EXHIBIT-3.5

                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
               AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                               CELL GENESYS, INC.

         Cell Genesys, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.001 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Four Thousand
(4,000) shares of Series B Convertible Preferred Stock of the Company, as
follows:

         RESOLVED, that the Company is authorized to issue 4,000 shares of
Series B Convertible Preferred Stock (the "PREFERRED SHARES"), par value $0.001
per share, which shall have the following powers, designations, preferences and
other special rights:

         1.       Dividends. The Preferred Shares shall not bear any dividends.

         2.       Holder's Conversion of Preferred Shares. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the Preferred
Shares into shares of the Company's common stock, $0.001 par value per share
(the "COMMON STOCK"), on the following terms and conditions:

                  (a)      Conversion Right. Subject to the provisions of
Section 2(j) below, at any time or times on or after the Issuance Date (as
defined below), any holder of Preferred Shares shall be entitled to convert any
whole number of Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(h) below) of
Common Stock, at the Conversion Rate (as defined below); provided, however, that
in no event shall any holder be entitled to convert Preferred Shares in excess
of that number of Preferred Shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates to exceed 4.9% of the outstanding shares of the
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Preferred Shares with



respect to which the determination of such proviso is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially owned by
the holder and its affiliates and (ii) exercise or conversion of the unexercised
of unconverted portion of any other securities of the Company (including,
without limitation, any warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. The holder may waive the foregoing limitations by written notice to the
Company upon not less than 61 days prior notice (with such waiver taking effect
only upon the expiration of such 61 day notice period).

                  (b)      Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Preferred Shares pursuant to Sections
(2)(a) and 2(g) shall be determined according to the following formula (the
"CONVERSION RATE"):

                          (.05)(N/365)($10,000) + $10,000
                          -------------------------------
                                Conversion Price

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

                           (i)      "CONVERSION PRICE" means, as of any
Conversion Date (as defined below) or other date of determination, the lower of
the Fixed Conversion Price and the Floating Conversion Price, each in effect as
of such date and subject to adjustment as provided herein; provided, however,
that (A) during the period beginning on and including the date which is 90 days
after the applicable Issuance Date (as defined below) and ending on and
including the date which is 180 days after the applicable Issuance Date, the
Conversion Price shall be not less than 75% of the floating Conversion Price on
the applicable Issuance Date, and (B) during the period beginning on and
including the date which is 181 days after the applicable Issuance Date and
ending on and including the date which is 270 days after the applicable Issuance
Date, the Conversion Price shall be not less than 50% of the Floating Conversion
Price on the applicable Issuance Date; and, provided further, that the
restrictions on the Conversion Price described in clauses (A) and (B)
immediately above shall not apply on and after the date of the occurrence of a
Triggering Event (as defined in Section 3(d) below) or the public announcement
or occurrence of a Major Transaction (as defined in Section 3(c) below).

                           (ii)     "FIXED CONVERSION PRICE" means 125% of the
Market Price on the date of issuance of the applicable Preferred Shares,
provided that the Fixed Conversion Price for the Preferred Shares issued on the
Initial Closing Date shall be $11.02, subject in each case to adjustment as
provided herein;

                           (iii)    "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Market Price as of such date;

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                           (iv)     "CONVERSION PERCENTAGE" means 100%, subject
in each case to adjustment as provided herein;

                           (v)      "MARKET PRICE" means, with respect to any
security for any date, the average of the two lowest Closing Bid Prices (as
defined below) for such security during the ten consecutive trading days
immediately preceding such date;

                           (vi)     "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price for such security on the Nasdaq
National Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
the Nasdaq National Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(f)(iii) below with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock, split or other similar transaction during such period).

                           (vii)    "N" means the number of days from, but
excluding, the Issuance Date through and including the Conversion Date for the
Preferred Shares for which conversion is being elected; and

                           (viii)   "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.

                  (c)      Effect of Failure to Obtain and Maintain
Effectiveness of Registration Statement. If the registration statement (the
"REGISTRATION STATEMENT") covering the resale of the shares of Common Stock
issuable upon conversion of the Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the Company and
the Buyers referred to therein (the "REGISTRATION RIGHTS AGREEMENT") is not
(i) filed within 60 days of the first Issuance Date of any Preferred Shares (the
"SCHEDULED FILING DATE"), (ii) declared effective by the United States
Securities and Exchange Commission (the "SEC") on or before 120 days after the
first Issuance Date for any Preferred Shares (the "SCHEDULED EFFECTIVE DATE"),
or (iii) if after the Registration Statement has been declared effective by the
SEC, sales of all the shares of Common Stock issued or issuable upon conversion
of the Preferred Shares (without taking into account any limitations or
restrictions on the timing or amount of conversions of the Preferred Shares or
sales of the underlying Common Stock) cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is

                                      -3-



necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock or otherwise, provided that such
inability to sell shares is not due solely to the action or inaction of the
Buyers), then, as partial relief for the damages to any holder by reason of any
such delay in or reduction of its ability to sell the underlying shares of
Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Conversion Percentage and the Fixed
Conversion Price shall be adjusted as follows:

                                    (A)      Conversion Percentage. The
Conversion Percentage in effect at such time shall be reduced by a number of
percentage points equal to the product of (I) .06 and (II) the sum of (x) the
number of days after the Scheduled Filing Date that the relevant Registration
Statement is filed with the SEC, (y) the number of days after the Scheduled
Effective Date and prior to the date that the relevant Registration Statement is
declared effective by the SEC (without double-counting any number of days after
the Scheduled Filing Date that the relevant Registration Statement is filed, if
applicable) and (z) the number of days that sales cannot be made pursuant to the
Registration Statement in accordance with the Registration Rights Agreement
after the Registration Statement has been declared effective (such number of
days being collectively referred to herein as the "REGISTRATION STATEMENT
DEFAULT DAYS"). Notwithstanding the foregoing, the Registration Statement
Default Days shall not include the number of days during any Grace Period (as
defined in the Registration Rights Agreement). (For example, if the Registration
Statement becomes effective 30 days after the Scheduled Effective Date, the
Conversion Percentage would be 98.2% percent until any subsequent adjustment; if
thereafter sales could not be made pursuant to the Registration Statement for a
period of 40 additional days, the Conversion Percentage would then be 95.8%);
and

                                    (B)      Fixed Conversion Price. The Fixed
Conversion Price in effect at such time shall be reduced by an amount equal to
the product of (I) the Fixed Conversion Price in effect as of the Issuance Date
and (II) .0006 multiplied by (III) Registration Statement Default Days. The
Registration Statement Default Days shall not include the number of days during
any Grace Period (as defined in the Registration Rights Agreement). (For
example, assuming for purposes of this Section 3(c)(B) only that the Fixed
Conversion Price equals $9.00, if the Registration Statement becomes effective
30 days after the Scheduled Effective Date, the Fixed Conversion Price would be
$8.982 until any subsequent adjustment; if thereafter sales could not be made
pursuant to the Registration Statement for a period of 40 additional days, the
Fixed Conversion Price would then be $8.958.)

                  (d)      Adjustment to Conversion Price -- Dilution and Other
Events. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to adjustment
from time to time as provided in this Section 2(d).

                           (i)      Adjustment of Fixed Conversion Price upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
the Preferred Shares, the Company issues or sells, or is deemed to have issued
or sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with the Warrants (as defined in
the Securities Purchase Agreement between the Company and the initial holders of
the Preferred Shares (the "SECURITIES PURCHASE AGREEMENT")), the GenPharm Note
(as defined in the Securities Purchase Agreement), an Approved Stock Plan (as
defined below) or an Excluded Issuance (as defined below)) for a consideration
per share less than the Fixed Conversion Price in

                                      -4-



effect immediately prior to such time (the "APPLICABLE PRICE"), then immediately
after such issue or sale, the Fixed Conversion Price shall be reduced to an
amount equal to the product of (x) the Fixed Conversion Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Applicable Price and the number
of shares of Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, and (II) the consideration, if any, received by the
Company upon such issue or sale, by (2) the product of (I) the Applicable Price
and (II) the number of shares of Common Stock Deemed Outstanding immediately
after such issue or sale. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following shall be applicable:

                                    (A)      Issuance of Options. If the
Company in any manner grants any rights or options to subscribe for or to
purchase Common Stock (other than pursuant to an Approved Stock Plan or upon
conversion of the Preferred Shares or the GenPharm Note or exercise of the
Warrants) or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Applicable Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this Section 2(d)(i)(A), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof; by (II) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
adjustment of the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.

                                    (B)      Issuance of Convertible
Securities. If the Company in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then the maximum
number of shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For the purposes of this
Section 2(d)(i)(B), the "price per share for which Common Stock is issuable upon
such conversion or exchange" is determined by dividing (I) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (II) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible

                                      -5-



Securities. No adjustment of the Fixed Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price had been or are to be made pursuant to other provisions
of this Section 2(d)(i), no further adjustment of the Fixed Conversion Price
shall be made by reason of such issue or sale.

                                    (C)      Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock change at any time, the Fixed
Conversion Price in effect at the time of such change shall be readjusted to the
Fixed Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect. Nothing in this Section 2(d)(i)(C) shall
be construed to require any readjustment to the Fixed Conversion Price where the
Board of Directors of the Company votes to reprice at fair market value any
rights or options to subscribe for or to purchase Common Stock granted pursuant
to an Approved Stock Plan in order to provide appropriate employee incentives.

                                    (D)      Certain Definitions. For purposes
of determining the adjusted Fixed Conversion Price under this Section 2(d)(i),
the following terms have meanings set forth below:

                                             (I)      "APPROVED STOCK PLAN"
shall mean any contract, plan or agreement which has been approved by the Board
of Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director, consultant or other service provider.

                                             (II)     "COMMON STOCK DEEMED
OUTSTANDING" means, at any given time, the number of shares of Common Stock
actually outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Preferred Shares.

                                             (III)    "EXCLUDED ISSUANCE" shall
mean (i) a single issuance by the Company consisting solely of Common Stock,
(ii) any underwritten public offering by the Company consisting solely of Common
Stock, (iii) any transaction involving the Company's issuance of securities in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), (iv) any issuance of securities by a
subsidiary of the Company, and (v) any issuance of securities by the Company as
consideration for the acquisition of a license by the Company; provided that
(x) in each instance under clauses (i) and (iii) immediately above the
consideration received by the Company for each such share of Common Stock issued
is not less than the lesser of (A) the Closing Bid Price (as defined in the
Certificate of Designations) on

                                      -6-



the date of issuance of such shares and (B) the average of the Closing Bid
Prices for the Common Stock for the 20 consecutive trading days immediately
preceding the date of issuance of such shares, and (y) in each instance under
clause (ii) above the consideration received by the Company for each such share
of Common Stock issued is not less than 95% of the lesser of (A) the Closing Bid
Price on the date of issuance of such shares and (B) the average of the Closing
Bid Prices for the Common Stock for the 20 consecutive trading days immediately
preceding the date of issuance of such shares.

                                    (E)      Effect on Fixed Conversion Price
of Certain Events. For purposes of determining the adjusted Fixed Conversion
Price under this Section 2(d)(i), the following shall be applicable:

                                             (I)      Calculation of
Consideration Received. If any Common Stock, Options or Convertible Securities
are issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount received by
the Company therefor. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
arithmetic average of the Closing Bid Prices on the twenty (20) consecutive
trading days immediately preceding the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the holders of
a majority of the Preferred Shares then outstanding. If such parties are unable
to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within forty-eight (48) hours of the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
selected by the Company. The determination of such appraiser shall be deemed
binding upon all parties absent manifest error.

                                             (II)     Integrated Transactions.
In case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$.01.

                                             (III)    Treasury Shares. The
number of shares of Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Company, and the disposition
of any shares so owned or held will be considered an issue or sale of Common
Stock.

                                             (IV)     Record Date. If the
Company takes a record of the holders of Common Stock for the purpose of
entitling them (1) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or (2) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date will be
deemed to

                                      -7-



be the date of the issue or sale of the shares of Common Stock deemed
tohave been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.

                           (ii)     Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.

                           (iii)    Adjustment of Floating Conversion Price upon
Issuance of Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock at a price which
varies with the market price of the Common Stock (the formulation for such
variable price being herein referred to as, the "VARIABLE PRICE") and such
Variable Price is not calculated using the same formula used to calculate the
Floating Conversion Price in effect immediately prior to the time of such issue
or sale, the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Preferred Shares ("VARIABLE NOTICE") on
the date of issuance of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds (2/3) of the Preferred Shares then
outstanding provide written notice via facsimile and overnight courier (the
"VARIABLE PRICE ELECTION NOTICE") to the Company within five (5) business days
of receiving a Variable Notice that such holders desire to replace the Floating
Conversion Price then in effect with the Variable Price described in such
Variable Notice, the Company shall prepare and deliver to each holder of the
Preferred Shares via facsimile and overnight courier a copy of an amendment to
this Certificate of Designations (the "VARIABLE PRICE AMENDMENT") that
substitutes the Variable Price for the Floating Conversion Price (together with
such modifications to this Certificate of Designations as may be required to
give full effect to the substitution of the Variable Price for the Floating
Conversion Price) within five (5) business days after receipt of the requisite
number of Variable Price Election Notices set forth above. The Company shall
file such Variable Price Amendment with the Secretary of State of the State of
Delaware within five (5) business days after delivery of the Variable Price
Amendment to the holders of the Preferred Shares; provided that in the event
that the Company receives a notice prior to the filing of the Variable Price
Amendment from any holder who has delivered a Variable Price Election Notice in
connection with such Variable Price Amendment that such holder objects to the
form of the Variable Price Amendment, the Company shall not file such Variable
Price Amendment until such time as the Variable Price Amendment has been revised
to the reasonable satisfaction of such holder and approved in writing by the
holders of the Preferred Shares representing at least two-thirds (2/3) of the
Preferred Shares then outstanding. Except as provided in the preceding proviso,
a holder's delivery of a Variable Price Election Notice shall serve as the
consent required to amend this Certificate of Designations pursuant to
Section 12 below.

                           (iv)     Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person (as defined below) or other transaction which
is effected

                                      -8-



in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as an "ORGANIC
CHANGE." Prior to the consummation of any Organic Change, the Company will make
appropriate provision (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to insure that each of the
holders of the Preferred Shares will thereafter have the right to acquire and
receive in lieu of or addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Preferred Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic Change not taken
place (without taking into account any limitations or restrictions on the timing
or amount of conversions). In any such case, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a majority of
the Preferred Shares then outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section 2(d) and Section 2(e)
below will thereafter be applicable to the Preferred Shares (including, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of the
Fixed Conversion Price to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, if the value so reflected is less than
the Fixed Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Company will not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument, the obligation to deliver
to each holder of Preferred Shares such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
acquire. "PERSON" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

                           (v)      Certain Events. If any event occurs of the
type contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
the Preferred Shares; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 2(d).

                           (vi)     Notices.

                                    (A)      As soon as practicable, upon any
adjustment of the Conversion Price, the Company will give written notice thereof
to each holder of Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.

                                    (B)      The Company will give written
notice to each holder of Preferred Shares at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights

                                      -9-



to vote with respect to any Organic Change, dissolution or liquidation
and in no event shall such notice be provided to such holder prior to such
information being made known to the public.

                                    (C)      The Company will also give written
notice to each holder of Preferred Shares at least twenty (20) days prior to the
date on which any Organic Change, dissolution or liquidation will take place and
in no event shall such notice be provided to such holder prior to such
information being made known to the public.

                  (e)      Purchase Rights. In addition to any adjustments of
the Conversion Price pursuant to Section 2(d) above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the timing or amount of conversions)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

                  (f)      Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 6 below:

                           (i)      Holder's Delivery Requirements. To convert
Preferred Shares into full shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "CONVERSION NOTICE"), to the Company or its designated transfer
agent (the "TRANSFER AGENT"), and (B) surrender to a common carrier for delivery
to the Company or the Transfer Agent as soon as practicable following such date,
the original certificates representing the Preferred Shares being converted (or
an indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES") and the
originally executed Conversion Notice.

                           (ii)     Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the Company or the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, on the text business day following the
date of receipt, (I) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number of shares
of Common Stock to which the holder shall be entitled, or (II) credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with The Depository Trust
Company. If the number of Preferred Shares represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of Preferred
Shares being

                                      -10-



converted, then the Company or Transfer Agent, as the case may be, shall, as
soon as practicable and in no event later than two business days after receipt
of the Preferred Stock Certificate(s) and at its own expense, issue and deliver
to the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.

                           (iii)    Dispute Resolution. In the case of a dispute
as to the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such
holder's Conversion Notice. If such holder and the Company are unable to agree
upon the determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) business day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile (A) the disputed determination
of the Market Price to an independent, reputable investment bank or (B) the
disputed arithmetic calculation of the Conversion Rate to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.

                           (iv)     Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.

                           (v)      Company's Failure to Timely Convert. If
within ten (10) business days of the Company's or the Transfer Agent's receipt
of the Preferred Stock Certificates to be converted and the originally executed
Conversion Notice the Company shall fail to issue a certificate to a holder or
credit the holder's balance account with The Depository Trust Company for the
number of shares of Common Stock to which such holder is entitled upon such
holder's conversion of Preferred Shares or to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(f)(ii), in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8 thereof),
the Company shall pay additional damages to such holder on each date on and
after the sixth (6th) business day after the Company's receipt of such
Conversion Notice that such conversion is not timely effected in an amount equal
to 0.5% of the product of (A) the sum of the number of shares of Common Stock
not issued to the holder on a timely basis pursuant to Section 2(f)(ii) and to
which such holder is entitled and, in the event the Company has failed to
deliver a Preferred Stock Certificate to the holder on a timely basis pursuant
to Section 2(f)(ii), the number of shares of Common Stock issuable upon
conversion of the Preferred Shares represented by such Preferred Stock
Certificate, as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the last possible
date which the Company could have issued such Common Stock and such Preferred
Stock Certificate, as the case may be, to such holder without violating
Section 2(f)(ii).

                                      -11-



                  (g)      Mandatory Conversion. If any Preferred Shares remain
outstanding on the Mandatory Conversion Date (as defined below), then all such
Preferred Shares shall be converted as of such date in accordance with this
Section 2 as if the holders of such Preferred Shares had given the Conversion
Notice on the Mandatory Conversion Date. All holders of Preferred Shares shall
thereupon surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent. "MANDATORY CONVERSION DATE"
means the date which is five years after the applicable Issuance Date, unless
extended pursuant to Section 4(k) of the Securities Purchase Agreement or
Section 3(f) of the Registration Rights Agreement, which extension shall be
equal to twice the aggregate number of days of all Underwriting Lock-Up Periods
(as defined in Section 4(k) of the Securities Purchase Agreement) and Grace
Periods (as defined in Section 3(f) of the Registration Rights Agreement).

                  (h)      Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.

                  (i)      Taxes. The Company shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Preferred Shares.

                  (j)      Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to this Section 2 shall be
limited as set forth below. Without the prior consent of the Company, a holder
of Preferred Shares shall not be entitled to convert an aggregate number of
Preferred Shares from the Issuance Date of such Preferred Shares through the
date of this determination in excess of the number of Preferred Shares which
when divided by the number of Preferred Shares purchased by such holder on such
Issuance Date would exceed (i) 0.25 for the period beginning on the date which
is 91 days after the Issuance Date and ending on and including the date which is
135 days after the Issuance Date, (ii) 0.50 for the period beginning on and
including the date which is 136 days after the Issuance Date and ending on and
including the date which is 180 days after the Issuance Date, (iii) 0.75 for the
period beginning on the date which is 181 days after the Issuance Date and
ending on and including the date which is 225 days after the Issuance Date, and
(iv) 1.00 for the period beginning on and including the date which is 226 days
after the Issuance Date and ending on and including the Mandatory Conversion
Date. Notwithstanding the foregoing, the conversion restriction set forth in
this Section 2(j) shall not apply (x) with respect to any conversion of
Preferred Shares at a Conversion Price which is equal to the Fixed Conversion
Price then in effect or (y) if an event constituting a Major Transaction (as
defined in Section 3(c) below) or a Triggering Event (as defined in Section 3(d)
below) shall have occurred or been publicly announced.

                  (k)      Adjustment of Conversion Restrictions upon Issuance
of Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock and are subject to
(i) restrictions on the amount of shares that can be converted,

                                      -12-



or (ii) no restrictions on the amount of shares that can be converted (the
restriction on conversions or lack thereof being herein referred to as the
"CONVERSION RESTRICTION"), and such Conversion Restriction is not formulated
with using the same time periods and percentages used in Section 2(j), then the
Company shall provide written notice thereof via facsimile and overnight courier
to each holder of the Preferred Shares ("CONVERSION RESTRICTION NOTICE") on the
date of issuance of such Convertible Securities. If the holders of Preferred
Shares representing at least two-thirds (2/3) of the Preferred Shares then
outstanding which remain subject to the restrictions in Section 2(j) provide
written notice via facsimile and overnight courier (the "CONVERSION RESTRICTION
ELECTION NOTICE") to the Company within five (5) business days of receiving a
Conversion Restriction Notice that such holders desire to replace the conversion
restrictions set forth in Section 2(j) then in effect with the Conversion
Restriction described in such Conversion Restriction Notice, the Company shall
prepare and deliver to each holder of the Preferred Shares via facsimile and
overnight courier a copy of an amendment to this Certificate of Designations
(the "CONVERSION RESTRICTION AMENDMENT") that substitutes the Conversion
Restriction for conversion restrictions set forth in Section 2(j) (together with
such modifications to this Certificate of Designations as may be required to
give full effect to the substitution of the Conversion Restriction for the
conversion restrictions set forth in Section 2(j)) within five (5) business days
after receipt of the requisite number of Conversion Restriction Election Notices
set forth above. The Company shall file such Conversion Restriction Amendment
with the Secretary of State of the State of Delaware within five (5) business
days after delivery of the Conversion Restriction Amendment to the holders of
the Preferred Shares; provided that in the event that the Company receives a
notice prior to the filing of the Conversion Restriction Amendment from any
holder who has delivered a Conversion Restriction Election Notice in connection
with such Conversion Restriction Amendment that such holder objects to the form
of the Conversion Restriction Amendment, the Company shall not file such
Conversion Restriction Amendment until such time as the Conversion Restriction
Amendment has been revised to the reasonable satisfaction of such holder and
approved in writing by the holders of the Preferred Shares representing at least
two-thirds (2/3) of the Preferred Shares then outstanding. Except as provided in
the preceding proviso, a holder's delivery of a Conversion Restriction Election
Notice shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 12 below.

                  (l)      Conversion at the Option of the Company. At any time
or times on or after the date which is three years after the Issuance Date, the
Company shall have the right, in its sole discretion, to require that any or all
of the outstanding Preferred Shares issued on such Issuance Date be converted
("CONVERSION AT COMPANY'S ELECTION") at the Conversion Rate; provided that the
Conditions to Conversion at Company's Election (as defined below) are satisfied.
The Company shall exercise its right to Conversion at Company's Election by
providing each holder of such Preferred Shares written notice ("NOTICE OF
CONVERSION AT COMPANY'S ELECTION") at least 30 days prior to the date selected
by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the
Company elects to require conversion of some, but not all, of such Preferred
Shares, the Company shall convert an amount from each holder of such Preferred
Shares equal to such holder's pro rata amount (based on the number of Preferred
Shares held by such holder relative to the number of Preferred Shares
outstanding on Company's Election Conversion Date) of all Preferred Shares the
Company is requiring to be converted. The Notice of Conversion at Company's
Election shall indicate (x) the number of Preferred Shares the Company has
selected for conversion, (y) the Company's Election Conversion Date, which date
shall be not less than 30 or more than 40 days after each holder's receipt of
such notice, and (z) each holder's pro rata share of outstanding

                                      -13-



Preferred Shares. All Preferred Shares selected for conversion in accordance
with the provision of this Section 2(1) shall be converted as of the Company's
Election Conversion Date in accordance with this Section 2 as if the holders of
such Preferred Shares selected by the Company to be converted had given the
Conversion Notice on the Company's Election Conversion Date. All holders of
Preferred Shares shall thereupon and within two business days of the Company's
Election Conversion Date surrender all Preferred Stock Certificates selected for
conversion, duly endorsed for cancellation, to the Company or the Transfer
Agent. "CONDITIONS TO CONVERSION AT COMPANY'S ELECTION" means the following
conditions: (i) on each day during the 20 consecutive trading days immediately
preceding the date of the Company's Notice of Conversion at the Company's
Election, the last reported sale price (as reported by Bloomberg) of the Common
Stock is at least 250% of the Fixed Conversion Price of such Preferred Shares as
of the applicable Issuance Date of such Preferred Shares being converted;
(ii) the Company shall not have previously given Notice of Conversion at
Company's Election in the 365 days prior to such Notice of Conversion at
Company's Election; (iii) on each day during the period beginning 20 days prior
to the Notice of Conversion at the Company's Election and ending on and
including the Company's Election Conversion Date, the Registration Statement
shall be effective and available for the sale of no less than 150% of the sum of
(A) the number of Conversion Shares then issuable upon the conversion of all
outstanding Preferred Shares, including the Conversion Shares to be issued
pursuant to this Conversion at the Company's Election and (B) the number of
Conversion Shares that are then held by the holders of the Preferred Shares,
(iv) on each day during the period beginning 20 days prior to the date of the
Company's Notice of Conversion at Company's Election and ending on and including
the Company's Election Conversion Date, the Common Stock is designated for
quotation on the Nasdaq National Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc. and is not suspended from trading; (v) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Election Conversion Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares on a timely basis as
set forth in Section 2(f)(ii) of this Certificate of Designations; (vi) none of
the holders shall have been subject to a lock-up agreement under Section 4(k) of
the Securities Purchase Agreement at any time during the period beginning 20
days prior to the date of the Company's Notice of Conversion at Company's
Election and ending on an including the Company's Election Conversion Date; and
(vii) the Company otherwise has satisfied its obligations and is not in default
under this Certificate of Designations, the Securities Purchase Agreement and
the Registration Rights Agreement. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares selected
for conversion) into Common Stock pursuant to Section 2(a) on or prior to the
date immediately preceding the Company's Election Conversion Date (and, after
such holder's receipt of the Notice of Conversion at Company's Election, without
regard to the conversion limitations set forth in Section 2(j) above).

         3.       Redemption at Option of Holders.

                  (a)      Redemption Option Upon Major Transaction. In addition
to all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Major Transaction (as defined
below), each holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such holder's
Preferred Shares at a price per Preferred Share equal to the greater of (i) the
sum of (A) $12,000 and (B) an amount equal to the product of (.05) (N/365)
($10,000), and (ii) the product of (A) the Conversion Rate at

                                      -14-



such time and (B) the Closing Bid Price on the date of the public announcement
of such Major Transaction or the next date on which the exchange or market on
which the Common Stock is traded is open if such public announcement is made
(X) after 12:00 p.m., Central Time, time on such date or (Y) on a date on which
the exchange or market on which the Common Stock is traded is closed ("MAJOR
TRANSACTION REDEMPTION PRICE")

                  (b)      Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) the sum of (A) $12,000 and (B) an amount equal to the
product of (.05) (N/365) ($10,000), and (ii) the product of (A) the Conversion
Rate at such time and (B) the Closing Bid Price calculated as of the date
immediately preceding such Triggering Event on which the exchange or market on
which the Common Stock is traded is open ("TRIGGERING EVENT REDEMPTION PRICE"
and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the "REDEMPTION
PRICE").

                  (c)      "Major Transaction." A "MAJOR TRANSACTION" shall be
deemed to have occurred at such time as any of the following events:

                           (i)      the consolidation, merger or other business
combination of the Company with or into another Person (other than pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);

                           (ii)     the sale or transfer of all or substantially
all of the Company's assets; or

                           (iii)    a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock.

                  (d)      "Triggering Event." A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:

                           (i)      the failure of the Registration Statement to
be declared effective by the SEC on or prior to the date that is 240 days after
the Initial Issuance Date;

                           (ii)     while the Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is, unavailable
to the holder of the Preferred Shares for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of ten consecutive trading days (not including any days during a
Grace Period (as defined in Section 3(f) of the Registration Rights Agreement)),
provided that the cause of such lapse or unavailability is not due to factors
solely within the control of such holder of Preferred Shares;

                                      -15-



                           (iii)    the failure of the Common Stock to be listed
on the Nasdaq National Market, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. for a period of seven consecutive days; or

                           (iv)     the Company's notice to any holder of
Preferred Shares, including by way of public announcement, at any time, of its
intention not to comply with proper requests for conversion of any Preferred
Shares into shares of Common Stock, including due to any of the reasons set
forth in Section 4(a) below.

                  (e)      Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to each holder
of Preferred Shares. At any time after receipt of a Notice of Major Transaction,
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding may require the Company to redeem all of the holder's Preferred
Shares then outstanding by delivering written notice thereof via facsimile and
overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION") to the Company, which Notice of Redemption at Option of Buyer Upon
Major Transaction shall indicate (i) the number of Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a) above.

                  (f)      Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares. At
any time after receipt of a Notice of Triggering Event, any holder of the
Preferred Shares then outstanding may require the Company to redeem all or any
portion of the Preferred Shares held by such holder by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of Preferred
Shares that such holder is submitting for redemption and (ii) the applicable
Triggering Event Redemption Price, as calculated pursuant to Section 3(b) above.
Notwithstanding the foregoing, if (A) the Triggering Event is one described in
Section 3(d)(ii) above, and (B) such lapse discontinues and a holder of
Preferred Shares receives notice from the Company that the lapse in the
effectiveness of the registration statement no longer continues prior to such
holder's delivery to the Company of the holder's Notice of Redemption at Option
of Buyer Upon Triggering Event, then the holder shall no longer have the right
to deliver a Notice of Redemption at Option of Buyer Upon Triggering Event to
the Company with respect to such lapse.

                  (g)      Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction
from the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding the Company shall immediately notify each holder by facsimile of the
Company's receipt of such requisite notice(s) necessary to effect a redemption
and each holder of Preferred Shares shall thereafter promptly send such holder's
Preferred Stock Certificates to be redeemed to the Company or its Transfer
Agent. Upon the Company's receipt of a Notice(s) of Redemption at Option of
Buyer Upon Triggering Event from any holder of Preferred

                                      -16-



Shares, the Company shall immediately notify each holder of Preferred Shares by
facsimile of the Company's receipt of such Notice(s) of Redemption at Option of
Buyer Upon Triggering Event and each holder which has sent such a notice shall
promptly submit to the Company or its Transfer Agent such holder's Preferred
Stock Certificates which such holder has elected to have redeemed. The Company
shall deliver the applicable Redemption Price to such holder within ten business
days after the Company's receipt of the requisite notices required to effect a
redemption; provided that a holder's Preferred Stock Certificates shall have
been so delivered to the Company or its Transfer Agent; provided further that if
the Company is unable to redeem all of the Preferred Shares to be redeemed, the
Company shall redeem an amount from each holder of Preferred Shares being
redeemed equal to such holder's pro-rata amount (based on the number of
Preferred Shares held by such holder relative to the number of Preferred Shares
outstanding) of all Preferred Shares being redeemed. If the Company shall fail
to redeem all of the Preferred Shares submitted for redemption (other than
pursuant to a dispute as to the arithmetic calculation of the Redemption Price),
in addition to any remedy such holder of Preferred Shares may have under this
Certificate of Designations and the Securities Purchase Agreement, the
applicable Redemption Price payable in respect of such unredeemed Preferred
Shares shall bear interest at the rate of 2.0% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid applicable
Redemption Price in full to a holder of Preferred Shares submitted for
redemption, such holder shall have the option, in the case of a Notice of
Redemption at Option of Buyer Upon Triggering Event, and, in the event of a
Notice of Redemption at Option of Buyer Upon Major Transaction, the holders of
at least two-thirds (2/3) of the Preferred Shares then outstanding (including
Preferred Shares submitted for redemption pursuant to this Section 3 and for
which the applicable Redemption Price has not been paid) shall have the option
(the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the
Company to promptly return to such holder(s) all of the Preferred Shares that
were submitted for redemption by such holder(s) under this Section 3 and for
which the applicable Redemption Price has not been paid, by sending written
notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice(s)
and prior to payment of the full applicable Redemption Price to such holder,
(i) the Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Preferred Shares submitted
for redemption and for which the applicable Redemption Price has not been paid,
(ii) the Company shall immediately return any Preferred Shares submitted to the
Company by each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid, (iii) the Fixed Conversion Price
of such returned Preferred Shares shall be adjusted to the lesser of (A) the
Fixed Conversion Price as in effect on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Redemption of Option of Buyer Upon Major Transaction or the Notice(s) of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company; provided that no adjustment
shall be made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, and (iv) the Conversion Percentage in effect at
such time shall be reduced by a number of percentage points equal to the product
of (A) .25 and (B) the number of days in the period beginning on the date which
is five business days after the date on which the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction or the Notice(s) of Redemption at Option

                                      -17-



of Buyer Upon Triggering Event, as the case may be, is delivered to the Company
and ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company. Notwithstanding the foregoing, in the event of a
dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Bid Price" being substituted for
the term "Average Market Price" and the term "Redemption Price" being
substituted for the term "Conversion Rate". Payments provided for in this
Section 3 shall have priority to payments to other stockholders in connection
with a Major Transaction.

         4.       Inability to Fully Convert.

                  (a)      Holder's Option if Company Cannot Fully Convert. If,
upon the Company's receipt of a Conversion Notice, the Company can not issue
shares of Common Stock registered for resale under the Registration Statement
for any reason, including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and available,
(y) is otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its Securities, including
without limitation the Exchange Cap (as defined in Section 11 below), from
issuing all of the Common Stock which is to be issued to a holder of Preferred
Shares pursuant to a Conversion Notice or (z) fails to have a sufficient number
of shares of Common Stock registered for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock as it is
able to issue in accordance with such holder's Conversion Notice and pursuant to
Section 2(f) above and, with respect to the unconverted Preferred Shares, the
holder, solely at such holder's option, can elect to:

                           (i)      require the Company to redeem from such
holder those Preferred Shares for which the Company is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("MANDATORY
REDEMPTION") at a price per Preferred Share (the "MANDATORY REDEMPTION PRICE")
equal to the Redemption Price as of such Conversion Date;

                           (ii)     if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(z) above, require the Company to
issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) above;

                           (iii)    void its Conversion Notice and retain or
have returned, as the case may be, the nonconverted Preferred Shares that were
to be converted pursuant to such holder's Conversion Notice; or

                           (iv)     if the Company's inability to fully convert
Preferred Shares is pursuant to the Exchange Cap described in Section 4(a)(y)
above, require the Company to issue shares of Common Stock in accordance with
such holder's Conversion Notice and pursuant to Section 2(f) above at a
Conversion Price equal to the Market Price of the Common Stock for the five
consecutive trading days preceding such holder's Notice in Response to Inability
to Convert (as defined below).

                  (b)      Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a holder of Preferred Shares,
upon receipt of a facsimile copy of a Conversion

                                      -18-



Notice from such holder which cannot be fully satisfied as described in
Section 4(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such
Inability to Fully Convert Notice shall indicate(i) the reason why the Company
is unable to fully satisfy such holder's Conversion Notice, (ii) the number of
Preferred Shares which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder must within ten (10) business days of receipt of
such Inability to Fully Convert Notice deliver written notice via facsimile to
the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its election
pursuant to Section 4(a) above.

                  (c)      Payment of Redemption Price. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within ten (10)
days of the Company's receipt of the holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Redemption
Price to such holder on a timely basis as described in this Section 4(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations and the Securities
Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0%
per month (prorated for partial months) until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder may void
the Mandatory Redemption with respect to those Preferred Shares for which the
full Mandatory Redemption Price has not been paid and receive back such
Preferred Shares. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such ten (10) days time period due
to a dispute as to the determination of the arithmetic calculation of the
Redemption Rate, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate".

                  (d)      Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of Preferred
Shares on the same day and the Company can convert and redeem some, but not all,
of the Preferred Shares pursuant to this Section 4, the Company shall convert
and redeem from each holder of Preferred Shares electing to have Preferred
Shares converted and redeemed at such time an amount equal to such holder's
pro-rata amount (based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares outstanding) of all Preferred Shares
being converted and redeemed at such time.

         5.       Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.

         6.       Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding; provided that the number of shares of Common
Stock so reserved shall at no time be less than 150% of the number of shares of
Common Stock for which the Preferred Shares are at

                                      -19-



any time convertible; provided further that such shares of Common Stock so
reserved shall be allocated for issuance upon conversion of Preferred Shares pro
rata among the holders of Preferred Shares based on the number of Preferred
Shares held by such holder relative to the total number of authorized Preferred
Shares.

         7.       Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided in
this Certificate of Designations.

         8.       Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) an amount equal to the product of (.05) (N/365) ($10,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds
are insufficient to pay the full amount due to the holders of Preferred Shares
and holders of shares of other classes or series of preferred stock of the
Company that are of equal rank with the Preferred Shares as to payments of
Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Preferred Funds
payable to all holders of Preferred Shares and Pari Passu Shares. The purchase
or redemption by the Company of stock of any class, 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 Person, 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.
No holder of Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein.

         9.       Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the Company.
The rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior rank to the Preferred Shares in respect
of the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Delaware Secretary
of State containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock

                                      -20-



or the holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.

         10.      Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.

         11.      Limitation on Number of Conversion Shares. The Company shall
not be obligated to issue upon conversion of the Preferred Shares, in the
aggregate, more than a number of shares of Common Stock equal to 19.99% of the
number of shares of Common Stock outstanding on the Initial Issuance Date (such
amount to be proportionately and equitably adjusted from time to time in the
event of stock splits, stock dividends, combinations, reverse stock splits,
reclassification, capital reorganizations and similar events relating to the
Common Stock) (the "EXCHANGE CAP"), if issuance of a larger number of shares of
Common Stock would constitute a breach of the Company's obligations under the
rules or regulations of The Nasdaq Stock Market, Inc. or any other principal
securities exchange or market upon which the Common Stock is or becomes traded.
The Exchange Cap shall be allocated among the Preferred Shares pro rata based on
the total number of authorized Preferred Shares.

         12.      Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (1) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (2) any issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.

         13.      Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.

                                      -21-



         IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by ___________________, its Chief Executive Officer,
as of the _____ day of November, 1997.

                                             CELL GENESYS, INC.

                                             By:  ______________________________
                                             Name:______________________________
                                             Its: ______________________________



                                  EXHIBIT I

                              CELL GENESYS, INC.
                              CONVERSION NOTICE

Reference is made to the Certificate of Designations, Preferences and Rights of
Series ___ Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series B Convertible Preferred
Stock, par value $0.001 per share (the "PREFERRED SHARES"), of Cell Genesys,
Inc., a Delaware corporation (the "COMPANY"), indicated below into shares of
Common Stock, par value $0.001 per share (the "COMMON STOCK"), of the Company,
by tendering the stock certificate(s) representing the share(s) of Preferred
Shares specified below as of the date specified below.

         Date of Conversion: ___________________________________________________

         Number of Preferred Shares to be converted: ___________________________

         Stock certificate no(s). of Preferred Shares to be converted:__________

Please confirm the following information:

         Conversion Price:______________________________________________________

         Number of shares of Common Stock
         to be issued:__________________________________________________________

Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:

         Issue to:            __________________________________________________
                              __________________________________________________
                              __________________________________________________
                              __________________________________________________

         Facsimile Number:    __________________________________________________

         Authorization:       __________________________________________________
                              By:_______________________________________________
                              Title:____________________________________________

         Dated:               __________________________________________________

         Account Number:
           (if electronic book entry transfer): ________________________________

         Transaction Code Number
           (if electronic book entry transfer): ________________________________