final Redemption Date and (y) if the
Corporation shall fail to pay the Final Redemption Price of any share of Series
A Convertible Preferred Stock when due, at any time after the due date thereof
until such date as the Corporation pays the Final Redemption Price of such share
of Series A Convertible Preferred Stock to such holder. No share of Series A
Convertible Preferred Stock as to which a holder exercises the right of
conversion pursuant to Section 10 or the optional redemption right pursuant to
Section 11 may be redeemed by the Corporation pursuant to this Section 9(b) on
or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Final Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be.

                  (c) NO OTHER OPTIONAL REDEMPTION. The shares of Series A
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation except as provided in Sections 9(a) and 9(b).

                  SECTION 10. CONVERSION.

                  (a) CONVERSION AT OPTION OF HOLDER. The holders of the Series
A Convertible Preferred Stock may at any time on or after the Issuance Date
convert at any time all or from time to time any part of their shares of Series
A Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as herein provided. Each share of
Series A Convertible Preferred Stock may be converted at the office of the
Conversion Agent or at such other additional office or offices, if any, as the
Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount, (ii) an amount equal to the Accrual Amount on the share of
Series A Convertible Preferred Stock being converted to the applicable
Conversion Date, and (iii) accrued but unpaid interest on the dividends required
to be paid in cash on the share of Series A Convertible Preferred Stock being
converted in arrears to the applicable Conversion Date at the rate provided in
Section 5 by (y) the Conversion Price for such Conversion Date (the "Conversion
Rate"); provided, however, that in no event shall any holder of shares of Series
A Convertible Preferred Stock be entitled to convert any shares of Series A
Convertible Preferred Stock in excess of that number of shares of Series A
Convertible Preferred Stock upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by such holder and all Aggregated
Persons of such holder (other than shares of Common Stock deemed beneficially
owned through the ownership of (x) unconverted shares of Series A Convertible
Preferred Stock and (y) the unconverted or unexercised portion of any
instrument, including without limitation the Warrants, which contains
limitations similar to those set forth in this sentence) and (2) the number of
shares of Common Stock issuable upon the conversion of the number of shares of
Series A Convertible Preferred Stock with respect to which the determination in
this proviso is being made, would result in beneficial ownership by such holder
and all Aggregated Persons of such holder of more than 4.9% of the outstanding


                                      -25-
<PAGE>   26

shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13D-G thereunder, except as otherwise
provided in clause (1) of the proviso to the immediately preceding sentence.

                  (b) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 10(b) to the contrary, no change in the Conversion Amount pursuant to
this Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made. Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series A Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series A Convertible Preferred Stock are at the time convertible.

                  (2) The holders of shares of Series A Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series A Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series A
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
A Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series A Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series A
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series A Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series A Convertible Preferred Stock.

                  (3) (A) The right of the holders of Series A Convertible
Preferred Stock to convert their shares shall be exercised by giving (which may
be done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent, with a copy to the Corporation. If a holder of Series A
Convertible Preferred Stock elects to convert any shares of Series A Convertible
Preferred Stock in accordance with Section 10(a), such holder shall not be
required to surrender the certificate(s) representing such shares of Series A
Convertible Preferred Stock to the Corporation unless all of the shares of
Series A Convertible Preferred Stock represented thereby are so converted. Each
holder of shares of Series A Convertible Preferred Stock and the Corporation
shall maintain records showing the number of shares so converted and the dates
of such conversions or shall use such other method, satisfactory to such holder
and the Corporation,


                                      -26-
<PAGE>   27

so as to not require physical surrender of such certificates upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Corporation shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any shares of Series A Convertible
Preferred Stock evidenced by a particular certificate therefor are converted as
aforesaid, the holder of Series A Convertible Preferred Stock may not transfer
the certificate(s) representing such shares of Series A Convertible Preferred
Stock unless such holder first physically surrenders such certificate(s) to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of such holder of shares of Series A Convertible Preferred Stock new
certificate(s) of like tenor, registered as such holder of shares of Series A
Convertible Preferred Stock (upon payment by such holder of shares of Series A
Convertible Preferred Stock of any applicable transfer taxes) may request,
representing in the aggregate the remaining number of shares of Series A
Convertible Preferred Stock represented by such certificate(s). Each holder of
shares of Series A Convertible Preferred Stock, by acceptance of a certificate
for such shares, acknowledges and agrees that (1) by reason of the provisions of
this paragraph, following conversion of any shares of Series A Convertible
Preferred Stock represented by such certificate, the number of shares of Series
A Convertible Preferred Stock represented by such certificate may be less than
the number of shares stated on such certificate, and (2) the Corporation may
place a legend on the certificates for shares of Series A Convertible Preferred
Stock which refers to or describes the provisions of this paragraph.

                  (B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series A Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series A Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series A
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within one Trading Day after such holder gives such Conversion
Notice and no such claim of error shall limit or delay performance of the
Corporation's obligation to issue upon such conversion the number of shares of
Common Stock which are not in dispute. A Conversion Notice shall be deemed for
all purposes to be in proper form unless the Corporation notifies a holder of
shares of Series A Convertible Preferred Stock being converted within one
Trading Day after a Conversion Notice has been given (which notice shall specify
all defects in the Conversion Notice) and any Conversion Notice containing any
such defect shall nonetheless be effective on the date given if the converting
holder promptly corrects all such defects.

                  (4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all


                                      -27-
<PAGE>   28

times reserved by the Corporation (or any successor corporation), free from
preemptive rights, for such conversion, subject to the provisions of the next
succeeding paragraph. 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 A Convertible Preferred Stock
shall be convertible as herein provided, 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 A Convertible Preferred Stock on the
new basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.

                  (5) In case any Reorganization Event shall be effected in such
a way that holders of Common Stock shall be entitled to receive stock,
securities or assets (including cash) with respect to or in exchange for shares
of the Common Stock, then, prior to and as a condition of such Reorganization
Event, lawful and adequate provision shall be made whereby the holders of Series
A Convertible Preferred Stock shall thereafter have the right to receive upon
conversion of the Series A Convertible Preferred Stock and in lieu of the shares
of Common Stock immediately theretofore issuable upon conversion of the Series A
Convertible Preferred Stock, such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in exchange for
a number of outstanding shares of Common Stock equal to the number of shares of
Common Stock immediately theretofore issuable upon conversion of the Series A
Convertible Preferred Stock had such Reorganization Event not taken place. In
any such case, appropriate provision shall be made with respect to the rights
and interests of the holders of Series A Convertible Preferred Stock to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and the number of shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock) shall
thereafter be applicable, as nearly as may be, in relation to any stock,
securities or assets thereafter deliverable upon the conversion of the Series A
Convertible Preferred Stock. The Corporation shall not effect any such
Reorganization Event (i) unless prior to or simultaneously with the consummation
thereof the survivor or successor corporation (if other than the Corporation)
resulting from such Reorganization Event or the corporation or other entity
purchasing such assets shall assume by written instrument executed and sent to
each holder of Series A Convertible Preferred Stock, the obligation to deliver
to such holder of Series A Convertible Preferred Stock such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder of Series A Convertible Preferred Stock may be entitled to receive, and
containing the express assumption by such successor corporation or other entity
of the due and punctual performance and observance of every provision herein to
be performed and observed by the Corporation and of all liabilities and
obligations of the Corporation hereunder, and (ii) in which the Corporation, as
opposed to another party to the Reorganization Event, shall be required under
any circumstances to make a cash payment at any time to the holders of the
Series A Convertible Preferred Stock; provided, however, that this clause (5)
shall not limit the Corporation's obligation to make cash payments pursuant to
Section 7 or Section 11 if the Corporation fails to give a Control Notice in
accordance with the terms thereof.


                                      -28-
<PAGE>   29

                  (6) If a holder shall have given a Conversion Notice for
shares of Series A Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three Trading Days after such Conversion Notice is given and
the person converting shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series A Convertible Preferred Stock pursuant to the first
sentence of this paragraph within three Trading Days after such Conversion
Notice is given, in addition to any other liabilities the Corporation may have
hereunder and under applicable law (1) the Corporation shall pay or reimburse
such holder on demand for all out-of-pocket expenses including, without
limitation, reasonable fees and expenses of legal counsel incurred by such
holder as a result of such failure, (2) for each Trading Day thereafter on which
the Corporation so fails to deliver such certificates, the Conversion Price
applicable to such conversion shall be reduced by an amount equal to one percent
of the amount that the Conversion Price would otherwise be, and (3) such holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) given at any time prior to delivery to such holder of the certificates
for the shares of Common Stock issuable upon such conversion of shares of Series
A Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series A Convertible Preferred
Stock thereafter in accordance herewith.

                  (7) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of one share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date times (ii)
such fraction of a share.

                  (8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:


                                      -29-
<PAGE>   30

                  (i) In case the Corporation shall issue rights or warrants on
a pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the following formula:

         C(1) = C x  O + N
                     -----
                    O + N x P
                        -----
                          M

where

         C(1)  = the adjusted Conversion Amount

         C     = the current Conversion Amount

         O     = the number of shares of Common Stock outstanding on the record
                 date.

         N     = the number of additional shares of Common Stock issuable
                 pursuant to the exercise of such rights or warrants.

         P     = the offering price per share of the additional shares (which
                 amount shall include amounts received by the Corporation in
                 respect of the issuance and the exercise of such rights or
                 warrants).

         M     = the Current Price per share of Common Stock on the record date.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.

                  (ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula


         C(1) = C x  M
                   -----
                   M - F

where

         C(1)  = the adjusted Conversion Amount


                                      -30-
<PAGE>   31

         C     = the current Conversion Amount

         M     = the Current Price per share of Common Stock on the record date
                 mentioned below.

         F     = the aggregate amount of such cash dividend and/or the fair
                 market value on the record date of the assets or securities to
                 be distributed divided by the number of shares of Common Stock
                 outstanding on the record date. The Board of Directors shall
                 determine such fair market value, which determination shall be
                 conclusive.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.

                  (iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.

                  (iv) If at any time as a result of an adjustment made pursuant
to Section 10(b)(5), the holder of any Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.

                  (9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.

                  (10) Whenever the Conversion Amount is adjusted as herein
provided, the Corporation shall send to each holder and each transfer agent, if
any, for the Series A Convertible Preferred Stock and the transfer agent for the
Common Stock, a statement signed by the Chairman of the Board, the President, or
any Vice President of the Corporation and by its Treasurer or its Secretary or
an Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series A Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.

                  (11) In case on or after the Issuance Date:

                  (A) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of retained earnings);
or


                                      -31-
<PAGE>   32

                  (B) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for or purchase
any share of any class or any other rights or warrants; or

                  (C) the Board of Directors shall authorize any
reclassification of the Common Stock (other than a subdivision or combination of
the outstanding Common Stock, or a change in par value, or from par value to no
par value, or from no par value to par value), or any consolidation or merger or
other business combination transaction to which the Corporation is a party and
for which approval of any stockholders of the Corporation is required, or the
sale or transfer of all or substantially all of the assets of the Corporation;
or

                  (D) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;

the Corporation shall give the holders of record of the Series A Convertible
Preferred Stock, as promptly as possible but in any event at least ten Trading
Days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on which
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up is expected
to become effective or occur, and the date as of which it is expected that
holders of Common Stock of record who shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, other business combination transaction, sale, transfer,
dissolution, liquidation or winding-up shall be determined. Such notice shall
not include any information which would be material non-public information for
purposes of the 1934 Act. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. In the case of any such action of which the
Corporation gives such notice to the holders of record of the Series A
Convertible Preferred Stock or is required to give such notice to such holders,
such holders shall be entitled to give a Conversion Notice which is contingent
on the completion of such action.

                  SECTION 11. REDEMPTION AT OPTION OF HOLDERS.

                  (a) REDEMPTION RIGHT. Subject to Section 11(b)(4), if an
Optional Redemption Event occurs, then, in addition to any other right or remedy
of any holder of shares of Series A Convertible Preferred Stock, each holder of
shares of Series A Convertible Preferred Stock shall have the right, at such
holder's option, to require the Corporation to redeem all of such holder's
shares of Series A Convertible Preferred Stock, or any portion thereof, on the
date that is 15 Business Days after the date such holder gives the Corporation
an Optional Redemption Notice with respect to such Optional Redemption Event at
any time while any of such holder's shares of Series A Convertible Preferred
Stock are outstanding, at a price equal to the Optional Redemption Price.

                  (b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS,
ETC. (1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the


                                      -32-
<PAGE>   33

Corporation shall give to each holder of outstanding shares of Series A
Convertible Preferred Stock a notice of the occurrence of such Optional
Redemption Event and of the redemption right set forth herein arising as a
result thereof. Such notice from the Corporation shall set forth:

                  (i) the date by which the optional redemption right must be
         exercised, and

                  (ii) a description of the procedure (set forth below) which
         each such holder must follow to exercise such holder's optional
         redemption right.

No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series A Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Convertible Preferred
Stock.

                  (2) To exercise its optional redemption right, each holder of
outstanding shares of Series A Convertible Preferred Stock shall deliver to the
Corporation on or before the 30th day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within 40 days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation. At the Corporation's option, an Optional Redemption Notice may be
revoked by such holder giving such Optional Redemption Notice by giving notice
of such revocation to the Corporation at any time prior to the time the
Corporation pays the Optional Redemption Price to such holder.

                  (3) If a holder of shares of Series A Convertible Preferred
Stock shall have given an Optional Redemption Notice, on the date which is 15
Business Days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series A Convertible Preferred Stock to be redeemed) the Corporation shall
make payment in immediately available funds of the applicable Optional
Redemption Price to such account as specified by such holder in writing to the
Corporation at least one Business Day prior to the applicable redemption date.

                  (4) Notwithstanding any other provision of this Certificate of
Designations, if an Optional Redemption Event occurs by reason of events which
are not solely within the control of the Corporation, the Corporation shall have
the right to give a Control Notice to the holders of shares of Series A
Convertible Preferred Stock at any time after such Optional Redemption Event
occurs and prior to the earlier of (1) the date on which all holders of shares
of Series A Convertible Preferred Stock who had the right (other than as limited
by this Section 11(b)(4)) to require redemption of any shares of Series A
Convertible Preferred Stock by reason of the occurrence of such Optional
Redemption Event no longer have such right and (2) the applicable Optional
Redemption Date by reason of the earliest Optional Redemption Notice given by
any holder of shares of Series A Convertible Preferred Stock by reason of such
Optional Redemption Event. If the Corporation timely gives such Control Notice
to the holders of shares of Series A Convertible Preferred Stock, then in lieu
of payment of the Optional Redemption Price by reason of any such Optional
Redemption Event and commencing on the first date on which such Optional
Redemption Event occurs the following adjustments shall take effect (subject to
the provisions of Section 7(a)(5)(B)):


                                      -33-
<PAGE>   34

                  (A) In the case of an Optional Redemption Event described in
         clauses (1), (2), (3), (4) or (6) of the definition of the term
         Optional Redemption Event, for so long as such Optional Redemption
         Event continues and for a period of ten Trading Days thereafter the
         Conversion Price will be 70% of the amount which the Conversion Price
         would otherwise be; and

                  (B) In the case of an Optional Redemption Event described in
         clause (5) of the definition of the term Optional Redemption Event, for
         so long as any shares of Preferred Stock are outstanding the Conversion
         Price will be 70% of the amount which the Conversion Price would
         otherwise be.

For purposes of this Section 11(b)(4), an Optional Redemption Event shall be
deemed to have occurred by reason of events which are not solely within the
control of the Corporation if a requirement of the Corporation to redeem, or a
right of any holder of shares of Series A Convertible Preferred Stock to require
redemption of, shares of Series A Convertible Preferred Stock by reason thereof
would result in the Corporation being required to classify the Series A
Convertible Preferred Stock as redeemable preferred stock on a balance sheet of
the Corporation prepared in accordance with Generally Accepted Accounting
Principles and Regulation S-X of the SEC, and, in the case of an Optional
Redemption Event described in clause (5) of the definition of the term Optional
Redemption Event, the Board does not have the right to approve or disapprove the
transactions resulting in such event. If as a result of any of the adjustments
to the Conversion Price required by this Section 11(b)(4) the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all of the outstanding shares of Series A Convertible
Preferred Stock, such insufficiency shall be deemed to be covered by the
applicable Control Notice and the Corporation shall have no obligation to redeem
any shares of Series A Convertible Preferred Stock by reason thereof. The
Corporation thereupon will use its best efforts to increase the authorized
number of shares of Common Stock in accordance with Section 10(b)(4).

                  (c) OTHER. (1) In connection with a redemption pursuant to
this Section 11 of less than all of the shares of Series A Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Business Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series A Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.

                  (2) An Optional Redemption Notice given by a holder of shares
of Series A Convertible Preferred Stock shall be deemed for all purposes to be
in proper form unless the Corporation notifies such holder in writing within
three Business Days after such Optional Redemption Notice has been given (which
notice shall specify all defects in such Optional Redemption Notice), and any
Optional Redemption Notice containing any such defect shall nonetheless be
effective on the date given if such holder promptly undertakes to correct all
such defects. No such claim of error shall limit or delay performance of the
Corporation's obligation to redeem all shares of Series A Convertible Preferred
Stock not in dispute whether or not such holder makes such undertaking.


                                      -34-
<PAGE>   35

                  SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.

                  (a) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series A Convertible Preferred Stock shall
not be entitled to vote on any matter.

                  (b) ARTICLES OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Articles of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series A Convertible Preferred
Stock, or (2) the creation and issuance of any Senior Dividend Stock or Senior
Liquidation Stock; provided, however, that any increase in the authorized
Preferred Stock of the Corporation or the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the holders of Series A Convertible Preferred Stock except as
otherwise required by law.

                  (c) REPURCHASES OF SERIES A CONVERTIBLE PREFERRED STOCK. The
Corporation shall not repurchase or otherwise acquire any shares of Series A
Convertible Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or
11) unless the Corporation offers to repurchase or otherwise acquire
simultaneously a pro rata portion of each holder's shares of Series A
Convertible Preferred Stock for cash at the same price per share.

                  (d) OTHER. So long as any shares of Series A Convertible
Preferred Stock are outstanding:

                  (1) PAYMENT OF OBLIGATIONS. The Corporation will pay and
discharge, and will cause each subsidiary of the Corporation to pay and
discharge, when due all their respective obligations and liabilities which are
material to the Corporation and its subsidiaries taken as a whole, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.

                  (2) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation
will keep, and will cause each subsidiary of the Corporation to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

                  (B) The Corporation will maintain, and will cause each
subsidiary of the Corporation to maintain, with financially sound and
responsible insurance companies, insurance against loss or damage by fire or
other casualty and such other insurance, including but not limited to, product
liability insurance, in such amounts and covering such risks as is reasonably
adequate for the conduct of their businesses and the value of their properties.


                                      -35-
<PAGE>   36

                  (3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and its operating subsidiaries at the time this Certificate of
Designations is filed with the Secretary of State of the State of Nevada, and
will preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.

                  (4) COMPLIANCE WITH LAWS. The Corporation will comply, and
will cause each subsidiary of the Corporation to comply, in all material
respects with all applicable laws, ordinances, rules, regulations, decisions,
orders and requirements of governmental authorities and courts (including,
without limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.

                  (5) INVESTMENT COMPANY ACT. The Corporation will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8 of
the Investment Company Act of 1940, as amended, or any successor provision.

                  SECTION 13. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all authorized and issued shares of Series A
Convertible Preferred Stock shall be deemed outstanding except (i) from the
applicable Conversion Date, each share of Series A Convertible Preferred Stock
converted into Common Stock, unless the Corporation shall default in its
obligation to issue and deliver shares of Common Stock upon such conversion as
and when required by Section 10; (ii) from the date of registration of transfer,
all shares of Series A Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate of the Corporation (other than an
Affiliate of the Corporation who is a natural person or any original holder of
shares of Series A Convertible Preferred Stock) and (iii) from the applicable
Redemption Date, Share Limitation Redemption Date, Final Redemption Date or date
of redemption pursuant to Section 11, all shares of Series A Convertible
Preferred Stock which are redeemed or repurchased, so long as in each case the
Redemption Price, the Share Limitation Redemption Price, the Final Redemption
Price, the Optional Redemption Price or other repurchase price, as the case may
be, of such shares of Series A Convertible Preferred Stock shall have been paid
by the Corporation as and when due hereunder.

                  SECTION 14. MISCELLANEOUS.

                  (a) NOTICES. Any notices required or permitted to be given
under the terms of this Certificate of Designations shall be in writing and
shall be delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given upon receipt, if delivered
personally or by courier (a) in the case of the Corporation, addressed to the
Corporation at 2222 West Peoria Avenue, Phoenix, Arizona 85029, Attention: Chief
Executive


                                      -36-
<PAGE>   37

Officer (telephone line facsimile transmission number (602) 331-0941), or (b) in
the case of any holder of shares of Series A Convertible Preferred Stock, at
such holder's address or telephone line facsimile transmission number shown on
the stock books maintained by the Corporation with respect to the Series A
Convertible Preferred Stock or such other address as the Corporation shall have
provided by notice to the holders of shares of Series A Convertible Preferred
Stock in accordance with this Section or any holder of shares of Series A
Convertible Preferred Stock shall have provided to the Corporation in accordance
with this Section.

                  (b) REPLACEMENT OF CERTIFICATES. Upon receipt by the
Corporation of evidence reasonably satisfactory to the Corporation of the
ownership of and the loss, theft, destruction or mutilation of any certificate
for shares of Series A Convertible Preferred Stock and (1) in the case of loss,
theft or destruction, of indemnity from the record holder of the certificate for
such shares of Series A Convertible Preferred Stock reasonably satisfactory in
form to the Corporation (and without the requirement to post any bond or other
security if such holder has and agrees to maintain reasonably sufficient assets
to support the indemnity) or (2) in the case of mutilation, upon surrender and
cancellation of the certificate for such shares of Series A Convertible
Preferred Stock, the Corporation will execute and deliver to such holder a new
certificate for such shares of Series A Convertible Preferred Stock without
charge to such holder.

                  (c) OVERDUE AMOUNTS. Except as otherwise specifically provided
in Section 5 with respect to dividends in arrears on the Series A Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series A Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such other rate as
shall be the maximum rate allowable by applicable law) until paid in full.


                                      -37-
<PAGE>   38

                  IN WITNESS WHEREOF, Titan Motorcycle Co. of America has caused
this Second Amended and Restated Certificate of Designations to be signed by   ,
its       , and       , its        , as of the ____ day of August, 2000.


                                       TITAN MOTORCYCLE CO. OF
                                            AMERICA



                                       By: _____________________________
                                           Title:  President



                                       By: _____________________________
                                           Title:  Secretary


                                      -38-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>ex3-2.txt
<DESCRIPTION>EX-3.2
<TEXT>

<PAGE>   1
                                                                Exhibit 3.2
                         TITAN MOTORCYCLE CO. OF AMERICA

                           SECOND AMENDED AND RESTATED
                    CERTIFICATE OF DESIGNATIONS OF SERIES B
                          CONVERTIBLE PREFERRED STOCK

             (Pursuant to Section 78.1955 of the General Corporation
                           Law of the State of Nevada)



                  Titan Motorcycle Co. of America, a Nevada corporation (the
"Corporation"), in accordance with the provisions of Section 78.1955 of the
General Corporation Law of the State of Nevada (the "NGCL"), DOES HEREBY
CERTIFY:

                  That pursuant to authority vested in the Board of Directors of
the Corporation by the Restated Articles of Incorporation of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent dated
March 1, 2000, adopted a resolution providing for the creation of a series of
the Corporation's Preferred Stock, $.001 par value, which series is designated
as "Series B Convertible Preferred Stock"; and

                  That upon the recommendation of the Board of Directors of the
Corporation, an amendment to such resolution setting forth the terms of the
Series B Convertible Preferred Stock was duly approved by the holders of the
Series B Convertible Preferred Stock pursuant to a written consent dated June 1,
2000, which resolution as so amended and restated was set forth in an Amended
and Restated Certificate of Designations which was filed with the Secretary of
State of the State of Nevada on July 19, 2000; and

                  That upon the recommendation of the Board of Directors of the
Corporation, a second amendment to such resolution setting forth the terms of
the Series B Convertible Preferred Stock was duly approved by the holders of the
Series B Convertible Preferred Stock pursuant to a written consent dated as of
August 9, 2000, which resolution as so amended and restated is as follows:

                  RESOLVED, that pursuant to authority vested in the Board of
Directors by the Restated Articles of Incorporation of the Corporation, the
Board of Directors does hereby amend and restate the terms of the following
series of Preferred Stock, $.001 par value (hereinafter called the "Preferred
Stock"), of the Corporation, and to the extent that the voting powers and the
designations, preferences and relative, participating, optional or other special
rights thereof and the qualifications, limitations or restrictions of such
rights have not been set forth in the Restated Articles of Incorporation of the
Corporation, does hereby fix the same as follows:
<PAGE>   2
                      SERIES B CONVERTIBLE PREFERRED STOCK

                  SECTION 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings:

                  "Accrual Amount" means with respect to any share of Series B
Convertible Preferred Stock on any date the amount of all accrued but unpaid
dividends on such share from the Issuance Date to the date of determination.

                  "Affiliate" means, with respect to any person, any other
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the subject person;
for purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise.

                  "Aggregated Person" means, with respect to any person, any
person whose beneficial ownership of shares of Common Stock would be aggregated
with the beneficial ownership of shares of Common Stock by such person for
purposes of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.

                  "AMEX" means the American Stock Exchange, Inc.

                  "Average Market Price" for any date means the arithmetic
average of the Market Price for each of the Trading Days during the applicable
Measurement Period.

                  "Blackout Period" means the period of up to 30 consecutive
days after the date the Corporation notifies holders of shares of Series B
Convertible Preferred Stock who are bound by any Registration Rights Agreement
that such holders are required, pursuant to Section 4(d) of the Registration
Rights Agreements, to suspend offers and sales of Registrable Securities
pursuant to the Registration Statement as a result of an event or circumstance
described in Section 3(f)(1) of the Registration Rights Agreements, during which
period, by reason of Section 3(f)(2) of the Registration Rights Agreements, the
Corporation is not required to amend the Registration Statement or to supplement
the related prospectus.

                  "Board of Directors" or "Board" means the Board of Directors
of the Corporation.

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

                  "Common Stock" means the Common Stock, $.001 par value, of the
Corporation.


                                      -2-
<PAGE>   3
                  "Computation Date" means, if a Redemption Limitation Event
occurs, any of (1) the date which is 30 days after such Redemption Limitation
Event occurs, if any Redemption Limitation Event is continuing on such date, (2)
each date which is 30 days after a Computation Date, if any Redemption
Limitation Event is continuing on such date, and (3) the date on which all
Redemption Limitation Events cease to continue.

                  "Control Notice" means a notice given by the Corporation to
the holders of shares of the Series B Convertible Preferred Stock, in accordance
with Section 7(a)(5) or Section 11(b)(4), stating that an Inconvertibility Day
or an Optional Redemption Event, as the case may be, has occurred by reason of
events which are not solely within the control of the Corporation.

                  "Conversion Agent" means Signature Stock Transfer, Inc., or
its duly appointed successor, as conversion agent for the Series B Convertible
Preferred Stock pursuant to the Transfer Agent Agreement.

                  "Conversion Amount" initially shall be equal to $1,000.00,
subject to adjustment as herein provided.

                  "Conversion Date" means, with respect to each conversion of
shares of Series B Convertible Preferred Stock pursuant to Section 10, the date
on which the Conversion Notice relating to such conversion is actually received
by the Conversion Agent, whether by mail, courier, personal service, telephone
line facsimile transmission or other means.

                  "Conversion Notice" means a written notice, duly signed by or
on behalf of a holder of shares of Series B Convertible Preferred Stock, stating
the number of shares of Series B Convertible Preferred Stock to be converted in
the form specified in the Subscription Agreements.

                  "Conversion Price" means:

                  (1) for any Conversion Date during the period from the
         Issuance Date through January 8, 2001, the Fixed Conversion Price; and

                  (2) for any Conversion Date during each Reset Period
         commencing on the Initial Reset Date and on each successive Quarterly
         Reset Date thereafter, the lesser of:

                           (a) the Fixed Conversion Price; and

                           (b) the Average Market Price during the Measurement
                  Period for the Initial Reset Date or such Quarterly Reset
                  Date, as the case may be;

provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6); and
provided further, however, that if a Redemption Limitation Event occurs, then,
in addition to any other right or remedy of any holder of shares of Series B
Convertible Preferred Stock, thereafter the Conversion Price for the shares

                                      -3-
<PAGE>   4
not redeemed shall be reduced on each Computation Date by an amount equal to
five percent of the amount that the Conversion Price otherwise would have been
without any reduction pursuant to this proviso (pro rated in the case of any
Computation Date which is less than 30 days after a Redemption Limitation Event
occurs or less than 30 days after another Computation Date), such reduction not
to exceed a maximum aggregate reduction for all Computation Dates of 30% of the
amount that the Conversion Price otherwise would have been without any reduction
pursuant to this proviso, such reduction to remain in effect for 30 days after
the end of the Redemption Limitation Event.

                  "Conversion Rate" shall have the meaning provided in Section
10(a).

                  "Converted Market Price" means, for any share of Series B
Convertible Preferred Stock as of any date of determination, an amount equal to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, at the time of such determination, be issuable on conversion in
accordance with Section 10(a) of one share of Series B Convertible Preferred
Stock if a Conversion Notice were given by the holder of such share of Series B
Convertible Preferred Stock on the date of such determination (determined
without regard to any limitation on conversion based on beneficial ownership
contained in Section 10(a)) times (y) the Average Market Price of the Common
Stock during the Measurement Period for the date of such determination.

                  "Corporation Optional Redemption Notice" means a notice given
by the Corporation to the holders of shares of Series B Convertible Preferred
Stock pursuant to Section 9(a) which notice shall state (1) that the Corporation
is exercising its right to redeem all or a portion of the outstanding shares of
Series B Convertible Preferred Stock pursuant to Section 9(a), (2) the number of
shares of Series B Convertible Preferred Stock held by such holder which are to
be redeemed, (3) the Redemption Price per share of Series B Convertible
Preferred Stock to be redeemed or the formula for determining the same,
determined in accordance herewith, and (4) the applicable Redemption Date.

                  "Current Price" means with respect to any date the arithmetic
average of the Market Price of the Common Stock on the ten consecutive Trading
Days commencing 15 Trading Days before such date.

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

                  "Final Redemption Date" means the date of redemption of shares
of Series B Convertible Preferred Stock pursuant to Section 9(b), determined in
accordance therewith.

                  "Final Redemption Notice" means a notice given by the
Corporation to each holder of Series B Convertible Preferred Stock pursuant to
Section 9(b), which notice shall state (1) that the Corporation is exercising
its right to redeem all outstanding shares of Series B Convertible Preferred
Stock pursuant to Section 9(b), (2) the number of shares of Series B Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Final


                                      -4-
<PAGE>   5
Redemption Price per share of Series B Convertible Preferred Stock held by such
holder which are to be redeemed, determined in accordance herewith, and (4) the
Final Redemption Date.

                  "Final Redemption Price" means, for any share of Series B
Convertible Preferred Stock on any date, an amount equal to the sum of (i)
$1,000 plus (ii) an amount equal to the Accrual Amount on the share of Series B
Convertible Preferred Stock to be redeemed to the Final Redemption Date, plus
(iii) an amount equal to the accrued and unpaid interest on cash dividends in
arrears on such share of Series B Convertible Preferred Stock to the Final
Redemption Date (determined as provided in Section 5).

                  "Fixed Conversion Price" means $1.75 (subject to equitable
adjustments from time to time on terms reasonably determined by the Board of
Directors for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events occurring or with respect to which "ex-"
trading commences on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Nevada).

                  "Generally Accepted Accounting Principles" for any person
means the generally accepted accounting principles and practices applied by such
person from time to time in the preparation of its audited financial statements.

                  "Inconvertibility Day" means any Trading Day on which the
Corporation would not have been required to convert in accordance with Section
10(a) any shares of Series B Convertible Preferred Stock as a consequence of the
limitations set forth in Section 7(a)(1) had all outstanding shares of Series B
Convertible Preferred Stock held by such holder on such Trading Day been
converted into Common Stock on such Trading Day (without regard to the
limitation, if any, on beneficial ownership by such holder contained in Section
10(a)).

                  "Inconvertibility Notice" shall have the meaning provided in
Section 7(a)(2).

                  "Initial Reset Date" means January 9, 2001.

                  "Issuance Date" means March 9, 2000.

                  "Junior Dividend Stock" means, collectively, the Common Stock
and any other class or series of capital stock of the Corporation ranking junior
as to dividends to the Series B Convertible Preferred Stock.

                  "Junior Liquidation Stock" means the Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series B Convertible Preferred Stock.

                  "Junior Stock" shall have the meaning provided in Section
10(b)(8).


                                      -5-
<PAGE>   6
                  "Liquidation Preference" means, for each share of Series B
Convertible Preferred Stock, the sum of (i) an amount equal to the Accrual
Amount thereon to the date of final distribution to such holders and (ii)
$1,000.00.

                  "Majority Holders" means at any time the holders of shares of
Series B Convertible Preferred Stock which shares constitute a majority of the
outstanding shares of Series B Convertible Preferred Stock.

                  "Market Price" of the Common Stock on any date means the
closing bid price for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:

                  (i) The Corporation shall declare or pay a dividend or make a
         distribution to all holders of the outstanding Common Stock in shares
         of Common Stock or fix any record date for any such action, then the
         Market Price for each day in such Measurement Period or such other
         period which day is prior to the earlier of (1) the date fixed for the
         determination of stockholders entitled to receive such dividend or
         other distribution and (2) the date on which ex-dividend trading in the
         Common Stock with respect to such dividend or distribution begins shall
         be reduced by multiplying the Market Price (determined without regard
         to this proviso) for each such day in such Measurement Period or such
         other period by a fraction, the numerator of which shall be the number
         of shares of Common Stock outstanding at the close of business on the
         earlier of (1) the record date fixed for such determination and (2) the
         date on which ex-dividend trading in the Common Stock with respect to
         such dividend or distribution begins and the denominator of which shall
         be the sum of such number of shares and the total number of shares
         constituting such dividend or other distribution;

                  (ii) The Corporation shall issue rights or warrants to all
         holders of its outstanding shares of Common Stock, or fix a record date
         for such issuance, which rights or warrants entitle such holders (for a
         period expiring within forty-five (45) days after the date fixed for
         the determination of stockholders entitled to receive such rights or
         warrants) to subscribe for or purchase shares of Common Stock at a
         price per share less than the Market Price (determined without regard
         to this proviso) for any day in such Measurement Period or such other
         period which day is prior to the end of such 45-day period, then the
         Market Price for each such day shall be reduced so that the same shall
         equal the price determined by multiplying the Market Price (determined
         without regard to this proviso) by a fraction, the numerator of which
         shall be the number of shares of Common Stock outstanding at the close
         of business on the record date fixed for the determination of
         stockholders entitled to receive such rights or warrants plus the
         number of shares which the aggregate offering price of the total number
         of shares so offered

                                      -6-
<PAGE>   7
         would purchase at such Market Price, and the denominator of which shall
         be the number of shares of Common Stock outstanding on the close of
         business on such record date plus the total number of additional shares
         of Common Stock so offered for subscription or purchase. In determining
         whether any rights or warrants entitle the holders to subscribe for or
         purchase shares of Common Stock at less than the Market Price
         (determined without regard to this proviso), and in determining the
         aggregate offering price of such shares of Common Stock, there shall be
         taken into account any consideration received for such rights or
         warrants, the value of such consideration, if other than cash, to be
         determined in good faith by a resolution of the Board of Directors of
         the Corporation;

                  (iii) The outstanding shares of Common Stock shall be
         subdivided into a greater number of shares of Common Stock or a record
         date for any such subdivision shall be fixed, then the Market Price of
         the Common Stock for each day in such Measurement Period or such other
         period which day is prior to the earlier of (1) the day upon which such
         subdivision becomes effective and (2) the date on which ex-dividend
         trading in the Common Stock with respect to such subdivision begins
         shall be proportionately reduced, and conversely, in case the
         outstanding shares of Common Stock shall be combined into a smaller
         number of shares of Common Stock, the Market Price for each day in such
         Measurement Period or such other period which day is prior to the
         earlier of (1) the date on which such combination becomes effective and
         (2) the date on which trading in the Common Stock on a basis which
         gives effect to such combination begins, shall be proportionately
         increased;

                  (iv) The Corporation shall, by dividend or otherwise,
         distribute to all holders of its Common Stock shares of any class of
         capital stock of the Corporation (other than any dividends or
         distributions to which clause (i) of this proviso applies) or evidences
         of its indebtedness, cash or other assets including securities (but
         excluding any rights or warrants referred to in clause (ii) of this
         proviso, dividends and distributions paid exclusively in cash and any
         capital stock, evidences of indebtedness, cash or assets distributed
         upon a merger or consolidation) (the foregoing hereinafter in this
         clause (iv) of this proviso called the "Securities"), or fix a record
         date for any such distribution, then, in each such case, the Market
         Price for each day in such Measurement Period or such other period
         which day is prior to the earlier of (1) the record date for such
         distribution and (2) the date on which ex-dividend trading in the
         Common Stock with respect to such distribution begins shall be reduced
         so that the same shall be equal to the price determined by multiplying
         the Market Price (determined without regard to this proviso) by a
         fraction, the numerator of which shall be the Market Price (determined
         without regard to this proviso) for such date less the fair market
         value (as determined in good faith by resolution of the Board of
         Directors of the Corporation) on such date of the portion of the
         Securities so distributed or to be distributed applicable to one share
         of Common Stock and the denominator of which shall be the Market Price
         (determined without regard to this proviso) for such date; provided,
         however, that in the event the then fair market value (as so
         determined) of the portion of the Securities so distributed applicable
         to one share of Common Stock is equal to or greater than the Market
         Price (determined without regard to this clause (iv) of this proviso)
         for any such Trading Day,

                                      -7-
<PAGE>   8
         in lieu of the foregoing adjustment, adequate provision shall be made
         so that the holders of shares of Series B Convertible Preferred Stock
         shall have the right to receive upon conversion of the shares of Series
         B Convertible Preferred Stock the amount of Securities the holders of
         shares of Series B Convertible Preferred Stock would have received had
         the number of shares of Common Stock to be issued in payment of such
         dividends on the shares of Series B Convertible Preferred Stock been
         issued, or had the holders of shares of Series B Convertible Preferred
         Stock converted the shares of Series B Convertible Preferred Stock, in
         either such case immediately prior to the record date for such
         distribution (provided, however, that if such Securities are not then
         available, the Corporation shall substitute cash or securities or other
         property of equivalent value on terms reasonably satisfactory to the
         holders of shares of Series B Convertible Preferred Stock). If the
         Board of Directors of the Corporation determines the fair market value
         of any distribution for purposes of this clause (iv) by reference to
         the actual or when issued trading market for any securities comprising
         all or part of such distribution, it must in doing so consider the
         prices in such market on the same day for which an adjustment in the
         Market Price is being determined.

                  For purposes of this clause (iv) and clauses (i) and (ii) of
         this proviso, any dividend or distribution to which this clause (iv) is
         applicable that also includes shares of Common Stock, or rights or
         warrants to subscribe for or purchase shares of Common Stock to which
         clause (i) or (ii) of this proviso applies (or both), shall be deemed
         instead to be (1) a dividend or distribution of the evidences of
         indebtedness, assets, shares of capital stock, rights or warrants other
         than such shares of Common Stock or rights or warrants to which clause
         (i) or (ii) of this proviso applies (and any Market Price reduction
         required by this clause (iv) with respect to such dividend or
         distribution shall then be made) immediately followed by (2) a dividend
         or distribution of such shares of Common Stock or such rights or
         warrants (and any further Market Price reduction required by clauses
         (i) and (ii) of this proviso with respect to such dividend or
         distribution shall then be made), except that any shares of Common
         Stock included in such dividend or distribution shall not be deemed
         "outstanding at the close of business on the date fixed for such
         determination" within the meaning of clause (i) of this proviso;

                  (v) The Corporation or any subsidiary of the Corporation shall
         (x) by dividend or otherwise, distribute to all holders of its Common
         Stock cash in (or fix any record date for any such distribution), or
         (y) repurchase or reacquire shares of its Common Stock (other than an
         Option Share Surrender) for, in either case, an aggregate amount that,
         combined with (1) the aggregate amount of any other such distributions
         to all holders of its Common Stock made exclusively in cash after the
         Issuance Date and within the 12 months preceding the date of payment of
         such distribution, and in respect of which no adjustment pursuant to
         this clause (v) has been made, (2) the aggregate amount of any cash
         plus the fair market value (as determined in good faith by a resolution
         of the Board of Directors of the Corporation) of consideration paid in
         respect of any repurchase or other reacquisition by the Corporation or
         any subsidiary of the Corporation of any shares of Common Stock (other
         than an Option Share Surrender) made after the Issuance Date and within
         the 12 months preceding the date of payment of such distribution or
         making of

                                      -8-
<PAGE>   9
         such repurchase or reacquisition, as the case may be, and in respect of
         which no adjustment pursuant to this clause (v) has been made, and (3)
         the aggregate of any cash plus the fair market value (as determined in
         good faith by a resolution of the Board of Directors of the
         Corporation) of consideration payable in respect of any Tender Offer by
         the Corporation or any of its subsidiaries for all or any portion of
         the Common Stock concluded within the 12 months preceding the date of
         payment of such distribution or completion of such repurchase or
         reacquisition, as the case may be, and in respect of which no
         adjustment pursuant to clause (vi) of this proviso has been made (such
         aggregate amount combined with the amounts in clauses (1), (2) and (3)
         above being the "Combined Amount"), exceeds 10% of the product of the
         Market Price (determined without regard to this proviso) for any day in
         such Measurement Period or such other period which day is prior to the
         earlier of (A) the record date with respect to such distribution and
         (B) the date on which ex-dividend trading in the Common Stock with
         respect to such distribution begins or the date of such repurchase or
         reacquisition, as the case may be, times the number of shares of Common
         Stock outstanding on such date, then, and in each such case, the Market
         Price for each such day shall be reduced so that the same shall equal
         the price determined by multiplying the Market Price (determined
         without regard to this proviso) for such day by a fraction (i) the
         numerator of which shall be equal to the Market Price (determined
         without regard to this proviso) for such day less an amount equal to
         the quotient of (x) the excess of such Combined Amount over such 10%
         and (y) the number of shares of Common Stock outstanding on such day
         and (ii) the denominator of which shall be equal to the Market Price
         (determined without regard to this proviso) for such day; provided,
         however, that in the event the portion of the cash so distributed or
         paid for the repurchase or reacquisition of shares (determined per
         share based on the number of shares of Common Stock outstanding)
         applicable to one share of Common Stock is equal to or greater than the
         Market Price (determined without regard to this clause (v) of this
         proviso) of the Common Stock for any such day, then in lieu of the
         foregoing adjustment with respect to such day, adequate provision shall
         be made so that the holders of shares of Series B Convertible Preferred
         Stock shall have the right to receive upon conversion of shares of
         Series B Convertible Preferred Stock the amount of cash the holders of
         shares of Series B Convertible Preferred Stock would have received had
         the holders of shares of Series B Convertible Preferred Stock converted
         shares of Series B Convertible Preferred Stock immediately prior to the
         record date for such distribution or the payment date of such
         repurchase, as applicable; or

                  (vi) A Tender Offer made by the Corporation or any of its
         subsidiaries for all or any portion of the Common Stock shall expire
         and such Tender Offer (as amended upon the expiration thereof) shall
         require the payment to stockholders (based on the acceptance (up to any
         maximum specified in the terms of the Tender Offer) of Purchased Shares
         (as defined below)) of an aggregate consideration having a fair market
         value (as determined in good faith by resolution of the Board of
         Directors of the Corporation) that combined together with (1) the
         aggregate of the cash plus the fair market value (as determined in good
         faith by a resolution of the Board of Directors of the Corporation), as
         of the expiration of such Tender Offer, of consideration paid or
         payable in respect of any other Tender Offers by the Corporation or any
         of its subsidiaries for all or any portion of the

                                      -9-
<PAGE>   10
         Common Stock expiring within the 12 months preceding the expiration of
         such Tender Offer and in respect of which no adjustment pursuant to
         this clause (vi) has been made, (2) the aggregate amount of any cash
         plus the fair market value (as determined in good faith by a resolution
         of the Board of Directors of the Corporation) of consideration paid in
         respect of any repurchase or other reacquisition by the Corporation or
         any subsidiary of the Corporation of any shares of Common Stock (other
         than an Option Share Surrender) made after the Issuance Date and within
         the 12 months preceding the expiration of such Tender Offer and in
         respect of which no adjustment pursuant to clause (v) of this proviso
         has been made, and (3) the aggregate amount of any distributions to all
         holders of Common Stock made exclusively in cash within 12 months
         preceding the expiration of such Tender Offer and in respect of which
         no adjustment pursuant to clause (v) of this proviso has been made,
         exceeds 10% of the product of the Market Price (determined without
         regard to this proviso) for any day in such period times the number of
         shares of Common Stock outstanding on such day, then, and in each such
         case, the Market Price for such day shall be reduced so that the same
         shall equal the price determined by multiplying the Market Price
         (determined without regard to this proviso) for such day by a fraction,
         the numerator of which shall be the number of shares of Common Stock
         outstanding on such day multiplied by the Market Price (determined
         without regard to this proviso) for such day and the denominator of
         which shall be the sum of (x) the fair market value (determined as
         aforesaid) of the aggregate consideration paid or payable to
         stockholders based on the acceptance (up to any maximum specified in
         the terms of the Tender Offer) of all shares validly tendered and not
         withdrawn as of the last time tenders could have been made pursuant to
         such Tender Offer (the "Expiration Time") (the shares deemed so
         accepted, up to any such maximum, being referred to as the "Purchased
         Shares") and (y) the product of the number of shares of Common Stock
         outstanding (less any Purchased Shares) on such day times the Market
         Price (determined without regard to this proviso) of the Common Stock
         on the Trading Day next succeeding the Expiration Time.

                  "Maximum Share Amount" means 3,436,000 shares of Common Stock,
or such greater number of shares as permitted by the rules of the Nasdaq
SmallCap or other securities market on which the Common Stock is then listed
(such amount to be subject to equitable adjustment from time to time on terms
reasonably determined by the Board of Directors for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring or with respect to which "ex-" trading commences
after the date of filing this Certificate of Designations with the Secretary of
State of the State of Nevada).

                  "Measurement Period" means, with respect to any date, the
period of ten consecutive Trading Days ending on the Trading Day prior to such
date.

                  "Nasdaq" means the Nasdaq National Market.

                  "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

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


                                      -10-
<PAGE>   11
                  "NYSE" means the New York Stock Exchange, Inc.

                  "Option Share Surrender" means the surrender of shares of
Common Stock to the Corporation in payment of the exercise price or tax
obligations incurred in connection with the exercise of a stock option granted
by the Corporation to any of its employees, directors or consultants.

                  "Optional Redemption Event" means any one of the following
events:

                  (1) For any period of five consecutive Trading Days there
         shall be no closing bid price of the Common Stock on the Nasdaq, the
         Nasdaq SmallCap, the NYSE or the AMEX;

                  (2) The Common Stock ceases to be listed for trading on any of
         the Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX and is not
         simultaneously listed on one of the other such markets or exchanges;

                  (3) The inability for 30 or more days (whether or not
         consecutive) of any holder of shares of Series B Convertible Preferred
         Stock to sell such shares of Common Stock issued or issuable on
         conversion of shares of Series B Convertible Preferred Stock pursuant
         to the Registration Statement for any reason other than a Blackout
         Period on each of such 30 days;

                  (4) The Corporation shall (A) default in the timely
         performance of the obligation to issue shares of Common Stock upon
         conversion of shares of Series B Convertible Preferred Stock as and
         when required by Section 10 or (B) fail or default in the timely
         performance of any material obligation (other than as specifically set
         forth elsewhere in this definition) to a holder of shares of Series B
         Convertible Preferred Stock under the terms of this Certificate of
         Designations or under the Subscription Agreements, the Registration
         Rights Agreements, the Warrants or any other agreement or document
         entered into in connection with the issuance of shares of Series B
         Convertible Preferred Stock, as such instruments may be amended from
         time to time; provided, however, that (i) with respect to the first two
         occurrences of an event described in clause (A) above, each of such
         events shall be an Optional Redemption Event only if such default shall
         have continued for a period of three Trading Days after notice thereof
         is given to the Corporation by any holder of shares of Series B
         Convertible Preferred Stock and (ii) an event described in clause (B)
         above shall be an Optional Redemption Event only if such failure or
         default shall have continued for a period of 30 days after notice
         thereof is given to the Corporation by any holder of shares of Series B
         Convertible Preferred Stock.

                  (5) (A) Any consolidation or merger of the Corporation with or
         into another entity (other than a merger or consolidation of a
         subsidiary of the Corporation with or into the Corporation or a
         wholly-owned subsidiary of the Corporation) where the shareholders of
         the Corporation immediately prior to such transaction do not
         collectively

                                      -11-
<PAGE>   12
         own at least 51% of the outstanding voting securities of the surviving
         corporation of such consolidation or merger immediately following such
         transaction and (i) such transaction materially and adversely affects
         the rights of any holder of shares of Series B Convertible Preferred
         Stock or (ii) the common stock of the surviving corporation is not
         listed for trading on the NYSE, the AMEX, the Nasdaq or the Nasdaq
         SmallCap; or (B) any sale or other transfer of all or substantially all
         of the assets of the Corporation unless (i) the shareholders of the
         Corporation immediately prior to such transaction own at least 51% of
         the outstanding voting securities of the transferee of such assets,
         (ii) the common stock of such transferee is listed for trading on the
         NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap and (iii) such
         transferee assumes all of the obligations of the Corporation to the
         holders of the Series B Convertible Preferred Stock under this
         Certificate of Designations, the Subscription Agreements and the other
         instruments contemplated hereby and thereby; or

                  (6) The adoption of any amendment to the Corporation's
         Articles of Incorporation, without the consent of the Majority Holders,
         which materially and adversely affects the rights of any holder of
         shares of Series B Convertible Preferred Stock.

                  "Optional Redemption Notice" means a notice from a holder of
shares of Series B Convertible Preferred Stock to the Corporation which states
(1) that the holder delivering such notice is thereby requiring the Corporation
to redeem shares of Series B Convertible Preferred Stock pursuant to Section 11,
(2) to such holder's knowledge, a summary of the circumstances constituting the
Optional Redemption Event giving rise to such redemption, and (3) the number of
shares of Series B Convertible Preferred Stock held by such holder which are to
be redeemed.

                  "Optional Redemption Price" means the greater of (i) the
Premium Price on the applicable redemption date and (ii) the Converted Market
Price on the applicable redemption date.

                  "Parity Dividend Stock" means any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Convertible Preferred Stock, including, without limitation, the Series
A Convertible Preferred Stock.

                  "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series B Convertible Preferred Stock, including, without limitation, the Series
A Convertible Preferred Stock.

                  "Premium Percentage" means 120%.

                  "Premium Price" means, for any share of Series B Convertible
Preferred Stock as of any date of determination, the sum of (a) the product
obtained by multiplying (x) the sum of (1) the Conversion Amount plus (2) an
amount equal to the Accrual Amount on such share of Series B Convertible
Preferred Stock to the date of determination, times (y) the Premium

                                      -12-
<PAGE>   13
Percentage plus (b) an amount equal to the accrued and unpaid interest on cash
dividends in arrears (as provided in Section 5) to the date of determination.

                  "Quarterly Reset Date" means the date occurring every three
months after the Initial Reset Date on the 9th day of each such month through
the third anniversary of the Issuance Date (for example, the first three
Quarterly Reset Dates shall occur on April 9, 2001, July 9, 2001 and October 9,
2001).

                  "Redemption Date" means the date of a redemption of shares of
Series B Convertible Preferred Stock pursuant to Section 9(a), determined in
accordance therewith.

                  "Redemption Limitation Event" means the failure of the
Corporation to pay the applicable redemption price when due for some or all of
the shares of Series B Convertible Preferred Stock required to be redeemed
pursuant to Section 7 or Section 11 by reason of a restriction contained in the
Company's loan agreements or facilities with Wells Fargo Credit, Inc., or with
any other institutional lender, whether such agreements or facilities are now
existing or hereafter created; and such Redemption Limitation Event shall be
deemed to continue until such redemption price is paid in full in accordance
with the terms of this Certificate of Designations.

                  "Redemption Price" means the Premium Price on the applicable
Redemption Date.

                  "Registration Rights Agreements" means the several
Registration Rights Agreements entered into between the Corporation and the
original holders of the shares of Series B Convertible Preferred Stock, as
amended or modified from time to time in accordance with their respective terms.

                  "Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 2(a) of
the Registration Rights Agreements.

                  "Reorganization Event" means a capital reorganization,
reclassification, or similar transaction involving the capital stock of the
Corporation (other than with a wholly-owned subsidiary of the Corporation), a
consolidation, merger or business combination of the Corporation with another
corporation or entity, or the sale or conveyance of all or substantially all of
the assets of the Corporation.

                  "Reset Period" means the applicable three month period
commencing on the Initial Reset Date and on each Quarterly Reset Date thereafter
and ending on the day immediately prior to the next Quarterly Reset Date.

                  "SEC" means the United States Securities and Exchange
Commission.

                  "SEC Effective Date" means the date the Registration Statement
is first declared effective by the SEC.


                                      -13-
<PAGE>   14
                  "Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series B
Convertible Preferred Stock.

                  "Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series B Convertible Preferred Stock.

                  "Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Series B Convertible Preferred Stock" means the Series B
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Series C Convertible Preferred Stock" means the Series C
Convertible Preferred Stock, $.001 par value, of the Corporation.

                  "Share Limitation Redemption Date" means each date on which
the Corporation is required to redeem shares of Series B Convertible Preferred
Stock as provided in Section 7(a).

                  "Share Limitation Redemption Price" means the greater of (a)
the Premium Price on the applicable Share Limitation Redemption Date and (b) the
Converted Market Price on the applicable Share Limitation Redemption Date.

                  "Stockholder Approval" shall mean the approval by a majority
of the votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Corporation (duly convened at
which a quorum was present), or a written consent of holders of shares of Common
Stock entitled to such number of votes given without a meeting, of the issuance
by the Corporation of 20% or more of the Common Stock of the Corporation
outstanding on the Issuance Date for less than the greater of the book or market
value of such Common Stock on conversion of the Series B Convertible Preferred
Stock, as and to the extent required under Rule 4310(c)(25)(H) of the Nasdaq
SmallCap as in effect from time to time or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading.

                  "Subordination Period" means the period commencing on the date
this Second Amended and Restated Certificate of Designations is filed with and
accepted by the Secretary of State of the State of Nevada and ending on the date
the SEC first declares effective Registration Statement No. 333-41868 (or any
successor registration statement) filed by the Corporation with the SEC which,
among other things, registers for resale the shares of Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock.

                  "Subscription Agreements" means the several Subscription
Agreements by and between the Corporation and the original holders of shares of
Series B Convertible Preferred Stock pursuant to which the shares of Series B
Convertible Preferred Stock were issued.


                                      -14-
<PAGE>   15
                  "Tender Offer" means a tender offer or exchange offer.

                  "Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap, which at the
time constitutes the principal securities market for the Common Stock, is open
for general trading.

                  "Transfer Agent Agreement" means the Transfer Agent Agreement
entered into by and among the Corporation, the Conversion Agent and the original
holders of the Series B Convertible Preferred Stock for the benefit of the
holders from time to time of shares of Series B Convertible Preferred Stock.

                  "Warrants" means the Common Stock Purchase Warrants issued by
the Corporation in connection with the issuance of the shares of Series B
Convertible Preferred Stock.

                  SECTION 2. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B Convertible Preferred Stock", and the number of
shares constituting the Series B Convertible Preferred Stock shall be 2,000, and
shall not be subject to increase. The Corporation shall not issue any shares of
Series B Convertible Preferred Stock other than pursuant to the Subscription
Agreements, unless such issuance shall have been approved by the Majority
Holders. Any shares of Series B Convertible Preferred Stock which are redeemed
by the Corporation and retired and any shares of Series B Convertible Preferred
Stock which are converted in accordance with Section 10 shall be restored to the
status of authorized, unissued and undesignated shares of the Corporation's
class of Preferred Stock and shall not be subject to issuance, and may not
thereafter be outstanding, as shares of Series B Convertible Preferred Stock.

                  SECTION 3. [RESERVED.]

                  SECTION 4. RANK. Subject to Section 12(b), all Series B
Convertible Preferred Stock shall rank (i) senior to the Common Stock, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, (ii) on a parity with the Series A Convertible Preferred Stock as
to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
(iii) subject to the proviso to this clause (iii), senior to the Series C
Convertible Preferred Stock and any additional series of the class of Preferred
Stock which series the Board of Directors may from time to time authorize, both
as to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary;
provided, however, that during the Subordination Period only and at no other
time, the Series C Convertible Preferred Stock shall rank senior to the Series B
Convertible Preferred Stock as to such payment of dividends and distribution of
assets, and (iv) senior to any additional class of preferred stock (or series of
preferred stock of such class) which the Board of Directors or the stockholders
may from time to time authorize in accordance herewith.


                                      -15-
<PAGE>   16
                  SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series B Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors out of funds legally
available for such purpose, dividends at the rate of $60.00 per annum per share,
and no more, which shall be fully cumulative, shall accrue without interest
(except as otherwise provided herein as to dividends in arrears) from the date
of original issuance of each share of Series B Convertible Preferred Stock and
shall be payable quarterly on March 1, June 1, September 1 and December 1 of
each year commencing June 1, 2000 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, which record dates must be not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series B Convertible Preferred Stock shall be paid in cash or,
in lieu of paying such dividends and subject to the limitations in Section 5(b)
hereof, the amount of such dividends shall be included in the Accrual Amount for
each share, at the option of the Corporation as hereinafter provided. The amount
of the dividends payable per share of Series B Convertible Preferred Stock for
each quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. Dividends required to be
paid in cash pursuant to Section 5(b) which are not paid on a payment date,
whether or not such dividends have been declared, will bear interest at the rate
of 14% per annum until paid (or such lesser rate as shall be the maximum rate
allowable by applicable law). No dividends or other distributions, other than
the dividends payable solely in shares of any Junior Dividend Stock, shall be
paid or set apart for payment on any shares of Junior Dividend Stock, and no
purchase, redemption, or other acquisition shall be made by the Corporation of
any shares of Junior Dividend Stock (except for Option Share Surrenders), unless
and until all accrued and unpaid cash dividends on the Series B Convertible
Preferred Stock and interest on dividends in arrears at the rate specified
herein shall have been paid or declared and set apart for payment.

                  If at any time any dividend on any Senior Dividend Stock shall
be in arrears, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Series B Convertible Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend
Stock, including the full dividends for the then current dividend period, shall
have been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series B Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series B
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and

                                      -16-
<PAGE>   17
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series B
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.

                  Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.

                  (b) If (x) prior to any dividend payment date the Corporation
notifies the holders of Series B Convertible Preferred Stock that the dividends
with respect to such date will be paid in cash or (y) on any dividend payment
date the Corporation is not in compliance in all material respects with its
obligations to the holders of the Series B Convertible Preferred Stock
(including, without limitation, its obligations under the Subscription
Agreements, the Registration Rights Agreements, the Warrants and this
Certificate of Designations) and such noncompliance continues for a period of
ten days after notice thereof is given to the Corporation by any holder of
Series B Convertible Preferred Stock, such dividends must be timely paid in
cash. If clauses (x) or (y) of the foregoing sentence do not apply on any
dividend payment date, the Corporation may, but shall not be required to, pay
the applicable dividends in cash. The amount of any dividends not paid in cash
shall be included in the Accrual Amount for each share of Series B Convertible
Preferred Stock.

                  (c) Neither the Corporation nor any subsidiary of the
Corporation shall redeem, repurchase or otherwise acquire in any one transaction
or series of related transactions any shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock if the number of shares so repurchased,
redeemed or otherwise acquired in such transaction or series of related
transactions (excluding any Option Share Surrender) is more than 10% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions unless the Corporation or such subsidiary offers
to purchase for cash from each holder of shares of Series B Convertible
Preferred Stock at the time of such redemption, repurchase or acquisition the
same percentage of such holder's shares of Series B Convertible Preferred Stock
as the percentage of the number of outstanding shares of Common Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, to be so
redeemed, repurchased or acquired at a purchase price per share of Series B
Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(c) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(c).

                  (d) Neither the Corporation nor any subsidiary of the
Corporation shall (1) make any Tender Offer for 10% or more of the outstanding
shares of Common Stock, unless the Corporation contemporaneously therewith makes
an offer, or (2) enter into an agreement regarding such a Tender Offer for
outstanding shares of Common Stock by any person other than the Corporation or
any subsidiary of the Corporation, unless such person agrees with the
Corporation to make an offer, in either such case to each holder of outstanding
shares of Series B

                                      -17-
<PAGE>   18
Convertible Preferred Stock to purchase for cash at the time of purchase in such
Tender Offer the same percentage of shares of Series B Convertible Preferred
Stock held by such holder as the percentage of outstanding shares of Common
Stock actually purchased in such Tender Offer at a price per share of Series B
Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(d) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(d).

                  SECTION 6. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series B Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series B Convertible Preferred Stock equal to the Liquidation Preference, and no
more, before any payment shall be made or any assets distributed to the holders
of Junior Liquidation Stock; provided, however, that such rights shall accrue to
the holders of Series B Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series B Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series B Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.

                  SECTION 7. MAXIMUM SHARE AMOUNT REDEMPTION.

                  (a) REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, the Nasdaq SmallCap, or other securities market on which the Common
Stock is then listed, so long as the Common Stock is listed on the Nasdaq, the
Nasdaq SmallCap, the NYSE or the AMEX the Corporation shall not be required to
issue upon conversion of shares of Series B Convertible Preferred Stock pursuant
to Section 10 more than the Maximum Share Amount. The Maximum Share Amount shall
be allocated among the shares of Series B Convertible Preferred Stock at the
time of initial issuance thereof pro rata based on the initial issuance of 2,000
shares of Series B Convertible Preferred Stock. Each certificate for shares of
Series B Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series B Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. Upon surrender of any
certificate for shares of Series B Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series B Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the

                                      -18-
<PAGE>   19
new certificate issued upon such transfer or re-registration or evidencing such
unconverted shares, as the case may be, as to the remaining number of shares of
Common Stock from the Maximum Share Amount remaining available for conversion of
the shares of Series B Convertible Preferred Stock evidenced by such new
certificate. If any certificate for shares of Series B Convertible Preferred
Stock is surrendered for split-up into two or more certificates representing an
aggregate number of shares of Series B Convertible Preferred Stock equal to the
number of shares of Series B Convertible Preferred Stock represented by the
certificate so surrendered (as reduced by any contemporaneous conversion of
shares of Series B Convertible Preferred Stock represented by the certificate so
surrendered), each certificate issued on such split-up shall bear a notation of
the portion of the Maximum Share Amount allocated thereto determined by pro rata
allocation from among the remaining portion of the Maximum Share Amount
allocated to the certificate so surrendered. If any shares of Series B
Convertible Preferred Stock represented by a single certificate are converted in
full pursuant to Section 10, all of the portion of the Maximum Share Amount
allocated to such shares of Series B Convertible Preferred Stock which remains
unissued after such conversion shall be re-allocated pro rata to the outstanding
shares of Series B Convertible Preferred Stock held of record by the holder of
record at the close of business on the date of such conversion of the shares of
Series B Convertible Preferred Stock so converted, and if there shall be no
other shares of Series B Convertible Preferred Stock held of record by such
holder at the close of business on such date, then such portion of the Maximum
Share Amount shall be allocated pro rata among the shares of Series B
Convertible Preferred Stock outstanding on such date.

                  (2) The Corporation shall promptly, but in no event later than
five Business Days after the occurrence, give notice to each holder of shares of
Series B Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series B Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series B Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series B Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required to be given, the holder receiving or giving, as the case may be,
such Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series B Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series B
Convertible Preferred Stock) as shall not, on the Business Day prior to the date
of such redemption, be convertible into shares of

                                      -19-
<PAGE>   20
Common Stock by reason of the limitations set forth in Section 7(a)(1)
(determined without regard to the limitation, if any, on beneficial ownership of
Common Stock by such holder contained in the proviso to the second sentence of
Section 10(a)), within 15 Trading Days after such holder so directs the
Corporation, at a price per share equal to the Share Limitation Redemption
Price. If a holder of shares of Series B Convertible Preferred Stock directs the
Corporation to redeem outstanding shares of Series B Convertible Preferred Stock
and, prior to the date the Corporation is required to redeem such shares of
Series B Convertible Preferred Stock, the Corporation would have been able,
within the limitations set forth in Section 7(a)(1), to convert all of such
holder's shares of Series B Convertible Preferred Stock (determined without
regard to the limitation, if any, on beneficial ownership of shares of Common
Stock by such holder contained in the proviso to the second sentence of Section
10(a)) on any ten Trading Days within any period of 15 consecutive Trading Days
commencing after the period of 20 consecutive Trading Days which gave rise to
the applicable Inconvertibility Notice from the Corporation or such holder of
shares of Series B Convertible Preferred Stock, as the case may be, had all of
such holder's shares of Series B Convertible Preferred Stock been surrendered
for conversion into Common Stock on each of such ten Trading Days within such 15
Trading Day period, then the Corporation shall not be required to redeem any
shares of Series B Convertible Preferred Stock by reason of such
Inconvertibility Notice.

                  (3) Notwithstanding the giving of any Inconvertibility Notice
by the Corporation to the holders of Series B Convertible Preferred Stock
pursuant to Section 7(a)(2) or the giving or the absence of any notice by the
holders of the Series B Convertible Preferred Stock in response thereto or any
redemption of shares of Series B Convertible Preferred Stock pursuant to Section
7(a)(2), thereafter the provisions of Section 7(a)(2) shall continue to be
applicable on any occasion unless the Stockholder Approval shall have been
obtained from the stockholders of the Corporation or waived by the Nasdaq, the
Nasdaq SmallCap, or other securities market on which the Common Stock is then
listed.

                  (4) On each Share Limitation Redemption Date (or such later
date as a holder of shares of Series B Convertible Preferred Stock shall
surrender to the Corporation the certificate(s) for the shares of Series B
Convertible Preferred Stock being redeemed pursuant to this Section 7(a)), the
Corporation shall make payment in immediately available funds of the applicable
Share Limitation Redemption Price to such holder of shares of Series B
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one Business
Day prior to such Share Limitation Redemption Date. Upon redemption of less than
all of the shares of Series B Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Business Days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series B Convertible Preferred
Stock evidenced by such certificate which have not been redeemed. Only whole
shares of Series B Convertible Preferred Stock may be redeemed.

                  (5) (A) Notwithstanding any other provision of this
Certificate of Designations, if an Inconvertibility Day occurs by reason of
events which are not solely within the control of the Corporation, the
Corporation shall have the right to give a Control Notice to

                                      -20-
<PAGE>   21
the holders of Series B Convertible Preferred Stock at any time after such
Inconvertibility Day occurs and prior to the earlier of (1) the date on which
all holders of shares of Series B Convertible Preferred Stock who had the right
(other than as limited by this Section 7(a)(5)) to require redemption of any
shares of Series B Convertible Preferred Stock by reason of the occurrence of
such Inconvertibility Day no longer have such right and (2) the applicable Share
Limitation Redemption Date by reason of the earliest notice given by any holder
of shares of Series B Convertible Preferred Stock directing the Corporation to
redeem such shares in accordance with Section 7(a)(2) by reason of such
Inconvertibility Day. For purposes of this Section 7(a)(5), an Inconvertibility
Day shall be deemed to have occurred by reason of events which are not solely
within the control of the Corporation if a requirement of the Corporation to
redeem, or a right of any holder of shares of Series B Convertible Preferred
Stock to require redemption of, shares of Series B Convertible Preferred Stock
by reason thereof would result in the Corporation being required to classify the
Series B Convertible Preferred Stock as redeemable preferred stock on a balance
sheet of the Corporation prepared in accordance with Generally Accepted
Accounting Principles and Regulation S-X of the SEC. If the Corporation timely
gives a Control Notice to the holders of shares of Series B Convertible
Preferred Stock, then in lieu of payment of the Share Limitation Redemption
Price pursuant to a redemption notice given by any holder of shares of Series B
Convertible Preferred Stock in accordance with Section 7(a)(2) by reason of such
Inconvertibility Day and commencing on such Inconvertibility Day the Conversion
Price for all outstanding shares of Series B Convertible Preferred Stock will be
80% of the amount the Conversion Price would otherwise be. Such adjustment of
the Conversion Price shall continue in effect until the earliest of (x) the date
which is 90 days after the Stockholder Approval shall have been obtained from
the stockholders of the Corporation or waived by the Nasdaq SmallCap or other
securities market on which the Common Stock is then listed, (y) the date any
further adjustments are made following a failure to obtain the Stockholder
Approval as provided below, and (z) the date when shares of Series B Convertible
Preferred Stock are no longer outstanding. On or after the date the Corporation
gives such Control Notice, upon notice from the Majority Holders, the
Corporation promptly shall call a special meeting of its stockholders, to be
held not later than 90 days after such notice is given, to seek the Stockholder
Approval for the issuance of all shares of Common Stock issuable upon conversion
of the Series B Convertible Preferred Stock in accordance with Section 10 and
shall use its best efforts to obtain the Stockholder Approval. The Corporation
shall prepare and file with the SEC within 20 days after such notice is given
preliminary proxy materials which set forth a proposal to seek such Stockholder
Approval. The Corporation shall provide the Majority Holders an opportunity to
consult with the Corporation regarding the content of such proxy materials
insofar as it relates to the Stockholder Approval by providing copies of such
preliminary proxy materials and any revised preliminary proxy materials to the
Majority Holders a reasonable period of time prior to their filing with the SEC.
The Corporation shall furnish to each holder of shares of Series B Convertible
Preferred Stock a copy of its definitive proxy materials for such special
meeting and any amendments or supplements thereto promptly after the same are
mailed to stockholders or filed with the SEC. Upon the earlier of (i) the
failure to obtain the Stockholder Approval at the special meeting or (ii) the
failure to hold the special meeting within such 90-day period, the Corporation
shall so notify the holders of shares of Series B Convertible Preferred Stock
and such of the following as shall be specified by notice to the Corporation
from the Majority Holders shall occur: (1) commencing on the Business Day
following the Corporation's

                                      -21-
<PAGE>   22
receipt of such notice, the Conversion Price of the outstanding shares of Series
B Convertible Preferred Stock will be 60% of the amount the Conversion Price
would otherwise be without regard to other adjustments pursuant to this Section
7(a)(5) or Section 11(b)(4) and (2) the Corporation shall promptly file
applications and take all other actions necessary to (i) list the Common Stock
for trading and quotation on the OTC Bulletin Board or such other securities
market or exchange which will not restrict the number of shares of Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock and (ii)
upon filing such applications, request the immediate removal of the Common Stock
from listing on the securities market on which it is then listed which restricts
the issuance of shares of Common Stock upon conversion of shares of Series B
Convertible Preferred Stock without the Stockholder Approval.

                  (B) If and for so long as an adjustment of the Conversion
Price is simultaneously required by this Section 7(a)(5) and by Section
11(b)(4), the applicable Conversion Price shall be the lower of the two amounts
required by each such section.

                  (C) The rights of holders of shares of Series B Convertible
Preferred Stock to require redemption of their shares and exercise other rights
pursuant to Sections 7(a)(1) through 7(a)(4) by reason of an Inconvertibility
Day as to which the Corporation does not have a right to give a Control Notice,
or fails to exercise such right on a timely basis, shall not be limited by the
operation of this Section 7(a)(5).

                  (b) NO OTHER REDEMPTION. The shares of Series B Convertible
Preferred Stock shall not be subject to redemption by the Corporation at the
option of the Holders except as provided in this Section 7 and in Section 11.

                  SECTION 8. NO SINKING FUND. The shares of Series B Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.

                  SECTION 9. OPTIONAL REDEMPTION.

                  (a) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation
shall be in compliance in all material respects with its obligations to the
holders of shares of Series B Convertible Preferred Stock (including, without
limitation, its obligations under the Subscription Agreements, the Registration
Rights Agreements, the Warrants and the provisions of this Certificate of
Designations), (2) on the date the Corporation Optional Redemption Notice is
given and at all times until the Redemption Date, the Registration Statement is
effective and available for use by each holder of shares of Series B Convertible
Preferred Stock for the resale of shares of Common Stock acquired by such holder
upon conversion of all shares of Series B Convertible Preferred Stock held by
such holder and (3) no Optional Redemption Event shall have occurred with
respect to which, on the date a Corporation Optional Redemption Notice is to be
given or on the Redemption Date, any holder of shares of Series B Convertible
Preferred Stock (A) shall be entitled to exercise optional redemption rights
under Section 11 by reason of such Optional Redemption Event or (B) shall have
exercised optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder, then the Corporation shall have the right,

                                      -22-
<PAGE>   23
exercisable by giving a Corporation Optional Redemption Notice not less than 30
days or more than 50 days prior to the Redemption Date to all holders of record
of the shares of Series B Convertible Preferred Stock, at any time to redeem all
or from time to time to redeem any part of the outstanding shares of Series B
Convertible Preferred Stock in accordance with this Section 9(a). If the
Corporation shall redeem less than all outstanding shares of Series B
Convertible Preferred Stock, such redemption shall be made as nearly as
practical pro rata from all holders of shares of Series B Convertible Preferred
Stock. Any Corporation Optional Redemption Notice under this Section 9(a) shall
be given to the holders of record of the shares of Series B Convertible
Preferred Stock at their addresses appearing on the records of the Corporation;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series B Convertible Preferred Stock of any other holder. On the
Redemption Date (or such later date as a holder of shares of Series B
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series B Convertible Preferred Stock to be redeemed pursuant to this
Section 9(a)), the Corporation shall make payment of the applicable Redemption
Price to each holder of shares of Series B Convertible Preferred Stock to be
redeemed in immediately available funds to such account as specified by such
holder in writing to the Corporation at least one Business Day prior to the
Redemption Date. A holder of shares of Series B Convertible Preferred Stock to
be redeemed pursuant to this Section 9(a) shall be entitled to convert such
shares of Series B Convertible Preferred Stock in accordance with Section 10 (x)
through the day prior to the Redemption Date and (y) if the Corporation shall
fail to pay the Redemption Price of any share of Series B Convertible Preferred
Stock when due, at any time after the due date thereof until such date as the
Corporation pays the Redemption Price of such share of Series B Convertible
Preferred Stock. No share of Series B Convertible Preferred Stock as to which
the holder exercises the right of conversion pursuant to Section 10 or the
optional redemption right pursuant to Section 11 may be redeemed by the
Corporation pursuant to this Section 9(a) on or after the date of exercise of
such conversion right or optional redemption right, as the case may be,
regardless of whether the Corporation Optional Redemption Notice shall have been
given prior to, or on or after, the date of exercise of such conversion right or
optional redemption right, as the case may be.

                  (b) FINAL REDEMPTION. The Corporation shall have the right to
redeem all, but not less than all, outstanding shares of Series B Convertible
Preferred Stock at any time on or after the third anniversary of the Issuance
Date so long as (1) the Corporation shall be in compliance in all material
respects with its obligations to the holders of the Series B Convertible
Preferred Stock (including, without limitation, its obligations under the
Subscription Agreements, the Registration Rights Agreements, the Warrants and
this Certificate of Designations) and (2) no Optional Redemption Event shall
have occurred with respect to which on the date a Final Redemption Notice is to
be given or on the Final Redemption Date, any holder of shares of Series B
Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder. In order to exercise its rights
under this Section 9(b), the Corporation shall give a Final Redemption Notice
not less than 30 days or more than 50 days prior to the Final

                                      -23-
<PAGE>   24
Redemption Date to all holders of record of the shares of Series B Convertible
Preferred Stock. Any Final Redemption Notice shall be given to the holders of
record of the shares of Series B Convertible Preferred Stock by telephone line
facsimile transmission to such number as shown on the records of the Corporation
for such purpose; provided, however, that any failure or defect in the giving of
such notice to any such holder shall not affect the validity of notice to or the
redemption of shares of Series B Convertible Preferred Stock of any other
holder. On the Final Redemption Date (or such later date as a holder of shares
of Series B Convertible Preferred Stock surrenders to the Corporation the
certificate(s) for shares of Series B Convertible Preferred Stock to be redeemed
pursuant to this Section 9(b)), the Corporation shall make payment of the
applicable Final Redemption Price to each holder of shares of Series B
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one Business Day prior to the Final Redemption Date. A holder of shares of
Series B Convertible Preferred Stock to be redeemed pursuant to this Section
9(b) shall be entitled to convert such shares of Series B Convertible Preferred
Stock in accordance with Section 10 (x) through the day prior to the Final
Redemption Date and (y) if the Corporation shall fail to pay the Final
Redemption Price of any share of Series B Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Final Redemption Price of such share of Series B Convertible Preferred Stock
to such holder. No share of Series B Convertible Preferred Stock as to which a
holder exercises the right of conversion pursuant to Section 10 or the optional
redemption right pursuant to Section 11 may be redeemed by the Corporation
pursuant to this Section 9(b) on or after the date of exercise of such
conversion right or optional redemption right, as the case may be, regardless of
whether the Final Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.

                  (c) NO OTHER OPTIONAL REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation except as provided in Sections 9(a) and 9(b).

                  SECTION 10. CONVERSION.

                  (a) CONVERSION AT OPTION OF HOLDER. The holders of the Series
B Convertible Preferred Stock may at any time on or after the Issuance Date
convert at any time all or from time to time any part of their shares of Series
B Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as herein provided. Each share of
Series B Convertible Preferred Stock may be converted at the office of the
Conversion Agent or at such other additional office or offices, if any, as the
Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount, (ii) an amount equal to the Accrual Amount on the share of
Series B Convertible Preferred Stock being converted to the applicable
Conversion Date, and (iii) accrued but unpaid interest on the dividends required
to be paid in cash on the share of Series B Convertible Preferred Stock being
converted in arrears to the applicable Conversion Date at the rate provided in
Section 5 by (y) the Conversion Price for such Conversion Date (the "Conversion
Rate"); provided, however, that in no event shall any holder

                                      -24-
<PAGE>   25
of shares of Series B Convertible Preferred Stock be entitled to convert any
shares of Series B Convertible Preferred Stock in excess of that number of
shares of Series B Convertible Preferred Stock upon conversion of which the sum
of (1) the number of shares of Common Stock beneficially owned by such holder
and all Aggregated Persons of such holder (other than shares of Common Stock
deemed beneficially owned through the ownership of (x) unconverted shares of
Series B Convertible Preferred Stock and (y) the unconverted or unexercised
portion of any instrument, including, without limitation, the Warrants and the
Series A Convertible Preferred Stock, which contains limitations similar to
those set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series B Convertible
Preferred Stock with respect to which the determination in this proviso is being
made, would result in beneficial ownership by such holder and all Aggregated
Persons of such holder of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the proviso to the immediately preceding sentence.

                  (b) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 10(b) to the contrary, no change in the Conversion Amount pursuant to
this Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made. Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series B Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series B Convertible Preferred Stock are at the time convertible.

                  (2) The holders of shares of Series B Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series B Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series B
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
B Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series B Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series B
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash

                                      -25-
<PAGE>   26
dividends on Common Stock or Series B Convertible Preferred Stock that may be
accrued and unpaid at the date of surrender of shares of Series B Convertible
Preferred Stock.

                  (3) (A) The right of the holders of Series B Convertible
Preferred Stock to convert their shares shall be exercised by giving (which may
be done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent, with a copy to the Corporation. If a holder of Series B
Convertible Preferred Stock elects to convert any shares of Series B Convertible
Preferred Stock in accordance with Section 10(a), such holder shall not be
required to surrender the certificate(s) representing such shares of Series B
Convertible Preferred Stock to the Corporation unless all of the shares of
Series B Convertible Preferred Stock represented thereby are so converted. Each
holder of shares of Series B Convertible Preferred Stock and the Corporation
shall maintain records showing the number of shares so converted and the dates
of such conversions or shall use such other method, satisfactory to such holder
and the Corporation, so as to not require physical surrender of such
certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series B Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series B
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series B Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series B Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series B Convertible Preferred Stock
(upon payment by such holder of shares of Series B Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series B Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series B Convertible Preferred Stock represented by such
certificate, the number of shares of Series B Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2) the Corporation may place a legend on the certificates
for shares of Series B Convertible Preferred Stock which refers to or describes
the provisions of this paragraph.

                  (B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series B Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series B
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder

                                      -26-
<PAGE>   27
who has given a Conversion Notice of any claim of manifest error within one
Trading Day after such holder gives such Conversion Notice and no such claim of
error shall limit or delay performance of the Corporation's obligation to issue
upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series B Convertible
Preferred Stock being converted within one Trading Day after a Conversion Notice
has been given (which notice shall specify all defects in the Conversion Notice)
and any Conversion Notice containing any such defect shall nonetheless be
effective on the date given if the converting holder promptly corrects all such
defects.

                  (4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
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 Convertible Preferred Stock shall be convertible as
herein provided, 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 Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series B Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.

                  (5) In case any Reorganization Event shall be effected in such
a way that holders of Common Stock shall be entitled to receive stock,
securities or assets (including cash) with respect to or in exchange for shares
of the Common Stock, then, prior to and as a condition of such Reorganization
Event, lawful and adequate provision shall be made whereby the holders of Series
B Convertible Preferred Stock shall thereafter have the right to receive upon
conversion of the Series B Convertible Preferred Stock and in lieu of the shares
of Common Stock immediately theretofore issuable upon conversion of the Series B
Convertible Preferred Stock, such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in exchange for
a number of outstanding shares of Common Stock equal to the number of shares of
Common Stock immediately theretofore issuable upon conversion of the Series B
Convertible Preferred Stock had such Reorganization Event not taken place. In
any such case, appropriate provision shall be made with respect to the rights
and interests of the holders of Series B Convertible Preferred Stock to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and the number of shares of Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock) shall
thereafter be applicable, as nearly as may be, in relation to any stock,
securities or assets thereafter deliverable upon the conversion of the Series B
Convertible Preferred Stock. The

                                      -27-
<PAGE>   28
Corporation shall not effect any such Reorganization Event (i) unless prior to
or simultaneously with the consummation thereof the survivor or successor
corporation (if other than the Corporation) resulting from such Reorganization
Event or the corporation or other entity purchasing such assets shall assume by
written instrument executed and sent to each holder of Series B Convertible
Preferred Stock, the obligation to deliver to such holder of Series B
Convertible Preferred Stock such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder of Series B Convertible
Preferred Stock may be entitled to receive, and containing the express
assumption by such successor corporation or other entity of the due and punctual
performance and observance of every provision herein to be performed and
observed by the Corporation and of all liabilities and obligations of the
Corporation hereunder, and (ii) in which the Corporation, as opposed to another
party to the Reorganization Event, shall be required under any circumstances to
make a cash payment at any time to the holders of the Series B Convertible
Preferred Stock; provided, however, that this clause (5) shall not limit the
Corporation's obligation to make cash payments pursuant to Section 7 or Section
11 if the Corporation fails to give a Control Notice in accordance with the
terms thereof.

                  (6) If a holder shall have given a Conversion Notice for
shares of Series B Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three Trading Days after such Conversion Notice is given and
the person converting shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series B Convertible Preferred Stock pursuant to the first
sentence of this paragraph within three Trading Days after such Conversion
Notice is given, in addition to any other liabilities the Corporation may have
hereunder and under applicable law (1) the Corporation shall pay or reimburse
such holder on demand for all out-of-pocket expenses including, without
limitation, reasonable fees and expenses of legal counsel incurred by such
holder as a result of such failure, (2) for each Trading Day thereafter on which
the Corporation so fails to deliver such certificates, the Conversion Price
applicable to such conversion shall be reduced by an amount equal to one percent
of the amount that the Conversion Price would otherwise be, and (3) such holder
may by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) given at any time prior to delivery to such holder of the certificates
for the shares of Common Stock issuable upon such conversion of shares of Series
B

                                      -28-
<PAGE>   29
Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series B Convertible Preferred
Stock thereafter in accordance herewith.

                  (7) No fractional shares of Common Stock shall be issued upon
conversion of Series B Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of one share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date times (ii)
such fraction of a share.

                  (8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:

                  (i) In case the Corporation shall issue rights or warrants on
a pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the following formula:



         C(1) = C x   O + N
                      -----
                    O + N x P
                        -----
                          M

where

         C(1)  = the adjusted Conversion Amount

         C     = the current Conversion Amount

         O     = the number of shares of Common Stock outstanding on the record
                 date.

         N     = the number of additional shares of Common Stock issuable
                 pursuant to the exercise of such rights or warrants.

         P     = the offering price per share of the additional shares (which
                 amount shall include amounts received by the Corporation in
                 respect of the issuance and the exercise of such rights or
                 warrants).

         M     = the Current Price per share of Common Stock on the record date.


                                      -29-
<PAGE>   30
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.

                  (ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula


         C(1) = C x   M
                    -----
                    M - F

where

         C(1)  = the adjusted Conversion Amount

         C     = the current Conversion Amount

         M     = the Current Price per share of Common Stock on the record date
                 mentioned below.

         F     = the aggregate amount of such cash dividend and/or the
                 fair market value on the record date of the assets or
                 securities to be distributed divided by the number of shares of
                 Common Stock outstanding on the record date. The Board of
                 Directors shall determine such fair market value, which
                 determination shall be conclusive.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series B Convertible Preferred Stock.

                  (iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.

                  (iv) If at any time as a result of an adjustment made pursuant
to Section 10(b)(5), the holder of any Series B Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.


                                      -30-
<PAGE>   31
                  (9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.

                  (10) Whenever the Conversion Amount is adjusted as herein
provided, the Corporation shall send to each holder and each transfer agent, if
any, for the Series B Convertible Preferred Stock and the transfer agent for the
Common Stock, a statement signed by the Chairman of the Board, the President, or
any Vice President of the Corporation and by its Treasurer or its Secretary or
an Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series B Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.

                  (11) In case on or after the Issuance Date:

                  (A) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of retained earnings);
or

                  (B) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for or purchase
any share of any class or any other rights or warrants; or

                  (C) the Board of Directors shall authorize any
reclassification of the Common Stock (other than a subdivision or combination of
the outstanding Common Stock, or a change in par value, or from par value to no
par value, or from no par value to par value), or any consolidation or merger or
other business combination transaction to which the Corporation is a party and
for which approval of any stockholders of the Corporation is required, or the
sale or transfer of all or substantially all of the assets of the Corporation;
or

                  (D) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;

the Corporation shall give the holders of record of the Series B Convertible
Preferred Stock, as promptly as possible but in any event at least ten Trading
Days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on which
such reclassification, consolidation, merger, other business

                                      -31-
<PAGE>   32
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Corporation gives such notice to the holders of record of the
Series B Convertible Preferred Stock or is required to give such notice to such
holders, such holders shall be entitled to give a Conversion Notice which is
contingent on the completion of such action.

                  SECTION 11. REDEMPTION AT OPTION OF HOLDERS.

                  (a) REDEMPTION RIGHT. Subject to Section 11(b)(4), if an
Optional Redemption Event occurs, then, in addition to any other right or remedy
of any holder of shares of Series B Convertible Preferred Stock, each holder of
shares of Series B Convertible Preferred Stock shall have the right, at such
holder's option, to require the Corporation to redeem all of such holder's
shares of Series B Convertible Preferred Stock, or any portion thereof, on the
date that is 15 Business Days after the date such holder gives the Corporation
an Optional Redemption Notice with respect to such Optional Redemption Event at
any time while any of such holder's shares of Series B Convertible Preferred
Stock are outstanding, at a price equal to the Optional Redemption Price.

                  (b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS,
ETC. (1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series B Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. Such notice from the Corporation shall set forth:

                  (i) the date by which the optional redemption right must be
         exercised, and

                  (ii) a description of the procedure (set forth below) which
         each such holder must follow to exercise such holder's optional
         redemption right.

No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series B Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series B Convertible Preferred
Stock.

                  (2) To exercise its optional redemption right, each holder of
outstanding shares of Series B Convertible Preferred Stock shall deliver to the
Corporation on or before the 30th day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within 40 days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation. At the Corporation's option, an Optional Redemption Notice may be
revoked by such holder giving such Optional Redemption Notice by giving notice
of such revocation to the Corporation at any time prior to the time the
Corporation pays the Optional Redemption Price to such holder.


                                      -32-
<PAGE>   33
                  (3) If a holder of shares of Series B Convertible Preferred
Stock shall have given an Optional Redemption Notice, on the date which is 15
Business Days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series B Convertible Preferred Stock to be redeemed) the Corporation shall
make payment in immediately available funds of the applicable Optional
Redemption Price to such account as specified by such holder in writing to the
Corporation at least one Business Day prior to the applicable redemption date.

                  (4) Notwithstanding any other provision of this Certificate of
Designations, if an Optional Redemption Event occurs by reason of events which
are not solely within the control of the Corporation, the Corporation shall have
the right to give a Control Notice to the holders of shares of Series B
Convertible Preferred Stock at any time after such Optional Redemption Event
occurs and prior to the earlier of (1) the date on which all holders of shares
of Series B Convertible Preferred Stock who had the right (other than as limited
by this Section 11(b)(4)) to require redemption of any shares of Series B
Convertible Preferred Stock by reason of the occurrence of such Optional
Redemption Event no longer have such right and (2) the applicable Optional
Redemption Date by reason of the earliest Optional Redemption Notice given by
any holder of shares of Series B Convertible Preferred Stock by reason of such
Optional Redemption Event. If the Corporation timely gives such Control Notice
to the holders of shares of Series B Convertible Preferred Stock, then in lieu
of payment of the Optional Redemption Price by reason of any such Optional
Redemption Event and commencing on the first date on which such Optional
Redemption Event occurs the following adjustments shall take effect (subject to
the provisions of Section 7(a)(5)(B)):

                  (A) In the case of an Optional Redemption Event described in
         clauses (1), (2), (3), (4) or (6) of the definition of the term
         Optional Redemption Event, for so long as such Optional Redemption
         Event continues and for a period of ten Trading Days thereafter the
         Conversion Price will be 70% of the amount which the Conversion Price
         would otherwise be; and

                  (B) In the case of an Optional Redemption Event described in
         clause (5) of the definition of the term Optional Redemption Event, for
         so long as any shares of Preferred Stock are outstanding the Conversion
         Price will be 70% of the amount which the Conversion Price would
         otherwise be.

For purposes of this Section 11(b)(4), an Optional Redemption Event shall be
deemed to have occurred by reason of events which are not solely within the
control of the Corporation if a requirement of the Corporation to redeem, or a
right of any holder of shares of Series B Convertible Preferred Stock to require
redemption of, shares of Series B Convertible Preferred Stock by reason thereof
would result in the Corporation being required to classify the Series B
Convertible Preferred Stock as redeemable preferred stock on a balance sheet of
the Corporation prepared in accordance with Generally Accepted Accounting
Principles and Regulation S-X of the SEC, and, in the case of an Optional
Redemption Event described in clause (5) of the definition of the term Optional
Redemption Event, the Board does not have the right to approve

                                      -33-
<PAGE>   34
or disapprove the transactions resulting in such event. If as a result of any of
the adjustments to the Conversion Price required by this Section 11(b)(4) the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all of the outstanding shares of Series B
Convertible Preferred Stock, such insufficiency shall be deemed to be covered by
the applicable Control Notice and the Corporation shall have no obligation to
redeem any shares of Series B Convertible Preferred Stock by reason thereof. The
Corporation thereupon will use its best efforts to increase the authorized
number of shares of Common Stock in accordance with Section 10(b)(4).

                  (c) OTHER. (1) In connection with a redemption pursuant to
this Section 11 of less than all of the shares of Series B Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Business Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series B Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.

                  (2) An Optional Redemption Notice given by a holder of shares
of Series B Convertible Preferred Stock shall be deemed for all purposes to be
in proper form unless the Corporation notifies such holder in writing within
three Business Days after such Optional Redemption Notice has been given (which
notice shall specify all defects in such Optional Redemption Notice), and any
Optional Redemption Notice containing any such defect shall nonetheless be
effective on the date given if such holder promptly undertakes to correct all
such defects. No such claim of error shall limit or delay performance of the
Corporation's obligation to redeem all shares of Series B Convertible Preferred
Stock not in dispute whether or not such holder makes such undertaking.

                  SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.

                  (a) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Convertible Preferred Stock shall
not be entitled to vote on any matter.

                  (b) ARTICLES OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Articles of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series B Convertible Preferred
Stock, or (2) the creation and issuance of any Senior Dividend Stock or Senior
Liquidation Stock; provided, however, that any increase in the authorized
Preferred Stock of the Corporation or the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the holders of Series B Convertible Preferred Stock except as
otherwise required by law.


                                      -34-
<PAGE>   35
                  (c) REPURCHASES OF SERIES B CONVERTIBLE PREFERRED STOCK. The
Corporation shall not repurchase or otherwise acquire any shares of Series B
Convertible Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or
11) unless the Corporation offers to repurchase or otherwise acquire
simultaneously a pro rata portion of each holder's shares of Series B
Convertible Preferred Stock for cash at the same price per share.

                  (d) OTHER. So long as any shares of Series B Convertible
Preferred Stock are outstanding:

                  (1) PAYMENT OF OBLIGATIONS. The Corporation will pay and
discharge, and will cause each subsidiary of the Corporation to pay and
discharge, when due all their respective obligations and liabilities which are
material to the Corporation and its subsidiaries taken as a whole, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.

                  (2) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation
will keep, and will cause each subsidiary of the Corporation to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

                  (B) The Corporation will maintain, and will cause each
subsidiary of the Corporation to maintain, with financially sound and
responsible insurance companies, insurance against loss or damage by fire or
other casualty and such other insurance, including but not limited to, product
liability insurance, in such amounts and covering such risks as is reasonably
adequate for the conduct of their businesses and the value of their properties.

                  (3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and its operating subsidiaries at the time this Certificate of
Designations is filed with the Secretary of State of the State of Nevada, and
will preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.

                  (4) COMPLIANCE WITH LAWS. The Corporation will comply, and
will cause each subsidiary of the Corporation to comply, in all material
respects with all applicable laws, ordinances, rules, regulations, decisions,
orders and requirements of governmental authorities and courts (including,
without limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.

                  (5) INVESTMENT COMPANY ACT. The Corporation will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is

                                      -35-
<PAGE>   36
required to be registered under Section 8 of the Investment Company Act of 1940,
as amended, or any successor provision.

                  SECTION 13. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all authorized and issued shares of Series B
Convertible Preferred Stock shall be deemed outstanding except (i) from the
applicable Conversion Date, each share of Series B Convertible Preferred Stock
converted into Common Stock, unless the Corporation shall default in its
obligation to issue and deliver shares of Common Stock upon such conversion as
and when required by Section 10; (ii) from the date of registration of transfer,
all shares of Series B Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate of the Corporation (other than an
Affiliate of the Corporation who is a natural person or any original holder of
shares of Series B Convertible Preferred Stock) and (iii) from the applicable
Redemption Date, Share Limitation Redemption Date, Final Redemption Date or date
of redemption pursuant to Section 11, all shares of Series B Convertible
Preferred Stock which are redeemed or repurchased, so long as in each case the
Redemption Price, the Share Limitation Redemption Price, the Final Redemption
Price, the Optional Redemption Price or other repurchase price, as the case may
be, of such shares of Series B Convertible Preferred Stock shall have been paid
by the Corporation as and when due hereunder.

                  SECTION 14. MISCELLANEOUS.

                  (a) NOTICES. Any notices required or permitted to be given
under the terms of this Certificate of Designations shall be in writing and
shall be delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given upon receipt, if delivered
personally or by courier (a) in the case of the Corporation, addressed to the
Corporation at 2222 West Peoria Avenue, Phoenix, Arizona 85029, Attention: Chief
Executive Officer (telephone line facsimile transmission number (602) 331-0941),
or (b) in the case of any holder of shares of Series B Convertible Preferred
Stock, at such holder's address or telephone line facsimile transmission number
shown on the stock books maintained by the Corporation with respect to the
Series B Convertible Preferred Stock or such other address as the Corporation
shall have provided by notice to the holders of shares of Series B Convertible
Preferred Stock in accordance with this Section or any holder of shares of
Series B Convertible Preferred Stock shall have provided to the Corporation in
accordance with this Section.

                  (b) REPLACEMENT OF CERTIFICATES. Upon receipt by the
Corporation of evidence reasonably satisfactory to the Corporation of the
ownership of and the loss, theft, destruction or mutilation of any certificate
for shares of Series B Convertible Preferred Stock and (1) in the case of loss,
theft or destruction, of indemnity from the record holder of the certificate for
such shares of Series B Convertible Preferred Stock reasonably satisfactory in
form to the Corporation (and without the requirement to post any bond or other
security if such holder has and agrees to maintain reasonably sufficient assets
to support the indemnity) or (2) in the case of mutilation, upon surrender and
cancellation of the certificate for such shares of Series B Convertible
Preferred Stock, the Corporation will execute and deliver to such holder a new
certificate for such shares of Series B Convertible Preferred Stock without
charge to such holder.


                                      -36-
<PAGE>   37
                  (c) OVERDUE AMOUNTS. Except as otherwise specifically provided
in Section 5 with respect to dividends in arrears on the Series B Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series B Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such other rate as
shall be the maximum rate allowable by applicable law) until paid in full.




                                      -37-
<PAGE>   38
                  IN WITNESS WHEREOF, Titan Motorcycle Co. of America has caused
this Second Amended and Restated Certificate of Designations to be signed by
__________________________, its ______________________, and
________________________________________, its ______________________, as of the
___ day of August, 2000.

                                        TITAN MOTORCYCLE CO. OF
                                              AMERICA



                                        By: ____________________________________
                                            Title:  President



                                        By: ____________________________________
                                            Title:  Secretary



                                      -38-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>4
<FILENAME>ex3-3.txt
<DESCRIPTION>EX-3.3
<TEXT>

<PAGE>   1
                                                                Exhibit 3.3
                           FIRST AMENDED AND RESTATED
                           CERTIFICATE OF DESIGNATIONS
                        OF RIGHTS AND PREFERENCES OF THE
                      SERIES C CONVERTIBLE PREFERRED STOCK
                                       OF
                         TITAN MOTORCYCLE CO. OF AMERICA


         Pursuant to the authority expressly granted and vested in the Board of
Directors (the "BOARD OF DIRECTORS" or the "BOARD") of TITAN MOTORCYCLE CO. OF
AMERICA (the "COMPANY") by Section 78.1955 of the General Corporation Law of the
State of Nevada (the "CORPORATION LAW") and the provisions of the Company's
Restated Articles of Incorporation, as amended, the Board of Directors adopted
the following resolution amending and restating the designations, powers,
preferences and rights of its Series C Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATIONS") on August 4, 2000:

                  RESOLVED: That the designations, powers, preferences and
         rights of the Series C Convertible Preferred Stock be, and they hereby
         are, amended and restated as set forth below:


                           I. DESIGNATION AND AMOUNT

         The designation of this series, which consists of 1,300 shares of
Preferred Stock, par value $.001 per share, is the Series C Convertible
Preferred Stock (the "SERIES C CONVERTIBLE PREFERRED STOCK").

                            II. CERTAIN DEFINITIONS

         For purposes of this Certificate of Designation, the following terms
shall have the following meanings:

         A.  "AFFILIATE" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.

         B.  "BUY-IN ADJUSTMENT AMOUNT" means the amount equal to the excess, if
any, of (i) the Converting Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares (as defined in Article IV Paragraph
B(6)) over (ii) the net proceeds (after brokerage commissions, if any) received
by the Converting Holder from the sale of the Sold Shares. By way of
illustration and not in limitation of the foregoing, if the Converting Holder
(as defined in Article IV Paragraph B(6)) purchases shares of Common Stock
having a total purchase price
<PAGE>   2
(including brokerage commissions) of $11,000 to cover a Buy-In (as defined in
Article IV Paragraph B(6)) with respect to shares of Common Stock it sold for
net proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be
required to pay to the Converting Holder will be $1,000.

         C.  "CAP REGULATIONS" has the meaning ascribed to it in Paragraph E(1)
of Article IV hereof.

         D.  "CLOSING BID PRICE" means the closing bid price of the Common Stock
(in U.S. Dollars) on the Principal Trading Market as reported by the Reporting
Service. If the Closing Bid Price cannot be calculated for such security on the
relevant date on the foregoing basis, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Holders of a majority of the then
outstanding shares of Series C Convertible Preferred Stock and reasonably
acceptable to the Company, with the costs of such appraisal to be borne by the
Company. The manner of determining the Closing Bid Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to closing bid price must be made
hereunder.

         E.  "CLOSING DATE" and "INITIAL CLOSING DATE" have the meanings
ascribed to them in the Securities Purchase Agreement.

         F.  "COMMON STOCK" means the Company's common stock, par value $.001
per share.

         G.  "CONVERSION DATE" has the meaning ascribed to it in the Securities
Purchase Agreement.

         H.  "CONVERSION PRICE" means, with respect to any relevant date, the
lower of (i) the Initial Conversion Price or (ii) the Variable Conversion Price,
each of which amounts shall be subject to adjustment as provided herein.

         I.  "EFFECTIVE DATE" means the date the relevant Registration Statement
for the shares of Common Stock issuable on conversion of the Series C
Convertible Preferred Stock and the exercise of the Warrants is declared
effective by the Securities and Exchange Commission.

         J.  "HOLDER" means a person or entity holding shares of the Series C
Convertible Preferred Stock or Warrants, as the case may, unless the context
otherwise requires.

         K.  "INITIAL CONVERSION PRICE" means the amount equal to seventy
percent (70%) of the average of the Closing Bid Price for the five (5) trading
days ending on August 4, 2000.


                                      -2-
<PAGE>   3
         L.  "JUNIOR SECURITIES" means (i) any class or series of capital stock
of the Company authorized prior to the filing of this Certificate of
Designations that, by its terms, ranks junior to the Series C Convertible
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, (ii) until the
Effective Date, each of the Series A Convertible Preferred Stock and the Series
B Convertible Preferred Stock, which by virtue of the written consent of their
respective shareholders, ranks junior to the Series C Convertible Preferred
Stock as to distribution of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, until such Effective Date, and
(iii) all classes or series of capital stock of the Company authorized after the
filing of this Certificate of Designations, unless consented to as provided
herein in each instance, each of which shall rank junior to the Series C
Convertible Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.

         M.  "LIQUIDATION PREFERENCE" means, with respect to a share of Series C
Convertible Preferred Stock, an amount equal to the Stated Value thereof, plus
the accrued and unpaid dividends thereon through the date of final distribution.

         N.  "MARKET PRICE," as of any date, means the average of the Closing
Bid Price (in U.S. Dollars) for the lowest five (5) trading days (which need not
be consecutive) during the twenty-two (22) consecutive trading days ending on
the trading day immediately preceding the relevant date (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such 22 trading day period). If market value cannot be calculated
as of such date on the foregoing basis, the Market Price shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Holders of a majority of the then outstanding shares of Series C Convertible
Preferred Stock and reasonably acceptable to the Company, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market Price
of the Common Stock set forth in the foregoing definition shall apply with
respect to any other security in respect of which a determination as to market
value must be made hereunder.

         O.  "MEETING DATE" means November 13, 2000.

         P.  "PARI PASSU SECURITIES" means any class or series of capital stock
of the Company hereafter created specifically ranking, by its terms, on parity
with the Series C Convertible Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.

         Q.  "PERSON" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.

         R.  "PRINCIPAL TRADING MARKET" means The Nasdaq SmallCap Market, or if
the Common Stock is no longer listed on that market, the principal securities
exchange or trading market on which the Common Stock is listed or traded,
including the OTCBB or the pink sheets.

                                      -3-
<PAGE>   4
         S.  "REGISTRATION RIGHTS AGREEMENT" has the meaning ascribed to it in
the Securities Purchase Agreement.

         T.  "REGISTRATION STATEMENT" means the Registration Statement(s) to be
filed by the Company pursuant to the Registration Rights Agreement for the
resale of, among other shares, the Common Stock issuable upon conversion of the
Series C Convertible Preferred Stock and exercise of the Warrants and any
amendments thereto.

         U.  "REPORTING SERVICE" means Bloomberg LP or if that service is not
then reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by the Holders of the Series C
Convertible Preferred Stock and reasonably acceptable to the Company.

         V.  "SECURITIES" means the shares of Series C Convertible Preferred
Stock or the Common Stock of the Company into which such shares are converted or
convertible, as contemplated hereby.

         W.  "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement, dated June 20, 2000, as amended on or about the date of the
filing of the First Amended and Restated Certificate of Designations, to which
the Company and the party or parties to whom shares of Series C Convertible
Preferred Stock are issued are parties.

         X.  "SENIOR SECURITIES" means each class or series of capital stock of
the Company (including, but not necessarily limited to, the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock) authorized prior
to the original filing of this Certificate of Designations (but only after the
Effective Date) that, by its terms, except as otherwise agreed to by the holders
of such class or series, is senior to the Series C Convertible Preferred Stock
as to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary; provided, however, that the holders
of the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock have agreed in writing that, as to the Series C Convertible
Preferred Stock, until the Effective Date, each such series constitutes Junior
Securities and not Senior Securities.

         Y.  "STATED VALUE" for the Series C Convertible Preferred Stock shall
be $1,000.00 per share.

         Z.   "TRANSACTION AGREEMENTS" has the meaning ascribed to it in the
Securities Purchase Agreement and includes all ancillary documents entered into
between the parties to those agreements.

                                      -4-
<PAGE>   5
         AA.  "VARIABLE CONVERSION PRICE" means the amount equal to seventy
percent (70% ) of the Market Price as of the relevant Conversion Date.

         BB.  "WARRANTS" means the Warrants to Purchase Common Stock issued to
the initial Holders of the Series C Convertible Preferred Stock on a Closing
Date or any replacements thereof.

                                 III. DIVIDENDS

         A.  GENERALLY. The Holders of the Series C Convertible Preferred Stock
shall be entitled to receive a 12% per annum dividend payable on the date (the
"DIVIDEND PAYMENT DATE") which is the earlier of (i) the first business day
after the last calendar day of March, June, September and December of each
calendar year or (ii) a Conversion Date. The dividend shall accrue on a daily
basis and shall be payable in cash or in Common Stock at the Company's option.
Such dividends shall be payable in preference to dividends on any Common Stock
or stock of any class ranking, as to dividend rights, junior to the Series C
Convertible Preferred Stock, and shall be junior as to payment of dividends to
the Senior Securities. Dividends shall be fully cumulative and shall accrue
(whether or not declared and whether or not there shall be funds legally
available for the payment of dividends) daily (based on a 365-day year) ,
without interest, and shall be payable on the Dividend Payment Date unless such
payment would be in violation of the Corporation Law.

         B.  DIVIDENDS PAID IN COMMON STOCK. If paid in Common Stock, the number
of shares of Common Stock to be received shall be determined by dividing the
dollar amount of the dividend by the Conversion Price on the Dividend Payment
Date. If the dividend is to be paid in Common Stock, the Common Stock shall be
delivered to the Holder, or per Holder's instructions, (i) if being issued in
connection with a conversion, at the same time the Conversion Certificates
pursuant to Paragraph B(1) of Article IV of this Certificate of Designations are
to be delivered, and (ii) with respect to all other instances, within five (5)
business days after the Dividend Payment Date (such fifth business date, a
"DELIVERY DATE"). The certificates representing the dividends so paid are
referred to as "CONVERSION CERTIFICATES."

         C.  DIVIDENDS PAID IN CASH. If the dividend is to be paid in cash, the
Company shall make such payment on the Dividend Payment Date. If the dividend is
not paid on the Dividend Payment Date, the dividend must be paid in Common Stock
in accordance with the provisions of this Certificate of Designations, unless
the Holder consents otherwise in each specific instance.

                                 IV. CONVERSION

         A.  CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations
on conversions contained in Paragraph E of this Article IV, each Holder of
shares of Series C Convertible Preferred Stock may, at any time and from time to
time convert (an "OPTIONAL CONVERSION") each of its shares of Series C
Convertible Preferred Stock into a number of fully paid and nonassessable shares
of Common Stock determined in accordance with the following formula:

                     STATED VALUE OF SHARES TO BE CONVERTED
                     --------------------------------------
                                CONVERSION PRICE


                                      -5-
<PAGE>   6
         B.  MECHANICS OF CONVERSION. To effect a conversion of shares of the
Series C Convertible Preferred Stock, the Holder must deliver or fax a Notice of
Conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION") to
the Company (to the attention of the President, with copies to the Chief
Financial Officer of the Company, the Company's transfer agent and the Company's
counsel, all as identified by notice given by the Company to the Holder from
time to time) as provided in this Paragraph. The Notice of Conversion shall be
executed by the Holder of one or more shares of Series C Convertible Preferred
Stock and shall evidence such Holder's intention to convert all or a portion of
such shares. The date of conversion (the "CONVERSION DATE") shall be deemed to
be the date on which the Holder faxes or otherwise delivers a Notice of
Conversion to the Company, provided that the Holder must deliver to the Company
the certificate or certificates representing the shares being converted (the
"CONVERTED SHARES") no later than five (5) business days thereafter.

              1.  DELIVERY OF COMMON STOCK UPON CONVERSION. Certificates
         representing the Common Stock issuable on conversion of the Series C
         Convertible Preferred Stock (the "CONVERSION CERTIFICATES") will be
         delivered to the Converting Holder at the address specified in the
         Notice of Conversion (which may be the Converting Holder's address for
         notices as contemplated by the Securities Purchase Agreement or a
         different address), via express courier, by electronic transfer or
         otherwise, within five (5) business days (such fifth business day, a
         "DELIVERY DATE") after the later of (i) the date on which the Notice of
         Conversion is delivered to the Company as contemplated in this
         Paragraph, or (ii) the date on which the Converted Shares are delivered
         to the Company.

              2.  TAXES. The Company shall pay any and all taxes which may be
         imposed upon the Company with respect to the issuance and delivery of
         the shares of Common Stock upon the conversion of the Series C
         Convertible Preferred Stock other than transfer taxes due upon
         conversion, if such Holder has transferred to another party the Series
         C Convertible Preferred Stock or the right to receive Common Stock upon
         the Holder's conversion thereof or any or income taxes due on the part
         of the Holder. The Company shall have the right to withhold any taxes
         as required by the United States federal or state tax laws.

              3.  NO FRACTIONAL SHARES. If any conversion of Series C
         Convertible Preferred Stock would result in the issuance of 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 C Convertible Preferred Stock shall be rounded
         up or down to the nearest whole share, it being understood that .5 of
         one share shall be rounded up to the next highest share.

              4.  CONVERSION DISPUTES. In the case of any dispute with respect
         to a conversion, the Company shall promptly issue such number of shares
         of Common Stock as are not disputed in accordance with Paragraph A of
         Article IV above. If such dispute involves the calculation of the
         Conversion Price, the Company shall first discuss such discrepancy with

                                      -6-
<PAGE>   7
         the Converting Holder. If the Company and the Converting Holder are
         unable to agree upon the Conversion Price calculation, the Company
         shall promptly submit the disputed calculations to independent
         auditors, which shall be one of the top six nationally recognized
         accounting firms selected by the Holder (unless the Holders and the
         Company mutually agree to a different firm). The auditors, at the
         expense of the party or parties in error (as determined by the
         auditors), shall audit the calculations and notify the Company and the
         Holder of the results within five (5) business days following the date
         it receives the disputed calculations. The auditor's calculation shall
         be deemed conclusive, absent manifest error. The Company shall then
         issue the appropriate number of shares of Common Stock in accordance
         with Paragraph A of Article IV above.

              5.  CERTAIN DEFAULTS. In the event the Company breaches the
         provisions of Section 4(g) of the Securities Purchase Agreement, either
         (i) the Conversion Price shall be amended to be equal to (x) 90% of (y)
         the amount determined in accordance with the provisions of this
         Certificate of Designations and the Transaction Agreements without
         regard to this provision or (ii) the Company shall be required to pay
         the Redemption Amount (as defined in Article VI Paragraph B) as
         contemplated by Article VI hereof.

              6.  DELAY IN DELIVERING CONVERSION CERTIFICATES. The Company
         understands that a delay in the delivery of the Conversion Certificates
         beyond the Delivery Date could result in economic loss to a Holder. As
         compensation to a Holder for such loss, the Company agrees that the
         Conversion Price will be adjusted to equal seventy-nine percent (79%)
         of the Conversion Price applicable immediately before the application
         of this provision, and the Company will then be obligated to issue
         Conversion Certificates based on the Conversion Price as so adjusted.
         In addition, and not in lieu of the foregoing, the Company agrees, if
         there is a further delay in the delivery of the Conversion Certificates
         (as adjusted in accordance with this provision) so that such Conversion
         Certificates are not received within five (5) business days after the
         Delivery Date, either (i) to pay the Redemption Amount as provided in
         Article VI hereof or (ii) to pay late payments to such Holder for late
         delivery of Conversion Certificates in accordance with the following
         schedule (where "No. Business Days Late" is defined as the number of
         business days beyond five (5) business days after the Delivery Date):

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
                      No. Business Days Late                        Late Payment For Each $10,000 of
                                                                Liquidation Preference or Dividend Amount
                                                                             Being Converted
- --------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
                    1                                          $100
- --------------------------------------------------------------------------------------------------------------------
                    2                                          $200
- --------------------------------------------------------------------------------------------------------------------
                    3                                          $300
- --------------------------------------------------------------------------------------------------------------------
                    4                                          $400
- --------------------------------------------------------------------------------------------------------------------
                    5                                          $500
- --------------------------------------------------------------------------------------------------------------------
                    6                                          $600
- --------------------------------------------------------------------------------------------------------------------
                    7                                          $700
- --------------------------------------------------------------------------------------------------------------------
                    8                                          $800
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -7-
<PAGE>   8
<TABLE>
<S>                                                            <C>
                    9                                          $900
- --------------------------------------------------------------------------------------------------------------------
                    10                                         $1,000
- --------------------------------------------------------------------------------------------------------------------
                    >10                                        $1,000 +$200 for each Business Day Late
                                                                             beyond 10 days
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Company shall pay any payments incurred under this Paragraph in
         immediately available funds upon demand. For purposes of this Paragraph
         B(5) of Article IV, in connection with a Mandatory Conversion (as
         defined below), the term "Delivery Date" shall refer to the earlier of
         (i) the Delivery Date determined in relation to a Notice of Conversion
         actually submitted by the Holder to the Company or (ii) the fifth
         business date after written notice from the Holder that the delivery of
         shares to the Holder in connection with a Mandatory Conversion has not
         been accomplished. The Company shall pay any payments incurred under
         this Paragraph in immediately available funds upon demand. Nothing
         herein shall limit the Holder's right to pursue actual damages for the
         Company's failure to issue and deliver the Conversion Certificates to
         the Holder. Furthermore, in addition to any other remedies which may be
         available to a Holder, in the event that the Company fails for any
         reason to effect delivery of such Conversion Certificates within five
         (5) business days after the Delivery Date, the Converting Holder will
         be entitled to revoke the relevant Notice of Conversion by delivering a
         notice to such effect to the Company whereupon the Company and the
         Converting Holder shall each be restored to their respective positions
         immediately prior to delivery of such Notice of Conversion; provided,
         however, that any payments contemplated by this Paragraph B(6) which
         have accrued through the date of such revocation notice shall remain
         due and owing to the Converting Holder notwithstanding such revocation.

              7.  BUY-IN. If, by the relevant Delivery Date, the Company fails
         for any reason to deliver the Conversion Certificates and after such
         Delivery Date, the Holder of the Series C Convertible Preferred Stock
         being converted (a "CONVERTING HOLDER") purchases, in an arm's-length
         open market transaction or otherwise, shares of Common Stock (the
         "COVERING SHARES") in order to make delivery in satisfaction of a sale
         of Common Stock by the Converting Holder (the "SOLD SHARES"), which
         delivery such Converting Holder anticipated to make using the shares to
         be issued upon such conversion (a "BUY-IN"), the Converting Holder
         shall have the right to require the Company to pay to the Converting
         Holder, in addition to and not in lieu of the amounts due under
         Paragraph B(5) of Article IV hereof (and in addition to all other
         amounts contemplated in other provisions of the Transaction Agreements,
         and not in lieu of any such other amounts), the Buy-In Adjustment
         Amount. The Company shall pay the Buy-In Adjustment Amount to the
         Converting Holder in immediately available funds immediately upon
         demand by the Converting Holder.

              8.  DWAC CERTIFICATE DELIVERY. In lieu of delivering physical
         certificates representing the Common Stock issuable upon conversion,
         provided the Company's transfer agent is participating in the
         Depository Trust Company ("DTC") Fast Automated Securities Transfer
         program, upon request of a Converting Holder and his/her compliance
         with the

                                      -8-
<PAGE>   9
         provisions contained in this paragraph, so long as the certificates
         therefor do not bear a legend and the Converting Holder thereof is not
         obligated to return such certificate for the placement of a legend
         thereon, the Company shall use its best efforts to cause its transfer
         agent to electronically transmit the Common Stock issuable upon
         conversion to the Converting Holder by crediting the account of
         Converting Holder's prime broker with DTC through its Deposit
         Withdrawal Agent Commission system.

              9.  CONVERSION OBLIGATIONS AND DEFAULT.

         a. Until such time as a court of competent jurisdiction shall have
         issued a binding injunction (which injunction was not sought by the
         Company or any of its Affiliates) prohibiting the Company from issuing
         shares of Common Stock to the Holder on the conversion by such Holder
         of shares of the Series C Convertible Preferred Stock or to the Holder
         of a Warrant on the exercise by such Holder of the rights thereunder,
         the Company will timely honor all such conversions and exercises
         effected by the Holder in accordance with the terms of this Certificate
         of Designations or the Warrant, as the case may be, and the Securities
         Purchase Agreement, subject only, with respect to conversions of the
         Series C Convertible Preferred Stock, to the limitations as to manner
         of exercise provided herein and to the provisions of Paragraphs E(1)
         and (2) of this Article IV and with respect to exercises of the
         Warrant, to the provisions of Section 2.2 thereof. In furtherance of
         the foregoing, and not in limitation thereof, if at any time, a Holder
         shall elect to convert a share of the Series C Convertible Preferred
         Stock or to exercise any portion of the Warrants, the Company may not
         refuse to effect such conversion or exercise based on any claim that
         the Holder (or anyone associated with the Holder) has been engaged in
         any violation of law or otherwise, unless a binding injunction for a
         court of competent jurisdiction, issued on notice to the Holder of the
         hearing with respect to the issuance of such injunction, restraining or
         enjoining conversion of all of the shares of Series C Convertible
         Preferred Stock or to exercise any portion of the Warrants, the Company
         may not refuse to effect such conversion or exercise based on any claim
         that the Holder (or anyone associated with the Holder) has been engaged
         in any violation of law or otherwise, unless a binding injunction for a
         court of competent jurisdiction, issued on notice to the Holder of the
         hearing with respect to the issuance of such injunction, restraining or
         enjoining conversion of all of the shares of Series C Convertible
         Preferred Stock or the exercise of all Warrants shall have been sought
         and obtained and the Company shall have posted a bond in favor of the
         Holder in the amount of one hundred thirty percent (130%) of the Stated
         Value of the shares of Series C Convertible Preferred Stock held by
         such Holder or the market value of the Common Stock subject to exercise
         of the Warrants held by such Holder which are subject to such
         injunction. The bond referred to in the immediately preceding sentence
         shall remain in effect at least until thirty (30) days after the
         completion of the proceedings relating to the dispute between the
         Holder and the Company with respect to such conversion or right to
         effectuate conversions. The proceeds of such bond shall be payable to
         the Holder to offset any amounts owed to the Holder as reflected in any
         judgment obtained by the Holder in its favor in connection with such
         dispute.

         b. If, at any time:

                                      -9-
<PAGE>   10
                  (I) the Company challenges, disputes or denies the right of a
                  Holder of Series C Convertible Preferred Stock to effect a
                  conversion of the Series C Convertible Preferred Stock
                  Preferred Stock into Common Stock or otherwise dishonors or
                  rejects any Notice of Conversion delivered in accordance with
                  the terms of the Securities Purchase Agreement or this
                  Certificate of Designations (subject to the provisions of
                  Paragraph B(4) of this Article IV with respect to certain
                  disputes relating to calculations of the number of shares to
                  be issued and subject to the provisions of Paragraph E of this
                  Article VI with respect to certain Limitations on Conversions)
                  or any exercise of any Warrant in accordance with its terms
                  ("WARRANT EXERCISE"), or

                  (II) any third party who is not and has never been an
                  Affiliate of such Holder commences any lawsuit or proceeding
                  or otherwise asserts any claim before any court or public or
                  governmental authority, which lawsuit, proceeding or claim
                  seeks to challenge, deny, enjoin, limit, modify, delay or
                  dispute the right of such Holder to effect the conversion of
                  the Series C Convertible Preferred Stock into Common Stock,
                  and the Company refuses to honor any such Notice of Conversion
                  or Warrant Exercise,

         then such Holder shall have the right, by written notice to the
         Company, to require the Company to redeem each share of Series C
         Convertible Preferred Stock for which a Notice of Conversion has been
         refused pursuant to Paragraphs B(8)(a) or (b) above for cash, at an
         amount per share equal to the Redemption Amount, pursuant to the
         provisions of Article VI hereof.

                  10.  CONVERSION IN BANKRUPTCY. The Holder of any Series C
         Convertible Preferred Stock shall be entitled to exercise its
         conversion privilege with respect to the Series C Convertible Preferred
         Stock notwithstanding the commencement of any case under 11 U.S.C.
         Section 101 et seq. (the "BANKRUPTCY CODE"). In the event the Company
         is a debtor under the Bankruptcy Code, the Company hereby waives, to
         the fullest extent permitted, any rights to relief it may have under 11
         U.S.C. Section 362 in respect of such Holder's conversion privilege.
         The Company agrees, without cost or expense to such Holder, to take or
         to consent to any and all action necessary to effectuate relief under
         11 U.S.C. Section 362.

                  C.  INTENTIONALLY OMITTED.

                  D.  MANDATORY CONVERSION. Subject to the terms of this Section
         D, the Company, at its option, may force the conversion of any or all
         of the then outstanding shares of Series C Convertible Preferred Stock
         by written notice of such conversion (a "MANDATORY CONVERSION NOTICE")
         sent to each of the Holders of the Series C Convertible Preferred Stock
         (a "MANDATORY CONVERSION"). The

                                      -10-
<PAGE>   11
Company may issue a Mandatory Conversion Notice if, and only if, all of the
following requirements are met:

              1.  REGISTRATION STATEMENT AVAILABLE. The Registration Statement
         must be effective and available for the resale of all of the shares of
         Common Stock issuable upon the proposed Mandatory Conversion.

              2.  BREACH OF REPRESENTATIONS AND WARRANTIES. The Company shall
         not have materially breached any of its agreements or representations
         contained in the Transaction Agreements.

              3.  REQUIRED COMMON STOCK MARKET PRICE. The closing bid price of
         the Common Stock for each of the twenty (20) consecutive trading days
         ending on the trading day immediately before the Company issues a
         Mandatory Conversion Notice (such twenty trading days, the "MANDATORY
         PERIOD") shall be at least $1.90 (adjusted to take into account any
         stock split effected after the Initial Closing Date).

              4.  REQUIRED COMMON STOCK VOLUME. The average trading volume of
         the Common Stock during the Mandatory Period shall be at least 50,000
         shares per trading day (adjusted to take into account any stock split
         effected after the Closing Date, except that with respect to a reverse
         stock split, the adjustment shall not be greater than a ratio of 1:4).

              5.  CONVERSION LIMITATION. Such Mandatory Conversion (including
         any accrued dividends being paid by the issuance of Common Stock as
         contemplated by this Certificate of Designations) shall not be
         inconsistent with the provisions of the immediately following Section
         E, which shall apply to Mandatory Conversions.

If a Mandatory Conversion Notice is timely and properly given, the shares of
Series C Convertible Preferred Stock indicated in such notice shall be deemed
converted, without further action of the Holder, as of the date the Mandatory
Conversion Notice is so given. In such event, the fifth business day after the
date the Mandatory Conversion Notice is so given shall be deemed to be the
relevant "DELIVERY DATE" with respect to the Mandatory Conversion.

         E.  LIMITATIONS ON CONVERSIONS. The conversion of shares of Series C
         Convertible Preferred Stock shall be subject to the following
         limitations (each of which limitations shall be applied independently):

              1.  CAP REGULATIONS. Without shareholder approval, the Company may
         not issue shares of Common Stock in excess of (i) the number of
         authorized shares, or (ii) the number of shares that may be issued in
         compliance with the applicable rules and regulations of its Principal
         Trading Market, including, but not necessarily limited to, Nasdaq Rule
         4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable, which would
         limit the issuance of Common Stock on conversion of the Series C
         Convertible Preferred Stock and certain

                                      -11-
<PAGE>   12
         other interests held by the Holders to 19.99% of the number of
         outstanding shares of Common Stock on the Initial Closing Date (the
         limitations referred to in clauses (i) and (ii) of this Paragraph E(1),
         collectively, the "CAP REGULATIONS"). Without limiting the other
         provisions of the Securities Purchase Agreement or this Certificate of
         Designations, (i) the Company will take all steps reasonably necessary
         to be in a position to issue shares of Common Stock on conversion of
         the Series C Convertible Preferred Stock without violating the Cap
         Regulations. If at any time after the Meeting Date, the then authorized
         shares or the maximum number of shares of Common Stock that may be
         issued upon conversion of all of the then outstanding Series C
         Convertible Preferred Stock pursuant to the Cap Regulations (the "CAP
         AMOUNT") is less than the number of shares of Common Stock which would
         then be otherwise potentially issuable upon conversion of all of the
         then outstanding shares of Series C Convertible Preferred Stock without
         regard to such Cap Regulations (a "TRADING MARKET TRIGGER EVENT"), the
         Company shall immediately notify the Holders of Series C Convertible
         Preferred Stock of such occurrence and shall take immediate action
         (including, if necessary, seeking the approval of its shareholders to
         authorize the authorization or issuance of the full number of shares of
         Common Stock which would be issuable upon the conversion of the then
         outstanding shares of Series C Convertible Preferred Stock but for the
         Cap Amount) to effectuate either or both of an increase in the
         authorized shares of the Company or the elimination of any prohibitions
         under applicable law or the rules or regulations of any stock exchange,
         interdealer quotation system or other self-regulatory organization with
         jurisdiction over the Company or any of its securities on the Company's
         ability to authorize or issue shares of Common Stock in excess of the
         Cap Amount ("TRADING MARKET PROHIBITIONS"). In this event, the Holder
         of a share of Series C Convertible Preferred Stock which can not be
         converted as a result of the Cap Regulations, after all such shares of
         Series C Convertible Preferred Stock that can be converted under the
         Cap Amount have been converted (each such share which can not be
         converted for such reason, an "UNCONVERTED SHARE"), shall have the
         option, exercisable in such Holder's sole and absolute discretion, to
         elect either of the following remedies:

                   a.  If permitted by the Cap Regulations, require the Company
              to issue shares of Common Stock in accordance with such holder's
              Notice of Conversion at a conversion purchase price equal to the
              average of the five (5) lowest Closing Bid Prices (which need not
              be from consecutive trading days, but subject to certain equitable
              adjustments to account for certain events, such as stock splits or
              reverse splits, occurring during such period) during the sixty
              (60) trading days ending on the trading day immediately preceding
              the date of the Notice of Conversion; or

                   b.  Require the Company to redeem each Unconverted Share for
              cash, at an amount per share equal to the Redemption Amount,
              pursuant to the provisions of Article VI hereof.

         A Holder of more than one Unconverted Share may elect one of the above
         remedies with respect to some of such Unconverted Shares and the other
         remedy with respect to other

                                      -12-
<PAGE>   13
         Unconverted Shares. Anything herein to the contrary notwithstanding,
         the remedy contained in clauses (a) and (b) of this Paragraph E(1) of
         this Article IV shall not be available to the Holder of such shares
         until after the Meeting Date. If the Cap Regulations no longer apply to
         limit the Company's issuance of shares of Common Stock in connection
         with the Series C Convertible Preferred Stock or the transactions
         contemplated by the Transaction Agreements or other transactions
         between the Company and the Holder, the remedies contained in clauses
         (x) and (y) of this Paragraph E(1) of this Article IV shall not be
         exercisable by such Holder.

              2.  NO TEN PERCENT HOLDERS. Notwithstanding any other provision
         hereof, or any of the Transaction Agreements, in no event (except (i)
         as specifically provided in this Certificate of Designations as an
         exception to this provision, (ii) while there is outstanding a tender
         offer for any or all of the shares of the Company's Common Stock, or
         (iii) at the Holder's option, on at least sixty-five (65) days' advance
         written notice from the Holder) shall the Holder be entitled to convert
         any share of Series C Convertible Preferred Stock, or shall the Company
         have the obligation to convert such share (and the Company shall not
         have the right to pay dividends on shares of Series C Convertible
         Preferred Stock in shares of Common Stock or require a Mandatory
         Conversion), to the extent that, after such conversion or issuance of
         stock in payment of dividends, the sum of (a) 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 Series C
         Convertible Preferred Stock or any unexercised portion of the Warrants
         or any other unexercised right held by the Holder subject to a similar
         limitation), and (b) the number of shares of Common Stock issuable upon
         the conversion of the shares of Series C Convertible Preferred Stock
         with respect to which the determination of this proviso is being made,
         would result in beneficial ownership by the Holder and its Affiliates
         of more than 9.99% of the outstanding shares of Common Stock (after
         taking into account the shares to be issued to the Holder upon such
         conversion). For purposes of the proviso to the immediately preceding
         sentence, beneficial ownership shall be determined in accordance with
         Section 13(d) of the Securities Exchange Act of 1934, as amended (the
         "1934 ACT"). If the Holder transfers or assigns any shares of the
         Series C Convertible Preferred Stock to a party who or which would not
         be considered such an Affiliate, such assignment shall be made subject
         to the transferee's or assignee's specific agreement to be bound by the
         provisions of this Paragraph D(2) of Article IV as if such transferee
         or assignee were the original Holder hereof. Nothing herein shall
         preclude the Holder from disposing of a sufficient number of other
         shares of Common Stock beneficially owned by the Holder so as to
         thereafter permit the continued conversion of the shares of Series C
         Convertible Preferred Stock.

                                      -13-
<PAGE>   14
                   V.  RESERVATION OF SHARES OF COMMON STOCK

         A.  RESERVED AMOUNT. Upon the initial issuance of the shares of Series
C Convertible Preferred Stock, the Company shall reserve out of the authorized
but unissued shares of Common Stock for issuance upon conversion of the Series C
Convertible Preferred Stock such number of shares equal to 200% of the number of
shares which would be issuable if all of the authorized shares of Series C
Convertible Preferred Stock were converted in their entirety on the Initial
Closing Date based on the Conversion Price in effect on that date and thereafter
the number of authorized but unissued shares of Common Stock so reserved (the
"RESERVED AMOUNT") shall not be decreased, but may be increased pursuant to
Paragraph B of this Article V, and shall at all times be sufficient to provide
for the conversion of the Series C Convertible Preferred Stock outstanding at
the then current Conversion Price thereof. The Reserved Amount shall be
allocated to the holders of Series C Convertible Preferred Stock as provided in
Article X Paragraph E.

         B.  INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any 10
consecutive trading days (the last of such 10 trading days being the
"AUTHORIZATION TRIGGER Date") shall be less than 150% of the number of shares of
Common Stock issuable upon potential conversion of the then outstanding shares
of Series C Convertible Preferred Stock, the Company shall immediately notify
the holders of Series C Convertible Preferred Stock of such occurrence and shall
take immediate action (including, if necessary, seeking shareholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series C Convertible Preferred Stock. In the
event the Company fails to so increase the Reserved Amount within 90 days after
an Authorization Trigger Date (such event being the "RESERVED AMOUNT TRIGGER
EVENT"), each Holder of Series C Convertible Preferred Stock shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time after the Reserved Amount Trigger Date, by delivery of a Redemption Notice
(as defined in Article VI Paragraph C) to the Company, to require the Company to
purchase for cash, at an amount per share equal to the Redemption Amount, a
portion of the holder's Series C Convertible Preferred Stock such that, after
giving effect to such purchase, the holder's allocated portion of the Reserved
Amount equals or exceeds 200% of the total number of shares of Common Stock
issuable to such Holder upon conversion of its Series C Convertible Preferred
Stock. If the Company fails to redeem any of such shares within five (5)
business days after its receipt of such Redemption Notice, then such Holder
shall be entitled to the remedies provided in Article VI Paragraph C.

         C.  LIMITATIONS ON REDEMPTION RIGHT. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series C Convertible Preferred
Stock shall have no right to require the Company to effect a redemption of their
outstanding shares of Series C Convertible Preferred Stock as provided in
Paragraph B of this Article V so long as the Company shall have taken immediate
action following the applicable Authorization Trigger Date (including, if
necessary, seeking stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200% of the number of
shares of Common Stock then issuable upon conversion of the outstanding Series C
Convertible Preferred Stock. The Company will be

                                      -14-
<PAGE>   15
deemed to be using "its commercially reasonable good faith best efforts" to
increase the Reserved Amount so long as it solicits stockholder approval to
authorize the issuance of additional shares of Common Stock not less than two
(2) times during each twelve month period following the applicable Authorization
Trigger Date during which any shares of Series C Convertible Preferred Stock
remain outstanding; provided that no such limitation on the redemption rights
set out in Paragraph B of this Article V shall be effective if the Company fails
to obtain stockholder approval after two (2) attempts.

                                VI.  REDEMPTION

         A.  REDEMPTION BY HOLDER. In the event that any of the following occur
(individually, a "REDEMPTION EVENT"):

             1.  CAP REGULATIONS. The Company's inability or refusal to issue
         sufficient shares of Common Stock upon conversion of Unconverted Shares
         in accordance with Paragraph E(1) of Article IV hereof.

             2.  CONVERSION DEFAULT. The Company's failure to deliver Conversion
         Certificates under Paragraph B of Article IV hereof.

then, upon the occurrence of any such Redemption Event, each Holder of shares of
Series C Convertible Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a notice requesting the redemption of all or part of such Holder's shares of
Series C Convertible Preferred Stock (a "REDEMPTION NOTICE") to the Company
while such Redemption Event continues, to require the Company to purchase for
cash any or all of the then outstanding shares of Series C Convertible Preferred
Stock held by such Holder for an amount per share equal to the Redemption Amount
in effect at the time of the redemption hereunder.

         B.  DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with
respect to a share of Series C Convertible Preferred Stock being redeemed ( a
"REDEEMED SHARE") means an amount payable in cash, equal to the one hundred
thirty (130%) of the Stated Value of the Redeemed Share plus accrued but unpaid
dividends thereon.

         C.  REDEMPTION DEFAULTS. If the Company fails to pay any Holder the
Redemption Amount with respect to any share of Series C Convertible Preferred
Stock within twenty-five (25) business days after its receipt of a Redemption
Notice, then the Holder of Series C Convertible Preferred Stock delivering such
Redemption Notice shall be entitled to interest on the Redemption Amount at a
per annum rate equal to the lower of 15% and the highest interest rate permitted
by applicable law from the date on which the Company receives the Redemption
Notice until the date of payment of the Redemption Amount hereunder. In the
event the Company is not able to redeem all of the shares of Series C
Convertible Preferred Stock subject to Redemption Notices delivered prior to the
date upon which such redemption is to be effected, the Company shall redeem
shares of Series C Convertible Preferred Stock from each Holder pro rata, based
on the relative total number

                                      -15-
<PAGE>   16
of shares of Series C Convertible Preferred Stock outstanding (determine at the
time of redemption) included by each such Holder in all Redemption Notices
delivered prior to the date upon which such redemption is to be effected.


                          VII.  LIQUIDATION PREFERENCE

         A.  LIQUIDATION EVENT. If the Company shall commence a voluntary case
under the U.S. Federal bankruptcy laws or any other applicable bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Company 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 Company shall be entered by a court having jurisdiction in the premises in
an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company 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 60 consecutive days and,
on account of any such event, the Company shall liquidate, dissolve or wind up,
or if the Company shall otherwise liquidate, dissolve or wind up, including, but
not limited to, the sale or transfer of all or substantially all of the
Company's assets in one transaction or in a series of related transactions (a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock of the Company (other than Senior Securities and Pari Passu
Securities) upon liquidation, dissolution or winding up unless prior thereto the
holders of shares of Series C Convertible Preferred Stock shall have received
the Liquidation Preference 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 C Convertible Preferred Stock and holders of Pari
Passu Securities shall be insufficient to permit the payment to such holders of
the preferential amounts payable thereon, then the entire assets and funds of
the Company legally available for distribution to the Series C Convertible
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.

         B.  EXCLUSIONS. The purchase or redemption by the Company of stock of
any class of Senior Securities, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other entity nor the sale or transfer by the Company of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.

                                      -16-
<PAGE>   17
                    VIII.  ADJUSTMENTS TO THE CONVERSION PRICE

         A.  SALE. The Conversion Price shall be subject to adjustment from time
to time as follows: If, for as long as any shares of Series C Convertible
Preferred Stock remain outstanding, the Company enters into a merger (other than
where the Company is the surviving entity) or consolidation with another
corporation or other entity or a sale or transfer of all or substantially all of
the assets of the Company to another person (collectively, a "SALE"), the
Company will require, in the agreements reflecting such transaction, that the
surviving entity expressly assume the obligations of the Company hereunder.
Notwithstanding the foregoing, if the Company enters into a Sale and the holders
of the Common Stock are entitled to receive stock, securities or property in
respect of or in exchange for Common Stock, then as a condition of such Sale,
the Company and any such successor, purchaser or transferee will agree that the
Series C Convertible Preferred Stock may thereafter be converted on the terms
and subject to the conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger, consolidation, sale or
transfer by a Holder of the number of shares of Common Stock into which then
outstanding shares of Series C Convertible Preferred Stock might have been
converted immediately before such merger, consolidation, sale or transfer,
subject to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any such proposed Sale, the Holder hereof shall
have the right to either (i) convert all of any of the outstanding Series C
Convertible Preferred Stock (without regard to the limits contemplated by
Paragraph E(2) of Article IV hereof) by delivering a Notice of Conversion to the
Company within 15 days of receipt of notice of such Sale from the Company or
(ii) by delivering a notice to such effect to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company, (x) if the surviving
entity in the transaction is not a publicly traded entity listed on a Principal
Trading Market, demand a redemption of all or any of the outstanding Series C
Convertible Preferred Stock for the Redemption Amount by delivering a notice to
such effect to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company and/or (y) if the surviving entity in the transaction is a
publicly traded entity listed on a Principal Trading Market, elect to retain all
or any of the outstanding Series C Convertible Preferred Stock, as to which all
of the terms hereof, including but not limited to the conversion terms, shall
remain in full force and effect. Anything in this Paragraph to the contrary
notwithstanding, if the Sale is for cash consideration of at least $5.00 per
share (adjusted for capital transactions occurring after the Initial Closing
Date) with or without other consideration (a "Cash Sale"), the Holder shall be
deemed to have converted all outstanding shares of Series C Convertible
Preferred Stock (and the Company shall be deemed to have elected to pay all
accrued but unpaid dividends thereon in Common Stock) immediately before the
consummation of such Cash Sale, without regard to any of the limitations
contemplated by Paragraph E of Article IV.

         B.  SPIN OFF. The Company agrees that for as long as shares of Series C
Convertible Preferred Stock remain outstanding, the Company will not, without
the consent of the Holder, spin off or otherwise divest itself of a part of its
business or operations or dispose all or of a part of its assets in a
transaction (the "SPIN OFF") in which the Company does not receive just
compensation for such business, operations or assets, but causes securities of
another entity (the "SPIN OFF SECURITIES") to be issued to security holders of
the Company. If, for any reason, prior to the

                                      -17-
<PAGE>   18
Conversion Date or the date of payment of the Redemption Amount hereunder, the
Company, with the consent of the Holder, consummates a Spin Off, then the
Company shall cause (i) to be reserved Spin Off Securities equal to the number
thereof which would have been issued to the Holder had all of the holder's
shares of Series C Convertible Preferred Stock outstanding on the record date
(the "RECORD DATE") for determining the amount and number of Spin Off Securities
to be issued to security holders of the Company (the "OUTSTANDING SERIES C
CONVERTIBLE PREFERRED STOCK") been converted as of the close of business on the
trading day immediately before the Record Date (the "RESERVED SPIN OFF SHARES"),
and (ii) to be issued to the Holder on the conversion of all or any of the
Outstanding Series C Convertible Preferred Stock, such amount of the Reserved
Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (a) the numerator is the principal amount of the Outstanding
Series C Convertible Preferred Stock then being converted, and (b) the
denominator is the principal amount of the Outstanding Series C Convertible
Preferred Stock.

         C.  STOCK SPLITS, ETC. If, at any time while any shares of Series C
Convertible Preferred Stock remain outstanding, the Company effectuates a stock
split or reverse stock split of its Common Stock or issues a dividend on its
Common Stock consisting of shares of Common Stock, the Conversion Price and any
other amounts calculated as contemplated by this Certificate of Designations
shall be equitably adjusted to reflect such action. By way of illustration, and
not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split
of its Common Stock, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such split, any market price
from a date prior to such split which was used in any of the calculation of the
Conversion Price shall be deemed to be one-half of what it had been calculated
to be immediately prior to such split; (ii) if the Company effectuates a 1:10
reverse split of its Common Stock, thereafter, with respect to any conversion
for which the Company issues the shares after the record date of such reverse
split, any market price from a date prior to such split which was used in any of
the calculation of the Conversion Price shall be deemed to be ten times what it
had been calculated to be immediately prior to such split; and (iii) if the
Company declares a stock dividend of one share of Common Stock for every 10
shares outstanding, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such dividend, any market
price from a date prior to such record date which was used in any of the
calculation of the Conversion Price shall be deemed to be such amount multiplied
by a fraction, of which the numerator is the number of shares (10 in the
example) for which a dividend share will be issued and the denominator is such
number of shares plus the dividend share(s) issuable or issued thereon (11 in
the example).

         D.  NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Initial Conversion Price pursuant to this Article VIII, the
Company, at its expense, shall promptly compute such adjustment or readjustment
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 Company
shall, upon the written request at any time of any Holder of Series C
Convertible Preferred Stock, furnish to such Holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the

                                      -18-
<PAGE>   19
Initial 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 C Convertible
Preferred Stock.

                               IX.  VOTING RIGHTS

         A.  GENERALLY. The holders of the Series C Convertible Preferred Stock
have no voting power whatsoever, except as otherwise provided by the Corporation
Law.

         B.  CLASS VOTING. To the extent that under the Corporation Law the vote
of the holders of the Series C Convertible Preferred Stock, voting separately as
a class or series, as applicable, is required to authorize a given action of the
Company, the affirmative vote or consent of the holders of at least a majority
of the then outstanding shares of the Series C Convertible Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of at least a majority of the then outstanding shares of
Preferred Stock (except as otherwise may be required under the Corporation Law,
a "REQUIRED INTEREST") shall constitute the approval of such action by the
class. To the extent that under the Corporation Law holders of the Series C
Convertible Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series C Convertible
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 (subject to the
limitations contained in Article IV Paragraph E) using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated.

                               X.  MISCELLANEOUS

         A.  RANK. The Series C Convertible Preferred Stock shall rank (i) prior
to the Company's Common Stock; (ii) prior to any Junior Securities, including,
but not necessarily limited to, the Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock until the Effective Date; (iii) junior to
any Senior Securities, including, but not necessarily limited to, the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock after
the Effective Date; and (iv) pari passu with any Pari Passu Securities;
provided, however, that no additional Senior or Pari Passu Securities shall be
created without the written consent of a Required Interest.

         B.  CANCELLATION OF SERIES C CONVERTIBLE PREFERRED STOCK. If any shares
of Series C Convertible Preferred Stock are converted or redeemed pursuant to
this Certificate of Designations, the shares so converted shall be canceled,
shall return to the status of authorized, but unissued preferred stock of no
designated series, and shall not be issuable by the Company as Series C
Convertible Preferred Stock.


                                      -19-
<PAGE>   20
         C.  LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Series C
Convertible Preferred Stock certificate(s) and (ii) (y) in the case of loss,
theft or destruction, of indemnity (without any bond or other security)
reasonably satisfactory to the Company, or (z) in the case of mutilation, upon
surrender and cancellation of the Series C Convertible Preferred Stock
certificate(s), the Company shall execute and deliver new Series C Convertible
Preferred Stock certificate(s) of like tenor and date. However, the Company
shall not be obligated to reissue such lost or stolen Series C Convertible
Preferred Stock certificate(s) if the Holder contemporaneously requests the
Company to convert such Series C Convertible Preferred Stock.

         D.  ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series C Convertible Preferred Stock based on the number of shares of Series C
Convertible Preferred Stock issued to each Holder. Each increase to the Cap
Amount and the Reserved Amount shall be allocated pro rata among the holders of
Series C Convertible Preferred Stock based on the number of shares of Series C
Convertible Preferred Stock held by each Holder at the time of the increase in
the Cap Amount or Reserved Amount. In the event a Holder shall sell or otherwise
transfer any of such holder's shares of Series C Convertible Preferred Stock,
each transferee shall be allocated a pro rata portion of such transferor's Cap
Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series C
Convertible Preferred Stock shall be allocated to the remaining holders of
shares of Series C Convertible Preferred Stock, pro rata based on the number of
shares of Series C Convertible Preferred Stock then held by such holders.

         E.  PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to make
any cash payment to a Holder under this Certificate of Designations (upon
redemption or otherwise), such cash payment shall be made to the Holder on the
date specified herein or, if not so specified, within five (5) business days
after delivery by such Holder of a notice specifying that the Holder elects to
receive such payment in cash and the method (e.g., by check, wire transfer) in
which such payment should be made. If such payment is not delivered within the
relevant time period, such Holder shall thereafter be entitled to interest on
the unpaid amount at a per annum rate equal to the lower of 15% and the highest
interest rate permitted by applicable law until such amount is paid in full to
the Holder.

         F.  STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by
a Holder of Series C Convertible Preferred Stock, (i) the shares covered thereby
(other than the shares, if any, which cannot be issued because their listing or
issuance would exceed such holder's allocated portion of the Reserved Amount or
Cap Amount) shall be deemed converted into shares of Common Stock and the Holder
shall thereupon have all rights of a shareholder of such shares of Common Stock,
including, but not necessarily limited to, voting rights, and (ii) the holder's
rights as a Holder of such converted shares of Series C Convertible 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

                                      -20-
<PAGE>   21
Company to comply with the terms of this Certificate of Designations.

         G.  AMENDMENTS. This Certificate of Designations may only be amended
with the written consent of the holders of eighty-five (85%) percent of the
outstanding Series C Convertible Preferred Stock and the vote or action of any
other party or class entitled to vote or act thereon.



                               __________________

                                      -21-
<PAGE>   22
                    TITAN MOTORCYCLE CO. OF AMERICA EXHIBIT A

                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
          in order to Convert the Series C Convertible Preferred Stock)


          TO:       TITAN MOTORCYCLE CO. OF AMERICA          VIA TELECOPIER TO:
                    2222 West Peoria Avenue
                    Phoenix, AZ 85029
                    Attn: Frank Keery, President             (602) 331-0941

          CC:       Titan Motorcycle Co.  of America
                    Attn: Chief Financial Officer            (602) 331-0941

                    _________________________________        (   )    -
                    (Company's Transfer Agent)

                    Snell & Wilmer LLP
                    Attn: Richard B. Stagg, Esq.             (602) 382-6070
                    (Company's Counsel)


          FROM:    ____________________________________________________________
          ("Holder")


          DATE: ___________________________________________________________ (the
          "Conversion Date")

         RE: Conversion of ___________________ shares (the "Converted Shares")
of the Series C Convertible Preferred Stock ("Series C Convertible Preferred
Stock") of TITAN MOTORCYCLE CO. OF AMERICA (the "Company") into
__________________ shares (the "Conversion Shares") of Common Stock (defined
below)

         CONVERSION DATE:


                  The captioned Holder hereby gives notice to the Company,
         pursuant to the Certificate of Designations of Series C Convertible
         Preferred Stock of TITAN MOTORCYCLE CO. OF AMERICA (as heretofore
         amended, the "Certificate of Designations"), that the Holder elects to
         convert the Converted Shares into fully paid and non-assessable shares
         of Common Stock, $.001 par value (the "Common Stock"), of the Company
         as of the Conversion Date specified above.
<PAGE>   23
         Said conversion shall be based on the following Conversion Price (the
         lower of the two alternatives is checked):
<PAGE>   24
                  $_______________, representing the Initial Conversion Price
         (as defined in the Certificate of Designations)

                  $_______________, representing the Variable Conversion Price
         (as defined in the Certificate of Designations).

                  If the Variable Conversion Price is marked, a schedule of the
         Closing Bid Prices of the Common Stock for the 22 trading days prior to
         the Conversion Date on the Principal Trading Market as reported by the
         Reporting Service (as those terms are defined in the Certificate of
         Designations), is attached for your reference in determining the
         Conversion Price.

         Based on this Conversion Price, the number of Conversion Shares
         indicated above should be issued in the following name(s):

                       Name and Record Address              Conversion Shares
                       _____________________________
                       _____________________________
                       _____________________________

                  As contemplated by the Certificate of Designations and the
         Securities Purchase Agreement, dated June 20, 2000, as amended (the
         "Securities Purchase Agreement"), to which the Company and the Holder
         are parties, this Notice of Conversion is being sent by facsimile to
         the telecopier number and officer indicated above, with a copy to the
         Company's counsel.

                  The Holder has previously surrendered or will surrender (or
         cause to be surrendered) the certificate(s) for the Converted Shares,
         duly endorsed, to the Company at the address indicated above by express
         courier within five (5) business days after delivery or facsimile
         transmission of this Notice of Conversion.

                  The certificates representing the Conversion Shares (together
         with certificate(s) representing the shares of Series C Convertible
         Preferred Stock not converted hereby) should be transmitted by the
         Company to the Holder via express courier or by electronic transfer
         within the time contemplated by the Certificate of Designations after
         receipt of this Notice of Conversion (by facsimile transmission or
         otherwise) and the certificate(s) representing the Converted Shares to:


                                         _____________________________

                                         _____________________________

                                         _____________________________


                  As contemplated by Article III of the Certificate of
         Designations, the Company should also pay all accrued but unpaid
         dividends on the Converted
<PAGE>   25
         Shares to the Holder. If being paid in cash, such payment should be
         made by wire transfer as follows:

                                         _____________________________

                                         _____________________________

                                         _____________________________

                  If being paid in Common Stock as contemplated by said Article,
         such shares should be issued in the name of the Holder and delivered in
         the same manner as, and together with, the Conversion Shares.

                  With the conversion effected hereby, the Holder represents to
         the Company that the Holder is in compliance with the provisions of
         Paragraph E(2) of Article IV of the Certificate of Designations.


                                               _________________________________
                                               (Print name of Holder)

                                               By: _____________________________
                                               (Signature of Authorized Person)

                                               _________________________________
                                               (Printed Name and Title)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>5
<FILENAME>ex4-1.txt
<DESCRIPTION>EX-4.1
<TEXT>

<PAGE>   1
                                                                Exhibit 4.1
                                FORM OF DEBENTURE

         NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
         HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
         EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
         AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
         PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
         HARBOR THEREFROM.

NNo. 00A-                                           US $


                         TITAN MOTORCYCLE CO. OF AMERICA

              12% SECURED CONVERTIBLE DEBENTURE DUE AUGUST 31, 2002

        THIS DEBENTURE is one of a duly authorized issue of up to $750,000 in
Debentures of TITAN MOTORCYCLE CO. OF AMERICA, a corporation organized and
existing under the laws of the State of Nevada (the "Company") designated as its
12% Secured Convertible Debentures.

         FOR VALUE RECEIVED, the Company promises to pay to ____________________
______________________________, the registered holder hereof (the "Holder"), the
principal sum of ________________________ and 00/100 Dollars (US $_____________)
on August 31, 2002 (the "Maturity Date") and to pay interest on the principal
sum outstanding from time to time in arrears (i) upon conversion as provided
herein or (ii) on the Maturity Date, at the rate of 12% per annum accruing from
the date of initial issuance of this Debenture. Accrual of interest shall
commence on the first such business day to occur after the date hereof and shall
continue to accrue on a daily basis until payment in full of the principal sum
has been made or duly provided for. Subject to the provisions of Section 4 below
(the terms of which shall govern as if this sentence were not included in this
Debenture), interest on this Debenture is payable, at the option of the Company,
in shares of Common Stock of the Company, $.001 par value ("Common Stock") at
the Conversion Price (as defined below) in effect on the date of payment, or in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of the Company as designated in writing by
the Holder from time to time. This Debenture is being issued pursuant to the
terms of the Securities Purchase Agreement, dated August ___________________,
2000
<PAGE>   2
(the "Securities Purchase Agreement"), to which the Company and the Holder (or
the Holder's predecessor in interest) are parties. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement.
<PAGE>   3
         This Debenture is subject to the following additional provisions:

         1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.

         2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

         3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement . In the event of any proposed transfer of this Debenture,
the Company may require, prior to issuance of a new Debenture in the name of
such other person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name does not
and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Debenture, the
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.

         4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert this Debenture at any
time into shares of Common Stock of the Company at a conversion price for each
share of Common Stock ("Conversion Price") equal to the lower of the Fixed
Conversion Price or the Variable Conversion Price (as those terms are defined
below). The term "Fixed Conversion Price" means the amount equal to seventy
percent (70%) of the average of the Closing Bid Price for the five (5) trading
days ending on the trading day immediately preceding the Closing Date; which
amount is subject to adjustment as provided herein. The term "Variable
Conversion Price" means the amount equal to seventy percent (70%) of the average
of the five (5) lowest Closing Bid Prices (which need not be from consecutive
trading days) during the twenty-two (22) trading days ending on the trading day
immediately preceding the Conversion Date (as defined below). Interest accrued
or accruing from the date of issuance to the Conversion Date or the Maturity
Date, as the case may be, shall, at the option of the Holder, be paid
<PAGE>   4
in cash or Common Stock at the Conversion Price then applicable as of the
Conversion Date or the Maturity Date, as the case may be.
<PAGE>   5
         B.       (i) To effect a conversion of this Debenture, the Holder must
deliver or fax a Notice of Conversion in the form attached hereto as Exhibit A
("Notice of Conversion") to the Company (to the attention of the President, with
copies to the Chief Financial Officer of the Company, the Company's transfer
agent and the Company's counsel, all as identified by notice given by the
Company to the Holder from time to time) as provided in this Section 4(B). The
Notice of Conversion shall be executed by the Holder and shall evidence such
Holder's intention to convert all or a portion of this Debenture. The date of
conversion (the "Conversion Date") shall be deemed to be the date on which the
Holder faxes or otherwise delivers a Notice of Conversion to the Company,
provided that the Holder must deliver to the Company this Debenture (the
"Converted Debenture") no later than five (5) business days thereafter.

                  (ii) Certificates representing the Common Stock issuable on
conversion of this Debenture (the "Conversion Certificates") will be delivered
to the Holder at the address specified in the Notice of Conversion (which may be
the Holder's address for notices as contemplated by the Securities Purchase
Agreement or a different address), via express courier, by electronic transfer
or otherwise, within five (5) business days (such fifth business day, a
"Delivery Date") after the later of (i) the date on which the Notice of
Conversion is delivered to the Company as contemplated in this Section 4(B) or
(ii) the date on which the Converted Debenture is delivered to the Company.

                  (iii) The Company shall pay any and all taxes which may be
imposed upon the Company with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of this Debenture other than transfer taxes
due upon conversion, if such Holder has transferred to another party this
Debenture or the right to receive Common Stock upon the Holder's conversion
hereof or any or income taxes due on the part of the Holder. The Company shall
have the right to withhold any taxes as required by the United States federal or
state tax laws.

                  (iv) If any conversion of this Debenture would result in the
issuance of 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 Debenture shall be rounded up or down to the nearest whole share, it being
understood that .5 of one share shall be rounded up to the next highest share.

                  (v) In the case of any dispute with respect to a conversion,
the Company shall promptly issue such number of shares of Common Stock as are
not disputed in accordance with Section 4(A) hereof. If such dispute involves
the calculation of the Conversion Price, the Company shall first discuss such
discrepancy with the Holder. If the Company and the Holder are unable to agree
upon the Conversion Price calculation, the Company shall promptly submit the
disputed calculations to independent auditors, which shall be one of the top six
nationally recognized
<PAGE>   6
accounting firms selected by the Holder (unless the Holder and the Company
mutually agree to a different firm). The auditors, at the expense of the party
or parties in error (as determined by the auditors), shall audit the
calculations and notify the Company and the Holder of the results within five
(5) business days following the date it receives the disputed calculations. The
auditor's calculation shall be deemed conclusive, absent manifest error. The
Company shall then issue the appropriate number of shares of Common Stock in
accordance with Section 4(A) hereof.
<PAGE>   7
         C. Without shareholder approval, the Company may not issue shares of
Common Stock in excess of (a) (i) the number of authorized shares, or (ii) if
the Cap Regulations are applicable, the Cap Amount (or the allocation of the Cap
Amount to the Holder in accordance with the provisions of Section 4(j)(i) of the
Securities Purchase Agreement) (collectively, the "Issuance Limitations").
Without limiting the other provisions of the Securities Purchase Agreement or
this Debenture, (i) the Company will take all steps reasonably necessary to be
in a position to issue shares of Common Stock on conversion of all the
debentures issued in this series of Debentures without violating the Issuance
Limitations. If at any time after the Meeting Date, the then authorized and
unissued shares of Common Stock of the Company or the Cap Amount (or the
allocation thereof to the Holder) is less than the number of shares of Common
Stock which would then be otherwise potentially issuable upon conversion of all
of the then outstanding debentures of this series of Debentures without regard
to such Issuance Limitations, the Company shall immediately notify the Holders
of all outstanding debentures of this series of Debentures of such occurrence
and shall take immediate action (including, if necessary, seeking the approval
of its shareholders to authorize the authorization or issuance of the full
number of shares of Common Stock which would be issuable upon the conversion of
the then outstanding debentures of this series of Debentures but for the
Issuance Limitations) to effectuate either or both of an increase in the
authorized shares of the Company or the elimination of the application of the
Cap Regulations to so as to permit the Company to issue shares of Common Stock
in excess of the Cap Amount. In this event, the Holder of a Debenture which can
not be converted as a result of the Issuance Limitations after all such
Debentures that can be converted under the Issuance Limitations have been
converted (each such unconverted Debenture, an "Issuance Limitation Unconverted
Debenture"), shall have the option, exercisable in such Holder's sole and
absolute discretion, to elect either of the following remedies:

                  (1) If permitted by the Cap Regulations, require the Company
         to issue shares of Common Stock in accordance with such holder's Notice
         of Conversion at a conversion purchase price equal to the average of
         the five (5) lowest Closing Bid Prices (which need not be from
         consecutive trading days, but subject to certain equitable adjustments
         to account for certain events, such as stock splits or reverse splits,
         occurring during such period) during the sixty (60) trading days ending
         on the trading day immediately preceding the date of the Notice of
         Conversion; or
<PAGE>   8
                  (2) Require the Company to redeem each Issuance Limitation
         Unconverted Debenture for cash, at an amount per share equal to the
         Redemption Amount, pursuant to the provisions of Section 5 hereof.

A Holder of an Issuance Limitation Unconverted Debenture may elect one of the
above remedies with respect to a portion of such Issuance Limitation Unconverted
Debentures and the other remedy with respect to other portions of the Issuance
Limitation Unconverted Debentures. Anything herein to the contrary
notwithstanding, the remedy contained in clauses (1) and (2) of this Section
4(C) shall not be available to the Holder of such Debentures until after the
Meeting Date. If the Issuance Limitations no longer apply to limit the Company's
issuance of shares of Common Stock upon conversion of the Debentures or the
transactions contemplated by the Transaction Agreements, the remedies contained
in clauses (1) and (2) of this Section 4(C) shall not be exercisable by a
Holder.

         D. Notwithstanding any other provision hereof, or any of the
Transaction Agreements, in no event (except (i) as specifically provided herein
as an exception to this provision, (ii) while there is outstanding a tender
offer for any or all of the shares of the Company's Common Stock, or (iii) at
the Holder's option, on at least sixty-five (65) days' advance written notice
from the Holder) shall the Holder be entitled to convert any portion of this
Debenture, or shall the Company have the obligation to convert such Debenture
(and the Company shall not have the right to pay interest hereon in shares of
Common Stock), to the extent that, after such conversion or issuance of stock in
payment of interest, the sum of (a) 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 any
unconverted Debentures or any unexercised portion of the Warrants or any other
unexercised right held by the Holder subject to a similar limitation), and (b)
the number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the Holder upon such conversion). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). If the Holder transfers or
assigns any Debentures to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section 4(D)
as if such transferee or assignee were the original Holder hereof. Nothing
herein shall preclude the Holder from disposing of a sufficient number of other
shares of Common Stock beneficially owned by the Holder so as to thereafter
permit the continued conversion of the Debentures.

         5. A. In the event that any of the following occur (individually, a
"Redemption Event"):

                  (i) The Company's inability or refusal to issue sufficient
         shares of Common Stock upon conversion of Issuance Limitation
         Unconverted Debentures in accordance with Section 4(C) hereof; or
<PAGE>   9
                  (ii) The Company's inability to deliver Conversion
         Certificates under Section 4(B) hereof.

then, upon the occurrence of any such Redemption Event, the Holder of this
Debenture shall thereafter have the option, exercisable in whole or in part at
any time and from time to time by delivery of a notice requesting the redemption
of all or part of such Holder's Debentures (a "Redemption Notice") to the
Company while such Redemption Event continues, to require the Company to
purchase for cash any or all of the then outstanding Debentures held by such
Holder for an amount equal to the Redemption Amount in effect at the time of the
redemption hereunder.

         B. The "Redemption Amount" with respect to a Debenture being redeemed
(a "Redeemed Debenture") means an amount payable in cash, equal to (x) one
hundred thirty percent (130%) of the outstanding principal amount of the
Redeemed Debenture plus (y) accrued but unpaid interest thereon.

         C. If the Company fails to pay any Holder the Redemption Amount with
respect to any Redeemed Debenture within twenty-five (25) business days after
its receipt of a Redemption Notice, then the Holder delivering such Redemption
Notice shall be entitled to interest on the Redemption Amount at a per annum
rate equal to the lower of 15% and the highest interest rate permitted by
applicable law from the date on which the Company receives the Redemption Notice
until the date of payment of the Redemption Amount hereunder. In the event the
Company is not able to redeem all of the Redeemed Debentures subject to
Redemption Notices delivered prior to the date upon which such redemption is to
be effected, the Company shall redeem Debentures from each Holder of this series
of Debentures pro rata, based on the relative outstanding principal amounts of
such Debentures (determined at the time of redemption) included by each such
Holder in all Redemption Notices delivered prior to the date upon which such
redemption is to be effected.

     6. The Conversion Price shall be subject to adjustment from time to time as
follows:

         A. If, for as long as any portion of this Debenture remains
outstanding, the Company enters into a merger (other than where the Company is
the surviving entity) or consolidation with another corporation or other entity
or a sale or transfer of all or substantially all of the assets of the Company
to another person (collectively, a "Sale"), the Company will require, in the
agreements reflecting such transaction, that the surviving entity expressly
assume the obligations of the Company hereunder. Notwithstanding the foregoing,
if the Company enters into a Sale and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in exchange
for Common Stock, then as a condition of such Sale, the Company and any such
successor, purchaser or transferee will agree that this Debenture may thereafter
be converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a Holder of this Debenture into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which
<PAGE>   10
shall be as nearly equivalent as may be practicable. In the event of any such
proposed Sale, the Holder hereof shall have the right to either (i) convert all
of any of the outstanding portion of this Debenture (without regard to the
limits contemplated by Paragraph 4(D) hereof) by delivering a Notice of
Conversion to the Company within 15 days of receipt of notice of such Sale from
the Company or (ii) by delivering a notice to such effect to the Company within
fifteen (15) days of receipt of notice of such Sale from the Company, (x) if the
surviving entity in the transaction is not a publicly traded entity listed on a
Principal Trading Market, demand a redemption of all or any of the outstanding
portion of this Debenture for the Redemption Amount, and/or (y) if the surviving
entity in the transaction is a publicly traded entity listed on a Principal
Trading Market, elect to retain all or any of the outstanding portion of this
Debenture, as to which all of the terms hereof, including but not limited to the
conversion terms, shall remain in full force and effect. Anything in this
Section 6(A) to the contrary notwithstanding, if the Sale is for cash
consideration of at least $5.00 per share (adjusted for capital transactions
occurring after the Closing Date) with or without other consideration (a "Cash
Sale"), the Holder shall be deemed to have converted all outstanding principal
of this Debenture (and the Company shall be deemed to have elected to pay all
accrued but unpaid interest thereon in Common Stock) immediately before the
consummation of such Cash Sale, without regard to any of the limitations
contemplated by Section 4(D) hereof.

         B. The Company agrees that for as long as Debentures having an
outstanding principal balance equal to ten percent (10 %) of the original
principal amount of the Debentures issued to the Holder (or the Holder's
predecessor in interest) on the Closing Date remain outstanding, the Company
will not, without the consent of the Holder, spin off or otherwise divest itself
of a part of its business or operations or dispose all or of a part of its
assets in a transaction (the "Spin Off") in which the Company does not receive
just compensation for such business, operations or assets, but causes securities
of another entity (the "Spin Off Securities") to be issued to security holders
of the Company. If, for any reason, prior to the Conversion Date or the date of
payment of the Redemption Amount hereunder, the Company, with the consent of the
Holder, consummates a Spin Off, then the Company shall cause (i) to be reserved
Spin Off Securities equal to the number thereof which would have been issued to
the Holder had all of the this Debenture outstanding on the record date (the
"Record Date") for determining the amount and number of Spin Off Securities to
be issued to security holders of the Company (the "Outstanding Debentures") been
converted as of the close of business on the trading day immediately before the
Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the
Holder on the conversion of all or any of the Outstanding Debentures, such
amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (a) the numerator is the principal amount
of the Outstanding Debentures then being converted, and (b) the denominator is
the principal amount of the Outstanding Debentures.

         C. If, at any time while this Debenture remains outstanding, the
Company effectuates a stock split or reverse stock split of its Common Stock or
issues a dividend on its Common Stock consisting of shares of Common Stock, the
Conversion Price and any other amounts calculated as contemplated hereby or by
any of the other Transaction Agreements shall be equitably adjusted to reflect
such action. By way of illustration, and not in limitation, of the foregoing (i)
if the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect
<PAGE>   11
to any conversion for which the Company issues shares after the record date of
such split, any market price from a date prior to such split which was used in
any of the calculation of the Conversion Price shall be deemed to be one-half of
what it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues shares after the record
date of such reverse split, any market price from a date prior to such split
which was used in any of the calculation of the Conversion Price shall be deemed
to be ten times what it had been calculated to be immediately prior to such
split; and (iii) if the Company declares a stock dividend of one share of Common
Stock for every 10 shares outstanding, thereafter, with respect to any
conversion for which the Company issues shares after the record date of such
dividend, any market price from a date prior to such record date which was used
in any of the calculation of the Conversion Price shall be deemed to be such
amount multiplied by a fraction, of which the numerator is the number of shares
(10 in the example) for which a dividend share will be issued and the
denominator is such number of shares plus the dividend share(s) issuable or
issued thereon (11 in the example).

            D. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 6, the Company, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to each
Holder of Debentures in this series of Debentures a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of the Holder, furnish to such Holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Initial 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 this Debenture.

         7. Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.

         8. A. The obligations of the Company under this Debenture are secured
under the terms of the Securities Purchase Agreement.

            B. No recourse shall be had for the payment of the principal of, or
the interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.

         9. Whenever the Company is required to make any cash payment to a
Holder under this Debenture (upon redemption or otherwise), such cash payment
shall be made to the Holder on the date specified herein or, if not so
specified, within five (5) business days after delivery by
<PAGE>   12
such Holder of a notice specifying that the Holder elects to receive such
payment in cash and the method (e.g., by check, wire transfer) in which such
payment should be made. If such payment is not delivered within the relevant
time period, such Holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of 15% and the highest interest
rate permitted by applicable law until such amount is paid in full to the
Holder.

         10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

         11. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any provision of this Debenture.

         12. The following shall constitute an "Event of Default":

             a.   The Company shall default in the payment of principal or
                  interest on this Debenture and same shall continue for a
                  period of five (5) business days; or

             b.   Any of the representations or warranties made by the Company
                  herein, in the Securities Purchase Agreement, the Registration
                  Rights Agreement or in any certificate or financial or other
                  written statements heretofore or hereafter furnished by the
                  Company in connection with the execution and delivery of this
                  Debenture or the Securities Purchase Agreement shall be false
                  or misleading in any material respect at the time made; or

             c.   Subject to the terms of the Securities Purchase Agreement, the
                  Company fails to authorize or to cause its transfer agent to
                  issue shares of Common Stock upon exercise by the Holder of
                  the conversion rights of the Holder in accordance with the
                  terms of this Debenture, fails to transfer or to cause its
                  Transfer Agent to transfer any certificate for shares of
                  Common Stock issued to the Holder upon conversion of this
                  Debenture and when required by this Debenture or the
                  Registration Rights Agreement, and such transfer is otherwise
                  lawful, or fails to remove any restrictive legend on any
                  certificate or fails to cause its Transfer Agent to remove
                  such restricted legend, in each case where such removal is
                  lawful, as and when required
<PAGE>   13
                  by this Debenture, the Agreement or the Registration Rights
                  Agreement, and any such failure shall continue uncured for
                  five (5) business days; or

         d.       The Company shall fail to perform or observe, in any material
                  respect, any other covenant, term, provision, condition,
                  agreement or obligation of this Debenture and such failure
                  shall continue uncured for a period of thirty (30) days after
                  written notice from the Holder of such failure; or

         e.       The Company shall fail to perform or observe, in any material
                  respect, any covenant, term, provision, condition, agreement
                  or obligation of the Company under the Securities Purchase
                  Agreement or the Registration Rights Agreement and such
                  failure shall continue uncured for a period of thirty (30)
                  days after written notice from the Holder of such failure
                  (other than a failure to cause the Registration Statement to
                  become effective no later than the Required Effective Date, as
                  defined and provided in the Registration Rights Agreement, as
                  to which no such cure period shall apply); or

         f.       The Company shall (1) admit in writing its inability to pay
                  its debts generally as they mature; (2) make an assignment for
                  the benefit of creditors or commence proceedings for its
                  dissolution; or (3) apply for or consent to the appointment of
                  a trustee, liquidator or receiver for its or for a substantial
                  part of its property or business; or

         g.       A trustee, liquidator or receiver shall be appointed for the
                  Company or for a substantial part of its property or business
                  without its consent and shall not be discharged within sixty
                  (60) days after such appointment; or

         h.       Any governmental agency or any court of competent jurisdiction
                  at the instance of any governmental agency shall assume
                  custody or control of the whole or any substantial portion of
                  the properties or assets of the Company and shall not be
                  dismissed within sixty (60) days thereafter; or
<PAGE>   14
         i.       Any money judgment, writ or warrant of attachment, or similar
                  process in excess of Two Hundred Thousand ($200,000) Dollars
                  in the aggregate shall be entered or filed against the Company
                  or any of its properties or other assets and shall remain
                  unpaid, unvacated, unbonded or unstayed for a period of sixty
                  (60) days or in any event later than five (5) days prior to
                  the date of any proposed sale thereunder; or

         j.       Bankruptcy, reorganization, insolvency 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 Company and, if instituted
                  against the Company, shall not be dismissed within sixty (60)
                  days after such institution or the Company shall by any action
                  or answer approve of, consent to, or acquiesce in any such
                  proceedings or admit the material allegations of, or default
                  in answering a petition filed in any such proceeding;

         k.       The Company shall be in default to the Senior Lender under the
                  terms of the then applicable agreements between the Company
                  and the Senior Lender and any such failure shall continue
                  uncured for thirty (30) days; or

         l.       The Company shall have its Common Stock suspended or delisted
                  from the Nasdaq/SmallCap from trading for in excess of twenty
                  (20) trading days.

Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.

         13. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.

         14. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or
<PAGE>   15
by the Company or the Holder, be deemed applied to the payment of principal, if
any, hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated such
sums to be so applied to principal and the Holder had agreed to accept such sums
as an interest-free prepayment of this Debenture. If any part of such excess
remains after the principal has been paid in full, whether by the provisions of
the preceding sentences of this Section 14 or otherwise, such excess shall be
deemed to be an interest-free loan from the Company to the Holder, which loan
shall be payable immediately upon demand by the Company. The provisions of this
Section 14 shall control every other provision of this Debenture.

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: __________________, 2000

                                      TITAN MOTORCYCLE CO. OF AMERICA

                                      By:_______________________________________


                                      __________________________________________
                                      (Print Name)

                                      __________________________________________

<PAGE>   16
               TITAN MOTORCYCLE CO. OF AMERICA         EXHIBIT A

                              NOTICE OF CONVERSION

          (To be executed by the Registered Holder in order to convert
           the 12% Secured Convertible Debenture due August 31, 2002)


TO:      TITAN MOTORCYCLE CO. OF AMERICA                      VIA TELECOPIER TO:
         2222 West Peoria Avenue
         Phoenix, AZ 85029
         Attn: Frank Keery, President                         (602) 331-0941



CC:      Titan Motorcycle Co. of America
         Attn: Chief Financial Officer                        (602) 331-0941


         ---------------------------------------              (   )    -
         (Company's Transfer Agent)

         Snell & Wilmer LLP
         Attn: Richard B. Stagg, Esq.                             (602) 382-6070
         (Company's Counsel)


FROM:___________________________________________________________________________
("Holder")

DATE:___________________________________________________________________________
(the "Conversion Date")

RE:      Conversion of $__________________________ principal amount (the
         "Converted Debenture") of the 12% Secured Convertible Debenture Due
         August 31, 2002 (the "Debenture") of TITAN MOTORCYCLE CO. OF AMERICA
         (the "Company") into __________________________ shares (the "Converted
         Shares") of Common Stock (defined below)

CONVERSION DATE:

         The captioned Holder hereby gives notice to the Company, pursuant to
the Debenture of TITAN MOTORCYCLE CO. OF AMERICA that the Holder elects to
convert the Converted Debenture into fully paid and non-assessable shares of
Common Stock, $.001 par value (the "Common Stock"), of the Company as of the
Conversion Date specified above. Said conversion shall be based on the following
Conversion Price (the lower of the two alternatives is checked):

         _        $___________________, representing the Fixed Conversion Price
                  (as defined in the Debenture)


         _        $__________________________, representing the Variable
                  Conversion Price (as defined in the Debenture).
<PAGE>   17
                  If the Variable Conversion Price is selected above, a schedule
                  of the Closing Bid Prices of the Common Stock for the
                  twenty-two trading days prior to the Conversion Date, as
                  reported on the Principal Trading Market as reported by the
                  Reporting Service (as those terms are defined in the
                  Securities Purchase Agreement defined in the Debenture), is
                  attached for your reference in determining the Conversion
                  Price.

Based on this Conversion Price, the number of Converted Shares indicated above
should be issued in the following name(s):

                  Name and Record Address                Converted Shares
                  ___________________________________
                  ___________________________________
                  ___________________________________

         As contemplated by the Debenture and the Securities Purchase Agreement,
this Notice of Conversion is being sent by facsimile to the telecopier number
and officer indicated above, with a copy to the Company's counsel.

         The Holder has previously surrendered or will surrender (or cause to be
surrendered) the Debenture for the Converted Debenture, duly endorsed, to the
Company at the address indicated above by express courier within five (5)
business days after delivery or facsimile transmission of this Notice of
Conversion.

         The certificates representing the Converted Shares (together with the
original Converted Debenture or a replacement thereof representing the principal
of the Debenture not converted hereby) should be transmitted by the Company to
the Holder via express courier or by electronic transfer within the time
contemplated by the Debenture and Securities Purchase Agreement after receipt of
this Notice of Conversion (by facsimile transmission or otherwise) and the
Debenture(s) representing the Converted Debentures to:

                  ___________________________________

                  ___________________________________

                  ___________________________________

         As contemplated by the Debenture, the Company should also pay all
accrued but unpaid interest on the Converted Debenture to the Holder. If being
paid in cash, such payment should be made by wire transfer as follows:

                  ___________________________________
                  ___________________________________

                  ___________________________________
<PAGE>   18
If being paid in Common Stock as contemplated by the Debenture, such shares
should be issued in the name of the Holder and delivered in the same manner as,
and together with, the Converted Shares.

         With the conversion effected hereby, the Holder represents to the
Company that the Holder is in compliance with the provisions of Section 4(D) of
the Debenture.

         The Holder hereby affirms to the Company that the Holder is in
compliance with the provisions of Section 2(i) of the Securities Purchase
Agreement.

                                        _______________________________________
                                         (Print name of Holder)

                                     By:_______________________________________
                                         (Signature of Authorized Person)

                                        _______________________________________
                                          (Printed Name and Title)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>6
<FILENAME>ex4-2.txt
<DESCRIPTION>EX-4.2
<TEXT>

<PAGE>   1
                                                               Exhibit 4.2




         THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
         AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
         OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
         REQUIRED.

                         TITAN MOTORCYCLE CO. OF AMERICA

                          COMMON STOCK PURCHASE WARRANT

                  1. Issuance; Certain Definitions. In consideration of good and
valuable consideration, the receipt of which is hereby acknowledged by TITAN
MOTORCYCLE CO. OF AMERICA, a Nevada corporation (the "Company"), CELESTE TRUST
REG or registered assigns (the "Holder") is hereby granted the right to purchase
at any time until 5:00 P.M., New York City time, on August 31, 2005 (the
"Expiration Date"), Five Hundred Twelve Thousand Five Hundred Eighty (512,580)
fully paid and nonassessable shares of the Company's Common Stock, par value
$.001 per share (the "Common Stock") at an exercise price per share of $.61 (the
"Exercise Price"), subject to further adjustment as set forth herein. This
Warrant is being issued pursuant to the terms of that certain Securities
Purchase Agreement, dated as of August 11, 2000 (the "Securities Purchase
Agreement"), to which the Company and Holder (or Holder's predecessor in
interest) are parties. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Securities Purchase Agreement.

                  2.       Exercise of Warrants.

                           2.1      General.  This  Warrant  is  exercisable  in
whole or in part at any time and from time to time. Such exercise shall be
effectuated by submitting to the Company (either by delivery to the Company or
by facsimile transmission as provided in Section 8 hereof) a completed and duly
executed Notice of Exercise (substantially in the form attached to this Warrant
Certificate) as provided in this paragraph. The date such Notice of Exercise is
faxed to the Company shall be the "Exercise Date," provided that the Holder of
this Warrant tenders this Warrant Certificate to the Company within five (5)
business days thereafter. The Notice of Exercise shall be executed by the Holder
of this Warrant and shall indicate the number of shares then being purchased
pursuant to such exercise. Upon surrender of this Warrant Certificate, together
with appropriate payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased. If the Notice of Exercise elects a
"cash" exercise, the Exercise Price per share of Common Stock for the shares
then being exercised shall be payable in cash or by certified or official bank
check. If the Notice of Exercise elects a "cashless" exercise, the Holder shall
thereby be entitled to receive a number of shares of Common Stock equal to (x)
the excess of the Current Market Value (as defined below) over the total cash
exercise price of the
<PAGE>   2
portion of the Warrant then being exercised, divided by (y) the Market Price of
the Common Stock as of the trading day immediately prior to the Exercise Date.
For the purposes of this Warrant, the terms (Q) "Current Market Value" shall
mean an amount equal to the Market Price of the Common Stock as of the trading
day immediately prior to the Exercise Date, multiplied by the number of shares
of Common Stock specified in such Notice of Exercise, and (R) "Market Price of
the Common Stock" shall an amount equal to the closing price of the Common Stock
as reported by Bloomberg, LP or, if not so reported, as reported by the
securities exchange or automated quotation system on which the Common Stock is
listed or on the over-the-counter market for the relevant date. The Holder shall
be deemed to be the holder of the shares issuable to it in accordance with the
provisions of this Section 2.1 on the Exercise Date.

                           2.2      Limitation on Exercise.  Notwithstanding
the provisions of this Warrant, the Securities Purchase Agreement or of the
other Transaction Agreements, in no event (except (i) as specifically provided
in this Warrant as an exception to this provision, (ii) while there is
outstanding a tender offer for any or all of the shares of the Company's Common
Stock, or (iii) on at least sixty-five (65) days' advance written notice from
the Holder) shall the Holder be entitled to exercise this Warrant, or shall the
Company have the obligation to issue shares upon such exercise of all or any
portion of this Warrant, to the extent that, after such exercise the sum of (1)
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 any unconverted portion of the Debentures or
unexercised portion of the Warrants), and (2) the number of shares of Common
Stock issuable upon the exercise of the Warrants with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 9.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such exercise). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, except as
otherwise provided in clause (1) of such sentence. The Holder, by its acceptance
of this Warrant, further agrees that if the Holder transfers or assigns any of
the Warrants to a party who or which would not be considered such an affiliate,
such assignment shall be made subject to the transferee's or assignee's specific
agreement to be bound by the provisions of this Section 2.2 as if such
transferee or assignee were the original Holder hereof.

                  3. Reservation of Shares. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant (the "Warrant Shares").

                  4. Mutilation or Loss of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification and affidavit, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.

                  5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder
<PAGE>   3
are limited to those expressed in this Warrant and are not enforceable against
the Company except to the extent set forth herein.

                  6.       Protection Against Dilution.

                           6.1      Adjustment  Mechanism.  If an  adjustment
of the Exercise Price is required pursuant to this Section 6, the Holder shall
be entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted Exercise
Price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock which the Holder is entitled to purchase before adjustment,
multiplied by the total Exercise Price before adjustment.

                           6.2      Capital  Adjustments.  In case of any stock
split or reverse stock split, stock dividend, reclassification of the Common
Stock, recapitalization, merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the provisions of this Section 6
shall be applied as if such capital adjustment event had occurred immediately
prior to the date of this Warrant and the original Exercise Price had been
fairly allocated to the stock resulting from such capital adjustment; and in
other respects the provisions of this Section shall be applied in a fair,
equitable and reasonable manner so as to give effect, as nearly as may be, to
the purposes hereof. A rights offering to stockholders shall be deemed a stock
dividend to the extent of the bargain purchase element of the rights.

                           6.3      Adjustment  for Spin Off.  If, for any
reason, prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes all
or a part of its assets in a transaction (the "Spin Off") in which the Company
does not receive compensation for such business, operations or assets, but
causes securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then



<PAGE>   4



                  (a) the Company shall cause (i) to be reserved Spin Off
         Securities equal to the number thereof which would have been issued to
         the Holder had all of the Holder's unexercised Warrants outstanding on
         the record date (the "Record Date") for determining the amount and
         number of Spin Off Securities to be issued to security holders of the
         Company (the "Outstanding Warrants") been exercised as of the close of
         business on the trading day immediately before the Record Date (the
         "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
         exercise of all or any of the Outstanding Warrants, such amount of the
         Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
         multiplied by (y) a fraction, of which (I) the numerator is the amount
         of the Outstanding Warrants then being exercised, and (II) the
         denominator is the amount of the Outstanding Warrants; and

                  (b) the Exercise Price on the Outstanding Warrants shall be
         adjusted immediately after consummation of the Spin Off by multiplying
         the Exercise Price by a fraction (if, but only if, such fraction is
         less than 1.0), the numerator of which is the average Market Price of
         the Common Stock for the five (5) trading days immediately following
         the fifth trading day after the Record Date, and the denominator of
         which is the average Market Price of the Common Stock on the five (5)
         trading days immediately preceding the Record Date; and such adjusted
         Exercise Price shall be deemed to be the Exercise Price with respect to
         the Outstanding Warrants after the Record Date.

                  7. Transfer to Comply with the Securities Act; Registration
Rights.

                           7.1 Transfer. This Warrant has not been registered
under the Securities Act of 1933, as amended, (the "Act") and has been issued to
the Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this Warrant
may be sold, transferred, pledged or hypothecated in the absence of an effective
registration statement under the Act relating to such security or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act. Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.

                           7.2      Registration   Rights.  (a)  Reference  is
made to the Registration Rights Agreement. The Company's obligations under the
Registration Rights Agreement and the other terms and conditions thereof with
respect to the Warrant Shares, including, but not necessarily limited to, the
Company's commitment to file a registration statement including the Warrant
Shares, to have the registration of the Warrant Shares completed and effective,
and to maintain such registration, are incorporated herein by reference.

                           (b) In addition to the  registration  rights referred
to in the preceding provisions of Section 7.2(a), effective after the expiration
of the effectiveness of the Registration Statement as contemplated by the
Registration Rights Agreement, the Holder shall have piggy-back registration
rights with respect to the Warrant Shares then held by the Holder or then
subject to issuance upon exercise of this Warrant (collectively, the "Remaining
Warrant Shares"), subject to the conditions set forth below. If, at any time
after the Registration Statement
<PAGE>   5
has ceased to be effective, the Company participates (whether voluntarily or by
reason of an obligation to a third party) in the registration of any shares of
the Company's stock (other than a registration on Form S-4 or Form S-8), the
Company shall give written notice thereof to the Holder and the Holder shall
have the right, exercisable within ten (10) business days after receipt of such
notice, to demand inclusion of all or a portion of the Holder's Remaining
Warrant Shares in such registration statement. If the Holder exercises such
election, the Remaining Warrant Shares so designated shall be included in the
registration statement at no cost or expense to the Holder (other than any costs
or commissions which would be borne by the Holder under the terms of the
Registration Rights Agreement), subject to the following condition: if there is
a managing underwriter of the offering of shares referred to in the registration
statement and such managing underwriter advises the Company in writing that the
number of shares proposed to be included in the offering will have an adverse
effect on its ability to successfully conclude the offering and, as a result,
the number of shares to be included in the offering is to be reduced, the number
of Remaining Warrant Shares of the Holder which were to be included in the
registration (before such reduction) will be reduced pro rata with the number of
shares included for all other parties whose shares are being registered. The
Holder's rights under this Section 7 shall expire at such time as the Holder can
sell all of the Remaining Warrant Shares under Rule 144 without volume or other
restrictions or limit.

                  8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:

                           (i)      if to the Company, to:

                                    TITAN MOTORCYCLE CO. OF AMERICA
                                    2222 West Peoria Avenue
                                    Phoenix, AZ 85029
                                    Attn: Frank Keery
                                    Telephone No.: (602) 861-6977
                                    Telecopier No.: (602) 331-0941

                                    with a copy to:

                                    Snell & Wilmer LLP
                                    One Arizona Center
                                    Phoenix, AZ 85048
                                    Attn: Richard Stagg, Esq.
                                    Telephone No.: (602) 382-6000
                                    Telecopier No.: (602) 382-6070

                           (ii)     if to the Holder, to:

                                    Celeste Trust Reg

<PAGE>   6

                                    c/o Trevisa-Trevland-Anstalt
                                    Landstrasse 8
                                    Furstentume 9496
                                    Balzers, Liechtenstein

                                    ATTN:
                                    Telephone No.:  (  )      -
                                    Telecopier No.: (  )      -

                                    with a copy to:
                                                     Krieger & Prager LLP, Esqs.
                                    39 Broadway
                                    Suite 1440
                                    New York, NY 10006
                                    Attn: Samuel Krieger, Esq.
                                    Telephone No.: (212) 363-2900
                                    Telecopier No.  (212) 363-2999

Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.

                  9. Supplements and Amendments; Whole Agreement. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.

                  10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Holder in enforcement of or protection of any of its rights under any of the
Transaction Agreements.

                  11. Counterparts. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

                  12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.

<PAGE>   7

         IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 11th day of August, 2000.


                                             TITAN MOTORCYCLE CO. OF AMERICA



                                             By:

                                             Name:

                                             Its:

Attest:



Name:
Title:


<PAGE>   8
                          NOTICE OF EXERCISE OF WARRANT

         The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of     , , to purchase
shares of the Common Stock, par value $.001 per share, of TITAN MOTORCYCLE CO.
OF AMERICA and tenders herewith payment in accordance with Section 1 of said
Common Stock Purchase Warrant.

         Please deliver the stock certificate to:






         With the exercise effected hereby, the Holder represents to the Company
that the Holder is in compliance with the provisions of Section 2.2 of this
Warrant.


Dated:




[Name of Holder]



By:



_        CASH:    $


_        CASHLESS EXERCISE
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>7
<FILENAME>ex4-3.txt
<DESCRIPTION>EX-4.3
<TEXT>

<PAGE>   1
                                                                Exhibit 4.3
                          REGISTRATION RIGHTS AGREEMENT

                  THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 11,
2000 (this "Agreement"), is made by and between TITAN MOTORCYCLE CO. OF AMERICA,
a Nevada corporation, with headquarters located at 2222 West Peoria Avenue,
Phoenix, AZ 85029 (the "Company"), and each entity named on a signature page
hereto (each, an "Initial Investor") (each agreement with an Initial Investor
being deemed a separate and independent agreement between the Company and such
Initial Investor, except that each Initial Investor acknowledges and consents to
the rights granted to each other Initial Investor under such agreement).

                              W I T N E S S E T H:

                  WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of August 11, 2000, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor one or more 12% Secured
Convertible Debentures of the Company, in an aggregate principal amount of
$750,000 (the "Debentures"); and

                  WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Debentures; and

                  WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Converted Shares"; which term, for purposes of this Agreement, shall
include (x) shares of Common Stock of the Company issuable in lieu of accrued
interest on the Debentures through the Maturity Date of the Debentures and (y)
Periodic Amount Shares, as defined below) upon the terms and subject to the
conditions contained in the Debentures and the other Transaction Agreements, and
the Warrants may be exercised for the purchase of shares of Common Stock (the
"Warrant Shares") upon the terms and conditions of the Warrants; and

                  WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Converted Shares and the Warrant Shares;

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:

                  - DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Securities Purchase Agreement.
As used in this Agreement, the following terms shall have the following
meanings:
<PAGE>   2
                  (i) "Effective Date" means the date the SEC declares a
Registration Statement covering Registrable Securities and otherwise meeting the
conditions contemplated hereby to be effective.

                  (ii) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Debentures, Warrants
or Registrable Securities.

                  (iii) "Potential Material Event" means any of the following:
(i) the possession by the Company of material information not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (ii) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information.

                  (iv) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").

                  (v) "Registrable Securities" means the Converted Shares and
the Warrant Shares.

                  (vi) "Registration Statement" means a registration statement
of the Company under the Securities Act covering Registrable Securities on Form
S-3, if the Company is then eligible to file using such form, and if not so
eligible, on Form SB-2 or other appropriate form.

                  (vii) "Required Effective Date" means the relevant Initial
Required Effective Date or Increased Required Effective Date (as those terms are
defined below).

                  -        REGISTRATION.

                  ()       MANDATORY REGISTRATION.


<PAGE>   3
                  (i) The Company shall prepare and file with the SEC, as soon
as possible after the Closing Date but no later than a date (the "Required
Filing Date") which is thirty (30) days after the Closing Date, either a
Registration Statement or an amendment to an existing Registration Statement,
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities, but in no
event less than the number of shares equal to the sum of (A) two hundred percent
(200%) of the aggregate number of shares into which the Debentures and all
interest thereon through the Maturity Date would be convertible at the time of
filing of such Registration Statement (assuming for such purposes that all
Debentures had been eligible to be converted, and had been converted, into
Converted Shares in accordance with their terms, whether or not such accrual of
interest, eligibility or conversion had in fact occurred as of such date) and
(B) the number of shares which would be issued upon exercise of all of the
Warrants (assuming for such purposes that all Warrants were eligible to be
exercised and had been exercised in accordance with their terms, whether or not
such eligibility or exercise had in fact occurred as of such date) (or such
lesser number as may be required by the SEC). The Registration Statement (W)
shall include only the Registrable Securities and the shares specifically listed
on EXHIBIT 1 annexed hereto, and (X) shall state that, in accordance with Rule
416 and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Debentures and the exercise of the Warrants to prevent dilution resulting
from stock splits or stock dividends. The Company will use its reasonable best
efforts to cause such Registration Statement to be declared effective on a date
(the "Initial Required Effective Date") which is no later than the earlier of
(Y) five (5) days after oral or written notice by the SEC that it may be
declared effective or (Z) one hundred twenty (120) days after the Closing Date.

                  (ii) If at any time (an "Increased Registered Shares Date"),
the number of shares of Common Stock represented by the Registrable Shares,
issued or to be issued as contemplated by the Transaction Agreements, exceeds
the aggregate number of shares of Common Stock then registered, the Company
shall either (X) amend the relevant Registration Statement filed by the Company
pursuant to the preceding provisions of this Section 2, if such Registration
Statement has not been declared effective by the SEC at that time, to register,
in the aggregate, at least the number of shares (the "Increased Shares Amount")
equal to (A) (I) the number of shares previously issued on conversion of the
Debentures (including any Converted Shares issued in lieu of cash interest) plus
(II) two hundred percent (200%) of the number of shares into which the
unconverted Debentures and all interest thereon through the Maturity Date would
be convertible at the Increased Registered Shares Date (assuming for such
purposes that all such Debentures had been eligible to be converted, and had
been converted, into Converted Shares in accordance with their terms, whether or
not such accrual of interest, eligibility or conversion had in fact occurred as
of such date) and (B) the number of shares which would be issued upon exercise
of all of the Warrants (assuming for such purposes that all Warrants had been
eligible to be exercised and had been exercised in accordance with their terms,
whether or not such issuance, eligibility or exercise had in fact occurred as of
such date), or (Y) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement (an
"Additional Registration Statement") to register the number of shares equal to
two hundred percent (200%) of the excess of the Increased Shares Amount over the
aggregate number of shares of Common Stock already registered. The
<PAGE>   4
Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (each, an "Increased Required
Effective Date") which is no later than (Q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Initial Required
Effective Date and (R) with respect to an Additional Registration Statement, the
earlier of (I) five (5) days after notice by the SEC that it may be declared
effective or (II) thirty (30) days after the Increased Registered Shares Date.

                  ()       PAYMENTS BY THE COMPANY.

                           (i)      If the Registration  Statement covering the
Registrable Securities is not filed in proper form with the SEC by the Required
Filing Date, the Company will make payment to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).

                           (ii)     If the  Registration  Statement  covering
the Registrable Securities is not effective by the relevant Required Effective
Date or if the Investor is restricted from making sales of Registrable
Securities covered by any previously effective Registration Statement at any
time (the date such restriction commences, a "Restricted Sale Date") after the
Effective Date other than during a Permitted Suspension Period (as defined
below), then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).

                           (iii) The amount (the "Periodic Amount") to be paid
by the Company to the Initial Investor shall be determined as of each
Computation Date (as defined below) and such amount shall be equal to the
Periodic Amount Percentage (as defined below) of the Purchase Price for all
Debentures for the period from the date following the relevant Required
Effective Date or Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The "Periodic Amount Percentage" means (A)for the period beginning on the date
following the relevant Required Filing Date, Required Effective Date or
Restricted Sale Date, as the case may be, and continuing to the first relevant
Computation Date, one percent (1%) of the Purchase Price of all Debentures, and
(B) thereafter, for each period beginning on the first day after the immediately
preceding Computation Date and continuing to the immediately following
Computation Date, two percent (2%) of the Purchase Price of all Debentures. By
way of illustration and not in limitation of the foregoing, if the Registration
Statement is not declared effective until one hundred sixty-five (165) days
after the Closing Date, the Periodic Amount will aggregate five percent (5%) of
the Purchase Price of the Debentures (1% for days 91-120, plus 2% for days
121-150, plus 2% for days 151-165).

                           (iv) Each Periodic Amount will be payable by the
Company, except as provided in the other provisions of this subparagraph (iv),
in cash or other immediately available funds to the Investor (1) on the day
after the Required Filing Date or the Required Effective Date, as the case may
be, and (2) on the earlier of (A) each thirtieth day thereafter, (B) the third
business day after the date the Registration Statement is filed or is declared
effective, or (C) the third business day after the Registration Statement has
its restrictions removed after the Effective Date, as the case may be, in each
case without requiring demand therefor by the Investor.
<PAGE>   5
Notwithstanding the provisions of the first sentence of this subparagraph (iv),
at the option of the Investor, exercisable in its sole and absolute discretion
by written notice to the Company at any time before the Periodic Amount is paid
(a "Periodic Amount Shares Notice"), all or a portion of the Periodic Amount
shall be paid by the issuance to the Investor of additional shares of Common
Stock ("Periodic Amount Shares"). The number of Periodic Amount Shares shall be
equal to the relevant Periodic Amount divided by the Conversion Price which
would have been applicable to the first day after the relevant Computation Date,
but only to the extent that the Investor would have been entitled to effect a
conversion into such number of shares in accordance with the terms of the
Debentures and the Securities Purchase Agreement (without regard to any notices
or other administrative steps to be taken by the Investor). The Company must
deliver the Periodic Amount Shares to the Investor within three (3) business
days after the Investor issues the Periodic Amount Shares Notice, unless
otherwise agreed to in writing by the Investor in each instance (such third date
or later date agreed to by the Investor, a "Delivery Date" as contemplated by
the Debentures and the Securities Purchase Agreement). If the Periodic Amount
Shares are not delivered by such date, the Investor shall have the right to
demand that the provisions of Section 5(c) of the Securities Purchase Agreement
shall apply to such issuance, based on one hundred forty-five percent (145%) of
the Periodic Amount or having the Periodic Amount be paid in cash as
contemplated herein. On issuance, Periodic Amount Shares are deemed to be
Registrable Securities.

                           (v)      The parties  acknowledge that the damages
which may be incurred by the Investor if the Registration Statement is not filed
by the Required Filing Date or if the Registration Statement has not been
declared effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amounts represent a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages.

                           (vi)     Notwithstanding  the foregoing,  the amounts
payable by the Company pursuant to this provision shall not be payable (i) to
the extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel, (ii) in the event all of the Registrable Securities may
be sold pursuant to Rule 144 or another available exemption under the Act
without volume or other restrictions or limits or (iii) with respect to a
Permitted Suspension Period.

                           (vii)    "Computation  Date"  means (A) the date
which is the earlier of (1) thirty (30) days after the Required Filing Date, any
relevant Required Effective Date or a Restricted Sale Date, as the case may be,
or (2) the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.

<PAGE>   6

                  -        OBLIGATIONS  OF THE COMPANY.  In connection  with the
registration of the Registrable Securities, the Company shall do each of the
following:

                  () Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is the
third anniversary of the Effective Date, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 without volume or other
restrictions or limits or (iii) the date the Investors no longer own any of the
Registrable Securities, which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;

                  (b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;

                  (c) Permit a single firm of counsel designated by the Initial
Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects;

                  (d) Notify each Investor and such Investor's legal counsel
identified to the Company and which has requested by written notice to the
Company that it receive such notification (which, until further notice, shall be
deemed to be Krieger & Prager LLP, Attn: Samuel Krieger, Esq., which firm has
requested to receive such notification) (each, an "Investor's Counsel"), and any
managing underwriters immediately (and, in the case of (i)(A) below, not less
than three (3) business days prior to such filing) and (if requested by any such
person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement including changes in the
provisions relating to the Investor, the Registrable Securities, or the
transactions reflected in the Transaction Agreements (collectively, "Investor
Matters") is submitted to the SEC for its consideration or review; (B) whenever
the SEC notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a representative
of the Company receives on its behalf) any oral or written comments from the SEC
in respect of a Registration Statement (copies or, in the
<PAGE>   7
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (v) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. In
addition, the Company shall furnish the Investor's Counsel with copies of all
intended written responses to the comments contemplated in clause (C) of this
Section 3(d) to the extent such responses relate to Investor Matters not later
than one (1) business day in advance of the filing of such responses with the
SEC so that the Investors shall have the opportunity to comment thereon;

                  (e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;

                  (f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;

                  (g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
<PAGE>   8
                  (h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Registrable
Securities during the periods the Registration Statement is required to be in
effect other than during a Permitted Suspension Period (and the applicable
provisions of Section 2(b) shall apply with respect to any such suspension other
than during a Permitted Suspension Period) . The term "Permitted Suspension
Period" means one or more such suspension periods during any consecutive
12-month period, which suspension periods, in the aggregate, do not exceed
twenty (20) days, provided, however, that no one such suspension period shall
begin less than ten (10) business days after the last day of the preceding
suspension (whether or not such last day was during or after a Permitted
Suspension Period). ;

                  (i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "Nasdaq/SmallCap Market" of the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of
Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
Nasdaq/SmallCap Market; and, without limiting the generality of the foregoing,
to arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. as such with respect to such Registrable
Securities;

                  (j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the Effective Date
of the Registration Statement;

                  (k) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and

                  (l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.

                  - OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:

<PAGE>   9
                  () It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;

                  () Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and

                  () Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f),
3(g) of 3(h), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f), 3(g) of 3(h),
and, if so directed by the Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.

                  -        EXPENSES OF REGISTRATION.

                  (a) All reasonable expenses (other than underwriting discounts
and commissions of the Investor) incurred in connection with registrations,
filings or qualifications pursuant to Section 3, but including, without
limitation, all registration, listing, and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the Company shall be
borne by the Company. In addition, a fee for a single counsel for the Investors
(as a group and not individually) equal to $3,500 for the initial Registration
Statement and $2,000 for each post-effective amendment to an effective
Registration Statement, shall be borne by the Company.



<PAGE>   10



                  (b) Except as disclosed in the Company's SEC Documents, (i)
neither the Company nor any of its subsidiaries has entered into, as of the date
hereof, nor shall the Company nor any of its subsidiaries, on or after the date
of this Agreement, enter into, any agreement with respect to its securities that
is inconsistent with the rights granted to the Investors in this Agreement or
otherwise conflicts with the provisions hereof and (ii) neither the Company nor
any of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any person. Without
limiting the generality of the foregoing, without the written consent of the
Investors holding a sixty-seven (67%) percent interest of the Registrable
Securities (as calculated by the then outstanding principal amount of the
Debentures without any reference to the Warrant Shares), the Company shall not
grant to any person the right to request the Company to register any securities
of the Company under the Securities Act.

                  - INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:

                  () To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
after such prospectus was made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on
<PAGE>   11
a failure of the Investor to deliver or cause to be delivered the prospectus
made available by the Company or the amendment or supplement thereto made
available by the Company; (III) be available to the extent such Claim is based
on the delivery of a prospectus by the Investor after receiving notice from the
Company under Section 3(f), (g) or (h) hereof (other than a notice regarding the
effectiveness of the Registration Statement or any amendment or supplement
thereto), or (IV) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Each Investor will
indemnify the Company and its officers, directors and agents (each, an
"Indemnified Person" or "Indemnified Party") against any claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement or the amendment or supplement thereto, or resulting from
a failure of the Investor to deliver or cause to be delivered the prospectus
made available by the Company or the amendment or supplement thereto made
available by the Company, subject to such limitations and conditions as are
applicable to the indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

                  () Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party provided such
counsel is of the opinion that all defenses available to the Indemnified Party
can be maintained without prejudicing the rights of the indemnifying party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except
<PAGE>   12
to the extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.

                  - CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) except where the seller has committed fraud (other
than a fraud by reason of the information included or omitted from the
Registration Statement as to which the Company has not given notice as
contemplated under Section 3 hereof) or intentional misconduct, contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.

                  - REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:

                  () make and keep public information available, as those terms
are understood and defined in Rule 144;

                  () file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

                  () furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.

                  - ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debenture or unexercised
Warrant) only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the
<PAGE>   13
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (d) at
or before the time the Company received the written notice contemplated by
clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein, and (e) such
transfer of Registrable Securities is completed and disclosed to the Company
prior to the Effective Date or involves the transfer of Registrable Securities
resulting from the conversion of Debentures having a principal amount of at
least $200,000. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(b) hereof arising from such delay.

                  - AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a sixty-seven (67%) percent interest of the Registrable Securities (as
calculated by the then outstanding principal amount of the Debentures without
any reference to the Warrant Shares). Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.

                  11.      MISCELLANEOUS.

                  (a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

                  (b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Securities Purchase Agreement, (i) if
to the Company or to the Initial Investor, to their respective address
contemplated by the Securities Purchase Agreement, and (ii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b).

                  (c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  (d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court,
<PAGE>   14
the Company shall reimburse the Investor for any reasonable legal fees and
disbursements incurred by the Investor in enforcement of or protection of any of
its rights under this Agreement.

                  (e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

                  (f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.

                  (g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.

                  (h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.

                  (i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

                  (j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.

                  (k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   15

                  IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
                                            COMPANY:
                                            TITAN MOTORCYCLE CO. OF AMERICA


                                            By:

                                            Name:
                                            Title:



                                            INITIAL INVESTOR:



                                               [Print Name of Initial Investor]


                                            By:

                                            Name:
                                            Title:



<PAGE>   16
                                    EXHIBIT 1

            Shares Permitted to Be Included in Registration Statement
<TABLE>
<CAPTION>

                       Shares of
                        Common
    Shareholder Name    Stock        Owned/Description of Right to Acquire
    ---------------    ---------     ----------------------------------------
<S>                    <C>          <C>
Libra Finance S.A.       to be       Shares held
                       determined

Libra Finance S.A.       51,250      Warrants, issued August 8, 2000, with piggy
                                     back registration rights
</TABLE>
- -----------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>8
<FILENAME>ex4-4.txt
<DESCRIPTION>EX-4.4
<TEXT>

<PAGE>   1
                                                                Exhibit 4.4
                     SECURITY INTEREST AND PLEDGE PROVISIONS

         For purposes of this ANNEX VII, the terms "Debtor" and "Secured Party"
have the meanings ascribed to them in the Securities Purchase Agreement (as
defined below), to which this Annex VII is attached.

         Unless otherwise specified, all capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement of even date herewith (the "Securities Purchase Agreement") to which
the undersigned Debtor and the Lenders named therein are parties.

         These Security Interest and Pledge Provisions are sometimes referred to
as the "Security Interest Agreement."

         Section 1.        The Security Interests.

         (a) In order to secure the due and punctual fulfillment of the
Obligations (as defined below), the Debtor hereby grants, conveys, transfers and
assigns to the Secured Party a continuing security interest in the following
described fixtures and personal property, whether now owned or hereafter
acquired, together with all additions, substitutions, replacements and proceeds
and all income, interest, dividends and other distributions thereon (hereinafter
collectively called the "Collateral"):

         all assets and properties of whatever kind and description, excluding
         intellectual property, now or hereafter owned by the Debtor, and all
         accessions, additions or improvements to, all replacements,
         substitutions and parts for, and all proceeds and products of the
         foregoing; all bank and securities accounts of any kind or nature; all
         books, records and documents relating to the foregoing located at the
         principal place of business or any other place of business of the
         Debtor, or at such other location as the business may hereafter be
         located , or held by any agent, representative or bailee of the Debtor
         wherever located.

         (b) The security interests granted pursuant to this Section 1 (the
"Security Interests") are granted as security only and shall not subject the
Secured Party to, or transfer or in any way affect or modify, any obligation or
liability of the Debtor under any of the Collateral or any transaction which
gave rise thereto.

         (c) If the Collateral includes certificated securities, documents or
instruments, such certificates are herewith delivered to the Secured Party or to
the Agent (as defined below) or the

<PAGE>   2



Agent's designee, accompanied by duly executed blank stock or bond powers or
assignments, as applicable. The Debtor hereby authorizes the transfer of
possession of all certificates, instruments, documents and other evidence of the
Collateral to the Secured Party or the Agent or the Agent's designee.
Notwithstanding anything to the contrary contained herein, this Security
Interest Agreement evidences a present and absolute pledge of the Collateral to
the Secured Party, which shall be effective upon the execution of this Security
Interest Agreement.

         (d) The term " Obligations" means the due and punctual fulfillment and
performance of all of the Debtor's obligations to the Secured Party whether now
existing or hereafter arising (i) under each of the Securities Purchase
Agreement, the Registration Rights Agreement, the Debentures, or any other
Transaction Agreements and all other documentation and instruments reflecting
the obligations of the Debtor to the Secured Party (collectively, the "Debtor
Agreements") and (ii) any and all other obligations as may be incurred or
assumed by the Debtor to the Secured Party from time to time; all of the
foregoing whether arising under any agreement, instrument or document, whether
or not for the payment of money, whether arising by reason of an extension of
credit, opening a letter of credit, loan or guarantee or in any other manner,
whether direct or indirect (including those acquired by assignment or
participation), absolute or contingent, joint or several, due or to become due,
whether now existing or hereafter arising, and any amendments, extensions,
renewals or increases, and all costs and expenses of the Secured Party incurred
in the documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including reasonable
attorneys' fees and expenses.

         Section 2.        Filing; Further Assurances.

         (a) The Debtor will, at its expense, execute, deliver, file and record
(in such manner and form as the Secured Party may require), or permit the
Secured Party to file and record, any financing statements, any carbon,
photographic or other reproduction of a financing statement or this Security
Interest Agreement (which shall be sufficient as a financing statement
hereunder), any specific assignments or other paper that may be reasonably
necessary or desirable, or that the Secured Party may request, in order to
create, preserve, perfect or validate any Security Interest or to enable the
Secured Party to exercise and enforce its rights hereunder with respect to any
of the Collateral. Effective upon the existence of an Debtor Event of Default
(as defined below), the Debtor hereby appoints Secured Party as Debtor's
attorney-in-fact to execute in the name and behalf of Debtor such additional
financing statements as Secured Party may request.

         (b) Solely for administrative convenience and not for any other
purpose, each Secured Party has designated Krieger & Prager LP to act as agent
for and on behalf of the Secured Party (the "Agent") for purposes of taking
possession of the Collateral and for execution of and identification on any
financing statement or similar instrument referring to or describing the
Collateral. Such agency designation shall remain in effect until canceled by
such Secured Party; provided, however, that such cancellation shall not affect
the validity of any action theretofore taken by such agent pursuant to this
provision. The Debtor acknowledges and agrees to honor such designation and
acknowledges that the Agent is acting as the agent of the Secured Party and not
as a principal.

         Section 3. Representations and Warranties of Debtor. Except for the
interests of

<PAGE>   3
         (i) the Senior Lender, which has and retains an interest in the
         Collateral which is senior to and has priority over the interest of the
         Secured Party therein (the "Senior Lender Interests");

         (ii) Ed Tucker Distributor, Inc. ("Tucker"), which has and retains an
         interest in "all Ed Tucker Distributor, Inc. inventory known and now in
         possession and to be acquired" by the Debtor, to secure an aggregate
         obligation not exceeding $13,050 (the "Tucker Interests"); and

         (iii) any other party (a "Subordinating Party") having a security
         interest in or to any of the Collateral, each of which has acknowledged
         and consented in writing to the priority of the security interest of
         the Secured Party in and to the Collateral granted hereby,

the Debtor hereby represents and warrants to the Secured Party as follows:

         (a) There are no restrictions on the pledge or transfer of any of the
Collateral, other than restrictions referenced on the face of any certificates
evidencing the Collateral.

         (b) The Debtor is the legal, beneficial and record owner of the
Collateral, which is registered in the name of the Debtor as of the date hereof.

         (c) Except for the Senior Lender Interests, the Tucker Interests and
the interests of any Subordinating Party and except for the security interests
of Coast (as defined below), to the extent provided in the immediately following
sentence, the Collateral is free and clear of any security interests, pledges,
liens, encumbrances, charges, agreements, claims or other arrangements or
restrictions of any kind; and the Debtor will not incur, create, assume or
permit to exist any pledge, security interest, lien, charge or other encumbrance
of any nature whatsoever on any of the Collateral, or assign, pledge or
otherwise encumber any right to receive income from the Collateral, except in
connection with any secured financing with a New Senior Lender. Except for such
financing statements representing the Senior Lender Interests or in favor of
Subordinating Parties, a schedule of which is attached hereto as part of Exhibit
A and made a part hereof, no financing statement covering the Collateral is on
file in any public office, other than (i) financing statements naming Coast
Business Credit ("Coast"), as secured party, which financing statements are
being terminated by Coast, as reflected in an August 1, 2000 letter from Coast,
a copy of which has been provided to the Secured Party, (ii) financing
statements representing the Tucker Interests, which security interest will be
released and which financing statements will be terminated upon Tucker's receipt
of payments aggregating no more than $13,050, as reflected in an August 3, 2000
letter from Tom Mathews, Jr., Esq., counsel to Tucker, a copy of which has been
provided to the Secured Party, and (iii) financing statements filed pursuant to
this Security Interest Agreement.

         (d) Subject to the Senior Lender Interests and the Tucker Interests,
the Debtor has the right to transfer the Collateral free of any encumbrances and
the Debtor will defend the Debtor's title to the Collateral against the claims
of all persons, and any registration with, or consent or approval to or action
by, any federal, state or other governmental authority or regulatory body which
was or is necessary for the validity of the pledge and grant of the security
interest in the Collateral has been obtained.

         (e) Upon the occurrence of a Debtor Event of Default, no third party
other than the Senior Lender or the Subordinating Parties, has any rights to
receive notice of such default or the
<PAGE>   4
sale of the Collateral or any portion thereof, and no third party other than the
Senior Lender or the Subordinating Parties has rights to purchase all or any
portion of the Collateral.

         (f) All additional information, representations and warranties
contained in Exhibit B attached hereto and made a part hereof are true, accurate
and complete on the date hereof.

         Section 4. Covenants of Debtor. The Debtor hereby covenants and agrees
with the Secured Party that the Debtor, except with the prior written consent of
the Secured Party in each instance, (a) will, at the Debtor's sole cost and
expense, defend the Collateral against all claims and demands of all persons
(including Subordinating Parties) at any time claiming any interest therein
senior to the Secured Party's interest; (b) will provide the Secured Party with
prompt written notice of (i) any change in the chief executive officer of the
Debtor or the office where the Debtor maintains its books and records pertaining
to the Collateral; (ii) the movement or location of all or a material part of
the Collateral to or at any address other than as set forth in said Exhibit B;
and (iii) any facts which constitute an Debtor Event of Default, or which, with
the giving of notice and/or the passage of time, could or would constitute an
Debtor Event of Default, pursuant to Section 7 below; (c) will promptly pay any
and all taxes, assessments and governmental charges upon the Collateral prior to
the date penalties are attached thereto, except to the extent that such taxes,
assessments and charges shall be contested in good faith by the Debtor; (d) will
immediately notify the Secured Party of any event causing a substantial loss or
diminution in the value of all or any material part of the Collateral and the
amount or an estimate of the amount of such loss or diminution; (e) will have
and maintain adequate insurance at all times with respect to the Collateral
against risks of fire (including so-called extended coverage) and theft, and
such other risks as are customary in the Debtor's industry for the respective
items included in the Collateral, such insurance to be payable to the Secured
Party and the Debtor as their respective interests may appear, subject in all
events to the Senior Lender Interests, and shall provide for a minimum of ten
(10) days prior written notice of cancellation to the Secured Party, and Debtor
shall furnish the Secured Party with certificates or other evidence satisfactory
to the Secured Party of compliance with the foregoing insurance provisions; (f)
will not sell or offer to sell or otherwise assign, transfer or dispose of the
Collateral or any interest therein, without the prior written consent of the
Secured Party, except in the ordinary course of business; (g) other than the
Senior Lender Interests, will keep the Collateral free from any adverse lien,
security interest or encumbrance (except for encumbrances specified in Exhibit A
attached hereto) and in good order and repair, reasonable wear and tear
excepted, and will not waste or destroy the Collateral or any part thereof; and
(h) will not use the Collateral in material violation of any statute or
ordinance the violation of which could materially and adversely affect the
Debtor's business.

         Section 5. Records Relating To Collateral. The Debtor will keep its
records concerning the Collateral at its offices designated in Exhibit B or at
such other place or places of business of which the Secured Party shall have
been notified in writing no less than ten (10) days prior thereto. The Debtor
will hold and preserve such records and chattel paper and will permit
representatives of the Secured Party at any time during normal business hours
upon reasonable notice to examine and inspect the Collateral and to make
abstracts from such records and chattel paper, and will furnish to the Secured
Party such information and reports regarding the Collateral as the Secured Party
may from time to time reasonably request.

         Section 6. General Authority. The Debtor hereby appoints the Secured
Party the Debtor's lawful attorney, with full power of substitution, in the name
of the Debtor, for the sole use and benefit of the Secured Party, but at the
Debtor's expense, to exercise, all or any of the
<PAGE>   5
following powers with respect to all or any of the Collateral during the
existence of any Debtor Event of Default:

         (a) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due;

         (b) to receive, take, endorse, assign and deliver all checks, notes,
drafts, documents and other negotiable and non- negotiable instruments and
chattel paper taken or received by the Secured Party;

         (c) to settle, compromise, prosecute or defend any action or proceeding
with respect thereto;

         (d) to sell, transfer, assign or otherwise deal in or with the same or
the proceeds thereof or the related goods securing the Collateral, as fully and
effectually as if the Secured Party were the sole and absolute owner thereof;

         (e) to extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto; and

         (f) to discharge any taxes, liens, security interests or other
encumbrances at any time placed thereon;

provided that the Secured Party shall give the Debtor not less than ten (10)
days prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral.

         Section 7. Debtor Events of Default. The Debtor shall be in default
under this Security Interest Agreement upon the occurrence of any of the
following events (a "Debtor Event of Default"):

         (a) if any representation or warranty made by the Debtor in this ANNEX
VII or in any of the Transaction Agreements shall be false or misleading in any
material respect; or

         (b) the occurrence of an Event of Default (as defined in the
Debenture).

         Section 8.        Remedies Upon Debtor Event of Default.

         (a) If any Debtor Event of Default shall have occurred, the Secured
Party may exercise all the rights and remedies of a Secured Party under the
Uniform Commercial Code. The Secured Party may require the Debtor to assemble
all or any part of the Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party which is reasonably convenient.
The Secured Party shall give the Debtor ten (10) days prior written notice of
the Secured Party's intention to make any public or private sale or sale at a
broker's board or on a securities exchange of the Collateral. At any such sale
the Collateral may be sold in one lot as an entirety or in separate parcels, as
the Secured Party, in its sole discretion, may determine. The Secured Party
shall not be obligated to make any such sale pursuant to any such notice. The
Secured Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be adjourned. The Secured Party, instead of
exercising the power of sale herein conferred upon it,
<PAGE>   6
may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.

         (b) At any bona fide public sale the Secured Party shall be free to
purchase all or any part of the Collateral. Any such sale may be on cash or
credit. The Secured Party will not be obligated to make any sale and may sell at
the time and place to which the sale is adjourned. If the Collateral is
customarily sold on a recognized market or threatens to decline speedily in
value, the Secured Party may sell such Collateral at any time without giving
prior notice to the Debtor. Whenever notice is otherwise required by law to be
sent by the Secured Party to the Debtor of any sale or other disposition of the
Collateral, three (3) days' written notice sent to the Debtor at the notice
address specified below will be reasonable.

         Section 9.        Application of Collateral and Proceeds.

         (a) The proceeds of any sale of, or other realization upon, all or any
part of the Collateral shall be applied in the following order of priorities:
(i) first, to the payment of all of the reasonable expenses of such sale or
other realization, including, without limitation, reasonable attorneys' fees,
and all expenses, liabilities and advances reasonably incurred or made by the
Secured Party in connection therewith, and of any other unreimbursed expenses
for which the Secured Party is to be reimbursed pursuant to the terms of any of
the Transaction Agreements; (ii) second, to any obligations owed to the Senior
Lender secured by the Senior Lender Interests; (iii) third, to the payment of
the Obligations in such order of priority as the Secured Party, in its sole
discretion, shall determine; and (iv) finally, to the payment to the Debtor, or
its successors or assigns, or as a court of competent jurisdiction may direct,
of any surplus then remaining from such proceeds after payments of the character
referred to in subsections (i) through (iii) of this Section 9(a) shall have
been made.

         (b) If any demand is made at any time upon the Secured Party for the
repayment or recovery of any amount received by it in payment or on account of
any of the Obligations from the disposition of the Collateral and if the Secured
Party repays all or any part of such amount, the Debtor will be and remain
liable for the amounts so repaid or recovered to the same extent as if never
originally received by the Secured Party.

         (c) In furtherance of the foregoing, and not in limitation thereof:

         (i) The Secured Party, as attorney-in-fact pursuant to the terms of
         this Security Interest Agreement, may, in the name and stead of the
         Debtor, make and execute all conveyances, assignments and transfers of
         the Collateral sold pursuant to the terms of this Security Interest
         Agreement. The Debtor shall, if so requested by the Secured Party or
         representatives or agents of the Secured Party, ratify and confirm any
         sale or sales by executing and delivering to the Secured Party or its
         designees, or to such purchaser or purchasers, all such instruments as
         may, in the judgment of the Secured Party, be advisable for such
         purpose.

         (ii) The receipt of the Secured Party for the purchase money paid at
         any such sale made by it shall be a sufficient discharge therefor to
         any purchaser of the Collateral, or any portion thereof, sold as
         aforesaid; and no such purchaser (or his or its representatives or
         assigns), after paying such purchase money and receiving such receipt,
         shall be bound to see to the application of such purchase
<PAGE>   7
         money or any part thereof or in any manner whatsoever be answerable for
         any loss, misapplication, necessity, expediency or regularity of any
         such sale.

         Section 10. Further Assurances. At any time and from time to time, upon
demand of the Secured Party, the Debtor will give, execute, file and record any
notice, financing statement, continuation statement, instrument, document or
agreement that the Secured Party may consider necessary or desirable to create,
preserve, continue, perfect or validate any security interest granted hereunder
or to enable the Secured Party to confirm its rights hereunder with respect to
such security interest. Without limiting the generality of the foregoing, the
Debtor hereby irrevocably appoints the Secured Party as the Debtor's
attorney-in-fact to do all acts and things in the Debtor's name that the Secured
Party may deem necessary or desirable to carry out the purposes of this Security
Interest Agreement, which appointment is deemed to be coupled with an interest.
The Secured Party is authorized to file financing statements, continuation
statements and other documents under the Uniform Commercial Code relating to the
Collateral without the Debtor's signature, naming the Debtor as debtor and the
Secured Party (or the Agent as agent of the Secured Party) as secured party.

         Section 11. Expenses; Secured Party's Lien. The Debtor will forthwith
upon demand pay to the Secured Party: (a) the amount of any taxes which the
Secured Party may have been required to pay by reason of the Security Interests
(including, without limitation, any applicable transfer taxes) or, except with
respect with the Senior Lender Interests, to free any of the Collateral from any
lien thereon; and (b) the amount of any and all reasonable out-of-pocket
expenses, including, without limitation, the reasonable fees and disbursements
of its counsel, and of any agents not regularly in its employ, which the Secured
Party may incur in connection with (i) the preparation of any amendments or
modifications of this Security Interest Agreement, (ii) the collection, sale or
other disposition of any of the Collateral; (iii) the exercise by the Secured
Party of any of the powers conferred upon it hereunder, or (iv) any default by
the Debtor hereunder.

         Section 12. Termination of Security Interests; Release of Collateral.
Upon the repayment and performance in full of all the Obligations, the Security
Interests shall terminate and all rights to the Collateral shall revert to the
Debtor. Upon any such termination of the Security Interests or release of
Collateral, the Secured Party will, at the Debtor's expense, to the extent
permitted by law, execute and deliver to the Debtor such documents as the Debtor
shall reasonably request to evidence the termination of the Security Interests
or the release of such Collateral, as the case may be.

         Section 13. Notices. Any notice required or permitted hereunder shall
be given in the manner contemplated by the Securities Purchase Agreement.

         Section 14.       Miscellaneous.

         (a) No failure on the part of the Secured Party to exercise, and no
delay in exercising, and no course of dealing with respect to, any right, power
or remedy under this Security Interest Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise by the Secured Party of any
right, power or remedy under this Security Interest Agreement preclude the
exercise, in whole or in part, of any other right, power or remedy. The remedies
in this Security Interest Agreement are cumulative and are not exclusive of any
other remedies provided by law. Neither this Security Interest Agreement nor any
provision hereof may be changed, waived,
<PAGE>   8
discharged or terminated orally but only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought.

         (b) Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the Delaware Uniform
Commercial Code have the meanings therein stated.

         Section 15. Separability. If any provision hereof shall prove invalid
or unenforceable in any jurisdiction whose laws shall be deemed applicable, the
other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Secured Party.

Acknowledged:
TITAN MOTORCYCLE CO. OF AMERICA, Debtor


By:______________________________________
Its


STATE OF ________________
COUNTY OF ______________

     On the ______ day of ________, 2000, before me personally came
_________________________, to me known, who being by me duly sworn, did depose
and say that he resides at _____________________________________,
__________________; that he is the _______________ of TITAN MOTORCYCLE CO. OF
AMERICA, the corporation described in and which executed the foregoing
instrument as Debtor; that he was authorized to execute the foregoing instrument
on behalf of said corporation by the Board of Directors of said corporation; and
that he executed the foregoing instrument voluntarily and of his own free will
on behalf of said corporation.

                                                ________________________________
                                                Notary Public
                                                My commission expires:

<PAGE>   9
                                    EXHIBIT A

                   FINANCING STATEMENTS ON FILE ON DATE HEREOF


         1.       Financing Statement on Form UCC-1, naming Debtor, as debtor,
                  and                  ,  as secured party, as filed in the
                  office of the Secretary of State of the State of
                  on                       ,         and in the office of
                  on                       ,         .  Covered
                  collateral:
                              [IN LIEU OF FOREGOING, SEE ATTACHED COPIES OF UCC
                              FINANCING STATEMENTS ON FILE]

Debtor represents that, except for the security interest referred to in
paragraph 1 above, there are no security interests in the Collateral in favor of
any other party.


<PAGE>   10
                                    EXHIBIT B



                    ADDITIONAL REPRESENTATIONS AND WARRANTIES


     1.  The exact title of the Debtor is TITAN MOTORCYCLE CO. OF AMERICA

     2. The Debtor does business under the names:




     3.  The Debtor was incorporated on              under the laws of the State
         of Nevada and is in good standing under those laws.

     4. The President of the Debtor is Frank Keery.

     5. The Debtor is qualified to transact business in:
                           Arizona



     6.  The Debtor's only place(s) of business is/are at:
                           2222 West Peoria Avenue, Phoenix, AZ 85029.


     7.  The Debtor owns or has an interest in personal property or fixtures at
         the following locations:

         Address                                     Record Owner of Real Estate

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>9
<FILENAME>ex10-1.txt
<DESCRIPTION>EX-10.1
<TEXT>

<PAGE>   1
                                                                    Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT


                  THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between TITAN MOTORCYCLE CO.
OF AMERICA, a Nevada corporation, with headquarters located at 2222 West Peoria
Avenue, Phoenix, AZ 85029 (the "Company"), and each entity named on a signature
page hereto (each, a "Lender") (each agreement with a Lender being deemed a
separate and independent agreement between the Company and such Lender, except
that each Lender acknowledges and consents to the rights granted to each other
Lender under such agreement and the Transaction Agreements, as defined below,
referred to therein).

                              W I T N E S S E T H:

                  WHEREAS, the Company and the Lender are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and

                  WHEREAS, the Lender wishes to lend funds to the Company,
subject to and upon the terms and conditions of this Agreement , the repayment
of which will be represented by 12% Secured Convertible Debentures of the
Company (the "Debentures"), which Debentures will be convertible into shares of
Common Stock, $.001 par value per share of the Company (the "Common Stock"),
upon the terms and subject to the conditions of such Debentures, together with
the Warrants (as defined below) exercisable for the purchase of shares of Common
Stock (the "Warrant Shares"), and subject to acceptance of this Agreement by the
Company;

                  NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

                  1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

                  a. PURCHASE. The undersigned hereby agrees to loan to the
Company the principal amount set forth on the Lender's signature page of this
Agreement (the "Purchase Price"), out of the aggregate amount being loaned by
all Lenders of $750,000. The obligation to repay the loan shall be evidenced by
the Company's issuance of one or more Debentures to the Lender in such principal
amount. Each Debenture shall have the terms and conditions of, and be
substantially in the form attached hereto as, ANNEX I. The loan to be made by
the Lender and the issuance of the Debentures to the Lender are sometimes
referred to herein and in the other Transaction Agreements as the purchase and
sale of the Debentures.
<PAGE>   2
                  b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:

                  (i) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.

                  (ii) "Lender's Allocable Share" means the fraction of which
the numerator is the principal amount of the Lender's Debentures specified on
the Lender's signature page of this Agreement and the denominator is $750,000.

                  (iii) "Cap Amount" means the number of shares equal to 19.99%
of the number of outstanding shares of Common Stock on the date hereof (the
number of such outstanding shares is specified in Section 3(c) hereof).

                  (iv) "Cap Regulations" means the maximum number of shares that
may be issued in compliance with the applicable rules and regulations of its
Principal Trading Market, including, but not necessarily limited to, Nasdaq Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable, which would limit
the issuance of Common Stock on conversion of the all the Debentures in this
series to the Cap Amount.

                  (v) "Certificates" means (x) the Debentures, duly executed by
the Company and issued on the Closing Date in the name of the Lender,
representing the Company's obligation to repay the Purchase Price to the Lender,
and (y) the Warrants, duly executed on behalf of the Company and issued in the
name of the Lender on the Closing Date.

                  (vi) "Closing Bid Price" means the closing bid price of the
Common Stock (in U.S. Dollars) on the Principal Trading Market as reported by
the Reporting Service. If the Closing Bid Price cannot be calculated for such
security on the relevant date on the foregoing basis, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Holders of a majority
of the then outstanding Debentures and reasonably acceptable to the Company,
with the costs of such appraisal to be borne by the Company. The manner of
determining the Closing Bid Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to closing bid price must be made under any of the Transaction
Agreements.

                  (vii) "Closing Date" means the date of the closing of the
purchase and sale of the Debentures, as provided herein.

                  (viii) "Conversion Price" and "Fixed Conversion Price" have
the meanings ascribed to them in the Debentures.
<PAGE>   3
                  (ix) "Converted Shares" means the shares of Common Stock
issuable upon conversion of the Debentures (including, if relevant, accrued
interest on the Debentures so converted).

                  (x) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined below).

                  (xi) "Escrow Agent" means the escrow agent identified in the
Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions").

                  (xii) "Escrow Funds" means the Purchase Price delivered to the
Escrow Agent as contemplated by Sections 1(c) and (d) hereof.

                  (xiii) "Escrow Property" means the Escrow Funds and the
Certificates delivered to the Escrow Agent as contemplated by Section 1(c)
hereof.

                  (xiv) "Holder" means the Person holding the relevant Debenture
or Debentures or Warrants, as the case may be.

                  (xv) "Initial Senior Lender" means Wells Fargo Credit, Inc.

                  (xvi) "Keery Principal" means each of Frank Keery, Patrick
Keery and Barbara Keery, or any entity, including, without limitation, for
profit or non-profit corporations, partnerships and trusts, whose voting rights
regarding Common Stock of the Company is subject to the direction, control or
other influence of any of them, and "Keery Principals" means any two or more of
them.

                  (xvii) "Last Audited Date" means January 1, 2000.

                  (xviii) "Market Price of the Common Stock" means the average
Closing Bid Price of the Common Stock for the five (5) trading days ending on
the trading day immediately before the date indicated in the relevant provision
hereof, as reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market.

                  (xix) "New Senior Lender" means a bank or other financing
institution which enters into a long term loan agreement (with the loan subject
to such agreement having a term of at least one year) or a revolving credit
agreement with the Company; provided that, in connection with the consummation
of the agreement with such bank or other financing institution, (x) the Initial
Senior Lender releases in writing all of its claims, whether accrued, matured or
unmatured, against the Company and all of its security interests in any assets
of the Company, and (y) the Lender has consented to the terms of such agreement
(and the Lender agrees that it will not request any consideration for the
issuance of such consent).
<PAGE>   4
                  (xx) "Person" means any living person or any entity, such as,
but not necessarily limited to, a corporation, partnership or trust.

                  (xxi) " Preferred Holders" means the Series A Preferred
Holders, the Series B Preferred Holders and the Series C Preferred Holders (as
those terms are defined below).

                  (xix) "Principal Trading Market" means The Nasdaq/SmallCap
Market, or if the Common Stock is no longer listed on that market, the principal
securities exchange or trading market on which the Common Stock is listed or
traded, including the OTCBB or the pink sheets.

                  (xxii) "Reporting Service" means Bloomberg LP or if that
service is not then reporting the relevant information regarding the Common
Stock, a comparable reporting service of national reputation selected by the
Holders of the Debentures and reasonably acceptable to the Company.

                  (xxiii) "Securities" means the Debentures, the Warrants , the
Converted Shares and the Warrant Shares.

                  (xxiv) "Senior Lender" means the Initial Senior Lender or a
New Senior Lender.

                  (xxiii) "Shares" means the shares of Common Stock representing
any or all of the Converted Shares and the Warrant Shares.

                  (xxv) "Specified Period" means the period from the date hereof
through and including the earlier of (x) the date which is the first annual
anniversary of the Closing Date or (y) the date as of which the Lender owns no
Debentures.

                  (xvi) "Transaction Agreements" means the Securities Purchase
Agreement, the Debentures, the Registration Rights Agreement, the Warrants, the
Joint Escrow Instructions, the Security Interest Agreement (as defined below)
and includes all ancillary documents referred to in those agreements.

                  c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.

                  (i) On or before the date prior to the Closing Date, the
Lender shall pay the Purchase Price for the Debentures by delivering immediately
available good funds in United States Dollars to the Escrow Agent.

                  (ii) No later than the Closing Date, but in any event promptly
following payment by the Lender to the Escrow Agent of the Purchase Price, the
Company shall deliver the Certificates to the Escrow Agent.

                  (iii) By signing this Agreement, each of the Lender and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
<PAGE>   5
                  d. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made by wire transfer of funds to:

                     Bank of New York
                     350 Fifth Avenue
                     New York, New York 10001

                     ABA# 021000018
                     For credit to the account of Krieger & Prager LLP
                     Account No.:    [To be provided to the Lender by
                                         Krieger & Prager LLP]
                     Re:      Titan Motorcycle Debenture Transaction

Not later than 5:00 p.m., New York time, on the date that is one (1)
Nasdaq/SmallCap Market trading day after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Lender shall deposit with the Escrow Agent the Purchase
Price for the Debentures in immediately available funds. Time is of the essence
with respect to such payment, and failure by the Lender to make such payment
shall allow the Company to cancel this Agreement.

                  2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.

                  The Lender represents and warrants to, and covenants and
agrees with, the Company as follows:

                  a. Without limiting Lender's right to sell the Common Stock
pursuant to the Registration Statement, the Lender is purchasing the Debentures
and the Warrants and will be acquiring the Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.

                  b. The Lender is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.

                  c. All subsequent offers and sales of the Debentures and the
Shares by the Lender shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
<PAGE>   6
                  d. The Lender understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Lender's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Lender set forth herein in order to determine the
availability of such exemptions and the eligibility of the Lender to acquire the
Securities.

                  e. The Lender and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debentures and the
offer of the Shares which have been requested by the Lender, including those set
forth on ANNEX V hereto. The Lender and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Lender has also had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10-K, as amended, for the fiscal year
ended January 1, 2000, (2) Quarterly Report on Form 10-Q for the fiscal quarter
ended April 1, 2000, (3) Current Reports on Form 8-K filed on May 24, 2000, June
22, 2000 and July 20, 2000, (4) Definitive Proxy Statement filed on June 23,
2000 and (5) Registration Statement on Form S-3 filed on July 20, 2000
(collectively, the "Company's SEC Documents").

                  f. The Lender understands that its investment in the
Securities involves a high degree of risk.

                  g. The Lender understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.

                  h. This Agreement and the other Transaction Agreements to
which the Lender is a party have been duly and validly authorized, executed and
delivered on behalf of the Lender and are valid and binding agreements of the
Lender enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.

                  3. COMPANY REPRESENTATIONS, ETC.

                  The Company represents and warrants to the Lender as of the
date hereof and as of the Closing Date that, except as provided in ANNEX V
hereto:
                  a. CONCERNING THE DEBENTURES AND THE SHARES. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Debentures, the Warrants or the Shares. No party other than a Lender has a
currently exercisable right of first refusal which would be applicable to any or
all of the transactions contemplated by the Transaction Agreements.

                  b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has
<PAGE>   7
the requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a material adverse effect on the business, operations, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole,. The Company has registered its Common Stock and is obligated to file
reports pursuant to Section 12 of the 1934 Act. The Common Stock is listed and
traded on The Nasdaq/SmallCap Market. The Company has received no notice, either
oral or written, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for the
continuation of such listing.

                  c. AUTHORIZED SHARES. The authorized capital stock of the
Company consists of (i) 90,000,000 shares of Common Stock, $.001 par value per
share, of which 17,501,187 are outstanding as of the date hereof. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable. The Company has sufficient authorized and
unissued shares of Common Stock as may be reasonably necessary to effect the
issuance of the Shares. The Converted Shares and the Warrant Shares have been
duly authorized and, when issued upon conversion of, or as interest on, the
Debentures or upon exercise of the Warrants, each in accordance with its
respective terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the Holder thereof to personal liability by reason of being
such holder.

                  d. SECURITIES PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT. This Agreement , the Registration Rights Agreement, the form of which
is attached hereto as ANNEX IV (the "Registration Rights Agreement") and the
other Transaction Agreements, and the transactions contemplated thereby, have
been duly and validly authorized by the Company. This Agreement has been duly
executed and delivered by the Company and this Agreement is, and each of the
other Transaction Agreements, when executed and delivered by the Company, will
be, a valid and binding agreement of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.

                  e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and the other Transaction Agreements by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by the Transaction Agreements do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default under (i) the articles of incorporation or by-laws of the
Company, each as currently in effect, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock except as herein set forth, (iii) to its
knowledge, any existing applicable law, rule, or regulation or any applicable
decree, judgment, or order of any court, United States federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) the
Company's listing agreement for its Common Stock, except
<PAGE>   8
such conflict, breach or default which would not have a material adverse effect
on the business, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, or on the transactions
contemplated herein.

                  f. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Lender as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.

                  g. SEC FILINGS. None of the Company's SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since June 1, 1999 timely filed all
requisite forms, reports and exhibits thereto with the SEC.

                  h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been no material adverse change and no material adverse development in
the business, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, except as disclosed in the
Company's SEC Documents. Since the Last Audited Date, except as provided in the
Company's SEC Documents, the Company has not (i) incurred or become subject to
any material liabilities (absolute or contingent) except liabilities incurred in
the ordinary course of business consistent with past practices; (ii) discharged
or satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any agreements
to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.

                  i. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally or as
disclosed in the Company's SEC Documents) that has not been disclosed in writing
to the Lender that (i) would reasonably be expected to have a material adverse
effect on the business, operations, financial condition or results of operations
of the Company and its subsidiaries taken as a whole, (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the Transaction
Agreements, or (iii) would reasonably be expected to materially and adversely
affect the value of the rights granted to the Lender in the Transaction
Agreements.
<PAGE>   9
                  j. ABSENCE OF LITIGATION. Except as set forth in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
business, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.

                  k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in the
Company's SEC Documents, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the business, operations, financial condition or results of operations
of the Company and its subsidiaries taken as a whole.

                  l. PRIOR ISSUES. Except as set forth in the Company's SEC
Documents, during the twelve (12) months preceding the date hereof, the Company
has not issued any convertible securities. As of the date hereof, the
outstanding unconverted principal amount of each convertible security issued by
the Company is as set forth in ANNEX V hereto.

                  m. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since the Last Audited Date, or which individually or in the aggregate, do not
or would not have a material adverse effect on the business, operations,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole. No event or circumstance has occurred or exists with respect
to the Company or its properties, business, operations, financial condition or
results of operations of the Company and its subsidiaries taken as a whole,
which, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed. There are no proposals currently under
consideration or currently anticipated to be under consideration by the Board of
Directors or the executive officers of the Company (other than the transactions
contemplated by the Transaction Agreements) which proposal would (x) change the
certificate of incorporation or other charter document or by-laws of the
Company, each as currently in effect, with or without stockholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the stockholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.

                  n. NO DEFAULT. Except as provided in the Company's SEC
Documents, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it or its property is bound.
<PAGE>   10
                  o. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since January 1, 2000, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.

                  p. DILUTION. The number of Shares issuable upon conversion of
the Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Debentures. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have a potential dilutive effect. The Board of Directors
of the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Debentures and upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other stockholders of the Company.

                  q. BROKERS, FINDERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commission, finder's
fees or similar payments by Lender relating to this Agreement or the
transactions contemplated hereby. Lender shall have no obligation with respect
to such fees or with respect to any claims made by or on behalf of other persons
for fees of a type contemplated in this Section 3(q) that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless each of Lender, its employees, officers, directors,
agents, and partners, and their respective Affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.

                  4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

                  a. TRANSFER RESTRICTIONS. The Lender acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Lender shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
<PAGE>   11
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.

                  b. RESTRICTIVE LEGEND. The Lender acknowledges and agrees that
the Debentures and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):

                  THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
                  SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
                  FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
                  FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
                  ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
                  REQUIRED.

                  c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.

                  d. FILINGS.

                  (i) The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Lender promptly after such filing.

                  (ii) Subject to the conditions of the immediately following
sentence, the Company undertakes and agrees to take all steps necessary to have
a meeting and vote of the stockholders of the Company no later than the Meeting
Date (as defined below) regarding authorization of the Company's issuance to the
Holders of the Debentures of shares of Common Stock in excess of twenty percent
(20%) of the outstanding shares of Common Stock on the date of this Agreement in
accordance with Nasdaq Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be
applicable, or to increase the authorized shares of Common Stock of the Company
if and as may be necessary to enable the Company to meet its obligations
regarding the reservation of shares and the conversion of the Debentures and
exercise of the Warrants as contemplated by the Transaction Agreements. The term
"Meeting Date" means the earlier of (i) ninety (90) days after the Closing Date
or (ii) the date on which the Company holds its next regular or special
stockholders meeting after the stockholders meeting held on or about July 26,
2000. The Company will recommend to the stockholders that such authorization be
granted and will seek proxies from stockholders not attending the meeting naming
a director or officer of the Company as such stockholder's proxy and directing
the proxy to vote, or giving the proxy the authority to vote, in favor of such
authorization. Upon determination that the stockholders have voted in favor of
such authorization, the Company shall cause its counsel to issue to the Lender
an
<PAGE>   12
unqualified opinion (the "Authorization Opinion") that such authorization has
been duly adopted by all necessary corporate action of the Company and that the
Company will be able to issue, without restriction as to the number of such
shares, all shares of Common Stock as may be issuable upon conversion of the
Debentures and exercise of the Warrants and without any limits imposed by the
Cap Regulations. The Authorization Opinion shall state that the Lender may rely
thereon in connection with the transactions contemplated by this Agreement and
the other Transaction Agreements. If, for any reason, (x) the Authorization
Opinion is not issued within five (5) business days after such meeting, (y) the
meeting is not held within thirty (30) days after the Meeting Date or (z) the
requisite stockholder approval is not obtained at the meeting, then in lieu of
issuing any shares in violation of the Cap Regulations or any of the Issuance
Limitations (as defined in the Debenture), the Company shall redeem all
outstanding Unconverted Debentures (as defined in the Debenture) as provided in
the Debentures within sixty (60) days after the Meeting Date; provided, however,
that at any time prior to the payment of the Redemption Amount (as defined in
the Debentures), the Lender may request the Company to, and the Company will,
voluntarily delist the Common Stock from The Nasdaq/SmallCap Market and cause
its shares to be listed on The Nasdaq/Bulletin Board Market and upon such
listing on the Nasdaq/Bulletin Board Market the obligation to redeem all
Unconverted Debentures will terminate.

                  e. REPORTING STATUS. So long as the Lender beneficially owns
any of the Securities, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination. The Company will take all reasonable action under its
control to obtain, if necessary, and to continue the listing and trading of its
Common Stock (including, without limitation, all Registrable Securities) on The
Nasdaq/SmallCap Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
Nasdaq/SmallCap Market.
<PAGE>   13
                  f. USE OF PROCEEDS. The Company will use the proceeds from the
Purchase Price (excluding amounts paid by the Company for legal fees, finder's
fees and escrow fees in connection with the sale of the Debentures) for internal
working capital purposes, and, except as expressly provided herein or with the
express written consent of the Lender in each instance, shall not, directly or
indirectly, use such proceeds for research and development expenses or for any
loan to or investment in any other corporation, partnership, enterprise or other
person, including any of its Affiliates, or to repay any debt to any of its
Affiliates.

                  g. CERTAIN AGREEMENTS. On or before the Closing Date, the
Company shall obtain the agreement (each, a "Principal's Agreement") of each of
the Keery Principals that, without the prior written consent of the Lender in
each instance, such Keery Principal, individually and jointly with the other
Keery Principals, will not sell or otherwise transfer or offer to sell or
otherwise transfer (except in a private transaction in which the transferee
agrees in writing for the benefit of Lender and enforceable by Lender, a copy of
which written agreement is provided to Lender, to be bound by the provisions of
the Principal's Agreement as if such transferee were a Keery Principal; a
"Permitted Keery Transfer")

         (A) prior to the Effective Date, any shares of Common Stock directly or
         indirectly held by such Keery Principal, and

         (B) thereafter, not more than three and one-half percent (3.5%) of any
         shares of Common Stock directly or indirectly held by such Keery
         Principal during any calendar quarter prior to the expiration of the
         Specified Period; provided, further, that any such sale or other
         transfer of any shares of Common Stock shall be made only after the
         Keery Principal shall have given the Lender at least thirty (30) days'
         advance written notice thereof .

Each such Principal's Agreement shall (w) specify that it is entered into as an
inducement to the Lender's execution, delivery and performance of this
Agreement, (x) name the Lender as a third party beneficiary thereof, (y)
acknowledge that the Company's transfer agent will be provided with instructions
that, except for Permitted Keery Transfers (where the transferee is then deemed
to be a Keery Principal), transfers by a Keery Principal require the consent of
the Company and the Lender, and (z) contemplate that, in addition to any other
damages or remedies that may be appropriate, the Principal's Agreement shall be
enforceable by injunction sought by the Company and the Lender or any one or
more of them.

                  h. AVAILABLE SHARES. (i) Upon the initial issuance of the
Debentures, the Company shall reserve out of the authorized but unissued shares
of Common Stock for issuance upon conversion of the Debentures such number of
shares equal to 200% of the number of shares which would be issuable if all of
the Debentures issued to all Lenders were converted in their entirety on the
Closing Date based on the Conversion Price in effect on that date and thereafter
the number of authorized but unissued shares of Common Stock so reserved (the
"Reserved Amount") shall not be decreased, but may be increased pursuant to
subparagraph (ii) of this Section 4(h), and shall at all times be sufficient to
provide for the conversion of all of the Debentures then outstanding at the then
current Conversion Price thereof. The Reserved Amount shall be allocated to the
Holders of Debentures as provided in Section 4(k) hereof.
<PAGE>   14
                  (ii) If the Reserved Amount for any ten (10) consecutive
trading days (the last of such 10 trading days being the "Authorization Trigger
Date") shall be less than 150% of the number of shares of Common Stock issuable
upon potential conversion of the then outstanding Debentures of all Holders, the
Company shall immediately notify the Holders of the Debentures of such
occurrence and shall take immediate action (including, if necessary, seeking
stockholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Reserved Amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Debentures of all
Holders. In the event the Company fails to so increase the Reserved Amount
within ninety (90) days after an Authorization Trigger Date (such event being
the "Reserved Amount Trigger Date"), each Holder of Debentures shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time after the Reserved Amount Trigger Date, by delivery of a Redemption Notice
(as defined in the Debentures) to the Company, to require the Company to
purchase for cash, at an amount equal to the Redemption Amount, a portion of the
Holder's Debentures such that, after giving effect to such purchase, the
Holder's allocated portion of the Reserved Amount equals or exceeds 200% of the
total number of shares of Common Stock issuable to such Holder upon conversion
of its Debentures. If the Company fails to redeem such portion of the Holder's
Debentures within five (5) business days after its receipt of such Redemption
Notice, then such Holder shall be entitled to the remedies provided in the
Debentures.

                  (iii) Notwithstanding the provisions of Section 4(h)(ii)
hereof, a Holder of Debentures shall have no right to require the Company to
effect a redemption of such Holder's outstanding Debentures as provided in the
immediately preceding subparagraph (ii) so long as (i) the Company has not, at
any time, decreased the Reserved Amount below that number of shares of Common
Stock computed as set forth in subparagraphs (i) and (ii) of this Section 4(h);
(ii) the Company shall have taken immediate action following the applicable
Authorization Trigger Date (including, if necessary, seeking stockholder
approval to authorize the issuance of additional shares of Common Stock) to
increase the Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon conversion of the outstanding Debentures of all Holders; and
(iii) the Company continues to use its commercially reasonable good faith best
efforts (including the resolicitation of stockholder approval, if necessary, to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Debentures of all Holders. The Company will
be deemed to be using "its commercially reasonable good faith best efforts" to
increase the Reserved Amount so long as it solicits stockholder approval to
authorize the issuance of additional shares of Common Stock not less than two
(2) times during each twelve month period following the applicable Authorization
Trigger Date during which any Debentures remain outstanding; provided that no
such limitation on the redemption rights set out in subparagraph (ii) of this
Section 4(h) shall be effective if the Company fails to obtain stockholder
approval after two (2) attempts.

                  i. WARRANTS. The Company agrees to issue to the Lender on the
Closing Date a transferable, divisible warrant (collectively, the "Warrants")
for the purchase of 1,025,000 shares
<PAGE>   15
of Common Stock. The Warrants shall bear an exercise price equal to one hundred
five percent (105%) of the Market Price of the Common Stock as of the Closing
Date. The Warrant will expire on the last calendar day of the month in which the
fifth anniversary of the Closing Date occurs. The Warrants shall be in the form
annexed hereto as ANNEX VI together with registration rights as provided in the
Registration Rights Agreement.

                  j. LIMITATION ON CONVERSIONS. Anything in the other provisions
of this Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, the following provisions are applicable to conversion effected
under the Debentures:

                  (i) If and for so long as the Cap Regulations are applicable
to limit the issuance of shares on conversion of the Debentures (but not
thereafter), the number of shares that the Company will issue to all Holders of
the Debentures on conversion of the Debentures shall not, in the aggregate,
exceed the Cap Amount. The Cap Amount shall be allocated among Holders of
Debentures as provided in Section 4(k) hereof.

                  (ii) Nothing in this Section 4(j) shall be deemed to (A)
permit a transfer or assignment of the Debenture unless otherwise permitted by
other provisions of this Agreement or the Debenture or (B) limit or otherwise
modify the obligations of the Company to take certain actions or to make certain
payments to the Lender or other parties (such as but not necessarily limited to,
actions with respect to the meeting contemplated by Section 4(d)(ii) hereof or
payments on redemption of the Debentures), or adversely affect the rights of the
Lender or such other parties with respect thereto, as provided elsewhere in this
Agreement, the Debentures or any of the other Transaction Agreements.

                  k. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial
Cap Amount and Reserved Amount shall be allocated pro rata among the Holders of
all Debentures based on the initial principal amount of the Debentures issued to
each such Holder. Each increase to the Cap Amount and the Reserved Amount shall
be allocated pro rata among the Holders of Debentures based on the principal
amount of the Debentures held by each Holder at the time of the increase in the
Cap Amount or Reserved Amount. In the event a Holder shall sell or otherwise
transfer any of such Holder's Debentures, each transferee shall be allocated a
pro rata portion of such transferor's Cap Amount and Reserved Amount. Any
portion of the Cap Amount or Reserved Amount which remains allocated to any
person or entity which does not hold any Debentures shall be allocated to the
remaining Holders of Debentures, pro rata based on the outstanding principal
balance of the Debentures then held by such Holders.

                  l. INTENTIONALLY OMITTED.

                  m. RIGHT OF FIRST REFUSAL, SPECIAL DILUTION PROTECTION.

                  (i) The Company covenants and agrees that, if during the
period commencing on the date of this Agreement and continuing through the date
which is one hundred eighty (180) days after the Effective Date, the Company
offers to enter into any transaction (a "New Transaction") for the sale of
Common Stock or securities convertible into Common Stock (collectively, "New
Common Stock"), the Company shall notify the Lender in writing of all of
<PAGE>   16
the terms of such offer (a "New Transaction Offer"). The Lender shall have the
right (the "Right of First Refusal"), exercisable by written notice given to the
Company by the close of business on the third business day after the Lender's
receipt of the New Transaction Offer (the "Right of First Refusal Expiration
Date"), to participate, pro rata with the holders of the shares of the Series A
Convertible Preferred Stock (the "Series A Preferred Holders"), the Series B
Convertible Preferred Stock (the "Series B Preferred Holders") and the Series C
Convertible Preferred Stock (the "Series C Preferred Holders"), in all or any
part of the New Transaction Offer on the terms so specified. To the extent that
any Preferred Holders do not elect to participate in the New Transaction, the
Right of First Refusal offered to them shall be offered pro rata to the Lenders
and the Preferred Holders who have elected to exercise their own Right of First
Refusal in full.

                  (ii) If, and only if, the Lender does not exercise the Right
of First Refusal in full, the Company may consummate the remaining portion of
the New Transaction with any third party (a "New Investor") on the terms
specified in the New Transaction Offer within thirty (30) days of the Right of
First Refusal Expiration Date. If the New Transaction is not so consummated by
such thirtieth day, the provisions of Section 4(m)(i) shall apply again before
the Company can consummate a New Transaction with any New Investor.

                  (iii) If the terms of the New Transaction to be consummated
with such other party differ in a material respect from the terms specified in
the New Transaction Offer so that the terms are more beneficial in any respect
to the New Investor, the Company shall give the Lender a New Transaction Offer
relating to the terms of the New Transaction, as so changed, and the Lender's
Right of First Refusal and the preceding terms of this Section 4(m) shall apply
with respect to such changed terms.

                  (iv) If there is more than one Lender signatory to this
Agreement, the preceding provisions of this Section 4(m) shall apply pro rata
among them (based on their relative Lender's Allocable Shares), except that, to
the extent any such Lender does not exercise its Right of First Refusal in full
(a "Declining Lender"), the remaining Lender or Lenders who or which have
exercised their own Right of First Refusal in full, shall have the right (pro
rata among them based on their relative Lender's Allocable Shares, if more than
one) to exercise all or a portion of such Declining Lender's unexercised Right
of Refusal.

                  (v) In the event the New Transaction is offered for the sale
of New Common Stock or the issuance of warrants or other rights to purchase New
Common Stock with such third party at any time prior to the expiration of the
Specified Period on terms providing for (x) either a sale price equal to or
computed based on, or a determination of a conversion price based on, a lower
percentage of the then current market price (howsoever defined or computed) than
provided in the Debentures for determining the Conversion Price or a lower Fixed
Conversion Price (howsoever defined or computed in the New Transaction
documents) and/or (y) the issuance of warrants at an exercise price lower than
that provided in the Warrants and/or for a greater number of shares per dollar
paid or invested by such third party to or in the Company, the terms of the
Debentures (or
<PAGE>   17
other documentation affecting the terms of the Debentures) and the Warrants
(whether previously issued and/or converted or not) shall be modified to (i)
reduce the relevant Conversion Price, Fixed Conversion Price or Warrant exercise
price and/or (ii) increase the number of shares covered by the Warrants, in each
instance to be equal to that provided in the New Transaction as so consummated
(provided, however, that such increased Warrants shall have the same exercise
price formula as the New Transaction warrants).

                  (vi) Except and subject to the extent provided in this
subparagraph (vi), the Right of First Refusal provided herein does not apply to
warrants issued to a New Senior Lender. Notwithstanding the foregoing, the
provisions of subparagraph (v) of this Section 4(m) shall apply as if such
issuance were a New Transaction for which the Right of First Refusal had not
been exercised. This subparagraph (vi) does not apply if any of the Series A
Preferred Holders and the Series B Preferred Holders (each such holder, an
"Other Preferred Holder") has a right of first refusal, which right has not been
waived by such Other Preferred Holder, with respect to the warrants issued to a
New Senior Lender.

                  n. GRANT OF SECURITY INTEREST TO LENDERS.

                  (i) To secure its obligations to the Lenders and to all direct
and indirect permitted transferees and assignees of their interests in this
Agreement and the other Transaction Agreements, including, but not necessarily
limited to, the Debentures (any one or more of the Lenders and such transferees
and assignees individually and collectively sometimes referred to as the
"Secured Party"), the Company (sometimes referred to as the "Debtor") hereby
grants, conveys, transfers and assigns to the Secured Party a security interest
in and to the Collateral (as defined in ANNEX VII hereto) to the fullest extent
permissible under the Uniform Commercial Code or other governing security
interests granted by debtors or obligors to creditors or obligees as in effect
in each jurisdiction in which the Debtor's property may be found or deemed
situate. The Debtor intends such security interest to be senior to the security
interest, if any, of all parties other than the Senior Lender. In furtherance of
the foregoing, and not in limitation thereof, on or before the Closing Date the
Company shall obtain the written consent and acknowledgment of all parties
(other than (x) the Senior Lender, and (y) Tucker and Coast, as defined in the
Security Interest Agreement, defined below) currently having a security interest
in any of the Collateral to the priority interest of the Secured Party (the
"Other Secured Parties' Consents").

                  (ii) Solely for administrative convenience and not for any
other purpose, each Secured Party has designated Krieger & Prager LLP as agent
for the Secured Party for purposes of execution of and identification on any
financing statement or similar instrument referring to or describing the
Collateral. Such designation shall remain in effect until canceled by such
Secured Party; provided, however, that such cancellation shall not affect the
validity of any action theretofore taken by such agent pursuant to this
provision. The Debtor acknowledges and agrees to honor such designation.
<PAGE>   18
                  (iii) Additional terms relating to the grant of this security
interest are specified in the Security Interest and Pledge Provisions annexed
hereto as ANNEX VII , the terms of which are
<PAGE>   19
incorporated herein by reference as if set forth herein in full. The terms of
this Section 4(n) and the Security Interest and Pledge Provisions are
collectively referred to as the "Security Interest Agreement."

                  5. TRANSFER AGENT INSTRUCTIONS.

                  a. The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give its transfer agent no instructions inconsistent with instructions
to issue Common Stock from time to time upon conversion of the Debentures in
such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Lender or its nominee and in such denominations to be specified
by the Lender in connection with each conversion of the Debentures. Except as so
provided, the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Debentures, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Lender's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
<PAGE>   20
If the Lender provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Lender of any
of the Securities in accordance with clause (1)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit the transfer of
the Securities and, in the case of the Converted Shares or the Warrant Shares,
as the case may be, promptly instruct the Company's transfer agent to issue one
or more certificates for Common Stock without legend in such name and in such
denominations as specified by the Lender.
<PAGE>   21
                  b. Subject to the provisions of this Agreement and the
Debentures, the Company will permit the Lender to exercise its right to convert
the Debentures in the manner contemplated by the Debentures.

                  c. The Company understands that a delay in the issuance of the
certificates represented the Converted Shares (the "Conversion Certificates")
beyond the Delivery Date (as defined in the Debentures) could result in economic
loss to the Lender. As compensation to a Holder for such loss, the Company
agrees that the Conversion Price will be adjusted to equal seventy-nine percent
(79%) of the Conversion Price applicable immediately before the application of
this provision, and the Company will then be obligated to issue Converted Shares
based on the Conversion Price as so adjusted. In addition, and not in lieu of
the foregoing, the Company agrees, if there is a further delay in the delivery
of the Conversion Certificates (as adjusted in accordance with this provision)
so that such Conversion Certificates are not received within five (5) business
days after the Delivery Date, at the option of such Holder either (i) to pay the
Redemption Amount as provided in Section 5 of the Debentures or (ii) to pay late
payments to such Holder for late delivery of Conversion Certificates in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days after the
Delivery Date):

                                   Late Payment For Each $10,000
                                   of Debenture Principal or Interest
No. Business Days Late             Amount Being Converted

         1                                  $100
         2                                  $200
         3                                  $300
         4                                  $400
         5                                  $500
         6                                  $600
         7                                  $700
         8                                  $800
         9                                  $900
         10                                 $1,000
         >10                                $1,000 +$200 for each Business
                                                     Day Late beyond 10 days
<PAGE>   22
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the right of a Holder of
the Debentures being converted (a "Converting Holder") to pursue actual damages
for the Company's failure to issue and deliver the Common Stock to the
Converting Holder. Furthermore, in addition to any other remedies which may be
available to a Converting Holder, in the event that the Company fails for any
reason to effect delivery of such Conversion Certificates within five (5)
business days after the Delivery Date, the Converting Holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such effect
to the Company whereupon the Company and the Converting Holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion; provided, however, that any payments contemplated by this
Section 5(c) which have accrued through the date of such revocation notice shall
remain due and owing to the Converting Holder notwithstanding such revocation.

                  d. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Conversion Certificates to be issued upon conversion
of a Debenture and after such Delivery Date, the Converting Holder purchases, in
an open market transaction or otherwise, shares of Common Stock (the "Covering
Shares") in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Conversion Certificates to be issued upon such
conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in
addition to and not in lieu of the amounts due under Section 5(c) hereof (and in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.

                  e. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of a Converting Holder and such
Converting Holder's compliance with the provisions contained in this paragraph,
so long as the certificates therefor do not bear a legend and the Converting
Holder thereof is not obligated to return such certificate for the placement of
a legend thereon, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon
<PAGE>   23
conversion to the Converting Holder by crediting the account of Converting
Holder's prime broker with DTC through its Deposit Withdrawal Agent Commission
system.

                  f. (i) Until such time as a court of competent jurisdiction
shall have issued a binding injunction (which injunction was not sought by the
Company or any of its Affiliates) prohibiting the Company from issuing shares of
Common Stock to the Converting Holder on the Converting Holder's conversion of
the Debentures or to the holder of a Warrant exercising such holder's rights
thereunder (an "Exercising Holder"), the Company will timely honor all such
conversions and exercises effected by the Converting Holder or Exercising Holder
in accordance with the terms of the Debentures and the Warrants, as the case may
be, this Agreement and the other Transaction Agreements, subject only to the
limitations as to manner of exercise provided therein and to the provisions of
Section 4(j) hereof and Sections 4(C) and (D) of the Debentures and Section 2.2
of the Warrant. In furtherance of the foregoing, and not in limitation thereof,
if at any time, a Holder of the Debentures shall elect to convert any portion of
the Debentures or to exercise any portion of the Warrants, the Company may not
refuse to effect such conversion or exercise based on any claim that such Holder
(or anyone associated with such Holder) has been engaged in any violation of law
or otherwise, unless a binding injunction from a court of competent
jurisdiction, issued on notice to that Holder of the hearing, with respect to
the issuance of such injunction, restraining or enjoining conversion of all of
the Debentures or exercise of all Warrants shall have been sought and obtained
and the Company shall have posted a bond in favor of such Holder in the amount
of one hundred thirty percent (130%) of the outstanding principal amount of the
Debentures held by such Holder or the market value of the Common Stock subject
to exercise of the Warrants held by such Holder which are subject to such
injunction. The bond referred to in the immediately preceding sentence shall
remain in effect at least until thirty (30) days after the completion of the
proceedings relating to the dispute between such Holder and the Company with
respect to such conversion or right to effectuate conversions. The proceeds of
such bond shall be payable to such Holder to offset any amounts owed to the
Holder as reflected in any judgment obtained by the Holder in its favor in
connection with such dispute.

                  (ii) If, at any time:

         (x) the Company challenges, disputes or denies the right of a Holder of
         the Debentures to effect a conversion of the Debentures into Common
         Stock or otherwise dishonors or rejects any Notice of Conversion
         delivered in accordance with the terms of any of the Transaction
         Agreements (subject to the provisions of Section 4(B)(v) of the
         Debentures with respect to certain disputes relating to calculations of
         the number of shares to be issued and subject to the provisions of
         Sections 4(C) and (D) of the Debentures with respect to certain
         limitations on conversions) or any exercise of any Warrant in
         accordance with its terms ("Warrant Exercise"), or

         (y) any third party who is not and has never been an Affiliate of such
         Holder commences any lawsuit or proceeding or otherwise asserts any
         claim before any court or public or governmental authority, which
         lawsuit, proceeding or claim seeks to challenge, deny, enjoin, limit,
         modify, delay or dispute the right of such
<PAGE>   24
         Holder to effect the conversion of the Debentures into Common Stock,
         and the Company refuses to honor any such Notice of Conversion or
         Warrant Exercise,

then such Holder shall have the right, by written notice to the Company, to
require the Company to redeem all or any part of the outstanding Debentures for
which a Notice of Conversion has been refused pursuant to Sections 5(f)(i) or
(ii) hereof for cash, at an amount equal to the Redemption Amount, pursuant to
the provisions of Section 5 of the Debentures.

                  g. The Company will authorize its transfer agent to give
information relating to the Company directly to the Lender or the Lender's
representatives upon the request of the Lender or any such representative, to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Lender in connection with a Notice of
Conversion, or (ii) the number of outstanding shares of Common Stock of all
stockholders as of a current or other specified date. The Company will provide
the Lender with a copy of the authorization so given to the transfer agent.

                  6. CLOSING DATE.

                  a. The Closing Date shall occur no later than the date which
is the first Nasdaq/SmallCap Market trading day after each of the conditions
contemplated by Sections 7 and 8 hereof shall have either been satisfied or been
waived by the party in whose favor such conditions run.

                  b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and shall
take place no later than 3:00 P.M., New York time, on such day or such other
time as is mutually agreed upon by the Company and the Lender.

                  c. Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Funds to the Company
and to others and to release the other Escrow Property on the Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.

                  7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

                  The Lender understands that the Company's obligation to sell
the Debentures to the Lender pursuant to this Agreement on the Closing Date is
conditioned upon:
<PAGE>   25
                  a. The execution and delivery of this Agreement and the other
Transaction Agreements contemplated to be signed by the Lender and, if
necessary, other Lenders reflecting the purchase of Debentures in the aggregate
principal amount of $750,000;

                  b. Delivery by the Lender to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Debentures in
accordance with this Agreement;

                  c. The accuracy on the Closing Date of the representations and
warranties of the Lender contained in this Agreement, each as if made on such
date, and the performance by the Lender on or before such date of all covenants
and agreements of the Lender required to be performed on or before such date;

                  d. Except to the extent contemplated by specific provisions of
the Transaction Agreements, there shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby to an
extent materially greater than contemplated herein, or requiring any consent or
approval which shall not have been obtained; and

                  e. From and after the date hereof to and including the Closing
Date, the trading of the Common Stock shall not have been suspended by the SEC
or the NASD and trading in securities generally on The Nasdaq/SmallCap Market
shall not have been suspended or limited, nor shall minimum prices been
established for securities traded on The Nasdaq/SmallCap Market, nor shall there
be any outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of the Company makes it impracticable or inadvisable to sell
the Debentures.

                  8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

                  The Company understands that the Lender's obligation to
purchase the Debentures on the Closing Date is conditioned upon:

                  a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company;

                  b. The delivery by the Company to the Escrow Agent of the
Certificates in accordance with this Agreement;

                  c. The delivery to the Lender of (i) a signed consent from the
Senior Lender to the transactions contemplated by this Agreement and the other
Transaction Agreements, including but not limited to the issuance of the
Debentures and the grant of a security interest to the Lender, (ii) a signed
consent from the Series A Preferred Holders and the Series B Preferred Holders
to the transactions contemplated by this Agreement and the other Transaction
Agreements, including but not limited to the issuance of the Debentures and the
grant of a security interest to the Lender and the priority of the interests of
the Lenders to any interest of such Preferred Holders, and (iii) the
<PAGE>   26
Other Secured Parties' Consents, if any (all such consents referred to in this
paragraph (c) from all such parties, collectively, the "Consents");
<PAGE>   27
                  d. The delivery of the Principal's Agreements of each of the
Keery Principals;

                  e. The accuracy in all material respects on such Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;

                  f. On the Closing Date, the Registration Rights Agreement
shall be in full force and effect and the Company shall not be in default
thereunder;

                  g. On the Closing Date, the Lender shall have received an
opinion of counsel for the Company, dated such Closing Date, in form, scope and
substance reasonably satisfactory to the Lender, substantially to the effect set
forth in ANNEX III attached hereto;

                  h. Except to the extent contemplated by specific provisions of
the Transaction Agreements, there shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby to an
extent materially greater than contemplated herein, or requiring any consent or
approval which shall not have been obtained (and in particular the Consents
shall have been obtained and copies thereof provided to the Lender); and

                  i. From and after the date hereof to and including the Closing
Date, the trading of the Common Stock shall not have been suspended by the SEC
or the NASD and trading in securities generally on The Nasdaq/SmallCap Market
shall not have been suspended or limited, nor shall minimum prices been
established for securities traded on The Nasdaq/SmallCap Market, nor shall there
be any outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of the Lender makes it impracticable or inadvisable to
purchase the Debentures.

                  9. GOVERNING LAW: MISCELLANEOUS.

                  a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Lender for any reasonable legal fees and
disbursements incurred by the Lender in enforcement of or protection of any of
its rights under any of the Transaction Agreements.
<PAGE>   28
                  b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.

                  d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.

                  e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.

                  f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.

                  g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

                  h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

                  i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.

                  j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.

                  10. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of

                  (a) the date delivered, if delivered by personal delivery as
                  against written receipt therefor or by confirmed facsimile
                  transmission,

                  (b) the seventh business day after deposit, postage prepaid,
                  in the United States Postal Service by registered or certified
                  mail, or

                  (c) the third business day after mailing by domestic or
                  international express courier, with delivery costs and fees
                  prepaid,

in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
<PAGE>   29
COMPANY:       Titan Motorcycle Co. Of America
               At its address at the head of this Agreement
               Attn: Frank Keery
               Telephone No.: (602) 861-6977
               Telecopier No.: (602) 331-0941

               with a copy to:

               Snell & Wilmer LLP
               One Arizona Center
               Phoenix, AZ 85048
               Attn: Richard Stagg, Esq.
               Telephone No.: (602) 382-6000
               Telecopier No.: (602) 382-6070

BUYER:         At the address set forth on the signature page of this Agreement.

               with a copy to:

               Krieger & Prager LLP
               39 Broadway
               Suite 1440
               New York, NY 10006
               Attn: Samuel Krieger, Esq.
               Telephone No.: (212) 363-2900
               Telecopier No.  (212) 363-2999

ESCROW AGENT:  Krieger & Prager LLP
               39 Broadway
               Suite 1440
               New York, NY 10006
               Attn: Samuel Krieger, Esq.
               New York, New York 10016
               Telephone No.: (212) 363-2900
               Telecopier No.  (212) 363-2999

                  11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Lender's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Certificates
and the Warrants and the payment of the Purchase Price, and shall inure to the
benefit of the Lender and the Company and their respective successors and
assigns.


                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>   30
                  IN WITNESS WHEREOF, this Agreement has been duly executed by
the Lender by one of its officers thereunto duly authorized as of the date set
forth below.

AMOUNT AND PURCHASE PRICE OF DEBENTURES:                      $


                             SIGNATURES FOR ENTITIES

         IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this    day     , 2000.


________________________________
Address                                     Printed Name of Subscriber

________________________________
                                       By:

Telecopier No. _________________            (Signature of Authorized Person)

                                             ________________________________
________________________________             Printed Name and Title
Jurisdiction of Incorporation
or Organization

 As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.

TITAN MOTORCYCLE CO.  OF AMERICA

By:

Title:
Date:_______________,2000
<PAGE>   31
         ANNEX I           DEBENTURE

         ANNEX II          JOINT ESCROW INSTRUCTIONS

         ANNEX III         OPINION OF COUNSEL

         ANNEX IV          REGISTRATION RIGHTS AGREEMENT

         ANNEX V           COMPANY DISCLOSURE MATERIALS

         ANNEX VI          FORM OF WARRANT

         ANNEX VII         SECURITY INTEREST AND PLEDGE PROVISIONS
<PAGE>   32
                                                                         ANNEX V
                                                                              TO
                                                   SECURITIES PURCHASE AGREEMENT



                          COMPANY DISCLOSURE MATERIALS


                           [TO BE PREPARED BY COMPANY]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>10
<FILENAME>ex10-2.txt
<DESCRIPTION>EX-10.2
<TEXT>

<PAGE>   1
                                                                    Exhibit 10.2

                             INTERCREDITOR AGREEMENT


         THIS INTERCREDITOR AGREEMENT (the "Agreement") is made as of this 14th
day of August, 2000 by and among TITAN MOTORCYCLE CO. OF AMERICA, a Nevada
corporation ("Borrower"), ESQUIRE TRADE & FINANCE INC., a British Virgin Islands
corporation, and CELESTE TRUST REG., a Liechtenstein trust (individually, an
"Investor" and collectively, the "Investors"), and WELLS FARGO CREDIT, INC., a
Minnesota corporation ("Lender").

                                    RECITALS:

         WHEREAS, Borrower and Lender are parties to that certain Amended and
Restated Credit and Security Agreement dated as of April 10, 2000, as amended by
First Amendment to Amended and Restated Credit and Security Agreement dated as
of July 10, 2000 and Second Amendment to Amended and Restated Credit and
Security Agreement dated as of August 14, 2000 (as hereafter amended, modified,
supplemented, restated or replaced from time to time, the "Credit Agreement")
and Borrower is now or hereafter may be indebted to the Lender on account of
loans or the other extensions of credit or financial accommodations from Lender
to Borrower, or to any other person under the guarantee or endorsement of
Borrower;

         WHEREAS, Investors desire to purchase from Borrower $750,000 of 12%
Convertible Debentures of the Borrower (the "Convertible Debentures") which are
convertible into shares of Common Stock, $.001 par value per share of the
Company (the "Conversion Shares") pursuant to that certain Securities Purchase
Agreement of even date herewith between Borrower and Investors (the "Purchase
Agreement"), which Convertible Debentures will be in the form annexed to the
Purchase Agreement;

         WHEREAS, in connection with the Purchase Agreement, Investors will also
receive the right to purchase 1,025,160 shares of Common Stock, $.001 par value
per share of the Company ("Warrant Shares") pursuant to the Titan Motorcycle Co.
of America Common Stock Purchase Warrants to be issued on the Closing Date in
the form annexed to the Purchase Agreement (a "Warrant");

         WHEREAS, Borrower has agreed to provide certain registration rights
under the Securities Act of 1933, as amended, with respect to the Conversion
Shares and Warrant Shares pursuant to the Registration Rights Agreement of even
date herewith between Borrower and Investors (the "Registration Rights
Agreement");

         WHEREAS, in order to secure Borrower's obligations under the Purchase
Agreement, Convertible Debentures, Registration Rights Agreement and other
documents and instruments reflecting obligations of Borrower to Investors,
Borrower intends to grant to Investors pursuant to the Security Interest and
Pledge Provisions annexed to the Purchase Agreement (the "Pledge Agreement") a
security interest in all assets and properties of Borrower;

         WHEREAS, the Lender's Loan Documents require the consent of Lender to
the issuance of the Convertible Debentures and the further encumbrance of
Borrower's assets; and
<PAGE>   2
         WHEREAS, the Investors' Loan Documents and the Lender's Loan Documents
are both secured by all or substantially all of the assets of the Borrower;

         WHEREAS, it is a condition precedent to Lender's approval of the
transactions contemplated by the Investors' Loan Documents that Investors
subordinate the payment of any principal, interest, dividends, distributions,
return of capital, optional or mandatory redemption rights, and indemnity
payments and any security interests and liens created by the Investors' Loan
Documents to the indebtedness under the Credit Agreement and the security
interests and liens in favor of Lender on the terms set forth herein;

                                   AGREEMENTS:

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Investors and Lender, intending to be legally bound, agree as follows:

         1. Definitions. As used in this Agreement, the following words and
terms shall have the meaning set forth below:

                  (a) "Borrower Default" means (a) any Default or Event of
Default, as each is defined in any Lender Loan Document; and/or (b) any breach
of, or default under, this Agreement by Borrower.

                  (b) "Collateral" means all of Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collection Account; together with (i) all substitutions and replacements for
and products of any of the foregoing; (ii) proceeds of any and all of the
foregoing; (iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any tangible goods; (v) all warehouse
receipts, bills of lading and other documents of title now or hereafter covering
such goods; and (vi) the Life Insurance Policy.

                  (c) "Investor Indebtedness" means each and every debt,
liability and obligation of every type and description which Borrower may now or
at any time hereafter owe to Investors, or either of them, whether such debt,
liability or obligation now exists or is hereafter created or incurred, and
whether it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint, several
or joint and several, including, without limitation, any principal or interest
with respect to the Convertible Debentures, return of capital, dividend,
distribution, optional or mandatory redemption payment, indemnification or
contribution obligations, Buy-In Adjustment Amount, cash Exercise Price, late
payments, Redemption Amount, and costs, fees and expenses payable by Borrower to
Investors, or either of them, under the Investors' Loan Documents.

                  (d) "Investors' Loan Documents" means the Purchase Agreement,
the Convertible Debentures, the Warrant, the Registration Rights Agreement, the
Pledge and any


                                      -2-
<PAGE>   3
other documents and instruments which have been or may hereafter be executed by
Borrower or any other person or entity in connection with the Purchase
Agreement, including all amendments, modifications, supplements, extensions,
restatements, refinancings and replacements thereof.

                  (e) "Lender Indebtedness" means each and every debt, liability
and obligation of every type and description which Borrower may now or at any
time hereafter owe to Lender, whether such debt, liability or obligation now
exists or is hereafter created or incurred, and whether it is or may be direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or joint, several or joint and several, all interest
thereon, all renewals, extensions, increases and modifications thereof, and any
notes or other evidenced of indebtedness issued in whole or partial substitution
therefor, and including all principal, interest, attorneys' fees, costs and
expenses provided for in any document between Lender and Borrower.

                  (f) "Lender's Loan Documents" means all documents and
instruments which have been or may hereafter be executed by Borrower or any
other person or entity in connection with the Credit Agreement, including all
amendments, modifications, supplements, extensions, restatements, refinancings
and replacements thereof.

Except as otherwise defined herein, all capitalized terms used herein shall have
the meanings ascribed thereto in the Credit Agreement or Investors' Loan
Documents. In the event of any conflict between the definition of a term in the
Credit Agreement and in the Investors' Loan Documents, the definition in the
Credit Agreement shall be applicable, unless the context clearly and
unequivocally indicates otherwise.

         2. Consent to Investors' Loan Documents. Subject to the terms and
conditions contained in this Agreement, Lender hereby consents to the Investors'
Loan Documents and the other transactions contemplated therein, provided that
the net cash proceeds from the contemporaneous issuance of all of the
Convertible Debentures is not less than $750,000 (net of a five percent (5%) fee
to the investment banker and any normal and customary transaction fees paid to
non-Affiliates and verified to Lender's satisfaction). This consent is effective
only in this specific instance and only for the specific purpose for which given
and is expressly conditioned upon strict compliance with the terms of this
Agreement. This consent does not constitute a waiver of any of the covenants and
agreements of Borrower contained in the Credit Agreement or Loan Documents with
respect to any other transaction.

         3. Subordination. The Investor Indebtedness under the Investors' Loan
Documents, the payment of any of the Investor Indebtedness, the exercise of all
conversion and redemption rights (whether mandatory or optional) and the
security interests and liens created by the Investors' Loan Documents are hereby
made and shall be and remain subject, inferior, subsequent and subordinate in
all respects to the Lender Indebtedness and the security interests and liens
created by the Lender's Loan Documents to secure all Advances made thereunder,
whether such Advances be deemed obligatory or permissive, and all other costs
and expenses incurred by Lender in connection with the Credit Agreement,
including, without limitation, attorneys' fees and court costs and other
professional fees. Investors shall not demand, receive or accept any payment
(whether of principal, interest, return of capital, dividend, distribution,
optional or mandatory redemption payment, indemnification or contribution
obligations, Buy-In


                                      -3-
<PAGE>   4
Adjustment Amount, cash Exercise Price, late payments, Redemption Amount, costs,
fees, expenses or otherwise) from Borrower in respect of the Investor
Indebtedness, or exercise any optional or mandatory redemption rights granted in
the Investors' Loan Documents, or accept any optional or mandatory redemption
payment from Borrower, and Borrower may not voluntarily take any action to
redeem for cash all or any part of the Convertible Debentures, Conversion Shares
or Warrant Shares, except with the prior written consent of Lender which may be
given or withheld in Lender's sole, absolute and unfettered discretion.
Notwithstanding the foregoing, Borrower may pay principal, interest, dividends,
distributions or other payments to Investors in the form of Common Stock of
Borrower and, without waiving Lender's right to declare a Borrower Default if
applicable, at any time after December 31, 2000 (a) Investors may collect from
Borrower, and Borrower may pay to Investors, late payments, Periodic Amounts and
Buy-In Adjustment Amounts, if required under the Investors' Loan Documents,
provided all of the following conditions are satisfied: (I) Borrower has not
received a currently effective notice of a Borrower Default; (II) Investors have
provided no less than ten (10) business days' prior written notice to Lender
prior to collection of any such late payments, Periodic Amounts or Buy-In
Adjustment Amounts; and (III) the aggregate amount of all such late payments,
Periodic Amounts and Buy-In Adjustment Amounts shall not exceed $25,000 per
Investor ($50,000 in the aggregate) in any one calendar quarter (any amounts in
excess thereof may be accrued and paid in the following calendar quarter
provided that all of the other conditions to payment are satisfied); and (b)
Investors may demand redemption of, and Borrower may send a Redemption Notice
and exercise its rights upon the occurrence of a Redemption Event (except that
Investors may not enforce any of their rights against the Collateral), provided
all of the following conditions are satisfied: (i) Borrower has funds legally
available to pay such redemption payments; (ii) no Borrower Default shall exist
immediately prior to, and immediately after giving effect to, such redemption
payment; (iii) after giving effect to such redemption payment, Borrower is in
compliance with the financial covenants in Section 6 of the Loan Agreement,
whether or not intended to be measured on such date; and (iv) immediately after
giving effect to such redemption payment, there is remaining availability under
the Borrowing Base of not less than $250,000. Investors shall deliver a copy of
any Redemption Notice to Lender simultaneously with Investors' delivery to
Borrower. Within forty-five (45) days after receipt of Investors' written demand
for redemption, Lender shall notify Investors in writing with respect to
Borrower's compliance with clauses (ii), (iii) and (iv) above. Lender's failure
to timely notify Investors in writing shall be deemed Lender's acknowledgment
that Borrower is, and after the redemption will be, in compliance with the
conditions in clauses (ii), (iii) and (iv) above. Lender's determination of
Borrower's compliance with the conditions in clauses (ii), (iii) and (iv) will
be based upon the information then available to Lender and shall be conclusive,
absent manifest error.

         4. Priority. Subject to the terms and conditions of this Agreement, the
parties hereby agree that:

                  (a) Notwithstanding the order of recordation of any mortgages,
deeds of trust, deeds to secure debt, financing statements or any other security
instruments, or the order of the granting of any security interests in the
Collateral, or the physical possession of any Collateral, or any other matter,
the liens and security interests granted by Borrower to Lender in the Collateral
shall be prior and superior to any lien or security interest granted by Borrower
to Investors in the Collateral and Investors' liens and security interests in
the Collateral are and shall remain fully


                                      -4-
<PAGE>   5
subordinated, junior and inferior for all purposes to the liens and security
interests of Lender in the Collateral (including any proceeds thereof) until all
Lender Indebtedness shall have been fully paid and satisfied and all revolving
credit financing arrangements between Borrower and Lender with respect to the
Lender Indebtedness have been terminated.

                  (b) Lender and Investors, at any time and from time to time,
may enter into such agreement or agreements with Borrower as Lender or Investors
may deem proper, including, without limitation, extending the time of payment or
renewing or otherwise altering the terms of repayment of any Indebtedness,
amending, modifying or supplementing any of the other terms or provisions of the
Lender's Loan Documents or the Investors' Loan Documents, or affecting the
Collateral, or exchanging, selling, releasing, surrendering or otherwise dealing
with any such security without in any way impairing or affecting this Agreement
thereby.

                  (c) In furtherance of the foregoing, each party to this
Agreement shall execute and deliver any instrument or document reasonably
requested and prepared from time to time by the other party to confirm the
foregoing subordination.

         5. Forbearance by Investors. Until all Lender Indebtedness shall have
been fully paid and satisfied and all financing arrangements between Borrower
and Lender with respect to the Lender Indebtedness have been terminated,
Investors will not commence any action or proceeding against Borrower to recover
all or any part of the Investor Indebtedness, or to enforce its security
interest in the Collateral, including, but not limited to, notifying account
debtors of Borrower, or attempting to collect or realize upon the Collateral, or
foreclosing its security interest in the Collateral, or take possession of,
sell, or dispose of any other assets of Borrower, or exercise or enforce any
right or remedy available to Investors with respect to any such assets of
Borrower, or join with any creditor (unless Lender shall so join) in bringing
any proceeding against Borrower under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt receivership, liquidation or
insolvency law or statute of the federal or any state government.

         6. Receipt of Prohibited Payments. If Investors receive any payment on
the Investor Indebtedness that Investors are not entitled to receive under the
provisions of this Agreement or obtains possession of any proceeds of the
Collateral, Investors will hold the amount so received in trust for Lender and
will forthwith turn over such payment or proceeds to Lender in the form received
(except for the endorsement of Investors where necessary) for application to
then-existing Lender Indebtedness (whether or not due), in such manner of
application as Lender may deem appropriate. In the event that Investors shall
exercise any right of setoff which Investors are not permitted to exercise under
the provisions of this Agreement, Investors will promptly pay over to Lender, in
immediately available funds, an amount equal to the amount of the claims or
obligations offset. If Investors fail to make any endorsement required under
this Agreement, Lender, or any of its officers or employees or agents on behalf
of Lender, is hereby irrevocably appointed as the attorney-in-fact (which
appointment is coupled with an interest) for Investors to make such endorsement
in Investors' name.

         7. Enforcement of Lender's Security Interest. Lender may at any time,
and from time to time, exercise all rights and remedies available at law, in
equity and/or in Lender's Loan Documents with respect to the Collateral, without
the consent of or prior notice to Investors.


                                      -5-
<PAGE>   6
Lender shall have no duty to preserve, protect, care for, insure, take
possession of, collect, dispose of, or otherwise realize upon any of the
Collateral, and in no event shall Lender be deemed Investors' agent with respect
to the Collateral. All proceeds received by Lender with respect to the
Collateral may be applied, first, to pay or reimburse Lender for all costs and
expenses (including reasonable attorneys' fees) incurred by Lender in connection
with the collection of such proceeds, and, second, to any Lender Indebtedness
secured by Lender's security interest in the Collateral in any order that it may
choose. In liquidating or disposing of the Collateral, Lender shall not be
liable to Investors for any act or omission with respect to the liquidation of
the Collateral or the fact that the proceeds realized from a liquidation of the
Collateral could, under any circumstances, have been greater.

         8. Investor Indebtedness Owed Only to Investors. Investors warrant and
represent that Investors have not previously assigned any interest in the
Investor Indebtedness, the Investors' Loan Documents or the Collateral to any
other party, that no other party owns a collateral interest in the Collateral
through Investors (whether as joint holder of the Investors' Loan Documents,
participant or otherwise) and that the entire Investor Indebtedness of Borrower
to Investors is owing only to Investors.

         9. Lender Indebtedness Owed Only to Lender. Lender warrants and
represents that Lender has not previously assigned any interest in the Lender
Indebtedness, the Lender's Loan Documents or the Collateral to any other party,
that no other party owns a collateral interest in the Collateral through Lender
(whether as joint holder of the Lender's Loan Documents, participant or
otherwise) and that the entire Lender Indebtedness is owing only to Lender.

         10. Bankruptcy and Insolvency. In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors by Borrower, whether or not pursuant to bankruptcy
law, the sale of all or substantially all of the assets of Borrower,
dissolution, liquidation or any other marshalling of the assets or liabilities
of Borrower, Investors will file all claims, proofs of claim or other
instruments of similar character necessary to enforce the obligations of
Borrower in respect of the Investor Indebtedness and will hold in trust for
Lender and promptly pay over to Lender in the form received (except for the
endorsement of Investors where necessary) for application to the then-existing
Lender Indebtedness, any and all moneys, dividends or other assets received in
any such proceedings on account of the Investor Indebtedness, unless and until
Lender Indebtedness has been paid in full. If Investors shall fail to take any
such action, Lender, as attorney-in-fact for Investors, may take such action on
Investors' behalf. Investors hereby irrevocably appoint Lender, or any of its
officers or employees on behalf of Lender, as the attorney-in-fact for Investors
(which appointment is coupled with an interest) with the power but not the duty
to demand, sue for, collect and receive any and all such moneys, dividends or
other assets and give acquittance therefor and to file any claim, proof of claim
or other instrument of similar character, to vote claims comprising Investor
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension and to take such other
action in Lender's own name or in the name of Investors as Lender may deem
necessary or advisable for the enforcement of the agreements contained herein;
and Investors will execute and deliver to Lender such other and further
powers-of-attorney or instruments as Lender may request in order to accomplish
the foregoing.


                                      -6-
<PAGE>   7
         11. Restrictive Legend; Transfer of Investor Indebtedness. Investors
will cause all notes, bonds, debentures or other instruments evidencing the
Investor Indebtedness or any part thereof, including, without limitation, the
certificates evidencing the Warrant Shares and Conversion Shares, to contain a
specific statement thereon to the effect that any dividends, distributions,
redemption and other payments and any redemption rights (whether optional or
mandatory) in favor of the holder are subject to the provisions of this
Agreement, including, without limitation, any return of capital, dividend,
distribution, optional or mandatory redemption payment, principal, interest,
indemnification or contribution obligations, Buy-In Adjustment Amount, late
payments, Redemption Amount, and costs, fees and expenses payable by Borrower to
the holder, and Investors will mark their books conspicuously to evidence the
subordination effected hereby. Any assignment transfer or pledge of all or any
portion of the Investor Indebtedness shall be expressly made subject to the
terms and conditions of this Agreement.

         12. Continuing Effect. This Agreement shall constitute a continuing
agreement of subordination, and Lender may, without notice to or consent by
Investors, modify any term of Lender Indebtedness in reliance upon this
Agreement. Without limiting the generality of the foregoing, Lender may, at any
time and from time to time, either before or after receipt of any such notice of
revocation, without the consent of or notice to Investors and without incurring
responsibility to Investors or impairing or releasing any of Lender's rights or
any of Investors' obligations hereunder:

                  (a) change the interest rate or change the amount of payment
or extend the time for payment or renew or otherwise alter the terms of any
Lender Indebtedness or any instrument evidencing the same in any manner;

                  (b) sell, exchange, release or otherwise deal with any
property at any time securing payment of Lender Indebtedness or any part
thereof;

                  (c) release anyone liable in any manner for the payment or
collection of Lender Indebtedness or any part thereof;

                  (d) exercise or refrain from exercising any right against
Borrower or any other person (including Investors); and

                  (e) apply any sums received by Lender, by whomsoever paid and
however realized, to Lender Indebtedness in such manner as Lender shall deem
appropriate.

         13. Waivers. Lender and Investors expressly waive all notice of the
acceptance by the other party of the subordination and other provisions of this
Agreement and, except as expressly provided herein, all other notices, and
expressly waive reliance upon the subordination and other agreements as herein
provided. Lender and Investors each agree that the other has not made any
warranties or representations with respect to the due execution, legality,
validity, completeness or enforceability of the Lender's Loan Documents or the
Investors' Loan Documents, or the collectability thereof, that Lender and
Investors shall be entitled to, without notice to or consent of the other party
which are hereby waived, extend credit from time to time to Borrower regardless
of Borrower's present or future financial condition, manage and supervise their


                                      -7-
<PAGE>   8
respective loans to Borrower in accordance with their usual practices, modified
from time to time as each deems appropriate under the circumstances, without
regard to the existence of any rights that the other party may now or hereafter
have in or to any of the assets of the Borrower, and neither Lender nor
Investors shall have any liability to the other for, and each party waives any
claim which it may now or hereafter have against the other arising out of, any
and all actions which Lender or Investors, in good faith, take or omit to take
with respect to the creation, perfection or continuation of liens or security
interests in their respective collateral, actions with respect to the occurrence
of an event of default, the foreclosure upon, sale of, release of, depreciation
of or failure to realize upon, any of their respective collateral, the
collection of any claim for all or any part of the Lender Indebtedness from any
account debtor, guarantor or any other party, the collection of the Lender
Indebtedness, or the valuation, use, protection or release of such party's
interest in its respective collateral. Investors hereby waive any equitable
right in respect of marshalling it might have in connection with any release of
all or any portion of the Collateral by Lender, or to require Lender to exhaust
its remedies against any collateral (other than the Investors' Collateral)
before proceeding against the Collateral.

         14. No Commitment. None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of Lender to make any future loans or other extensions of credit or
financial accommodations to Borrower.

         15. Transfer of Claims. Neither Lender nor Investors shall assign or
transfer the Lender Indebtedness or Investor Indebtedness, as the case may be,
to any party or any other claim Lender or Investors have or may have against
Borrower so long as this Agreement is in effect, unless such assignment or
transfer is made expressly subject to the terms and conditions of this
Agreement.

         16. Information Concerning Financial Condition of Borrower. Lender and
Investors each hereby assume responsibility for keeping itself informed of the
financial condition of Borrower, and of all other circumstances bearing upon the
risk of nonpayment of its debt that diligent inquiry would reveal, and each
party hereby agrees that no other party shall have any duty to advise the other
party of information known to such party regarding such condition or any such
circumstances. In the event any party, in its discretion, undertakes, at any
time or from time to time, to provide any such information to the other party,
such party shall be under no obligation to undertake any investigation not a
part of its regular business routine, shall be under no obligation to continue
to provide any further information and shall be under no obligation to disclose
any information which, pursuant to accepted or reasonable commercial finance
practice, such party wishes to maintain confidentially.

         17. Term. This Agreement shall constitute a continuing agreement of
subordination, and Lender may continue, without notice to Investors, to lend
monies, extend credit and make other financial accommodations, directly or
indirectly, to or for the account of Borrower on the faith thereof, and this
Agreement shall be irrevocable by Investors until all Lender Indebtedness shall
have been fully paid and satisfied and all financing arrangements between
Borrower and Lender with respect to the Lender Indebtedness have been
terminated, except that this Agreement shall continue to be effective or be
reinstated, as the case may be, if any payment or property or


                                      -8-
<PAGE>   9
part thereof must be returned by Lender upon the insolvency, bankruptcy or
reorganization of Borrower or any other guarantor, or otherwise.

         18. Notice. All notices and other communications hereunder shall be in
writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:

                  If to Lender:

                  Wells Fargo Credit, Inc.
                  100 W. Washington
                  7th Floor
                  MAC # S4101-076
                  Phoenix, AZ 85003
                  Attn: Ms. Jill Fedoruk, Commercial Banking Officer
                  Telecopier: (602) 378-6215

                  With a copy to:

                  Jay S. Kramer
                  Fennemore Craig
                  3003 North Central Avenue
                  Suite 2600
                  Phoenix, AZ 85012-2913
                  Telecopier:  (602) 916-5541

                  If to Investors:

                  c/o Krieger & Prager LLP
                  39 Broadway
                  Suite 1440
                  New York, NY 10006
                  Attn:  Samuel Krieger, Esq.
                  Telecopier: (212) 363-2999

or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy. Investors shall, contemporaneously with delivery to Borrower, deliver
to Lender copies of any Notice of Conversion, Notice of Exercise (as
contemplated by the Warrants), Redemption Notice, Notice of Redemption, notice
electing to receive payment in cash, notice of breach, non-performance or
default by Borrower. Borrower shall, contemporaneously with delivery to
Investors, deliver to Lender copies of any election to redeem.


                                      -9-
<PAGE>   10
         19. Conflict in Agreements. If the subordination provisions of any
instrument evidencing Investor Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between
Lender and Investors.

         20. No Waiver. No waiver shall be deemed to be made by Lender of any of
its rights hereunder unless the same shall be in writing signed on behalf of
Lender, and each such waiver, if any, shall be a waiver only with respect to the
specific matter or matters to which the waiver relates and shall in no way
impair the rights of Lender or the obligations of Investors to Lender in any
other respect at any time.

         21. Governing Law; Consent to Jurisdiction and Venue; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Investors
consent to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient,
and agrees that any litigation initiated by Investors, or either of them, in
connection with this Agreement shall be venued in either the Maricopa County,
Arizona Superior Court, or the United States District Court, District of
Arizona. Investors waive any right to trial by jury in any action or proceeding
based on or pertaining to this Agreement.

         22. Binding Effect; Acceptance. This Agreement shall be binding upon
Investors and Investors' heirs, legal representatives, successors and assigns
and shall inure to the benefit of Lender and its participants, successors and
assigns irrespective of whether this or any similar agreement is executed by any
other creditor of Borrower. This Agreement shall be deemed effective against
Investors upon Lender's receipt of a signed facsimile copy of this Agreement.
Notice of acceptance by Lender of this Agreement or of reliance by Lender upon
this Agreement is hereby waived by Investors.

         23. Attorneys' Fees. In the event of any litigation between the parties
arising out of, or related to, this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including, without limitation,
reasonable attorneys' fees, court costs and professional fees, which costs and
expenses shall be set by the court sitting without a jury.

         24. Miscellaneous. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.


                                      -10-
<PAGE>   11
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                            BORROWER:


                            TITAN MOTORCYCLE CO. OF AMERICA, a Nevada
                            corporation

                            By:
                                -----------------------------------------------
                            Name:    Francis Keery
                                  ---------------------------------------------
                            Title:   Chairman
                                   --------------------------------------------

                            INVESTORS:

                            ESQUIRE TRADE & FINANCE INC., a British Virgin
                            Islands corporation

                            By:
                                -----------------------------------------------
                            Name:
                                  ---------------------------------------------
                            Title:
                                   --------------------------------------------


                            CELESTE TRUST REG., a Liechtenstein trust

                            By:
                                -----------------------------------------------
                            Name:
                                  ---------------------------------------------
                            Title:
                                   --------------------------------------------


                            LENDER:

                            WELLS FARGO CREDIT, INC., a Minnesota corporation

                            By:
                                -----------------------------------------------
                            Name:    Jill Fedoruk
                                  ---------------------------------------------
                            Title:   Commercial Banking Officer
                                   --------------------------------------------


                                      -11-
<PAGE>   12
STATE OF ARIZONA                    )
                                    )  ss.
County of Maricopa                  )

         The foregoing instrument was acknowledged before me, the undersigned
Notary Public, this           day of day of August, 2000 by Francis Keery, the
President of Titan Motorcycle Co. of America, a Nevada corporation, on behalf of
the corporation.



                                             ----------------------------------
                                              Notary Public

My Commission Expires:

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





STATE OF ____________       )
                            )  ss.
County of ___________       )

         On August ___, 2000, before me, _____________________ a Notary Public,
personally appeared ________________________, [ ]1 personally known to me -OR-
[ ]2 proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument, the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

         WITNESS my hand and official seal.


                                             ----------------------------------
                                              Notary Public

My Commission Expires:

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


                                      -12-
<PAGE>   13
STATE OF ____________       )
                            )  ss.
County of ___________       )

         On August ___, 2000, before me, _____________________ a Notary Public,
personally appeared ________________________, [ ]3 personally known to me -OR-
[ ]4 proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument, the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

         WITNESS my hand and official seal.



                                             ----------------------------------
                                              Notary Public

My Commission Expires:

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




STATE OF ARIZONA                    )
                                    )  ss.
County of Maricopa                  )

         The foregoing instrument was acknowledged before me, the undersigned
Notary Public, this           day of day of August, 2000 by Jill Fedoruk, the
Commercial Banking Officer of Wells Fargo Credit, Inc., a Minnesota corporation,
on behalf of the corporation.



                                             ----------------------------------
                                              Notary Public

My Commission Expires:

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


                                      -13-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>11
<FILENAME>ex10-3.txt
<DESCRIPTION>EX-10.3
<TEXT>

<PAGE>   1
                                                                    Exhibit 10.3


                         SECOND AMENDMENT TO AMENDED AND
                      RESTATED LOAN AND SECURITY AGREEMENT


         THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Amendment") is made as of this 14th day of August, 2000 by and
between TITAN MOTORCYCLE CO. OF AMERICA, a Nevada corporation ("Borrower"), and
WELLS FARGO CREDIT, INC., a Minnesota corporation ("Lender").

         WHEREAS, Borrower is currently indebted to Lender pursuant to the terms
and conditions of that certain Amended and Restated Loan and Security Agreement
dated as of April 10, 2000 between Borrower and Lender, as amended by First
Amendment to Amended and Restated Loan and Security Agreement dated as of July
10, 2000 (the "Loan Agreement"); and

         WHEREAS, Borrower has failed to timely deliver the June 2000 fiscal
month-end financial statements to Lender and has advised Lender that it expects
to have incurred a $200,000 Net Loss for the June 2000 fiscal month and a
$750,000 Net Loss for the July 2000 fiscal month;

         WHEREAS, Borrower has requested an extension of time to deliver its
June 2000 fiscal month-end financial statements to Lender and an amendment to
the financial covenants in the Loan Agreement consistent with its expected Net
Losses and Lender is willing to grant such extension of time and amendment on
the terms and conditions contained herein;

         NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender,
intending to be legally bound, agree as follows:

         1. Definitions. Except as otherwise defined herein, all capitalized
terms used herein shall have the meanings ascribed thereto in the Loan
Agreement.

         2. Recitals. The recitals set forth above are true and accurate in
every respect.

         3. No Offsets. Borrower acknowledges with respect to the amounts owing
to Lender that, as of the date of execution of this Amendment, Borrower has no
offset, defense or counterclaim with respect thereto, no claim or defense in the
abatement or reduction thereof, or any other claim against Lender or with
respect to any document forming part of the transaction in respect of which the
Prior Loan Agreement was made or forming part of any other transaction under
which Borrower is indebted to Lender. Borrower acknowledges that all interest
imposed under the Prior Loan Agreement and Loan Documents through the date of
execution hereof, and all fees and other charges that have been collected from
or known by Borrower to have been imposed upon Borrower with respect to the
Prior Loan Agreement were and are agreed to, and were properly computed and
collected, and that Lender has fully performed all obligations that it may have
had or now has to Borrower, and Lender has no obligation to make any additional
loan or extension of credit to or for the benefit of Borrower, except as
provided in the Loan Agreement.
<PAGE>   2
         4. Release of Claims. In consideration of Lender's agreements contained
herein, Borrower and its successors and assigns each hereby fully release,
remise and forever discharge Lender and Bank and all of their past and present
officers, directors, agents, employees, servants, partners, shareholders,
attorneys and managers, and all of their respective heirs, personal
representatives, predecessors, successors and assigns, for, from and against any
and all claims, demands, causes of action, controversies, offsets, obligations,
losses, damages, and liabilities of every kind and character whatsoever,
including without limitation any action, omission, misrepresentation or other
basis of liability founded either in tort or contract and the duties arising
thereunder that Borrower, or any of its successors or assigns has had in the
past, or now has, or which may hereafter accrue, whether known or unknown,
whether currently existing or hereafter asserted, relating in any manner to, or
arising from or in connection with, the indebtedness evidenced by the Prior Loan
Agreement, this Agreement or the Loan Documents, any negotiations, loan
administration, exercise of rights and remedies, payment, offset with respect
to, or other matter relating to such indebtedness, any collateral securing
payment and performance of such indebtedness, or any matter preliminary to the
execution and delivery by Borrower and Lender of this Agreement, or any
statement, action, omission or conduct of Lender or Bank or any of their
officers, directors, agents, employees, servants, partners, shareholders,
attorneys and managers relating in any manner to such indebtedness, collateral
or this Agreement; provided, however, that the foregoing release and discharge
shall not apply to the obligations of Lender expressly set forth in this
Amendment or first arising after the date of this Amendment. Borrower
acknowledges and agrees that Lender is not and shall not be obligated in any way
to continue or undertake any loan, financing or other credit arrangement with
Borrower, including without limitation any renewal of the indebtedness evidenced
by the Loan Agreement, beyond the Maturity Date.

         5. Representations and Warranties of Borrower. To induce Lender to
enter into this Amendment and the arrangement contemplated by this Amendment,
Borrower represents and warrants to Lender as follows:

                  (a) Borrower has all requisite corporate power and corporate
authority to execute this Amendment and to perform all of its obligations
hereunder, and this Amendment has been duly executed and delivered by Borrower
and constitutes the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its terms.

                  (b) The execution, delivery and performance by Borrower of
this Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any other Person, including, without limitation, the Subordinated
Creditors, that, if not obtained would have a material adverse effect on the
Borrower's financial condition, properties or operations; (ii) violate any
provision of any law, rule or regulation or of any order, writ, injunction or
decree presently in effect, having applicability to Borrower, or the articles of
incorporation or by-laws of Borrower; or (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which Borrower is a party or by
which it or its properties may be bound or affected.


                                      -2-
<PAGE>   3
                  (c) Except as disclosed in the Borrower's May 31, 2000
financial statements delivered to Lender or otherwise disclosed in writing to
Lender, all of the respective representations and warranties made by Borrower in
the Loan Agreement and Loan Documents remain true, complete and correct in all
material respects as of the date hereof, including, without limitation, the
representations and warranties in Article 5 of the Loan Agreement, except to the
extent of any changes to such representations and warranties previously
disclosed in writing to Lender.

                  (d) After the execution of this Amendment, Borrower will be in
compliance in all material respects with all of the covenants of Borrower under
the Loan Agreement and other Loan Documents as of the date of execution of this
Amendment.

                  (e) There are no oral agreements, understandings or course of
conduct that would modify, amend, rearrange, vary, diminish or impair the Loan
Agreement or other Loan Documents or the Obligation of Borrower evidenced
thereby or to perform fully the Obligations of Borrower in strict accordance
with the Loan Agreement and other Loan Documents, or which would permit Borrower
to void or avoid its obligations in whole or in part.

No representation or warranty made by Borrower and contained herein or in the
Loan Agreement or other Loan Documents, and no certificate, information or
report furnished or to be furnished by Borrower in connection with the Loan
Agreement or any of the other Loan Documents or any of the transactions
contemplated hereby or thereby, contains or will contain a misstatement of
material fact, or omits or will omit to state a material fact required to be
stated in order to make the statements contained herein or therein not
misleading in the light of the circumstances under which such statements were
made.

         6. Amendment Fee. In consideration of Lender's agreements contained
herein, Borrower hereby agrees to pay Lender an amendment fee of $2,500 that is
deemed fully earned and non-refundable upon execution of this Amendment.
Borrower hereby agrees that the Lender may, but shall not be obligated to,
without further authorization by the Borrower, pay the amendment fee directly as
an advance under the Loan Agreement on the effective date of this Amendment.

         7. Consent to Issuance of Convertible Debentures. Subject to the terms
and conditions of the Intercreditor Agreement dated August 14, 2000 among
Borrower, Esquire Trade & Finance Inc., Celeste Trust Reg. and Lender (the
"Intercreditor Agreement"), Lender hereby consents to the issuance of the
Convertible Debentures and the grant of a security interest in and to all of
Borrower's assets in favor of the holders of the Convertible Debentures. This
consent is effective only in this specific instance and only for the specific
purpose for which given and is expressly conditioned upon strict compliance with
the terms of the Intercreditor Agreement. This consent does not constitute a
waiver of any of the covenants and agreements of Borrower contained in the
Credit Agreement or Loan Documents with respect to any other transaction.

         8. Consent to Transamerica Forbearance Agreement. Lender hereby
consents to the Transamerica Forbearance Agreement, including, without
limitation, the grant to Transamerica Commercial Finance Corporation of a first
lien Security Interest in the items of finished goods



                                      -3-
<PAGE>   4
Inventory specifically listed on Exhibit A to the Transamerica Forbearance
Agreement (without any subsequent modifications) and the proceeds therefrom.
This consent is effective only in this specific instance and only for the
specific purpose and does not constitute Lender's consent to any amendments,
modifications or supplements to, or replacements of, the Transamerica
Forbearance Agreement. This consent does not constitute a waiver of any of the
covenants and agreements of Borrower contained in the Credit Agreement or Loan
Documents with respect to any other transaction.

         9. Loan Agreement Definitions. Section 1.1 of the Loan Agreement is
hereby amended to add the following definitions in their proper alphabetical
order:

                           "Convertible Debentures" means $750,000 of 12%
                  Convertible Debentures of the Borrower issued pursuant to that
                  certain Securities Purchase Agreement dated as of August 14,
                  2000 between Borrower and Esquire Trade & Finance Inc. and
                  Celeste Trust Reg., including the grant of a Security Interest
                  in all assets and properties of Borrower in favor of the
                  holders of the Convertible Debentures, subordinate to the
                  Security Interest of Lender.

                           "Transamerica Forbearance Agreement" means that
                  certain Forbearance Agreement and Release dated August 1, 2000
                  between Borrower and Transamerica Commercial Finance
                  Corporation and specifically excludes any amendments,
                  modifications or supplements thereto, or replacements thereof
                  without the prior written consent of Lender.

         10. Reporting Requirements. Section 6.1(b) of the Loan Agreement is
hereby deleted in its entirety and the following inserted therefor:

                           (a) as soon as available and in any event on or
                  before April 21, 2000 with respect to January 2000, February
                  2000 and March 2000 fiscal month-end reporting information,
                  August 22, 2000 with respect to June 2000 fiscal month-end
                  reporting information, and on or before thirty (30) days after
                  the end of each month thereafter, a balance sheet and
                  statements of income and retained earnings of the Borrower as
                  of the end of and for such month and for the year to date
                  period then ended, in reasonable detail and stating in
                  comparative form the figures for the corresponding date and
                  periods in the previous year, all prepared in accordance with
                  GAAP, and an aging of the Borrower's accounts payable; and
                  accompanied by a certificate of the Borrower's chief financial
                  officer, substantially in the form of Exhibit C hereto stating
                  (i) that such financial statements have been prepared in
                  accordance with GAAP, (ii) whether or not such officer has
                  knowledge of the occurrence of any Default or Event of Default
                  hereunder not theretofore reported and remedied and, if so,
                  stating


                                      -4-
<PAGE>   5
                  in reasonable detail the facts with respect thereto, and (iii)
                  all relevant facts in reasonable detail to evidence, and the
                  computations as to, whether or not the Borrower is in
                  compliance with the requirements set forth in Sections 6.13,
                  6.14 and 7.10;

         11. Minimum Net Income From Ordinary Operations. Section 6.13 of the
Loan Agreement is hereby deleted in its entirety and the following inserted
therefor:

                           Section 6.13 MINIMUM NET INCOME FROM ORDINARY
                  OPERATIONS. Borrower's monthly Net Loss for the May 2000
                  fiscal month shall not be more than $31,000; Borrower's
                  monthly Net Loss for the June 2000 fiscal month shall not be
                  more than $200,000; Borrower's monthly Net Loss for the July
                  2000 fiscal month shall not be more than $750,000; and
                  Borrower's monthly Net Loss for the August 2000 fiscal month
                  shall not be more than $500,000; provided, however, for
                  Borrower's June, July and August 2000 fiscal months only, Net
                  Income will be determined prior to reserving from, or making
                  adjustments to, Borrower's finished goods Inventory and raw
                  materials Inventory and Borrower's affiliate accounts
                  receivable, which reserves and adjustments shall not exceed
                  $750,000 in the aggregate.

         12. Minimum Book Net Worth. Section 6.14 of the Loan Agreement is
hereby deleted in its entirety and the following inserted therefor:

                           Section 6.14 MINIMUM BOOK NET WORTH. Borrower's
                  cumulative Book Net Worth as of the end of Borrower's 2000
                  second fiscal quarter, i.e., July 1, 2000, shall not be less
                  than $3,800,000 before reserving from, or making adjustments
                  to, Borrower's finished goods Inventory and raw materials
                  Inventory in the June 2000 fiscal month (but not to exceed
                  $750,000 in the aggregate); Borrower's cumulative Book Net
                  Worth as of the end of Borrower's July 2000 fiscal month shall
                  not be less than $3,050,000; and Borrower's cumulative Book
                  Net Worth as of the end of Borrower's August 2000 fiscal month
                  shall not be less than $2,550,000; provided, however, for
                  Borrower's June, July and August 2000 fiscal months only, Book
                  Net Worth will be determined prior to reserving from, or
                  making adjustments to, Borrower's finished goods Inventory and
                  raw materials Inventory and Borrower's affiliate accounts
                  receivable, which reserves and adjustments shall not exceed
                  $750,000 in the aggregate.

         13. Indebtedness. Section 7.2 of the Loan Agreement is hereby deleted
in its entirety and the following inserted therefor:



                                      -5-
<PAGE>   6
                  Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
                  assume or permit to exist any indebtedness or liability on
                  account of deposits or advances or any indebtedness for
                  borrowed money or letters of credit issued on the Borrower's
                  behalf, or any other indebtedness or liability evidenced by
                  notes, bonds, debentures or similar obligations, except:

                                    (a) indebtedness arising hereunder;

                                    (b) indebtedness of the Borrower in
                  existence on the date hereof and listed in Schedule 7.2
                  hereto;

                                    (c) indebtedness relating to liens permitted
                  in accordance with Section 7.1;

                                    (d) subordinated indebtedness related to the
                  Convertible Debentures, but in no event more than $750,000 in
                  principal amount; and

                                    (e) indebtedness related to the Transamerica
                  Forbearance Agreement, but in no event more than $1,262,091.75
                  in principal amount.

         14. Events of Default. (a) Section 8.1(u) of the Loan Agreement is
hereby deleted and the following inserted therefor:

                           (u) the Capital Infusion has not occurred on or
                  before August 14, 2000; or

and (b) Section 8.1 of the Loan Agreement is hereby amended to add the
following:

                           (w) Lender has not received signed copies of the
                  Consent of Subordinated Creditors attached to the Second
                  Amendment from Advantage Fund II Ltd., Koch Investment Group
                  Limited, RCP Inc., Esquire Trade & Finance Inc. or Celeste
                  Trust Reg. on or before August 21, 2000, or Lender has not
                  received a signed copy of the Consent of Subordinated
                  Creditors attached to the Second Amendment from Oxford
                  International, Inc. on or before August 28, 2000.

         15. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.

         16. Voluntary Agreement. Borrower represents and warrants to Lender
that (i) it has been represented by legal counsel of its choice in regard to the
transaction provided for by this Amendment; (ii) it is fully aware and clearly
understands all of the terms and provisions




                                      -6-
<PAGE>   7
contained in this Amendment, including, without limitation, the release of
claims in Section 4 above; (iii) it has voluntarily, with full knowledge and
without coercion or duress of any kind, entered into this Amendment and the
documents executed in connection with this Amendment; (iv) it is not relying on
any representations, either written or oral, express or implied, made to it by
Lender other than as set forth in the Loan Agreement and other Loan Documents
and this Amendment; and (v) the consideration received by Borrower to enter into
this Amendment and the arrangement contemplated by this Amendment has been
actual and adequate.

         17. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Arizona, without regard to its conflict
of laws rules.

         18. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
combined shall constitute one and the same instrument.

         19. Successors and Assigns. This Amendment shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.

         20. Transaction Expenses. Borrower agrees to pay any and all reasonable
costs and expenses incurred by Lender in connection with this Amendment,
including, without limitation, reasonable attorneys' fees and disbursements of
counsel to the Lender for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental hereto. Borrower hereby agrees that the Lender may, at any time or
from time to time in its sole discretion and without further authorization by
the Borrower, pay such costs and expenses directly as an advance under the Loan
Agreement.

         21. Amendment. Except as otherwise amended hereby, all of the terms and
provisions of the Loan Agreement shall remain in full force and effect and shall
apply to each Advance thereunder.


                           [THE REMAINDER OF THIS PAGE
                          IS LEFT INTENTIONALLY BLANK]


                                      -7-
<PAGE>   8
         IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.



                         BORROWER:

                         TITAN MOTORCYCLE CO. OF AMERICA, a Nevada corporation


                         By:
                             -------------------------------------------------
                         Name:
                               -----------------------------------------------
                         Title:
                                ----------------------------------------------


                         LENDER:

                         WELLS FARGO CREDIT, INC., a Minnesota corporation


                         By:
                             -------------------------------------------------
                         Name:
                               -----------------------------------------------
                         Title:
                                ----------------------------------------------


                                      -8-
<PAGE>   9
                              CONSENT OF GUARANTORS

         The undersigned, the Guarantors under the Guaranties, hereby (a)
acknowledge receipt of a copy of the attached Second Amendment to Amended and
Restated Loan and Security Agreement, (b) consent to the terms and conditions
contained therein, and (c) agree that the covenants, agreements, duties and
obligations of the undersigned, as Guarantors under your respective Guaranties,
shall remain in full force and effect with respect to the Obligations evidenced
by the Loan Agreement, as amended by the attached Second Amendment to Amended
and Restated Loan and Security Agreement.

         Dated as of this ____ day of August, 2000.



                                          --------------------------------------
                                           FRANCIS KEERY



                                          --------------------------------------
                                           BARBARA KEERY



                                          --------------------------------------
                                           PATRICK KEERY
<PAGE>   10
                        CONSENT OF SUBORDINATED CREDITORS

         The undersigned, the Subordinated Creditors under the Subordination
Agreements, hereby (a) acknowledge receipt of a copy of the attached Second
Amendment to Amended and Restated Loan and Security Agreement, (b) consent to
the terms and conditions contained therein, and (c) agree that the covenants,
agreements, duties and obligations of the undersigned, as Subordinated Creditor
under the respective Subordination Agreements, shall remain in full force and
effect with respect to the Obligations evidenced by the Loan Agreement, as
amended by the attached Second Amendment to Amended and Restated Loan and
Security Agreement.

         Dated as of this ____ day of August, 2000.

                               ADVANTAGE FUND II LTD., a British Virgin Islands
                               corporation

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------


                               KOCH INVESTMENT GROUP LIMITED, a Delaware
                               corporation

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------


                               OXFORD INTERNATIONAL, INC.

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------


                               -----------------------------------------------
                               FRANCIS KEERY


                               CELESTE TRUST REG., a Liechtenstein trust

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------
<PAGE>   11
                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]

                               ESQUIRE TRADE & FINANCE INC., a British Virgin
                               Islands corporation

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------


                               RCP INC., a California corporation

                               By:
                                   -------------------------------------------
                               Name:
                                     -----------------------------------------
                               Title:
                                      ----------------------------------------


                                      -2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>12
<FILENAME>ex10-4.txt
<DESCRIPTION>EX-10.4
<TEXT>

<PAGE>   1
                                                                Exhibit 10.4
                          CONSENT AND WAIVER AGREEMENT

         THIS CONSENT AND WAIVER AGREEMENT, dated as of August 11, 2000 (this
"Agreement"), is by and among TITAN MOTORCYCLE CO. OF AMERICA, a Nevada
corporation, with headquarters located at 2222 West Peoria Avenue, Phoenix,
Arizona 85029 (the "Company"), and ADVANTAGE FUND II LTD., a British Virgin
Islands corporation ("Advantage"), and KOCH INVESTMENT GROUP LIMITED, a Delaware
corporation ("Koch" and, collectively with Advantage, the "A and B Investors").

                              W I T N E S S E T H:

         WHEREAS, the A and B Investors purchased shares of Series A Convertible
Preferred Stock, $.001 par value (the "Series A Stock"), of the Company and
acquired warrants (the "Series A Warrants") to purchase shares of Common Stock,
$.001 par value ("Common Stock"), of the Company pursuant to separate
Subscription Agreements, each dated as of September 15, 1999 (the "Series A
Subscription Agreements"), between the Company and each A and B Investor;

         WHEREAS, the A and B Investors purchased shares of Series B Convertible
Preferred Stock, $.001 par value (the "Series B Stock"), of the Company and
acquired warrants (the "Series B Warrants") to purchase shares of Common Stock
pursuant to separate Subscription Agreements, each dated as of March 7, 2000
(the "Series B Subscription Agreements", and together with the Series A
Subscription Agreements, the "Subscription Agreements"), between the Company and
each A and B Investor (capitalized terms used herein without definition shall
have the meanings given them in the Subscription Agreements);

         WHEREAS, the A and B Investors and the Company are parties to (i) the
Warrant Amendment Agreement, dated as of May 24, 2000 (the "Warrant Amendment
Agreement"), (ii) the Consent to Amendments to Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, dated June 1, 2000 (the "First
Consent") and (iii) the Consent and Waiver, dated June 20, 2000 (the "Second
Consent");

         WHEREAS, pursuant to the Second Consent, the A and B Investors received
Additional Warrants (as such term is defined in the Second Consent) (the Series
A Warrants, the Series B Warrants and the Additional Warrants are hereinafter
collectively referred to as the "Investor Warrants");

         WHEREAS, the Company proposes to sell to Esquire Trade and Finance Inc.
and Celeste Trust Reg. (collectively, the "Debenture Holders") an aggregate of
$750,000 principal amount of convertible debentures issued by the Company (the
"Debentures") together with certain warrants (the "Debenture Holder Warrants")
to purchase Common Stock and, in connection therewith, to amend certain terms
and provisions of the Company's Series C Convertible Preferred Stock, $.001 par
value (the "Series C Stock"), held by the Debenture Holders (such transaction is
referred to herein as the "Offering");

<PAGE>   2

         WHEREAS, pursuant to the Subscription Agreements, the Company is
restricted from issuing new securities in certain instances without the consent
of the A and B Investors, and the A and B Investors are entitled to be notified
of the Offering and to exercise their preemptive rights to purchase the
securities offered thereby;

         WHEREAS, pursuant to the Investor Warrants, the A and B Investors have
certain anti-dilution adjustment rights in the event of certain issuances of
securities by the Company; and

         WHEREAS, in consideration for obtaining the consents and waivers of the
A and B Investors provided herein in order to facilitate the Offering, the
Company has agreed to amend certain provisions of the Subscription Agreements
and the respective Amended and Restated Certificates of Designations for the
Series A Stock and the Series B Stock (the "Certificates of Designations") as
set forth below;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:


                  1. CONSENTS AND WAIVERS

                  (a) OFFERING. Each of the A and B Investors hereby consents
to: (i) the issuance of the Debentures in accordance with, and the terms and
conditions of, the Securities Purchase Agreement, dated as of August 11, 2000,
by and among the Company and the Debenture Holders substantially in the form
attached as EXHIBIT A hereto, (ii) the terms and conditions of the Registration
Rights Agreement, dated as of August 11, 2000, by and among the Company and the
Debenture Holders substantially in the form attached as EXHIBIT B hereto, (iii)
the terms and conditions of the Debenture Holders Warrants substantially in the
form attached as EXHIBIT C hereto and (iv) the terms and provisions of the First
Amended and Restated Certificate of Designations of the Series C Stock
substantially in the form attached as EXHIBIT D hereto. Each of the A and B
Investors hereby waives all restrictions relating to the Offering under Section
4(i) of each of the Subscription Agreements.

                  (b) NOTIFICATION AND PREEMPTIVE RIGHTS. Each of the A and B
Investors hereby waives all of its notification and preemptive rights under
Section 4(i) of each of the Subscription Agreements to purchase Debentures or
Debenture Holder Warrants being offered by the Company in the Offering.

                  (c) ANTI-DILUTION ADJUSTMENTS. Each of the A and B Investors
hereby waives any and all rights to anti-dilution adjustments resulting from the
Offering under Section 6 of each of the Series A Warrants and the Series B
Warrants.

                  (d) OTHER TRANSACTIONS. Notwithstanding the foregoing
provisions of this Section 1, the consents and waivers given pursuant to this
Section 1 apply only to the Offering and do not limit or effect the A and B
Investors' rights with respect to any other transaction.


                                      -2-
<PAGE>   3

                  (e) EFFECTIVENESS. The consents and waivers given in this
Section 1 shall have no effect and shall be deemed null and void if the Company
fails to timely comply with its obligations under Sections 3 and 4.

                  2. AMENDMENT OF SUBSCRIPTION AGREEMENTS

                  (a) Section 4(j) of each of the Series A Subscription
Agreements is hereby amended in its entirety to read as follows:

                           (j) CERTAIN SELLING RESTRICTIONS. So long as the
                  Company is in compliance in all material respects with its
                  obligations to the Buyer under this Agreement, the Certificate
                  of Designations, the Warrants and the Registration Rights
                  Agreement, during the 10 consecutive Trading Days (as defined
                  in the Certificate of Designations) immediately preceding the
                  Initial Reset Date (as defined in the Certificate of
                  Designations), the Second Reset Date (as defined in the
                  Certificate of Designations), and each Bimonthly Reset Date
                  thereafter (as defined in the Certificate of Designations),
                  the Buyer agrees on its behalf and on behalf of its Affiliates
                  (as defined in the Certificate of Designations) that it will
                  not (1) sell any shares of the Common Stock on Nasdaq or any
                  other market where the Common Stock is then listed for trading
                  unless such sale is made at or above 130% of the Fixed
                  Conversation Price (as defined in the Certificate of
                  Designations) or (2) engage in any short sales or other
                  hedging transactions relating to the Common Stock.

                  (b) Section 4(j) of each of the Series B Subscription
Agreements is hereby amended in its entirety to read as follows:

                           (j) CERTAIN SELLING RESTRICTIONS. So long as the
                  Company is in compliance in all material respects with its
                  obligations to the Buyer under this Agreement, the Certificate
                  of Designations, the Warrants and the Registration Rights
                  Agreement, during the 10 consecutive Trading Days (as defined
                  in the Certificate of Designations) immediately preceding the
                  Initial Reset Date (as defined in the Certificate of
                  Designations) and each Quarterly Reset Date thereafter (as
                  defined in the Certificate of Designations), the Buyer agrees
                  on its behalf and on behalf of its Affiliates (as defined in
                  the Certificate of Designations) that it will not (1) sell any
                  shares of the Common Stock on Nasdaq or any other market where
                  the Common Stock is then listed for trading unless such sale
                  is made at or above 130% of the Fixed Conversation Price (as
                  defined in the Certificate of Designations) or (2) engage in
                  any short sales or other hedging transactions relating to the
                  Common Stock.

                  3. AMENDMENT AND RESTATEMENT OF CERTIFICATES OF DESIGNATIONS

                  The Amended and Restated Certificate of Designations for each
of the Series A Stock and the Series B Stock shall be further amended and
restated as set forth in EXHIBIT E and


                                      -3-
<PAGE>   4

EXHIBIT F attached hereto, respectively (the "New Certificates"). The Company
shall file the New Certificates with the Secretary of State of the State of
Nevada within one business day after the initial closing of the Offering and
shall provide written evidence thereof to each of the A and B Investors. Within
one business day after the initial closing of the Offering, the Company shall
deliver a legal opinion of Nevada counsel addressed to each of the A and B
Investors, in the form previously provided to the A and B Investors, which
opinion shall state that (i) the outstanding shares of each of the Series A
Stock and Series B Stock, as amended by the New Certificates, are duly
authorized, validly issued, fully paid and nonassessable and (ii) the provisions
of Section 4 of the New Certificates are valid and enforceable in accordance
with their terms. Time is of the essence with respect to the Company's
compliance with its obligations under this Section 3.

                  4. REPRESENTATIONS AND WARRANTIES

                  The Company represents and warrants to, and covenants and
agrees with, each A and B Investor that:

                  (a) AGREEMENT. This Agreement has been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
on behalf of the Company, and this Agreement is, the Subscription Agreements as
amended hereby are, and the New Certificates when filed will be, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and limits upon rights to indemnity;

                  (b) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the amendment of the Subscription Agreements and
the Certificates of Designations as contemplated hereby and completion of the
other transactions contemplated hereby do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default or require the consent of any party under the Articles of
Incorporation or By-laws of the Company, or any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company is a party or by
which it or any of its properties or assets are bound or any applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its properties
or assets;

                  (c) REGISTRATION STATEMENTS; STOCKHOLDER APPROVAL. After
giving effect to the Offering, the filing of the New Certificates, the filing of
a Current Report on Form 8-K with the SEC as described below and the completion
of the other transactions contemplated hereby, (i) the respective Registration
Statements filed by the Company with the SEC registering the resale by the A and
B Investors of the Common Stock issuable upon conversion of the Series A Stock
and the Series B Stock and upon exercise of the Series A Warrants and the Series
B Warrants will remain available for use by the A and B Investors as selling
stockholders named therein, and the Company has no intent or reason to suspend
the availability of such Registration Statements, and (ii) the Stockholder
Approvals (as defined in the New Certificates) obtained at the Company's Annual
Meeting of Stockholders held on July 26, 2000 will remain effective in
permanently exempting the Company and the A and B Investors from the
restrictions contained in the Stockholder Approval Rule on issuing Common Stock
to the A and B Investors. Within


                                      -4-
<PAGE>   5

one business day after the initial closing of the Offering, the Company shall
file a Current Report on Form 8-K with the SEC describing the material terms of
the Offering and the transactions contemplated by this Agreement; and

                  (d) CONSULTATION. The Company has consulted with its outside
counsel with respect to the representations and agreements made by the Company
in this Agreement.

                  5. CONFIRMATION OF AGREEMENTS; ENTIRE AGREEMENT

                  Except as specifically consented to or waived in this
Agreement, the A and B Investors will not be deemed to have consented to, waived
or amended any other rights or provisions of any other agreement or document.
Except as amended by this Agreement, the terms and provisions of the
Subscription Agreements, the Certificates of Designations, the Investor
Warrants, the Warrant Amendment Agreement, the First Consent, the Second
Consent, the Transfer Agent Agreements and the several Registration Rights
Agreements relating thereto (collectively, the "Existing Agreements") remain in
full force and effect. All references in the Existing Agreements to the
Subscription Agreements and the Certificates of Designations shall hereafter, in
the case of the Subscription Agreements, and upon filing with the Secretary of
State of the State of Nevada, in the case of the Certificates of Designations,
be deemed to be references to the Subscription Agreements and the Certificates
of Designations as amended hereby. This Agreement sets forth the entire
agreement between the parties with respect to the subject matter hereof.

                  6. MISCELLANEOUS

                  (a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Arizona.

                  (b) COUNTERPARTS. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A telephone line
facsimile copy of this Agreement bearing a signature on behalf of a party hereto
shall be legal and binding on such party.

                  (c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.

                  (d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

                  (e) AMENDMENTS. No amendment, modification, waiver, discharge
or termination of any provision of this Agreement nor consent to any departure
by the A and B Investors or the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the party to be
charged with enforcement, and then shall be effective only


                                      -5-
<PAGE>   6

in the specific instance and for the purpose for which given. No course of
dealing between the parties hereto shall operate as an amendment of this
Agreement.

                  (f) WAIVERS. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, or any course of dealings between the parties, shall not
operate as a waiver thereof or an amendment hereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.

                  (g) NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be delivered in accordance with the
notice provisions of the Subscription Agreements.

                  (h) EXPENSES. The Company shall pay or reimburse the A and B
Investors for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the A and B Investors) incurred by the A and B
Investors in connection with this Agreement, the Offering and the other
transactions contemplated hereby. The Company hereby confirms its obligation to
pay all reasonable legal and other expenses of the A and B Investors in
accordance with the terms of each of the Existing Agreements. In the event any
dispute, claim or litigation shall arise between the Company, on the one hand,
and the A and B Investors, on the other hand, in connection with this Agreement
or the transactions contemplated hereby, all costs and expenses, including
reasonable attorneys' fees, of the prevailing party shall be promptly paid by
the other party to such dispute, claim or litigation.

                  (i) SURVIVAL. The respective representations, warranties,
covenants and agreements of each A and B Investor and the Company contained in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall survive the completion of the transactions contemplated hereby
and shall remain in full force and effect regardless of any investigation made
by or on behalf of them or any person controlling or advising any of them.

                  (j) FURTHER ASSURANCES. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be necessary
and proper under the circumstances in order to accomplish the intents and
purposes of this Agreement and to carry out its provisions.

                  (k) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.


                                      -6-
<PAGE>   7


         IN WITNESS WHEREOF, this Consent and Waiver Agreement has been duly
executed by the A and B Investors and the Company by their respective officers
thereunto duly authorized as of the date first set forth above.

                                       ADVANTAGE FUND II LTD.

                                       By:  Genesee International, Inc.,
                                            as General Manager



                                       By:  __________________________________
                                                    Donald R. Morken
                                                       President



                                       KOCH INVESTMENT GROUP LIMITED



                                       By:  __________________________________
                                            Name:
                                            Title:



                                       TITAN MOTORCYCLE CO. OF AMERICA



                                       By:  ___________________________________
                                            Name:
                                            Title:


                                      -7-
<PAGE>   8

                                    EXHIBIT A

                          SECURITIES PURCHASE AGREEMENT


                                      -8-
<PAGE>   9

                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT


                                      -9-
<PAGE>   10

                                    EXHIBIT C

                                    WARRANTS


                                      -10-
<PAGE>   11

                                    EXHIBIT D

                           FIRST AMENDED AND RESTATED
                         CERTIFICATE OF DESIGNATIONS OF
                              SERIES C CONVERTIBLE
                                 PREFERRED STOCK


                                      -11-
<PAGE>   12

                                    EXHIBIT E

                           SECOND AMENDED AND RESTATED
                      CERTIFICATE OF DESIGNATIONS OF SERIES
                          A CONVERTIBLE PREFERRED STOCK


                                      -12-
<PAGE>   13

                                    EXHIBIT F

                           SECOND AMENDED AND RESTATED
                      CERTIFICATE OF DESIGNATIONS OF SERIES
                          B CONVERTIBLE PREFERRED STOCK


                                      -13-
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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