<PAGE>

                                                                     Exhibit 3.1

                 AMENDED AND RESTATED ARTICLES OF INCORPORATION
                                       OF
                          HUDSON RESPIRATORY CARE INC.

Richard W. Johansen and Jay R. Ogram certify that:

1.   They are the President and Secretary, respectively, of Hudson Respiratory
Care Inc., a California corporation (the "CORPORATION").

2.   The Amended and Restated Articles of Incorporation of the Corporation are
amended and restated to read as follows:

                                        I
                               NAME OF CORPORATION

The name of the Corporation shall be:

                          Hudson Respiratory Care Inc.

                                       II
                                     PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.

                                       III
                            AUTHORIZED CAPITAL STOCK

The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK;" the total number
of such shares shall be seventeen million (17,000,000); the total number of
Common Stock shall be fifteen million (15,000,000), each having a par value of
one-cent ($.01); and the total number of Preferred Stock shall be two million
(2,000,000), each having a par value of one-cent ($.01).

Upon amendment and restatement of the Amended and Restated Articles of
Incorporation as herein set forth, each outstanding share of Common Stock is
split up and converted into two hundred and forty-five (245) shares of Common
Stock.

The Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby vested with authority to fix by resolution or
resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, of any series of
Preferred

Stock, and to fix the number of shares constituting any such series, and to
increase or decrease the number of shares of any such series (but not below the
number of shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased, the shares constituting such decrease shall
resume the status which they had before the adoption of the resolution or
resolutions originally fixing the number of such shares.

                                       IV
                        LIMITATION ON DIRECTOR LIABILITY

The liability of the directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.

                                        V
                            INDEMNIFICATION OF AGENTS

The Corporation is authorized to provide indemnification of its agents (as such
term is defined in Section 317 of the California General Corporation Law) to the
fullest extent permissible under California law.

3.   The foregoing amendment and restatement of the Amended and Restated
Articles of Incorporation has been duly approved by the Board of Directors of
the Corporation.

4.   The foregoing amendment and restatement of the Amended and Restated
Articles of Incorporation has been duly approved by the required vote of
shareholders in accordance with Section 902 of the Corporations Code. The total
number of outstanding shares of the Corporation

<PAGE>

is fifty-nine thousand and fifty-six (59,056). The number of shares voting in
favor of the amendment and restatement was fifty-nine thousand and fifty-six
(59,056) and this number equaled or exceeded the vote required. The percentage
vote required was more than 50%.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

Date:  March 23, 1998


/s/ Richard W. Johansen
----------------------------------
Richard W. Johansen
President


/s/ Jay R. Ogram
----------------------------------
Jay R. Ogram
Secretary


                                                             [SEAL APPEARS HERE]

<PAGE>

                            CERTIFICATE OF AMENDMENT
                                       OF
                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                          HUDSON RESPIRATORY CARE INC.

     Charles A. French and Patrick Yount certify that:

     1.   They are the duly elected and acting president and secretary,
respectively, of Hudson Respiratory Care Inc., a California corporation.

     2.   The Amended and Restated Articles of Incorporation of the Corporation
shall be amended by amending the first paragraph of Article III to read as
follows:

     "The Corporation is authorized to issue two classes of shares of stock to
be designated respectively, "Common Stock" and "Preferred Stock;" the total
number of such shares shall be forty million (40,000,000); the total number of
Common Stock shall be thirty-seven million (37,000,000) and the total number of
Preferred Stock shall be three million (3,000,000)."

     3.   The foregoing amendment to the Amended and Restated Articles of
Incorporation has been duly approved by the board of directors of the
Corporation.

     4.   The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 903 of the California Corporations Code. The total
number of outstanding shares of the corporation is 10,654,293 shares of Common
Stock, and 529,028 shares of Preferred Stock consisting of 526,028 shares of
Senior PIK Preferred Stock and 3,000 shares of Junior Preferred Stock. The
number of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50% of the outstanding
shares of Common Stock and more than 50% of the outstanding shares of Preferred
Stock, voting separately as a class.

     We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.


Date:  May 16, 2003                      /s/ Charles A. French
                                        ----------------------------------------
                                        Charles A. French, President


                                         /s/ Patrick Yount
                                        ----------------------------------------
                                        Patrick Yount, Secretary

<PAGE>

                          CERTIFICATE OF DETERMINATION

                                       OF

                          HUDSON RESPIRATORY CARE INC.

Richard W. Johansen and Jay R. Ogram hereby certify as follows:

1.   They are the President and Chief Financial Officer, respectively, of Hudson
Respiratory Care Inc., a California corporation (the "Company").

2.   The number of shares of 11 1/2% Senior Redeemable PIK Preferred Stock Due
2010, $.01 par value, of the Company is 600,000 shares, none of which has been
issued.

3.   The number of shares of 11 1/2% Series B Senior Redeemable PIK Preferred
Stock Due 2010, $.01 par value, of the Company is 600,000 shares, none of which
has been issued.

4.   The Board of Directors of the Company has duly adopted the following
resolution:

     "WHEREAS, the Articles of Incorporation of the Company authorize the Board
of Directors to determine the designations and powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, of any series of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series.

     NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish two series of Preferred Stock as follows:

     (a)    The designation of such series of Preferred Stock are (i) the 11
1/2% Senior Redeemable PIK Preferred Stock Due 2010, $.01 par value, of the
Company (the "Initial Company Preferred Stock"), and the number of shares of
such Initial Company Preferred Stock is 600,000, and (ii) the 11 1/2% Series B
Senior Redeemable PIK Preferred Stock Due 2010, $.01 par value, of the Company
(the "Series B Stock"), and the number of shares of such Series B Stock is
600,000. The Initial Company Preferred Stock and the Series B Stock are referred
to as the "Company Preferred Stock." The liquidation preference of the Company
Preferred Stock shall be $100 per share (the "Liquidation Preference").

The designations and powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, including without limitation, the dividend rate, conversion rights,
redemption price and liquidation preference, granted to and imposed upon the
Company Preferred Stock and the holders thereof (the "Holders") shall be as set
forth below.

     (b)    Ranking. The Initial Company Preferred Stock and the Series B
-------- Stock will each rank on a parity with the other in all respects. The
Company Preferred Stock will, with respect to dividend rights and rights on
liquidation, winding up and dissolution, rank (i) senior to all classes of
common stock of the Company and to each other class of Capital Stock and to each
other series of Preferred Stock established hereafter by the Board of Directors
the terms of which do not expressly provide that it ranks senior to, or on a
parity with, the Company Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with common stock of the Company, as "Junior Stock") and (ii) on a
parity with each other class of Capital Stock or series of Preferred Stock
established hereafter by the Board of Directors, the terms of which expressly
provide that such series will rank on a parity with the Company Preferred Stock
as to dividend rights and rights on liquidation, winding-up and
dissolution(collectively referred to as "Parity Stock").

The Company Preferred Stock and the Company's 11 1/2% Senior PIK Preferred Stock
due 2010, $.01 par value (the "Senior PIK Preferred Stock"), will each rank on a
parity with the other in all respects.

     (c)    Dividends. (i) Holders of the outstanding shares of Company
__________ Preferred Stock will be entitled to receive, when, as and if declared
by the Board of Directors of the Company, out of funds legally available
therefor, cumulative preferential dividends on each share of the Company
Preferred Stock at a rate per annum equal to 11 1/2% of the Liquidation
Preference of such share, payable semi-annually in arrears (each such
semi-annual period being herein called a "Dividend Period") in the manner set
forth below. In addition to the dividends described in

<PAGE>

the preceding sentence, holders of outstanding shares of Company Preferred Stock
will be entitled to additional dividends (the "Additional Dividends"), when, as
and if declared by the Board of Directors of the Company, out of funds legally
available therefor, with respect to the shares of Company Preferred Stock, which
Additional Dividends shall accrue as follows if any of the following events
occur (each such event in clauses (A), (B), (C),and (D) below being herein
called a "Registration Default"): (A) if on or prior to June 6, 1998, neither
the Exchange Offer Registration Statement nor the Shelf Registration Statement
has been filed with the Securities and Exchange Commission (the "SEC"); (B) if
on or prior to September 5, 1998, neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been declared effective by
the SEC; (C) if on or prior to October 5, 1998, neither the Registered Exchange
Offer has been consummated nor the Shelf Registration Statement has been
declared effective; or (D) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement has been declared effective, such
Registration Statement thereafter ceases to be effective or usable (in each case
except as permitted below) in connection with resales of the Company Preferred
Stock in accordance with and during the periods specified herein.

Additional Dividends shall accrue on the shares of Company Preferred Stock from
and including the date on which any such Registration Default shall occur, to
but excluding the date on which all such Registration Defaults have been cured.
Such Additional Dividends will accrue at a rate of 0.25% per annum during the
90-day period immediately following the occurrence of such Registration Default
and shall increase by 0.25% per annum at the end of each subsequent 90-day
period, but in no event shall the amount of such Additional Dividends exceed
1.00% per annum.

A Registration Default referred to in clause (C) of this paragraph (c)(i) shall
be deemed not to have occurred and be continuing in relation to a Registration
Statement or the related prospectus if (i) such Registration Default has
occurred solely as a result of (x) the filing of a post-effective amendment to
the Registration Statement to incorporate annual audited financial information
with respect to the Company where such post-effective amendment is not yet
effective and needs to be declared effective to permit Holders to use the
related prospectus or (y) other material events with respect to the Company that
would need to be described in the Registration Statement or the related
prospectus and (ii) in the case of clause (y), the Company proceeds promptly and
in good faith to amend or supplement the Registration Statement and related
prospectus to describe such events unless the Company has determined in good
faith that there are material legal or commercial impediments in doing so;
provided, however, that in any case if such Registration Default occurs for a
________ _______ continuous period in excess of 45 days, Additional Dividends
shall be payable in accordance with the immediately preceding paragraphs of this
paragraph (c)(i) from the day such Registration Default initially occurs to but
excluding the date on which such Registration Default is cured and provided,
further, that not________ _______ more than one Registration Default shall be
deemed to have occurred pursuant to clause (y) of this paragraph during any
365-day period.

Additional Dividends will not accrue with respect to a Registration Default
referred to in clause (D) of this paragraph (c)(i) occurring solely as a result
of the determination by the SEC that an Exchange Offer Registration Statement
filed prior to the issuance of the Initial Company Preferred Stock may not
register Company Preferred Stock if (x) the Company, within 30 days of the
issuance of the Initial Company Preferred Stock, files an additional Exchange
Offer Registration Statement (the "Supplemental Exchange Offer Registration
Statement") with the SEC, (y) on or prior to the 90th day following the issuance
of the Initial Company Preferred Stock the Supplemental Exchange Offer
Registration Statement or an additional Shelf Registration Statement (the
"Supplemental Shelf Registration Statement") has been declared effective by the
SEC and (z) on or prior to the 120th day following the issuance of the Initial
Company Preferred Stock the Registered Exchange Offer has been consummated or
the Supplemental Shelf Registration Statement has been declared effective.

Any amounts of Additional Dividends due pursuant to clauses (A), (B), (C) or (D)
of this paragraph (c)(i) or pursuant to the proviso contained in the preceding
sentence will be payable on the regular dividend payment dates with respect to
the Company Preferred Stock and on the same terms and conditions and subject to
the same limitations as pertain at such time for the payment of regular
dividends. The amount of Additional Dividends will be determined by multiplying
the applicable Additional Dividends rate by the aggregate Liquidation Preference
of the outstanding shares of Company Preferred Stock, multiplied by a fraction,
the numerator of which is the number of days such Additional Dividend rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.

All dividends on the Company Preferred Stock, including Additional Dividends, to
the extent accrued, shall be cumulative, whether or not the Company has earnings
or profits, whether or not there are funds legally available for the payments of
such dividends and whether or not dividends are declared, on a daily basis from
the Issue Date or, in the case of additional shares of Company Preferred Stock
issued in payment of a dividend, from the date of issuance of such additional
shares of Company Preferred Stock, and shall be payable semi-annually in arrears
on each April 15 and October 15 (each, a "Dividend Payment Date"), commencing on
October 15, 1998,

<PAGE>

to holders of record on the April 1 and October 1 immediately preceding the
relevant Dividend Payment Date. Any dividend on the Company Preferred Stock
payable pursuant to this paragraph (c)(i) on or prior to April 15, 2003 shall
be, at the option of the Company, payable (1) in cash or (2) through the
issuance of a number of additional shares (including fractional shares) of
Company Preferred Stock (the "Additional Shares") equal to the dividend amount
divided by the Liquidation Preference of such Additional Shares. With respect to
dividends payable after April 15, 2003, all dividends shall be payable solely in
cash.

     (ii)   All dividends paid with respect to shares of the Company Preferred
Stock pursuant to this paragraph (c) shall be paid pro rata to the Holders
entitled thereto.

     (iii)  No dividend whatsoever may be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of the Company
Preferred Stock with respect to any Dividend Period unless all dividends for all
preceding Dividend Periods have been declared and paid or declared and, if
payable in cash, a sufficient sum in cash set apart for the payment of such
dividend, upon all outstanding shares of Company Preferred Stock.

     (iv)   No full dividends may be declared or paid or funds set apart for the
payment of dividends by the Company on any Parity Stock for any period unless
full cumulative dividends in respect of each Dividend Period ending on or before
such period shall have been or contemporaneously are declared and paid in full
or declared and, if payable in cash, a sufficient sum in cash set apart for such
payment on the Company Preferred Stock. If full dividends are not so paid, the
Company Preferred Stock will share dividends pro rata with the Parity Stock.

     (v)    The Company will not (A) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Stock
or (B) repurchase, redeem or otherwise retire any Junior Stock or Parity Stock,
nor may funds be set apart for payment with respect thereto, unless all accrued
and unpaid dividends with respect to the Company Preferred Stock at the time
such dividends are payable have been paid or funds have been set apart for
payment of such dividends, if payable in cash. As used herein, the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock.

     (vi)   Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption or any mandatory repurchase
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors of the Company.

     (vii)  Dividends payable on the Company Preferred Stock for any period
other than a Dividend Period shall be computed on the basis of a 360-day year
comprised of twelve 30-day months and the actual number of days elapsed in the
period for which payable and will be deemed to accrue on a daily basis.
Dividends payable on the Company Preferred Stock for a full Dividend Period will
be computed by dividing the per annum dividend rate by two.

     (d)    Liquidation Preference. (i) Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, each Holder of the
Company Preferred Stock will be entitled to be paid, out of the assets of the
Company available for distribution to its stockholders, an amount equal to the
Liquidation Preference per share of Company Preferred Stock held by such Holder,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (whether or not declared and including Additional Dividends, if any)
thereon to the date fixed for liquidation, dissolution or winding-up (including,
without duplication, an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding up that would have been payable had the Company Preferred Stock been the
subject of an Optional Redemption on such date) before any distribution is made
on any Junior Stock, including, without limitation, common stock of the Company.
If, upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the holders of the Company
Preferred Stock and all Parity Stock are not paid in full, the holders of the
Company Preferred Stock and the Parity Stock will share equally and ratably (in
proportion to the full liquidation preference and accumulated and unpaid
dividends that would be payable on such shares of the Company Preferred Stock
and the Parity Stock, respectively, if all amounts payable thereon had been paid
in full) in any distribution of assets of the Company to which each is entitled.
After payment of the full amount of the Liquidation Preference of the
outstanding shares of Company Preferred Stock (plus all accumulated and unpaid
dividends), the holders of shares of Company Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company.

     (ii)   For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.

<PAGE>

     (e)    Redemption. (i) Optional Redemption. (A) Except as set forth in
clause (B) below, the Company Preferred Stock shall not be redeemable at the
option of the Company prior to April 15, 2003. On or after April 15, 2003, each
share of the Company Preferred Stock may be redeemed at any time or from time to
time, in whole or in part, at the option of the Company, at the redemption
prices (expressed as a percentage of the Liquidation Preference of such share)
set forth below, plus, without duplication, an amount in cash equal to all
accrued and unpaid dividends to the date fixed for redemption (an "Optional
Redemption Date") (including, without duplication, an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Optional Redemption Date) (the "Optional Redemption Price"), if
redeemed during the 12-month period beginning April 15 of each of the years set
forth below:

YEAR IN WHICH REDEMPTION OCCURS              PERCENTAGE
-------------------------------              ----------

2003.........................................   105.750%
2004.........................................   104.600
2005.........................................   103.450
2006.........................................   102.300
2007.........................................   101.150
2008 and thereafter..........................   100.000

     (B)    At any time prior to April 15, 2001, the Company may redeem at its
option (i) up to 50% or (ii) all but not less than all of the outstanding shares
of Company Preferred Stock with the net proceeds of any Public Equity Offering
by the Company at a redemption price (expressed as a percentage of the
Liquidation Preference per share thereof) of 111.5% plus accumulated and unpaid
dividends (including, without duplication, an amount in cash equal to a prorated
dividend for any partial dividend period). Any such redemption shall be made
upon consummation of such Public Equity Offering upon not less than 30 nor more
than 60 days' notice.

     (C)    In the event of a redemption of only a portion of the then
outstanding shares of Company Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem all of the
shares held by Holders of fewer than 100 shares (or all of the shares held by
Holders who would hold less than 100 shares as a result of such redemption), as
may be determined by the Company.

     (ii)   Mandatory Redemption. Each share of the Company Preferred Stock (if
not earlier redeemed) shall be subject to mandatory redemption in whole (to the
extent of lawfully available funds therefor) on April 15, 2010 (the "Mandatory
Redemption Date") at a price equal to 100% of the Liquidation Preference of such
share, plus an amount equal to all accrued and unpaid dividends thereon
(including, without duplication, an amount equal to a prorated dividend thereon
from the immediately preceding Dividend Payment Date to the Mandatory Redemption
Date), if any, to the Mandatory Redemption Date (the "Mandatory Redemption
Price").

     (iii)  Procedure for Redemption. (A) On and after an Optional Redemption
Date or the Mandatory Redemption Date, as the case may be (the "Redemption
Date"), unless the Company defaults in the payment of the applicable redemption
price, dividends will cease to accumulate on shares of Company Preferred Stock
called for redemption and all rights of Holders of such shares will terminate
except for the right to receive the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be, without interest; provided, however, that
if a notice of redemption shall have been given as provided in subparagraph
(iii)(B) and the funds necessary for redemption (including an amount in respect
of all dividends that will accrue to the Redemption Date) shall have been
segregated and irrevocably set apart by the Company, in trust for the benefit of
the Holders of the shares called for redemption, then dividends shall cease to
accumulate on the Redemption Date on the shares to be redeemed and, at the close
of business on the day on which such funds are segregated and set apart, the
Holders of the shares to be redeemed shall, with respect to the shares to be
redeemed, cease to be shareholders of the Company and shall be entitled only to
receive the Optional Redemption Price or the Mandatory Redemption Price, as the
case may be, for such shares without interest from the Redemption Date.

     (B)    With respect to a redemption pursuant to paragraph (e)(i) or
(e)(ii), the Company will send a written notice of redemption by first class
mail to each holder of record of shares of Company Preferred Stock at its
registered address, not fewer than 30 days nor more than 60 days prior to the
Redemption Date (the "Redemption Notice") and notice, if mailed in the manner
herein provided, shall conclusively be presumed to have been given, whether or
not the Holder receives such notice; provided, however, that no failure to give
such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Company

<PAGE>

Preferred Stock to be redeemed except as to the Holder or Holders to whom the
Company has failed to give said notice or except as to the Holder or Holders
whose notice was defective. The Redemption Notice shall state:

     (1)    whether the redemption is pursuant to paragraph (e)(i) or (e)(ii)
hereof;

     (2)    the Optional Redemption Price or the Mandatory Redemption Price,
as the case may be;

     (3)    whether all or less than all the outstanding shares of Company
Preferred Stock are to be redeemed and the total number of shares of Company
Preferred Stock being redeemed;

     (4)    the Redemption Date;

     (5)    that the Holder is to surrender to the Company, in the manner, at
the place or places and at the price designated, his certificate or certificates
representing the shares of Company Preferred Stock to be redeemed; and

     (6)    that dividends on the shares of the Company Preferred Stock to be
redeemed shall cease to accumulate on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be to the Holders of the Company Preferred
Stock who have duly surrendered their certificates for redemption in accordance
with clause (C) below on or before the Redemption Date.

     (C)    Each Holder of Company Preferred Stock shall surrender the
certificate or certificates representing such shares of Company Preferred Stock
to the Company, duly endorsed (or otherwise in proper form for transfer, as
determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption Price
or Mandatory Redemption Price, as the case may be, for such shares shall be
payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.

     (f)    Voting Rights. (i) The Holders of Company Preferred Stock, _________
except as otherwise required under California law or as set forth in paragraphs
(ii) and (iii) below, shall not be entitled to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.

     (ii)   (A)  If (1) dividends on the Company Preferred Stock are in arrears
and unpaid and, in the case of dividends payable after April 15, 2003, are not
paid in cash for six or more Dividend Periods (whether or not consecutive) (a
"Dividend Default"); (2) the Company fails for any reason to redeem the Company
Preferred Stock on April 15, 2010, or fails to otherwise discharge any
redemption obligation with respect to the Company Preferred Stock; (3) the
Company fails to make an offer to redeem all of the outstanding shares of the
Company Preferred Stock following a Change of Control (whether or not the
Company is permitted to do so by the terms of the Indenture, the New Credit
Facility or any other obligation of the Company); (4) a breach or violation of
any of the provisions set forth under paragraph (l) (Certain Additional
Provisions) occurs and, the breach or violation continues for a period of 30
days or more after the Company receives notice thereof specifying the default
from the Holders of at least 25% of the shares of the Company Preferred Stock
then outstanding; or (5) the Company fails to pay at final maturity (giving
effect to any applicable grace period) the principal amount of any Debt of the
Company or any Subsidiary of the Company or the stated maturity of any such Debt
of the Company or any Subsidiary of the Company is accelerated because of a
default and the total amount of such Debt unpaid or accelerated exceeds $7.5
million, then, subject to paragraph (f)(ii)(E), the Holders of the then
outstanding shares of Company Preferred Stock (together with the holders of any
other series of Preferred Stock upon which like rights have been conferred and
are exercisable), voting together as a class, shall have the right and power to
elect two directors to the Board of Directors of the Company and the common
stock of the Company ("Common Stock") shall have the right to elect the
remaining directors. Each such event described in clauses (1), (2), (3), (4) or
(5) above is a "Voting Rights Triggering Event".

     (B)    The voting rights set forth in paragraph (f)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all dividends
in arrears on the Company Preferred Stock are paid in full in cash and (y) in
all other cases, any failure, breach or default giving rise to such Voting
Rights Triggering Event is remedied or waived by the Holders of at least a
majority of the shares of Company Preferred Stock then outstanding, at which
time the exclusive right to elect directors shall revert to the Common Stock,
subject to renewal of the voting right of the Company Preferred Stock under
paragraph (f)(ii)(A) from time to time. At any time after the right to elect two
directors is vested in the Company Preferred Stock, and at any time after the
exclusive right to elect directors shall revert to the Common Stock, the holders
of 25% or

<PAGE>

more of the outstanding shares of Company Preferred Stock (or the holders of 25%
of the shares of any other series of Preferred Stock then outstanding upon which
like rights have been conferred and are exercisable) or 25% or more of the
outstanding Common Stock, as the case may be, have a right to call a special
meeting of shareholders for the purpose of electing all of the members of the
Board of Directors, such right to be exercisable by delivering a request in
writing for the calling of the special meeting to the president or secretary, or
to the chairman of the board or a vice-president if there be such; provided,
however, that no such special meeting shall be called if the next annual meeting
of shareholders of the Company is to be held within 60 days after the voting
power to elect directors shall have become vested, in which case such meeting
shall be deemed to have been called for such next annual meeting. The officer
receiving the request shall forthwith cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than 35 nor more than 60
days after the receipt of the request. If the notice is not given within 20 days
after receipt of the request, the shareholders calling the meeting shall have
the rights accorded to them pursuant to subdivision (c) of Section 601 of the
California Corporations Code. In lieu of electing directors at a meeting of the
shareholders in accordance with the foregoing, the holders of Common Stock and
Company Preferred Stock (together with the holders of any other series of
Preferred Stock upon which like rights have been conferred and are exercisable,
if any), voting as separate classes, may, pursuant to Section 603 of the
Corporations Code of the State of California elect such directors by unanimous
written consent. Upon the election of directors by the Company Preferred Stock
(together with the holders of any other series of Preferred Stock upon which
like rights have been conferred and are exercisable, if any) at a meeting of
shareholders (or by written consent), the terms of all persons who were
directors immediately prior thereto shall terminate and the directors elected by
the Company Preferred Stock (together with the holders of any other series of
Preferred Stock upon which like rights have been conferred and are exercisable,
if any) together with those elected at such meeting (or by written consent) by
the Common Stock shall constitute the directors of the Company until the next
annual meeting, unless the terms of such directors shall terminate earlier in
accordance with the immediately following sentence. Upon the election of
directors by the Common Stock at a meeting of shareholders (or by written
consent) after the exclusive right to elect directors has reverted to the Common
Stock, the terms of all persons who were directors immediately prior thereto
shall terminate and the directors elected by the Common Stock at such meeting
(or by written consent) shall constitute the directors of the Company until the
next annual meeting, unless earlier removed in accordance with this paragraph
(f)(ii)(B).

     (C)    At any meeting held for the purposes of electing directors at
which the Holders of Company Preferred Stock (together with the holders of any
other series of Preferred Stock upon which like rights have been conferred and
are exercisable) shall have the right, voting together as a single class, to
elect directors as aforesaid, the presence in person or by proxy of the holders
of at least a majority in voting power of the outstanding shares of Company
Preferred Stock (and such Preferred Stock) shall be required to constitute a
quorum thereof.

     (D)    Any vacancy occurring in the office of a director elected by the
Holders of Company Preferred Stock (and such Preferred Stock) may be filled by
the remaining director elected by the Holders of Company Preferred Stock (and
such Preferred Stock) unless and until such vacancy shall be filled by the
Holders of Company Preferred Stock (and such Preferred Stock) at a meeting of
shareholders held in accordance with paragraph (f)(ii)(B). In lieu of electing a
director at a meeting of the shareholders in accordance with the foregoing, a
majority of the outstanding shares of Company Preferred Stock (together with the
holders of any other series of Preferred Stock upon which like rights have been
conferred and are exercisable, if any), voting together as a single class, may,
pursuant to Sections 305(b) and 603 of the Corporations Code of the State of
California, elect such director by written consent.

     (E)    In the event that an event occurs at any time which results in the
holders of any Parity Stock having voting rights to elect directors to the Board
of Directors, Holders of Company Preferred Stock shall, whether or not such
event otherwise constitutes a Voting Rights Triggering Event pursuant to
paragraph (f)(ii)(A), have the voting rights set forth in paragraphs (f)(ii)(A)
and (f)(ii)(B), and such event shall be deemed (for purposes of this paragraph
(f) only) to constitute a Voting Rights Triggering Event. In addition, in the
event that during a time in which directors elected by the Holders of Company
Preferred Stock pursuant to this paragraph (f)(ii) are serving on the Board of
Directors ("Previously-Elected Directors") an event occurs which results in
holders of Preferred Stock having voting rights to elect (voting together with
the Holders of Company Preferred Stock) at least two directors to the Board of
Directors, the Holders of Company Preferred Stock shall vote together, as a
single class, with the holders of such Preferred Stock to elect such new
directors, and upon the election of the new directors the term of office of the
Previously-Elected Directors shall (unless such Previously-Elected Directors are
elected as new directors) automatically terminate.

     (iii)  (A)  So long as any shares of Company Preferred Stock are
outstanding, the Company will not authorize, create or increase the authorized
amount of any class or series of Capital Stock or Preferred Stock, the terms of
which expressly provide that such class or series will

<PAGE>

rank senior to the Company Preferred Stock as to dividend rights and rights upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Stock") or Parity Stock without the affirmative vote or consent of
Holders of at least two-thirds of the shares of Company Preferred Stock then
outstanding, voting or consenting, as the case may be, as one class, given in
person or by proxy, either in writing or by resolution adopted at an annual or
special meeting.

     (B)    So long as any shares of the Company Preferred Stock are
outstanding, the Company will not amend this Certificate of Determination so as
to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Company Preferred Stock or to authorize the
issuance of any additional shares of the Company Preferred Stock (except to
authorize the issuance of additional shares of Company Preferred Stock to be
paid as dividends on the Company Preferred Stock, for which no consent shall be
necessary) without the affirmative vote or consent of Holders of at least a
majority of the issued and then outstanding shares of Company Preferred Stock,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting; provided that this paragraph shall not prohibit the merger of the
________ Company and a Wholly Owned Subsidiary of Holding or the Company
incorporated in another state of the United States solely for the purpose of
reincorporating the Company to the extent that the surviving corporation issues
to Holding shares of a series of Preferred Stock having an aggregate liquidation
preference equal to the Liquidation Preference of the Company Preferred Stock
outstanding immediately prior to such merger and terms and provisions
substantially similar to those of the Company Preferred Stock.

     (C)    Except as required under California law or as set forth in paragraph
(f)(iii)(A) or (B) above, (x) the creation, authorization or issuance of any
shares of any Junior Stock, Parity Stock or Senior Stock, including the
designation of a series thereof within the existing class of Company Preferred
Stock, or (y) the increase or decrease in the amount of authorized Capital Stock
of any class, including any Company Preferred Stock, shall not require the
consent of Holders of Company Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of shares of the
Company Preferred Stock.

     (iv)   In any case in which the Holders of Company Preferred Stock shall be
entitled to vote pursuant to this paragraph (f) or pursuant to law, each Holder
of the Company Preferred Stock entitled to vote with respect to such matters
shall be entitled to one vote for each share of Company Preferred Stock held.

     (g)    Redemption. (A) The Company may, at its option, redeem the _________
Company Preferred Stock, in whole but not in part (including in conjunction
with, and after giving effect to, a redemption of up to 50% of the outstanding
shares of the Company Preferred Stock with the proceeds of a Public Equity
Offering by the Company pursuant to clause (B) of paragraph (e)(i) above), at
any time, for Company Exchange Debentures; provided, ________ however, that (i)
on the date of such redemption there are no accumulated and ____________ unpaid
dividends on the Company Preferred Stock (including the dividend payable on such
date) that are not paid contemporaneously with such redemption or other
contractual impediments to such redemption; (ii) such redemption is permitted
under applicable law; (iii) immediately after giving effect to such redemption,
no Default (as defined in the Company Exchange Indenture) or Voting Rights
Triggering Event, as applicable, shall have occurred and be continuing; and (iv)
the Company shall have delivered to the Trustee under the Company Exchange
Indenture an opinion of counsel with respect to the due authorization and
issuance of the Company Exchange Debentures.

     (B)    Upon any redemption of Company Preferred Stock for Company Exchange
Debentures pursuant to this paragraph (g), each Holder of Company Preferred
Stock will be entitled to receive, subject to the second succeeding sentence,
$1.00 principal amount of Company Exchange Debentures for each $1.00 Liquidation
Preference of Company Preferred Stock so redeemed, and an amount in cash equal
to a prorated dividend for any partial dividend period. The Company Exchange
Debentures will be issued in registered form without coupons. Company Exchange
Debentures issued upon redemption of the Company Preferred Stock will be issued
in principal amounts of $1,000 and integral multiples thereof to the extent
possible, and will also be issued in principal amounts less than $1,000 so that
each Holder of Company Preferred Stock will receive certificates representing
the entire amount of Company Exchange Debentures to which such Holder's shares
of Company Preferred Stock entitle such Holder; provided, ________ however, that
the Company may pay cash in lieu of issuing a Company Exchange _ _______ (ii)
Procedures. (A) The Company will send a written notice of ___________ redemption
(the "Redemption Notice") by first-class mail to each Holder of record of shares
of Company Preferred Stock not fewer than 30 days nor more than 60 days before
the date fixed for any redemption (the "Redemption Date") at its registered
address and notice, if mailed in the manner herein provided, shall conclusively
be presumed to have been given, whether or not the Holder receives such notice;
provided, however, that no failure to give such notice nor any ________ ________
deficiency therein shall affect the validity of the procedure for the redemption
of any shares of Company Preferred Stock to be redeemed except as to the Holder
or Holders to whom the Company has failed to give said notice or

<PAGE>

except as to the Holder or Holders whose notice was defective; provided further
that, in the event of any redemption which is intended to occur _______________
________________ in conjunction with a Public Equity Offering by the Company,
(i) the Company may provide for a Redemption Date which relates to the
consummation of such Public Equity Offering and (ii) the Company shall have the
right to revoke such written notice in the event that such related Public Equity
Offering is terminated by sending by first-class mail a subsequent written
notice to such Holders within two Business Days following such termination.

The Redemption Notice shall state:

     (1)    the Redemption Date;

     (2)    that the Holder is to surrender to the Company, in the manner and at
the place or places designated, his certificate or certificates representing the
shares of Company Preferred Stock to be redeemed;

     (3)    that dividends on the shares of Company Preferred Stock to be
redeemed shall cease to accrue on such Redemption Date whether or not
certificates representing shares of Company Preferred Stock are surrendered for
redemption on such Redemption Date unless the Company shall default in the
delivery of the Company Exchange Debentures to Holders of the Company Preferred
Stock who have duly surrendered their certificates for redemption in accordance
with clause (g)(ii)(C) on or before the Redemption Date; and

     (4)    that interest on the Company Exchange Debentures shall accrue from
the Redemption Date whether or not certificates for shares of Company Preferred
Stock are surrendered for redemption on such Redemption Date.

     (B)    On and after the Redemption Date, dividends will cease to accrue
on the outstanding shares of Company Preferred Stock, and all rights of the
Holders of Company Preferred Stock (except the right to receive the Company
Exchange Debentures, an amount in cash, to the extent applicable, equal to the
accumulated and unpaid dividends to the Redemption Date and, if the Company so
elects, cash in lieu of any Company Exchange Debenture that is in a principal
amount that is not an integral multiple of $1,000 or in lieu of any fractional
share of Company Preferred Stock) will terminate. Subject to clause (g)(ii)(D)
below, from and after the Redemption Date, the person entitled to receive the
Company Exchange Debentures issuable upon such redemption will be treated for
all purposes as the registered holder of such Company Exchange Debentures.

     (C)    On or before the Redemption Date, each Holder of the Company
Preferred Stock shall surrender the certificate or certificates representing
such shares of Company Preferred Stock, in the manner and at the place
designated in the Redemption Notice. Upon surrender in accordance with the
Redemption Notice of the certificates representing any shares of Company
Preferred Stock so redeemed, duly endorsed (or otherwise in proper form for
transfer, as determined by the Company), such shares shall be redeemed by the
Company for Company Exchange Debentures received by the Company in accordance
with clause g(i)(B). Subject to clause (g)(ii)(D) below, the Company shall pay
interest, as applicable, on the Company Exchange Debentures at the rate and on
the dates specified therein from the Redemption Date.

     (D)    Anything contained herein to the contrary notwithstanding, no
Holder of Company Preferred Stock will be entitled to receive any payment of
interest on Company Exchange Debentures or exercise any other right or privilege
in respect thereof, until such Holder has surrendered the certificate or
certificates evidencing such Holder's Company Preferred Stock in accordance with
clause (g)(ii)(C). The Company shall pay all interest which would have accrued
on a Holder's Company Exchange Debentures without additional interest, had such
Holder surrendered the certificate or certificates evidencing such Holder's
Company Preferred Stock on the Redemption Date at the time such certificate or
certificates are duly surrendered.

     (iii)  No Redemption in Certain Cases. Notwithstanding the foregoing
provisions of this paragraph (g), the Company shall not be entitled to redeem
the Company Preferred Stock for Company Exchange Debentures if such redemption,
or any term or provision of the Company Exchange Indenture or the Company
Exchange Debentures, or the performance of the Company's obligations under the
Company Exchange Indenture or the Company Exchange Debentures, shall violate or
conflict with any applicable law or agreement or instrument then binding on the
Company or if, at the time of such redemption, the Company is insolvent or would
be rendered insolvent by such redemption.

     (iv)   Redemption of Initial Company Preferred Stock for Series B Stock.
The Series B Stock will be issued by the Company only in connection with a
redemption offer, on a share for share basis, for the Initial Company Preferred
Stock as required pursuant to the Registration Agreement. Each share of Series B
Stock issued upon redemption of a share of Initial Company

<PAGE>

Preferred Stock will be deemed to have the same Liquidation Preference and
accrued and unpaid dividends as the share of Initial Company Preferred Stock so
redeemed.

     (h)    Redemption at the Option of Holders Upon a Change of Control.

     (i)    Upon the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), each Holder of Company Preferred
Stock shall have the right to require the Company to redeem all or any part of
such Holder's Company Preferred Stock pursuant to the offer described in
paragraph (h)(ii) below (the "Change of Control Offer") at a cash redemption
price (the "Change of Control Redemption Price") equal to 101% of the
Liquidation Preference thereof, plus payment in cash of accrued and unpaid
dividends thereon, if any, to the redemption date (including an amount in cash
equal to a prorated dividend for any partial dividend period).

     (ii)   Within 30 days following the date on which the Company knows or
reasonably should have known a Change of Control has occurred, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the transfer agent, to each
Holder of Company Preferred Stock, at such Holder's address appearing in the
security register, a notice stating: (A) that a Change of Control has occurred
and a Change of Control Offer is being made pursuant to this paragraph (h) and
that all Company Preferred Stock timely tendered will be accepted for payment;
(B) the Change of Control Redemption Price and the redemption date (the "Change
of Control Redemption Date"), which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed; (C) the circumstances and
relevant facts regarding the Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to the Change of Control); (D) that any shares of Company
Preferred Stock not tendered will continue to accrue dividends; (E) that, unless
the Company defaults in making payment therefor, any share of Company Preferred
Stock accepted for payment pursuant to the Change of Control Offer shall cease
to accrue dividends after the Change of Control Redemption Date; (F) that
Holders electing to have any shares of Company Preferred Stock redeemed pursuant
to a Change of Control Offer will be required to surrender stock certificates
representing such shares of Company Preferred Stock, properly endorsed for
transfer, together with such other customary documents as the Company and the
Transfer Agent may reasonably request to the Transfer Agent and registrar for
the Company Preferred Stock at the address specified in the notice prior to the
close of business on the Business Day prior to the Change of Control Redemption
Date; (G) that Holders will be entitled to withdraw their election if the
Company receives, not later than five Business Days prior to the Change of
Control Redemption Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the number of shares of Company Preferred
Stock the Holder delivered for redemption and a statement that such Holder is
withdrawing his election to have such shares of Company Preferred Stock
redemption; and (H) that Holders whose shares of Company Preferred Stock are
redeemed only in part will be issued a new certificate representing the
unredeemed shares of Company Preferred Stock.

     (iii)  The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the redemption of Company Preferred Stock
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Certificate of
Determination, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Certificate of Determination by virtue of such compliance.

     (iv)   On the Change of Control Redemption Date the Company shall (A)
accept for payment the shares of Company Preferred Stock validly duly tendered
pursuant to the Change of Control Offer, (B) pay to the Holders of shares so
accepted the redemption price therefor in cash and (C) cancel each surrendered
certificate and retire the shares represented thereby. Unless the Company
defaults in the payment for the shares of Company Preferred Stock duly tendered
pursuant to the Change of Control Offer, dividends will cease to accrue with
respect to the shares of Company Preferred Stock tendered and all rights of
Holders of such tendered shares will terminate, except for the right to receive
payment therefor, on the Change of Control Redemption Date.

     (v)    To accept the Change of Control Offer, the Holder of a share of
Company Preferred Stock shall deliver, on or before the 10th day prior to the
Change of Control Redemption Date, written notice to the Company (or an agent
designated by the Company for such purpose) of such Holder's acceptance,
together with certificates evidencing the shares of Company Preferred Stock with
respect to which the Change of Control Offer is being accepted, duly endorsed
for transfer.

     (i)    Conversion or Exchange. The Holders of shares of Company Preferred
Stock shall not have any rights hereunder to convert such shares into or
exchange such shares for shares of

<PAGE>

any other class or classes or of any other series of any class or classes of
Capital Stock of the Company.

     (j)    Reissuance of the Company Preferred Stock. Shares of Company
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed, shall not be reissued as shares of Company
Preferred Stock and shall (upon compliance with any applicable provisions of the
laws of California) have the status of authorized and unissued shares of
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of Preferred Stock; provided, however, that so long as any
shares of Company Preferred Stock are outstanding, any issuance of such shares
must be in compliance with the terms hereof.

     (k)    Business Day. If any payment or redemption shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day.

     (l)    Certain Additional Provisions. The sole remedy to Holders of Company
Preferred Stock in the event that any of the following conditions shall occur,
and the sole consequence of any such occurrence, shall be the voting rights
described in paragraph (f)(ii).

     (i)    SEC Reports. Notwithstanding that the Company may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the SEC and provide the Holders and, upon request,
security analysts of prospective holders of the Company Preferred Stock with
such annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections; provided, however,
that the Company shall not be so obligated to file such information, documents
and reports with the SEC if the SEC does not permit such filings. The Company
shall file with the SEC and provide Holders and, upon request, security analysts
of prospective holders of the Company Preferred Stock with the information,
documents and reports described herein whether or not the Exchange Offer
Registration Statement has been filed or declared effective.

     (ii)   Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after
giving pro forma effect to the application of the proceeds thereof, no Voting
Rights Triggering Event would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either (a) after giving effect to the
Incurrence of such Debt and the application of the proceeds thereof, the
Consolidated Interest Coverage Ratio would be greater than 1.75 to 1.00 if such
Debt is Incurred from the Issue Date through April 15, 2000, and 2.00 to 1.00 if
such Debt is Incurred thereafter or (b) such Debt is Permitted Debt.

     (iii)  Limitation on Restricted Payments. The Company shall not make, and
shall not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,

     (a)    a Voting Rights Triggering Event shall have occurred and be
continuing,

     (b)    the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of paragraph (l)(ii) above or

(c)  the aggregate amount of such Restricted Payment and all other Restricted
Payments declared or made since the Issue Date (the amount of any Restricted
Payment, if made other than in cash, to be based upon Fair Market Value) would
exceed an amount equal to the sum of:

     (i)    50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of the
fiscal quarter during which the Issue Date occurs to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such Restricted
Payment (or if the aggregate amount of Consolidated Net Income for such period
shall be a deficit, minus 100% of such deficit),

     (ii)   Capital Stock Sale Proceeds,

     (iii)  the amount by which Debt of the Company Incurred after the Issue
Date is reduced on the Company's balance sheet upon the conversion or exchange
(other than by the Company or a Subsidiary of the Company) subsequent to the
Issue Date of any Debt for Parity Stock or Junior Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon such conversion or exchange),
and

<PAGE>

     (iv)   an amount equal to the sum of (A) the net reduction in Investments
in any Person other than the Company or a Restricted Subsidiary resulting from
dividends, repayments of loans or advances or other transfers of Property, in
each case to the Company or any Restricted Subsidiary from such Person, to the
extent such dividends, repayments or transfers do not increase the amount of
Permitted Investments permitted to be made pursuant to clause (i) of the
definition thereof and (B) the portion (proportionate to the Company's equity
interest in such Unrestricted Subsidiary) of the Fair Market Value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing sum
shall not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person, and

     (v)    $7.5 million.

Notwithstanding the foregoing limitation, the Company may:

     (a)    pay dividends on its Capital Stock within 60 days of the declaration
thereof if, on said declaration date, such dividends could have been paid in
compliance with this covenant; provided, however, that at the time of such
payment of such dividend, no other Voting Rights Triggering Event shall have
occurred and be continuing (or result therefrom); provided further, however,
that such dividend shall be included in the calculation of the amount of
Restricted Payments;

     (b)    purchase, repurchase, redeem, legally defease, acquire or retire for
value Capital Stock of the Company in exchange for, or in an amount not in
excess of the proceeds of the substantially concurrent sale of, Parity Stock or
Junior Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or trust established by the Company or any of its Subsidiaries
for the benefit of their employees); provided, however, that (i) such purchase,
repurchase, redemption, legal defeasance, acquisition or retirement shall be
excluded in the calculation of the amount of Restricted Payments and (ii) the
Capital Stock Sale Proceeds from such exchange or sale shall be excluded from
the calculation pursuant to clause (c)(ii) above;

     (c)    purchase, repurchase, redeem, legally defease, acquire or retire for
value shares of, or options to purchase shares of, common stock of the Company
or Holding from employees or former employees of the Company, Holding or any of
their Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or termination pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors under which such individuals purchase or sell, or are
granted the option to purchase or sell, shares of such common stock (or pay
dividends or make loans to Holding for such purpose); provided, however, that
(i) the aggregate amount of such purchases, repurchases, redemptions,
defeasances, acquisitions or retirements shall not exceed $1.0 million in any
year or $5.0 million during the term of the Company Preferred Stock, except that
(x) such amounts shall be increased by the aggregate net amount of cash received
by the Company after the Issue Date from the sale of such shares to, or the
exercise of options to purchase such shares by, employees of Holding, the
Company or any of their Subsidiaries and (y) the Company may forgive or return
Employee Notes without regard to the limitation set forth in clause (c)(i) above
and such forgiveness or return shall not be treated as a Restricted Payment for
purpose of determining compliance with such clause (c)(i) and (ii) such
purchases, repurchases, defeasances, acquisitions or retirements (but not
forgiveness or return of Employee Notes) shall be included in the calculation of
the amount of Restricted Payments; and

     (d)    make payments to Helen Hudson Lovaas pursuant to the Merger
Agreement in an aggregate amount not to exceed $1.1 million in any fiscal year
or $3.3 million during the term of the Company Preferred Stock (plus, in each
case, interest due on the unpaid portion of such required payments in accordance
with the Merger Agreement); provided, however, that such payments shall be
excluded in the calculation of the amount of Restricted Payments.

     (iv)   Limitation on Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary or (b) permit
any Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock, other than (i) directors' qualifying
shares, (ii) to the Company or a Wholly Owned Subsidiary or (iii) the
disposition of 100% of the Capital Stock of a Restricted Subsidiary; provided
that (x) the Company receives consideration at the time of such disposition at
least equal to the Fair Market Value of such Restricted Subsidiary, (y) at least
75% of the consideration paid to the Company in connection with such disposition
is in the form of cash or cash equivalents or the assumption by the purchaser of
liabilities of the Company or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Company Preferred Stock) as a result
of which the Company and the Restricted Subsidiaries are no longer obligated
with respect to such liabilities, and (z) the Net Available Cash received by the
Company from such disposition is applied within

<PAGE>

twelve months from the date of the receipt of such Net Available Cash to prepay,
repay, legally defease or purchase Debt of the Company or any Restricted
Subsidiary (excluding, in any such case, Disqualified Stock and Debt owed to the
Company or an Affiliate of the Company) or to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by the Company or a
Restricted Subsidiary with Net Available Cash received by the Company).

     (v)    Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any other Restricted Subsidiary (except, with respect to
restrictions on dividends of non-cash Property, as permitted pursuant to clause
(ii) of the next sentence), (b) make any loans or advances to the Company or any
other Restricted Subsidiary or (c) transfer any of its Property to the Company
or any other Restricted Subsidiary. The foregoing limitations will not apply (i)
with respect to clauses (a), (b) and (c), to restrictions (A) in effect on the
Issue Date, (B) pursuant to the Credit Facility, (C) relating to Debt of a
Restricted Subsidiary and existing at the time it became a Restricted Subsidiary
if such restriction was not created in connection with or in anticipation of the
transaction or series of transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company or (D)
which result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B) below,
provided such restriction is no less favorable to the holders of the Company
Preferred Stock than those under the agreement evidencing the Debt so
Refinanced, and (ii) with respect to clause (c) only, to restrictions (A)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so acquired and was not created in connection with or in anticipation
of such acquisition, (B) resulting from customary provisions restricting
subletting or assignment of leases or customary provisions in other agreements
that restrict assignment of such agreements or rights thereunder or (C)
customary restrictions contained in asset sale agreements limiting the transfer
of such Property pending the closing of such sale.

     (vi)   Limitation on Transactions with Affiliates. The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any transaction or series
of transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors, if any) approves such
Affiliate Transaction and, in its good faith judgment, believes that such
Affiliate Transaction complies with clauses (a) (ii) and (iii) of this paragraph
as evidenced by a Board Resolution promptly delivered to the Transfer Agent and
(c) if such Affiliate Transaction involves aggregate payments or value in excess
of $5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary, as the case may be.

Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:

     (i)    any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than 5%
of the total voting power of the Voting Stock (on a fully diluted basis) of any
such Restricted Subsidiary is owned by an Affiliate of the Company (other than a
Restricted Subsidiary);

     (ii)   any Restricted Payment permitted to be made pursuant to paragraph
(l)(iii) above;.

     (iii)  the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors and
employees of the Company or any of the Restricted Subsidiaries, so long as the
Board of Directors in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for such
compensation to be fair consideration therefor;

     (iv)   loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and advances
do not exceed $1.0 million in the aggregate at any one time outstanding;

<PAGE>

     (v)    the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue Date;

     (vi)   the sale of common stock of the Company for cash; provided, that the
Company may receive Employee Notes in an aggregate principal amount not in
excess of $1.0 million at any one time outstanding;

     (vii)  the  payment  of  dividends  in kind in respect of (i) the Mirror
Preferred Stock or (ii) any other Preferred Stock issued in compliance with this
covenant; and

     (viii) a proportionate split of, or a common stock dividend payable on, the
common stock of the Company.

     (vii)  Designation of Restricted and Unrestricted Subsidiaries. The Board
of Directors may designate any Subsidiary of the Company (other than any
Subsidiary of the Company designated as a Restricted Subsidiary under the
Indenture governing the Notes) to be an Unrestricted Subsidiary if (a) the
Subsidiary to be so designated does not own any Capital Stock or Debt of, or own
or hold any Lien on any Property of, the Company or any other Restricted
Subsidiary, (b) the Subsidiary to be so designated is not obligated under any
Debt, Lien or other obligation that, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Debt of the Company
or of any Restricted Subsidiary and (c) either (i) the Subsidiary to be so
designated has total assets of $1,000 or less or (ii) such designation is
effective immediately upon such entity becoming a Subsidiary of the Company.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification. Except as provided in the first sentence of this
paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary.

The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of paragraph (l)(ii) above and (y) no Voting Rights
Triffering Event shall have occurred and be continuing or would result
therefrom.

Any such designation or redesignation by the Board of Directors will be
evidenced to the Transfer Agent by filing with the Transfer Agent a Board
Resolution giving effect to such designation or redesignation and an Officers'
Certificate (a) certifying that such designation or redesignation complies with
the foregoing provisions and (b) giving the effective date of such designation
or redesignation, such filing with the Transfer Agent to occur within 45 days
after the end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).

     (viii) Merger, Consolidation and Sale of Property. The Company shall not
merge, consolidate or amalgamate with or into any other Person (other than a
merger of a Wholly Owned Subsidiary into the Company) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all its Property in
any one transaction or series of transactions unless: (a) the Company shall be
the surviving Person (the "Surviving Person") or the Surviving Person (if other
than the Company) formed by such merger, consolidation or amalgamation or to
which such sale, transfer, assignment, lease, conveyance or disposition is made
shall be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia; (b) the
Surviving Person (if other than the Company) expressly assumes all obligations
of the Company under the Company Preferred Stock and this Certificate of
Determination; (c) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Property of the
Company, such Property shall have been transferred as an entirety or virtually
as an entirety to one Person; (d) immediately before and after giving effect to
such transaction or series of transactions on a pro forma basis (and treating,
for purposes of this clause (d) and clauses (e) and (f) below, any Debt which
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no Voting
Rights Triggering Event shall have occurred and be continuing; (e) immediately
after giving effect to such transaction or series of transactions on a pro forma
basis, the Company or the Surviving Person, as the case may be, would be able to
Incur at least $1.00 of additional Debt under clause (a) of the first paragraph
of covenant (l)(iv) above, determining compliance thereunder for this purpose
based upon the Consolidated Interest Expense, Consolidated Net Income and EBITDA
of the Company or the Surviving Person, as the case may be, and its Restricted
Subsidiaries; provided, however, that this clause (e) shall not apply to a

<PAGE>

merger between the Company and a Wholly Owned Subsidiary of the Company solely
for the purpose of reincorporating the Company in another state of the United
States so long as the total amount of Debt of the Company and its Restricted
Subsidiaries is not increased as a result thereof; and (f) the Company shall
deliver, or cause to be delivered, to the Transfer Agent, in form and substance
reasonably satisfactory to the Transfer Agent, an Officers' Certificate and an
Opinion of Counsel, each stating that such transaction complies with this
covenant and that all conditions precedent herein provided for relating to such
transaction have been satisfied.

     (m)    Certificates. (i) Form and Dating. The Company Preferred Stock
and the Transfer Agent's Countersignature shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Certificate of Determination. The Company Stock certificate may have notations,
legends or endorsements required by law, stock exchange rules, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). Each Company
Preferred Stock certificate shall be dated the date of its countersignature. The
terms of the Company Preferred Stock certificate set forth in Exhibit A are part
of the terms of this Certificate of Determination. Notwithstanding any of the
provisions of this paragraph (m) to the contrary, the rights, preferences,
privileges and restrictions of each share of Company Preferred Stock shall be
equal in all respects to each other share of Company Preferred Stock, except
with respect to restrictions and other matters that may be imposed by applicable
federal securities laws.

     (A)    Global Company Preferred Stock. Rule 144A Company Preferred Stock
shall be issued initially in the form of one or more permanent global securities
in definitive, fully registered form (collectively, the "Rule 144A Global
Company Preferred Stock") and Regulation S Company Preferred Stock shall, to the
extent required pursuant to paragraph (C)(3)(ii)(B) of Rule 903 under Regulation
S under the Securities Act, be issued initially in the form of one or more
temporary global securities (collectively, the "Temporary Regulation S Global
Company Preferred Stock"), and, to the extent permitted pursuant to paragraph
(C)(3)(ii)(B) of such Rule 903, shall be issued initially in the form of one or
more permanent global securities in definitive, fully registered form
(collectively, the "Permanent Regulation S Global Company Preferred Stock"), in
each case without coupons with the global securities legend and restricted
securities legend set forth in Exhibit A hereto, which shall be deposited on
behalf of the purchasers of the Initial Company Preferred Stock represented
thereby with the Transfer Agent, at its New York office, as custodian for DTC
(or with such other custodian as DTC may direct), and registered in the name of
DTC or a nominee of DTC, duly executed by the Company and countersigned by the
Transfer Agent as hereinafter provided. Beneficial ownership interests in
Temporary Regulation S Global Company Preferred Stock will not be exchangeable
for interests in the Rule 144A Global Company Preferred Stock, the Permanent
Regulation S Global Company Preferred Stock, or any other security without a
legend containing restrictions on transfer until the expiration of the
Restricted Period and then only upon certification in form reasonably
satisfactory to the Transfer Agent that beneficial ownership interests in such
Temporary Regulation S Global Company Preferred Stock are owned either by non-
U.S. persons or U.S. persons who purchased such interests in a transaction that
did not require registration under the Securities Act. The Rule 144A Global
Company Preferred Stock, Temporary Regulation S Global Company Preferred Stock
and Permanent Regulation S Global Company Preferred Stock are collectively
referred to herein as "Global Company Preferred Stock." Subject to the terms
hereof and to the requirements of applicable law, thenumber of shares of Company
Preferred Stock represented by Global Company Preferred Stock may from time to
time be increased or decreased by adjustments made on the records of the
Transfer Agent and DTC or its nominee as hereinafter provided. The Transfer
Agent shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Certificate of
Determination or under applicable law with respect to any transfer of any
interest in the Company Preferred Stock (including any transfers between or
among DTC participants, members or beneficial owners in any Global Company
Preferred Stock) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by the terms of this
Certificate of Determination, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.

     (B)    Book-Entry Provisions. In the event Global Company Preferred Stock
is deposited with or on behalf of DTC, the Company shall execute and the
Transfer Agent shall countersign and deliver initially one or more Global
Company Preferred Stock certificates that (a) shall be registered in the name of
DTC for such Global Company Preferred Stock or the nominee of DTC and (b) shall
be delivered by the Transfer Agent to DTC or pursuant to DTC's instructions or
held by the Transfer Agent as custodian for DTC.

Members of, or participants in, DTC ("Agent Members") shall have no rights under
this Certificate of Determination with respect to any Global Company Preferred
Stock held on their behalf by DTC or by the Transfer Agent as the custodian of
DTC or under such Global Company Preferred Stock, and DTC may be treated by the
Company, the Transfer Agent and any agent of the Company or the Transfer Agent
as the absolute owner of such Global Company Preferred Stock for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Transfer Agent or any agent of the Company or the Transfer Agent
from giving effect to any written

<PAGE>

certification, proxy or other authorization furnished by DTC or impair, as
between DTC and its Agent Members, the operation of customary practices of DTC
governing the exercise of the rights of a holder of a beneficial interest in any
Global Company Preferred Stock.

     (C)    Definitive Securities. Except as provided by applicable law or as
provided in this paragraph (m)(i) or in paragraph (m)(iii), owners of beneficial
interests in Global Company Preferred Stock will not be entitled to receive
physical delivery of certificated Company Preferred Stock.

     (ii)   Execution and Countersignature. Two Officers shall sign the
certificates representing the Company Preferred Stock for the Company by manual
or facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Company Preferred Stock and may be in facsimile
form.

If an Officer whose signature is on certificates representing the Company
Preferred Stock no longer holds that office at the time the Transfer Agent
countersigns the Company Preferred Stock evidenced thereby, the shares of
Company Preferred Stock evidenced thereby shall be valid nevertheless.

A certificate representing the Company Preferred Stock shall not be valid until
an authorized signatory of the Transfer Agent manually countersigns the Company
Preferred Stock. The signature shall be conclusive evidence that the Company
Preferred Stock has been countersigned under this Certificate of Determination.

The Transfer Agent shall countersign and deliver a number of shares of Initial
Company Preferred Stock and Series B Stock equal to the aggregate number of
shares of Holding Preferred Stock for which such Company Preferred Stock is
exchanged for issue only in a Registered Exchange Offer pursuant to the
Registration Agreement, in each case upon a written order of the Company signed
by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. In addition, the Transfer Agent shall
countersign and deliver, from time to time, Additional Shares for original issue
upon order of the Company signed by two Officers or by an Officer or either an
Assistant Treasurer or Assistant Secretary of the Company. Such orders shall
specify the number of shares of the Company Preferred Stock to be countersigned
and the date on which the original issue of Company Preferred Stock is to be
countersigned and whether the Company Preferred Stock is to be Initial Company
Preferred Stock or Series B Stock.

The Transfer Agent may appoint an countersigning agent reasonably acceptable to
the Company to countersign the Company Preferred Stock. Unless limited by the
terms of such appointment, a countersigning agent may countersign the Company
Preferred Stock whenever the Transfer Agent may do so. Each reference in this
Certificate of Determination to countersign by the Transfer Agent includes
countersign by such agent. An countersigning agent has the same rights as the
Transfer Agent or agent for service of notices and demands.

     (iii)  Transfer and Exchange. (A) Transfer and Exchange of
______________________ ________________________ Definitive Company Preferred
Stock. When Definitive Company Preferred Stock is presented to the Transfer
Agent with a request to register the transfer of such Definitive Company
Preferred Stock or to exchange such Definitive Company Preferred Stock for an
equal number of shares of Definitive Company Preferred Stock of other authorized
denominations, the Transfer Agent shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; provided, however, that the Definitive Company Preferred Stock surrendered
for transfer or exchange:

     (1)    shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer Agent,
duly executed by the Holder thereof or its attorney duly authorized in writing;
and

     (2)    is being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (I) or
(II) below, and are accompanied by the following additional information and
documents, as applicable:

     (I)    if such Definitive Company Preferred Stock is being delivered to the
Transfer Agent by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect in substantially the
form of Exhibit B hereto; or

     (II)   if such Definitive Company Preferred Stock is being transferred
to the Company or to a "qualified institutional buyer" ("QIB") in accordance
with Rule 144A under the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Regulation S under the Securities
Act, a certification to that effect (in substantially the form of Exhibit B
hereto).

<PAGE>

     (B)    Restrictions on Transfer of Definitive Company Preferred Stock for a
Beneficial Interest in Global Company Preferred Stock. Definitive Company
Preferred Stock may not be exchanged for a beneficial interest in Global Company
Preferred Stock except upon satisfaction of the requirements set forth below.
Upon receipt by the Transfer Agent of Definitive Company Preferred Stock, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Transfer Agent, together with:

(1)  certification that such Definitive Company Preferred Stock is being
transferred (A) to a QIB in accordance with Rule 144A, (B) to an institution
that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act that has furnished to the Transfer
Agent a signed letter in the form of Exhibit B hereto or (C) outside the United
States in an offshore transaction within the meaning of Regulation S and in
compliance with Rule 904 under the Securities Act; and

(2)  written instructions directing the Transfer Agent to make, or to direct DTC
to make, an adjustment on its books and records with respect to such Global
Company Preferred Stock to reflect an increase in the number of shares of
Company Preferred Stock represented by the Global Company Preferred Stock, then
the Transfer Agent shall cancel such Definitive Company Preferred Stock and
cause, or direct DTC to cause, in accordance with the standing instructions and
procedures existing between DTC and the Transfer Agent, the number of shares of
Company Preferred Stock represented by the Global Company Preferred Stock to be
increased accordingly. If no Global Company Preferred Stock is then outstanding,
the Company shall issue and the Transfer Agent shall countersign, upon written
order of the Company in the form of an Officers' Certificate, a new Global
Company Preferred Stock representing the appropriate number of shares.

     (C)    Transfer and Exchange of Interests in Global Company Preferred
Stock. The transfer and exchange of beneficial interests in Global Company
Preferred Stock or beneficial interests therein shall be effected through DTC,
in accordance with this Certificate of Determination (including applicable
restrictions on transfer set forth herein, if any) and the procedures of DTC
therefor.

     (D)    Transfer of a Beneficial Interest in Temporary Regulation S Global
Company Preferred Stock for interests in other Company Preferred Stock. During
the Restricted Period, beneficial ownership interests in Temporary Regulation S
Global Company Preferred Stock (if any) may not be exchanged for interests in
any other Global Company Preferred Stock or Definitive Company Preferred Stock.
Thereafter, such beneficial ownership interests may be so exchanged only upon
delivery to the Company and the Transfer Agent of a certificate in form and
substance satisfactory to them certifying that the beneficial owner of the
Temporary Regulation S Global Company Preferred Stock is either a non-U.S.
person or a U.S. person who purchased such beneficial ownership interests in a
transaction that did not require registration under the Securities Act, as
provided in paragraph (C)(3)(ii)(B) of Rule 903 under Regulation S under the
Securities Act.

     (E)    (i)  Restrictions on Transfer and Exchange of Global Company
Preferred Stock. Notwithstanding any other provisions of this Certificate of
Determination, Global Company Preferred Stock may not be transferred as a whole
except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor depository or a
nominee of such successor depository.

     (ii)   Restrictions on Transfer of Temporary Regulation S Global Company
Preferred Stock Interests. During the Restricted Period, beneficial ownership
interests in Temporary Regulation S Global Company Preferred Stock may only be
sold, pledged or transferred through Euroclear or Cedel in accordance with the
Applicable Procedures and only (i) to the Company, (ii) so long as such security
is eligible for resale pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a person whom the selling Holder reasonably believes is a "qualified
institutional buyer" ("QIB") as defined in Rule 144A that purchases for its own
account or for the account of a QIB to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A, (iii) in an offshore
transaction in accordance with Regulation S, (iv) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 (if applicable) under
the Securities Act, or (v) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. During the Restricted Period, interests
in the Temporary Regulation S Global Company Preferred Stock may not be
transferred to institutions that are "Accredited Investors" (but not QIBs) as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.

     (F)    Countersignature of Definitive Company Preferred Stock. If at any
time:

     (1)    DTC notifies the Company that DTC is unwilling or unable to
continue as depository for the Global Company Preferred Stock and a successor
depository for the Global Company Preferred Stock is not appointed by the
Company within 90 days after delivery of such notice;

<PAGE>

     (2)    DTC ceases to be a clearing agency registered under the Exchange
Act;

     (3)    The Company, in its sole discretion, notifies the Transfer Agent in
writing that it elects to cause the issuance of Definitive Company Preferred
Stock under this Certificate of Determination, then the Company will execute,
and the Transfer Agent, upon receipt of a written order of the Company signed by
two Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company requesting the countersign and delivery of Definitive
Company Preferred Stock to the persons designated by the Company, will
countersign and deliver Definitive Company Preferred Stock equal to the number
of shares of Company Preferred Stock represented by the Global Company Preferred
Stock, in exchange for such Global Company Preferred Stock. Definitive Company
Preferred Stock issued in exchange for a beneficial interest in a Global Company
Preferred Stock shall be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Transfer Agent. The Transfer Agent
shall mail or deliver such Definitive Company Preferred Stock to the persons in
whose names such Company Preferred Stock are so registered in accordance with
the instructions of DTC.

     (G)    Legend. (1) Except as permitted by the following paragraph (2), each
certificate evidencing the Global Company Preferred Stock and the Definitive
Company Preferred Stock (and all Company Preferred Stock issued in exchange
therefor or substitution thereof) shall bear a legend in substantially the
following form:

"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE HEREOF (OR OF A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT
WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE ISSUER, (2) SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS SECURITY) PROVIDED THAT A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE ISSUER IS DELIVERED BY CERTAIN TRANSFEREES TO THE ISSUER, (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT
IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND
A CERTIFICATE WHICH MAY BE OBTAINED FROM THE ISSUER OR THE TRANSFER AGENT IS
DELIVERED BY THE TRANSFEREE TO THE ISSUER AND THE TRANSFER AGENT (PROVIDED THAT
CERTAIN HOLDERS MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR
TO THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(C)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN
INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH
TO THE ISSUER AND THE TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS
THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY
COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT IS (1) A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) PURCHASING
FROM A PERSON NOT PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS SECURITY (OR
ANY PREDECESSOR SECURITY), IT IS AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(A)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT AND THAT
IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."

     (2)    Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by Global Company
Preferred Stock) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:

     (I)    in the case of any Transfer Restricted Security that is a Definitive
Company Preferred Stock, the Transfer Agent shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Company Preferred
Stock that does not bear the legend set forth above and rescind any restriction
on the transfer of such Transfer Restricted Security; and

     (II)   in the case of any Transfer Restricted Security that is
represented by a Global Company Preferred Stock, the Transfer Agent shall permit
the Holder thereof to exchange such

<PAGE>

Transfer Restricted Security for interests in an Unrestricted Global Preferred
Stock Security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security, if the
Holder's request for such exchange was made in reliance on Rule 144 and the
Holder certifies to that effect in writing to the Transfer Agent (such
certification to be in the form and substance satisfactory to the Transfer
Agent).

     (3)    In the case of any Restricted or Unrestricted Global Security that
represents the Initial Company Preferred Stock, the Transfer Agent shall permit
the Holder thereof to exchange such Restricted or Unrestricted Global Security
for a new global security representing Series B Stock that does not bear the
legend set forth above.

     (H)    Cancelation or Adjustment of Global Company Preferred Stock. At such
time as all beneficial interests in Global Company Preferred Stock have either
been exchanged for Definitive Company Preferred Stock, redeemed, repurchased or
canceled, such Global Company Preferred Stock shall be returned to DTC for
cancelation or retained and canceled by the Transfer Agent. At any time prior to
such cancelation, if any beneficial interest in Global Company Preferred Stock
is exchanged for Definitive Company Preferred Stock, redeemed, repurchased or
canceled, the number of shares of Company Preferred Stock represented by such
Global Company Preferred Stock shall be reduced and an adjustment shall be made
on the books and records of the Transfer Agent with respect to such Global
Company Preferred Stock, by the Transfer Agent or DTC, to reflect such
reduction.

     (I)    Obligations with Respect to Transfers and Exchanges of Company
Preferred Stock. (1) To permit registrations of transfers and exchanges, the
Company shall execute and the Transfer Agent shall countersign Definitive
Company Preferred Stock and Global Company Preferred Stock as required pursuant
to the provisions of this paragraph (iii).

     (2)    All Definitive Company Preferred Stock and Global Company Preferred
Stock issued upon any registration of transfer or exchange of Definitive Company
Preferred Stock or Global Company Preferred Stock shall be the valid obligations
of the Company, entitled to the same benefits under this Certificate of
Determination as the Definitive Company Preferred Stock or Global Company
Preferred Stock surrendered upon such registration of transfer or exchange.

     (3)    Prior to due presentment for registration of transfer of any shares
of Company Preferred Stock, the Transfer Agent and the Company may deem and
treat the person in whose name such shares of Company Preferred Stock are
registered as the absolute owner of such Company Preferred Stock and neither the
Transfer Agent nor the Company shall be affected by notice to the contrary.

     (4)    No service charge shall be made to a Holder for any registration of
transfer or exchange upon surrender of any Company Preferred Stock Certificate
at the office of the Transfer Agent maintained for that purpose. However, the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Company Preferred Stock Certificates.

     (5)    Upon any sale or transfer of shares of Company Preferred Stock
(including any Company Preferred Stock represented by a Global Company Preferred
Stock Certificate) pursuant to an effective registration statement under the
Securities Act, pursuant to Rule 144 under the Securities Act or pursuant to an
opinion of counsel reasonably satisfactory to the Company that no legend is
required:

     (A)    in the case of any Definitive Company Preferred Stock, the Transfer
Agent shall permit the Holder thereof to exchange such Company Preferred Stock
for Definitive Company Preferred Stock that does not bear the legend set forth
in paragraph (iii)(G) above and rescind any restriction on the transfer of such
Company Preferred Stock; and

     (B)    in the case of any Global Company Preferred Stock, such Company
Preferred Stock shall not be required to bear the legend set forth in paragraph
(m)(iii)(G) above but shall continue to be subject to the provisions of
paragraph (m)(iii)(D) hereof.

     (iv)   Replacement Certificates. If a mutilated Company Preferred Stock
certificate is surrendered to the Transfer Agent or if the Holder of a Company
Preferred Stock certificate claims that the Company Preferred Stock certificate
has been lost, destroyed or wrongfully taken, the Company shall issue and the
Transfer Agent shall countersign a replacement Company Preferred Stock
certificate if the reasonable requirements of the Transfer Agent, the Company
and of Section 8-405 of the Uniform Commercial Code as in effect in the State of
New York are met. If required by the Transfer Agent or the Company, such Holder
shall furnish an indemnity bond sufficient in the judgment of the Company and
the Transfer Agent to protect the Company and the Transfer Agent from any loss
which either of them may suffer if a Company Preferred Stock certificate is
replaced. The Company and the Transfer Agent may charge the Holder for their
expenses in replacing a Company Preferred Stock certificate.

<PAGE>

     (v)    Temporary Certificates. Until definitive Company Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary the Company Preferred Stock certificates.
Temporary the Company Preferred Stock certificates shall be substantially in the
form of definitive Company Preferred Stock certificates but may have variations
that the Company considers appropriate for temporary Company Preferred Stock
certificates. Without unreasonable delay, the Company shall prepare and the
Transfer Agent shall countersign definitive Company Preferred Stock certificates
and deliver them in exchange for temporary Company Preferred Stock certificates.

     (vi)   Cancelation. (A) In the event the Company shall purchase or
otherwise acquire Definitive Company Preferred Stock, the same shall thereupon
be delivered to the Transfer Agent for cancelation.

     (B)    At such time as all beneficial interests in Global Company Preferred
Stock have been exchanged for Definitive Company Preferred Stock, redeemed,
repurchased or canceled, such Global Company Preferred Stock shall thereupon be
delivered to the Transfer Agent for cancelation.

     (C)    The Transfer Agent and no one else shall cancel and, subject to the
record retention requirements under the Exchange Act, destroy all Company
Preferred Stock certificates surrendered for transfer, exchange, replacement or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Transfer Agent to deliver canceled Company Preferred
Stock certificates to the Company. The Company may not issue new Company
Preferred Stock certificates to replace Company Preferred Stock certificates to
the extent they evidence Company Preferred Stock which the Company has purchased
or otherwise acquired.

     (n)    Additional Rights of Holders. In addition to the rights provided to
Holders under this Certificate of Determination, Holders shall have the rights
set forth in the Registration Agreement.

     (o)    Certain Definitions. As used in this Certificate of Determination,
the following terms shall have the following meanings (and (1) terms defined in
the singular have comparable meanings when used in the plural and vice versa,
(2) "including" means including without limitation, (3) "or" is not exclusive
and (4) an accounting term not otherwise defined has the meaning assigned to it
in accordance with United States generally accepted accounting principles as in
effect on the Issue Date and all accounting calculations will be determined in
accordance with such principles), unless the content otherwise requires:

"Additional Assets" means (a) any Property (other than cash, cash equivalents
and securities) to be owned by the Company or any Restricted Subsidiary and used
in a Related Business; or (b) Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary from any Person other than an
Affiliate of the Company; provided, however, that, in the case of clause (b),
such Restricted Subsidiary is primarily engaged in a Related Business.

"Affiliate" of any specified Person means (a) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (b) any other Person who is a director or
officer of (i) such specified Person, (ii) any Subsidiary of such specified
Person or (iii) any Person described in clause (a) above. For the purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenant described under paragraph (l)(vi) only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
the Company or of rights or warrants to purchase such Voting Stock (whether or
not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.

"Asset Sale" means any sale, lease, transfer, issuance or other disposition (or
series of related sales, leases, transfers, issuances or dispositions) by the
Company or any Restricted Subsidiary, including any disposition by means of a
merger, consolidation or similar transaction (each referred to for the purposes
of this definition as a "disposition"), of (a) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares) or (b) any other
assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of clauses (a) and (b) above, (i) any disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (ii) any disposition effected in compliance with the
first paragraph of the covenant described under paragraph (l)(viii), (iii) any
Sale and Leaseback

<PAGE>

Transaction completed within 180 days following the original acquisition of the
subject assets where such Sale and Leaseback Transaction represents the intended
financing of Property acquired after the Issue Date and (iv) any disposition or
series of related dispositions of assets having a Fair Market Value and sale
price of less than $500,000).

"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at the
time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).

"Average Life" means, as of any date of determination, with respect to any Debt
or Preferred Stock, the quotient obtained by dividing (a) the sum of the product
of the numbers of years (rounded to the nearest one twelfth of one year) from
the date of determination to the dates of each successive scheduled principal
payment of such Debt or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (b) the sum of all
such payments.

"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.

"Business Day" means each day which is not a Legal Holiday.

"Capital Lease Obligations" means any obligation under a lease that is required
to be capitalized for financial reporting purposes in accordance with GAAP; and
the amount of Debt represented by such obligation shall be the capitalized
amount of such obligations determined in accordance with GAAP; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.

"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.

"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by the
Company from the issuance or sale (other than to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any of
its Subsidiaries for the benefit of their employees) by the Company of any class
of its Parity Stock and Junior Stock (other than Disqualified Stock) after the
Issue Date, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.

"Change of Control" means the occurrence of any of the following events:

     (a)    prior to the first Public Equity Offering, the Permitted Holders
cease to be the "beneficial owners" (as defined in Rule 13d-3 under the Exchange
Act, except that a Person will be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of a majority of the voting power of the Voting Stock of the
Company, whether as a result of the issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by the Permitted Holders or otherwise (for
purposes of this clause (a), the Permitted Holders will be deemed to
beneficially own any Voting Stock of a corporation (the "specified corporation")
held by any other corporation (the "parent corporation") so long as the
Permitted Holders beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of such parent corporation); or

     (b)    after the first Public Equity Offering, any "Person" or "group" (as
such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provisions to either of the foregoing), including any group acting for
the purpose of acquiring, holding, voting or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more
of the Permitted Holders, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a

<PAGE>

Person will be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of 35% or more of
the voting power of the Voting Stock of the Company; provided, however, that the
Permitted Holders are the "beneficial owners" (as defined in Rule 13d-3 under
the Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, in the aggregate of a lesser percentage of the total
voting power of all classes of the Voting Stock of the Company than such other
Person or group (for purposes of this clause (b), such Person or group shall be
deemed to beneficially own any Voting Stock of a specified corporation held by a
parent corporation so long as such Person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the voting power of the Voting
Stock of such parent corporation); or

     (c)    the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets of
the Company and the Restricted Subsidiaries, considered as a whole (other than a
disposition of such assets as an entirety or virtually as an entirety to a
Wholly Owned Subsidiary or one or more Permitted Holders) shall have occurred,
or the Company merges, consolidates or amalgamates with or into any other Person
(other than one or more Permitted Holders) or any other Person (other than one
or more Permitted Holders) merges, consolidates or amalgamates with or into the
Company, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is reclassified into or exchanged for cash,
securities or other Property, other than any such transaction where (i) the
outstanding Voting Stock of the Company is reclassified into or exchanged for
Voting Stock of the surviving corporation and (ii) the holders of the Voting
Stock of the Company immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction and in substantially the same
proportion as before the transaction; or

     (d)    during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board or whose nomination
for election by the shareholders of the Company was approved by a vote of 66% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of the
Board of Directors then in office; or

     (e)    the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company Exchange Debentures" means the 11 1/2% Subordinated Exchange Debentures
due 2010 of the Company, issuable upon redemption of the Company Preferred
Stock.

"Company Exchange Indenture" means the Exchange Indenture dated as of April 7,
1998 between the Company and the United States Trust Company of New York, as
Trustee, governing the Company Exchange Debentures.

"Consolidated Interest Coverage Ratio" means, as of any date of determination,
the ratio of (a) the aggregate amount of EBITDA for the most recent four
consecutive fiscal quarters ending at least 45 days prior to such determination
date to (b) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that (i) if the Company or any Restricted Subsidiary has
Incurred any Debt since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Interest Coverage Ratio is an Incurrence of Debt, or both, Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Debt as if such Debt had been Incurred on the first day of such
period and the discharge of any other Debt repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Debt as if such discharge had
occurred on the first day of such period, (ii) if since the beginning of such
period the Company or any Restricted Subsidiary shall have repaid, repurchased,
legally defeased or otherwise discharged any Debt with Capital Stock Sale
Proceeds, Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such discharge as if such discharge
had occurred on the first day of such period, (iii) if since the beginning of
such period the Company or any Restricted Subsidiary shall have made any Asset
Sale or if the transaction giving rise to the need to calculate the Consolidated
Interest Coverage Ratio is an Asset Sale, or both, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive) directly attributable
to the Property which is the subject of such Asset Sale for such period, or
increased by an amount equal to the EBITDA (if negative) directly attributable
thereto for such period, in either case as if such Asset Sale had occurred on
the first day of such period and Consolidated Interest Expense for such period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Debt of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such Asset
Sale, as if such Asset Sale had occurred on the first day of such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, by an amount equal to
the Consolidated Interest Expense for such period

<PAGE>

directly attributable to the Debt of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable for
such Debt after such sale), (iv) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of Property, including any acquisition
of Property occurring in connection with a transaction causing a calculation to
be made hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Debt) as if such Investment or acquisition occurred on the
first day of such period and (v) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Sale, Investment or acquisition of Property
that would have required an adjustment pursuant to clause (iii) or (iv) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Sale, Investment or acquisition
occurred on the first day of such period. For purposes of this definition, pro
forma calculations shall be determined in good faith by a responsible financial
or accounting Officer of the Company and as further contemplated by the
definition of the term "pro forma". If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest expense on such Debt
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Debt if such Interest Rate Agreement has a
remaining term in excess of 12 months).

"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of debt discount and debt
issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Parity Stock or Junior Stock of the Company which
is not Disqualified Stock, (h) Preferred Stock dividends in respect of all
Preferred Stock of Restricted Subsidiaries held by Persons other than the
Company or a Wholly Owned Subsidiary, (i) interest Incurred in connection with
Investments in discontinued operations, (j) interest accruing on any Debt of any
other Person to the extent such Debt is Guaranteed by the Company or any
Restricted Subsidiary and (k) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.

"Consolidated Net Income" means, for any period, the net income (loss) of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income (a) any net income (loss) of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (i) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c) below) and (ii) the Company's equity in a net loss of
any such Person other than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income, (b) for the purposes of
paragraph (l)(iii) only, any net income (loss) of any Person acquired by the
Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions, directly or indirectly, to the Company, except
that subject to the exclusion contained in clause (d) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause), (d) any gain (or, for purposes of
paragraphs (l)(ii) and (l)(viii) only, loss) realized upon the sale or other
disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business, provided,
that any tax benefit or tax liability resulting therefrom shall be excluded in
such Consolidated Net Income, (e) any extraordinary gain or loss, provided, that
any tax benefit or tax liability resulting therefrom shall be excluded in such
Consolidated Net Income, (f) the cumulative effect of a change in accounting
principles and (g) (i) any non-cash compensation expense realized for grants

<PAGE>

of performance shares, stock options or other stock awards to officers,
directors and employees of the Company or any Restricted Subsidiary or (ii)
compensation expense realized with respect to periods prior to Issue Date in
respect of payments under the Company's 1994 Amended and Restated Equity
Participation Plan or compensation expense, to the extent accrued in 1998,
related to contingent payments to existing managers of the Company pursuant to
the Merger Agreement in an aggregate amount not in excess of $2.4 million.
Notwithstanding the foregoing, for the purposes of paragraph (l)(iii) only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (c)(iv) thereof.

"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder, replaces such
agreement or document, or provides for other agents or lenders).

"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.

"Debt" means, with respect to any Person on any date of determination (without
duplication), (a) the principal of and premium (if any) in respect of (i) debt
of such Person for money borrowed and (ii) debt evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such Person is
responsible or liable; (b) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale and Leaseback Transactions entered into by
such Person; (c) all obligations of such Person issued or assumed as the
deferred purchase price of Property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (a) through (c) above) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the third Business Day following receipt by
such Person of a demand for reimbursement following payment on the letter of
credit); (e) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in
each case, any accrued dividends); (f) all obligations of the type referred to
in clauses (a) through (e) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee; (g) all obligations of the type referred to in clauses (a)
through (t) of other Persons secured by any Lien on any Property of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such Property or the
amount of the obligation so secured; and (h) to the extent not otherwise
included in this definition, Hedging Obligations of such Person. The amount of
Debt of any Person at any date shall be the outstanding balance at such date of
all unconditional obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided that the amount outstanding at any
time of any Debt issued with original issue discount is the face amount of such
Debt less the remaining unamortized portion of the original issue discount of
such Debt at such time as determined in accordance with GAAP. "Disqualified
Dividends" means, for any dividend with respect to Disqualified Stock, the
quotient of the dividend divided by the difference between one and the maximum
statutory federal income tax rate (expressed as a decimal number between 1 and
0) then applicable to the issuer of such Disqualified Stock.

"Disqualified Stock" means, with respect to any Person, Redeemable Stock of such
Person as to which (i) the maturity, (ii) mandatory redemption or (iii)
redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Company Preferred Stock; provided, however, that Redeemable
Stock of such Person that would not otherwise be characterized as Disqualified
Stock under this definition shall not constitute Disqualified Stock (a) if such
Redeemable Stock is convertible or exchangeable into Debt or Disqualified Stock
solely at the option of the issuer thereof or (b) solely as a result of
provisions thereof giving holders thereof the right to

<PAGE>

require such Person to repurchase or redeem such Redeemable Stock upon the
occurrence of a "change of control" occurring prior to the first anniversary of
the Stated Maturity of the Company Preferred Stock, if (x) such repurchase
obligation may not be triggered in respect of such Redeemable Stock unless a
corresponding obligation also arises with respect to the Company Preferred Stock
and (y) no such repurchase or redemption is permitted to be consummated unless
and until such Person shall have satisfied all repurchase or redemption
obligations with respect to any required purchase offer made with respect to the
Company Preferred Stock.

"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent reducing Consolidated Net Income
for such period: (i) the provision for taxes based on income or profits or
utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization expense and (v) any other non-cash items (other
than any such non-cash item to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), minus (b) all non- cash
items increasing Consolidated Net Income for such period (other than any such
non-cash item to the extent that it will result in the receipt of cash payments
in any future period). Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.

"Employee Notes" means promissory notes of employees of Holding, the Company or
any of their Subsidiaries payable to the Company or Holding and received in
connection with the substantially concurrent purchase of common stock of the
Company or Holding by such employees.

"Exchange Act" means the Securities Exchange Act of 1934.

"Exchange Offer Registration Statement" means a registration statement of the
Company on an appropriate form under the Securities Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.

"Fair Market Value" means, with respect to any Property, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value will be determined,
except as otherwise provided, (a) if such Property has a Fair Market Value equal
to or less than $2.5 million, by any Officer of the Company or (b) if such
Property has a Fair Market Value in excess of $2.5 million, by a majority of the
Board of Directors and evidenced by a Board Resolution, dated within 30 days of
the relevant transaction, delivered to the Transfer Agent.

"GAAP" means United States generally accepted accounting principles as in effect
on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.

<PAGE>

"Hedging Obligation" of any Person means any obligation of such Person pursuant
to any Interest Rate Agreement, Currency Exchange Protection Agreement or any
other similar agreement or arrangement.

"Holder" means the person in whose name a share of Company Preferred Stock is
registered on the Transfer Agent's books.

"Holding" means River Holding Corp., the corporate parent of the Company, and
any successor thereto.

"IAI" means an institution that is an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.

"Incur" means, with respect to any Debt or other obligation of any Person, to
create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that solely for
purposes of determining compliance with paragraph (l)(ii), amortization of debt
discount shall not be deemed to be the Incurrence of Debt, provided that in the
case of Debt sold at a discount, the amount of such Debt Incurred shall at all
times be the aggregate principal amount at Stated Maturity.

"Indenture" means the Indenture dated as of the Issue Date among Holding, the
Company and the United States Trust Company of New York, as Trustee, governing
the Notes.

"Independent Appraiser" means an investment banking firm of national standing or
any third party appraiser of national standing, provided that such -------- firm
or appraiser is not an Affiliate of the Company.

"Industrias Hudson" means Industrias Hudson S.A. de C.V.

"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.

"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of paragraphs (l)(iii) and (l)(vii) and the definition of "Restricted Payment",
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (a) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (b) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.

"Issue Date" means April 7, 1998.

"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York and Los
Angeles.

"Lien" means, with respect to any Property of any Person, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).

<PAGE>

"Merger Agreement" means the Amended and Restated Merger Agreement between
Holding, River Acquisition Corp., the Company and shareholders of the Company
dated as of March 15, 1998, as in effect on the Issue Date.

"Mirror Preferred Stock" means the 11 1/2% Senior PIK Preferred Stock due 2010
of the Company.

"Moody's" means Moody's Investors Service, Inc. or any successor to the rating
agency business thereof.

"Net Available Cash" from any Asset Sale or other transaction subject to
paragraph (l)(iv) means cash payments received therefrom (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property that is
the subject of such transaction or received in any other noncash form), in each
case net of (a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under GAAP, as a
consequence of such transaction, (b) all payments made on any Debt which is
secured by any Property subject to such transaction, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such Property, or which must by its terms, or in order to obtain a necessary
consent to such transaction, or by applicable law, be repaid out of the proceeds
from such transaction, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such transaction and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such transaction and retained by the Company or
any Restricted Subsidiary after such transaction.

"New Credit Facility" means the credit facilities made available pursuant to the
Senior Secured Credit Agreement dated as of the Issue Date among the Company,
Holding, the lenders party thereto, Salomon Smith Barney Inc, as Arranger,
Advisor and Syndication Agent and Bankers Trust Company, as Administrative
Agent.

"Notes" means the 9 1/8% Senior Subordinated Notes due 2008 of the Company.

"Officer" means the Chief Executive Officer, the President, the Chief Financial
Officer or any Executive Vice President of the Company.

"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Transfer Agent.

"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company.

"Permitted Debt" means:

     (a)    Debt of the Company evidenced by the Notes and of Subsidiary
Guarantors evidenced by Subsidiary Guaranties;

     (b)    (i)  Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of (A)
term loans at any one time outstanding shall not exceed $40.0 million minus all
principal amounts repaid in respect of such term loans and (B) revolving credit
loans and obligations at any one time outstanding shall not exceed the greater
of (x) $60.0 million and (y) the sum of the amounts equal to (1) 60% of the net
book value of the inventory of the Company and the Restricted Subsidiaries and
(2) 85% of the net book value of the accounts receivable of the Company and the
Restricted Subsidiaries, in each case as of the most recent fiscal quarter
ending at least 45 days prior to the date of determination and (ii) Guarantees
of Debt under the Credit Facility;

     (c)    Debt in respect of Capital Lease Obligations and Purchase Money
Debt, provided that (i) the aggregate principal amount of such Debt does not
exceed the Fair Market Value (on the date of the Incurrence thereof) of the
Property acquired, constructed or leased (including costs of installation, taxes
and delivery charges with respect to such acquisition, construction or lease)
and (ii) the aggregate principal amount of all Debt Incurred and then
outstanding pursuant to this clause (c) (together with all Permitted Refinancing
Debt Incurred in respect of Debt previously Incurred pursuant to this clause (c)
and then outstanding) does not exceed $15.0 million;

     (d)    Debt of the Company owing to and held by any Wholly Owned Subsidiary
and Debt of a Wholly Owned Subsidiary owing to and held by the Company or any
Wholly Owned Subsidiary; provided, however, that any subsequent issue or
transfer of Capital Stock or other event that

<PAGE>

results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Debt (except to the Company or
a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;

     (e)    Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Restricted Subsidiary was acquired
by the Company or otherwise became a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of transactions
pursuant to which such Wholly Owned Restricted Subsidiary became a Subsidiary of
the Company or was otherwise acquired by the Company); provided that at the time
such Wholly Owned Restricted Subsidiary was acquired by the Company or otherwise
became a Restricted Subsidiary and after giving pro forma effect to the
Incurrence of such Debt, the Company would have been able to Incur $1.00 of
additional Debt pursuant to clause (a) of paragraph (l)(ii);

     (f)    Debt under Interest Rate Agreements entered into by the Company or a
Restricted Subsidiary for the purpose of limiting interest rate risk in the
ordinary course of the financial management of the Company or such Restricted
Subsidiary and not for speculative purposes, provided that the obligations under
such agreements are directly related to payment obligations on Debt otherwise
permitted by the terms of paragraph (l)(ii);

     (g)    Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the Company
or such Restricted Subsidiary in the ordinary course of business and not for
speculative purposes;

     (h)    Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the obtaining
of advances;

     (i)    Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;

     (j)    Debt not otherwise described in clauses (a) through (i) above and
clause (1) below in an aggregate principal amount outstanding at any one time
not to exceed $15.0 million;

     (k)    Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of paragraph (l)(ii) and clauses (a), (c), (e) and (i)
above, subject, in the case of clause (c) above, to the limitations set forth in
the proviso thereto; and

(l)  Debt of the Company under the Company Exchange Debentures. "Permitted
Holders" means Helen Hudson Lovaas, any member of the senior management of the
Company or Holding on the Issue Date and Freeman Spogli & Co. Incorporated or
any successor entity thereof controlled by the principals of Freeman Spogli &
Co. Incorporated or any entity controlled by, or under common control with,
Freeman Spogli & Co. Incorporated.

"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in (a) any Restricted Subsidiary or any Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided
 --------
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; provided that such Person's
--------
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
--------  -------
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) (i) loans and advances to employees made
in the ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary, as the case may be; provided that such loans and
  --------
advances do not exceed $1.0 million at any one time outstanding and (ii) loans
and advances to, or the receipt of Employee Notes from, employees of Holding,

<PAGE>

the Company or any of their Subsidiaries made or received in connection with the
substantially concurrent purchase of common stock of the Company or Holding by
such employees; provided that the aggregate principal amount of such loans,
-------- ----
advances and notes payable shall not exceed $1.0 million at any one time
outstanding; (g) stock, obligations or other securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
a Restricted Subsidiary or in satisfaction of judgments; (h) any Person to the
extent such Investment represents the non-cash portion of the consideration
received in connection with a disposition of assets; and (i) Investments in
Persons engaged in a Related Business not to exceed $10.0 million at any one
time outstanding (it being agreed that an Investment shall cease to be
outstanding to the extent of dividends, repayments of loans or advances or other
transfers of Property received by the Company or any Restricted Subsidiary from
such Persons, provided that such amounts do not increase the amount of
Restricted Payments which the Company and the Restricted Subsidiaries may make
pursuant to clause (c)(iv)(A) of paragraph (l)(iii)).

 "Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.

 "Person" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.

 "Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.

 "pro forma" means, with respect to any calculation made or required to be made
pursuant to the terms hereof, a calculation performed in accordance with Article
11 of Regulation S-X promulgated under the Securities Act, as interpreted in
good faith by the Board of Directors after consultation with the independent
certified public accountants of the Company, or otherwise a calculation made in
good faith by the Board of Directors after consultation with the independent
certified public accountants of the Company, as the case may be.

 "Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person.

 "Public Equity Offering" means an underwritten public offering of common stock
of the Company pursuant to an effective registration statement under the
Securities Act.

 "Purchase Money Debt" means Debt (a) consisting of the deferred purchase price
of property, conditional sale obligations, obligations under any title retention
agreement, other purchase money obligations and obligations in respect of
industrial revenue bonds, in each case where the maturity of such Debt does not
exceed the anticipated useful life of the asset being financed, and (b) Incurred
to finance the acquisition or construction by the Company or a Restricted
Subsidiary of such asset, including remodeling thereof and additions and
improvements thereto; provided, however, that such Debt is Incurred within 180
days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.

<PAGE>

 "Redeemable Stock" means, with respect to any Person, any Capital Stock that by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable, in either case at the option of the holder thereof) or
otherwise (a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (b) is or may become redeemable or repurchaseable at
the option of the holder thereof, in whole or in part, or (c) is convertible or
exchangeable, in either case at the option of the holder thereof, for Debt or
Disqualified Stock.

 "Refinance" means, in respect of any Debt, to refinance, extend, renew, refund,
repay, prepay, redeem, defease or retire, or to issue other Debt, in exchange or
replacement for, such Debt. "Refinanced" and "Refinancing" shall have
correlative meanings.

 "Registered Exchange Offer" means the proposed offer to the Holders to issue
and deliver to such Holders, upon redemption of the Initial Company Preferred
Stock a like liquidation preference of Series B Stock.

 "Registration Agreement" means the Registration Agreement, dated April 7, 1998,
among the Company, Holding and Salomon Brothers Inc and BT Alex. Brown
Incorporated.

 "Regulation S Company Preferred Stock" means all Initial Company Preferred
Stock offered and sold outside the United States in reliance on Regulation S
under the Securities Act.

 "Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.

 "Restricted Payment" means (a) any dividend or distribution (whether made in
cash, securities or other Property) declared or paid on or with respect to any
shares of Parity Stock or Junior Stock of the Company or any Capital Stock of
any Restricted Subsidiary (including any payment in connection with any merger
or consolidation with or into the Company or any Restricted Subsidiary), except
for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividend or distribution payable
solely in shares of Junior Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of
any Parity Stock or Junior Stock of the Company or any Affiliate of the Company
(other than from the Company or any Capital Stock of any Restricted Subsidiary)
or any securities exchangeable for or convertible into any such Parity Stock,
Junior Stock or Capital Stock, including the exercise of any option to exchange
any Parity Stock, Junior Stock or Capital Stock (other than for or into Capital
Stock of the Company that is not Disqualified Stock); or (c) any Investment
(other than Permitted Investments) in any Person.

 "Restricted Subsidiary" means (a) any Subsidiary of the Company unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or
required pursuant to paragraph (l)(vii) and (b) an Unrestricted Subsidiary which
is redesignated as a Restricted Subsidiary as permitted pursuant to paragraph
(l)(vii).

 "Rule 144A Company Preferred Stock" means the Initial Company Preferred Stock
issued in reliance on Rule 144A under the Securities Act.

"S&P" means Standard & Poor's Ratings Service or any successor to the rating
agency business thereof.

 "Sale and Leaseback Transaction" means any arrangement relating to Property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary leases it from such Person.

 "Securities Act" means the Securities Act of 1933.

 "Shelf Registration Statement" means a "shelf" registration statement of the
Company pursuant to the provisions of the Registration Agreement which covers
the Initial Company Preferred Stock and the Series B Stock on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the SEC, all amendments and supplements to such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.

 "Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).

<PAGE>

 "Subsidiary" means, in respect of any Person, any corporation, company,
association, partnership, joint venture or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled directly or indirectly, by (a) such
Person, (b) such Person and one or more Subsidiaries of such Person or (c) one
or more Subsidiaries of such Person.

 "Subsidiary Guarantor" means each Subsidiary of the Company that becomes a
Subsidiary Guarantor pursuant to the terms of the Notes.

 "Subsidiary Guaranty" means a Guarantee of the Notes on the terms set forth in
the Indenture by a Subsidiary Guarantor of the Company's obligations with
respect to the Notes.

"Temporary Cash Investments" means any of the following: (a) Investments in
U.S. Government Obligations; (b) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 90 days of the
date of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America or any state thereof having
capital, surplus and undivided profits aggregating in excess of $500 million and
whose long-term debt is rate "A-3" or "A-" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); (c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into with a
bank meeting the qualifications described in clause (b) above; (d) Investments
in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-" (or higher) according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (e)
direct obligations (or certificates representing an ownership interest in such
obligations) of any state of the United States of America (including any agency
or instrumentality thereof) for the payment of which the full faith and credit
of such state is pledged and which are not callable or redeemable at the
issuer's option, provided that (i) the long-term debt of such state is rated "A-
3" or "A-1" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) and (ii) such obligations
mature within 180 days of the date of acquisition thereof; and (f) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (a) through (e) above.

"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in existence
on the Issue Date that is not a Restricted Subsidiary; (b) any Subsidiary of an
Unrestricted Subsidiary; and (c) any Subsidiary of the Company that is
designated after the Issue Date as an Unrestricted Subsidiary as permitted or
required pursuant to paragraph (l)(vii) and not thereafter redesignated as a
Restricted Subsidiary as permitted pursuant thereto.

 "U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.

 "Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.

 "Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all the
Voting Stock of which (except directors' qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.

 5.  The foregoing Certificate of Determination has been duly approved by the
required vote of holders of the Company's Senior PIK Preferred Stock (pursuant
to the voting rights of such stock set forth in the Amended and Restated
Certificate of Determination for that series). The Company has outstanding
300,000 shares of Senior PIK Preferred Stock. The vote required to approve this
Certificate of Determination was more than two-thirds of the outstanding Senior
PIK Preferred Stock, and the number of shares voting in favor of this
Certificate of Determination equaled or exceeded the vote required.

<PAGE>

The undersigned each further declares under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of his own knowledge and that this certificate has been executed on
April 8, 1998 in Temecula, California.


/s/ Richard W. Johansen
------------------------------
Richard W. Johansen, President


/s/ Jay R. Ogram
------------------------------
Jay R. Ogram, Chief Financial Officer

<PAGE>

                            CERTIFICATE OF AMENDMENT
                           OF THE AMENDED AND RESTATED
                         CERTIFICATE OF DETERMINATION OF
                          HUDSON RESPIRATORY CARE INC.

     Charles A. French and Patrick Yount certify that:

     1.   They are the duly elected and acting President and Secretary,
respectively, of Hudson Respiratory Care Inc., a California corporation (the
"Corporation").

     2.   The first sentence of section (a) of the Amended and Restated
Certificate of Determination of the Corporation (the "Certificate of
Determination") is hereby deleted and replaced in its entirety with the
following:

          "The designation of such series of Preferred Stock is the 11 1/2 %
Senior PIK Preferred Stock due 2010, $.01 par value, (the "Senior PIK Preferred
Stock"), and the number of shares of such Senior PIK Preferred Stock is
800,000."

     3.   The last two sentences of section (d)(i) of the Certificate of
Determination of the Corporation are hereby deleted and replaced in their
entirety with the following:

          "Any dividend on the Senior PIK Preferred Stock payable pursuant to
this paragraph (d)(i) on or prior to April 15, 2004 shall be, at the option of
the Company, payable (1) in cash or (2) through the issuance of a number of
additional shares (including fractional shares) of Senior PIK Preferred Stock
(the "Additional Shares") equal to the dividend amount divided by the
Liquidation Preference of such Additional Shares. With respect to dividends
payable after April 15, 2004, all dividends shall be payable solely in cash."

     4.   Section (g)(ii)(A)(1) of the Certificate of Determination of the
Corporation is hereby deleted and replaced in its entirety with the following:

          "dividends on the Senior PIK Preferred Stock are in arrears and
unpaid and, in the case of dividends payable after April 15, 2004, are not paid
in cash for six or more Dividend Periods (whether or not consecutive) (a
"Dividend Default");"

     5.   The above amendment of the Certificate of Determination has been
approved by the Board of Directors of the Corporation.

     6.   The foregoing amendment of the Certificate of Determination has been
duly approved by the required vote of the shareholders of each class of stock of
the Corporation in accordance with Section 903 of the California Corporations
Code. The total number of outstanding shares of each class entitled to vote with
respect to the amendment was 10,654,293 Common shares, 526,028 Senior PIK
Preferred shares and 3,000 Junior Preferred shares. The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the common shares, more than 50% of the
Senior PIK Preferred Shares and more than two-thirds of the Junior Preferred
Shares.

<PAGE>

     We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

     Executed at Los Angeles, California on May 20, 2003.


                                        /s/ Charles A. French
                                        ----------------------------------------
                                        Charles A. French, President


                                        /s/ Patrick Young
                                        ----------------------------------------
                                        Patrick Yount, Secretary

<PAGE>

                         Certificate of Amendment of the
                Amended and Restated Certificate of Determination
                         of Hudson Respiratory Care Inc.
               for its 11 1/2% Senior PIK Preferred Stock due 2010

     Charles A. French and Patrick Yount certify that:

     1.   They are the duly elected and acting President and Secretary,
respectively, of Hudson Respiratory Care Inc., a California corporation (the
"Corporation").

     2.   The Corporation filed an Amended and Restated Certificate of
Determination for its 11 1/2% Senior PIK Preferred Stock due 2010 (the
"Certificate of Determination") with the California Secretary of State on April
8, 1998 (as amended on May 27, 2003).

     3.   The last two sentences of section (d)(i) of the Certificate of
Determination of the Corporation are hereby deleted and replaced in their
entirety with the following:

          "Any dividend on the Senior PIK Preferred Stock payable pursuant to
this paragraph (d)(i) on or prior to April 15, 2005 shall be, at the option of
the Company, payable (1) in cash or (2) through the issuance of a number of
additional shares (including fractional shares) of Senior PIK Preferred Stock
(the "Additional Shares") equal to the dividend amount divided by the
Liquidation Preference of such Additional Shares. With respect to dividends
payable after April 15, 2005, all dividends shall be payable solely in cash."

     4    Section (g)(ii)(A)(1) of the Certificate of Determination of the
Corporation is hereby deleted and replaced in its entirety with the following:

          "dividends on the Senior PIK Preferred Stock are in arrears and
unpaid and, in the case of dividends payable after April 15, 2005, are not paid
in cash for six or more Dividend Periods (whether or not consecutive) (a
"Dividend Default");"

     5    The above amendment of the Certificate of Determination has been
approved by the Board of Directors of the Corporation.

     6    The foregoing amendment of the Certificate of Determination has been
duly approved by the required vote of the shareholders of each class of stock of
the Corporation in accordance with Section 903 of the California Corporations
Code. The total number of outstanding shares of each class entitled to vote with
respect to the amendment was 10,654,293 shares of common stock, 526,028 shares
of 11 1/2% Senior PIK Preferred Stock due 2010 and 3,000 shares of 12% Junior
Convertible Preferred Stock. No shares of the Corporation's 11 1/2% Senior
Redeemable PIK Preferred Stock have been issued. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the common shares, more than 50% of the
Senior PIK Preferred Shares and more than two-thirds of the Junior Preferred
Shares.

<PAGE>

     We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

     Executed at Los Angeles, California on October 2, 2003.


                                        /s/ Charles A. French
                                        ----------------------------------------
                                        Charles A. French, President


                                        /s/ Patrick Yount
                                        ----------------------------------------
                                        Patrick Yount, Secretary

<PAGE>

                   CERTIFICATE OF DETERMINATION OF PREFERENCES

             OF 12% JUNIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK OF

                          HUDSON RESPIRATORY CARE INC.

                            a California corporation

     The undersigned certify that:

     A.   They are the President and Secretary, respectively , of Hudson
Respiratory Care Inc., a California corporation (the "Company").

     B.   The authorized number of shares of Preferred Stock is 2,000,000 of
which 397,694 shares have been issued. The authorized number of shares of 12%
Junior Convertible Cumulative Preferred Stock is 10,000 shares, none of which
has been issued.

     C.   Pursuant to the authority given by the Company's Amended and Restated
Articles of Incorporation, the Board of Directors of the Corporation (the
"Board") duly has approved and adopted the following recitals and resolutions:

     WHEREAS, the Articles of Incorporation of the Company authorize the Board
of Directors to determine the designations and powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidation preference, of any series of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series.

     NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish a series of Preferred Stock as follows:

     (a)  The designation of such series of Preferred Stock is the 12% Junior
Convertible Cumulative Preferred Stock (the "Junior Preferred Stock"), and the
number of shares of such Junior Preferred Stock is 10,000;

     (b)  The designations and powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation, the dividend rate,
conversion rights, redemption price and liquidations preference granted to and
imposed upon Junior Preferred Stock and the holders thereof (the "Holders")
shall be as set forth below:

     (c)  Ranking. The Junior Preferred Stock will, with respect to dividend
rights and rights on liquidations, winding-up and dissolutions, rank (i) senior
to common stock of the Company (the "Common Stock") and to each other series of
Preferred Stock established hereafter by the Board of Directors the terms of
which do not expressly provide that it ranks senior to, or on parity with, the
Junior Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution of the Company, (ii) junior to the 111/2% Senior PIK
Preferred Stock due 2010 (the "Senior PIK Preferred Stock") as to dividend
rights and rights on

<PAGE>

liquidation, winding-up and dissolution of the Company, and (iii) on a parity
with each other series of Preferred Stock established hereafter by the Board of
Directors, the terms of which expressly provide that such class or series will
rank on a parity with the Junior Preferred as to dividend rights and right on
liquidation, winding-up and dissolutions (collectively referred to as "Parity
Stock").

     (d)  Dividends.

          (i)    The holders of shares of Junior Preferred Stock then
outstanding shall be entitled to receive, prior to any payment or declaration of
dividends in respect of the outstanding Common Stock or any other capital stock
of the Company (other than the Senior Preferred Stock or Parity Stock), when and
if declared by the Board, out of funds legally available for the payment of
dividends, cumulative dividends at the rate of (a) $120 per share plus (b) an
amount determined by applying a 12% annual rate compounded semi-annually to any
accrued but unpaid dividend amount from the last day of the period when such
dividend accrues to the actual date of payment of such dividend. Such dividends
on the outstanding shares of Junior Preferred Stock shall be payable on each
April 15 and October 15 (each such date being a "Dividend Payment Date"). The
Board may fix a record date for the determination of holders of shares of Junior
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall not be more than 60 days prior to the date fixed for the
payment thereof. Each of such semi-annual dividends (whether payable in cash or
in stock) shall be fully cumulative and shall accrue from day to day (whether or
not declared) from the first day of each period in which such dividend may be
payable as herein provided, except that with respect to the first semi-annual
dividend, such dividend shall accrue from the date of issuance of the Junior
Preferred Stock. Dividends, when, as permitted by the debt agreements of the
Company or any of its Subsidiaries, or, at the Company's option, by issuing
shares, of Junior Preferred Stock shall constitute full payment of the Dividend.

          (ii)   All dividends paid with respect to shares of the Junior
Preferred Stock pursuant to this paragraph (d) shall be paid pro rata to the
Holders entitled thereto.

          (iii)  No full dividends may be declared or paid or funds set apart
for the payment of dividends by the Company on the Junior Preferred Stock for
any period unless full cumulative dividends with respect to each Dividend
Payment Date ending on or before such period shall have been or
contemporaneously are declared and paid in full or declared and, if payable in
cash, a sufficient sum in cash set apart for such payment on the Senior PIK
Preferred Stock. If full dividends are not so paid, the Parity Stock will share
dividends pro rata with the Junior Preferred Stock.

          (iv)   No dividend whatsoever may be declared or paid upon, or any
sum set apart for the payment of dividends upon, any outstanding share of the
Junior Preferred Stock with respect to any Dividend Period unless all dividends
for all preceding Dividend Periods have been declared and paid or declared and,
if payable in cash, a sufficient sum in cash set apart for the payment of such
dividend, upon all outstanding shares of Junior Preferred Stock.

          (v)    No full dividends may be declared or paid or funds set apart
for the payment of dividends by the Company on any Parity Stock for any period
unless full cumulative

<PAGE>

dividends in respect of each Dividend Period ending on or before such period
shall have been or contemporaneously are declared and paid in full or declared
and, if payable in cash, a sufficient sum in cash set apart for such payment on
the Junior Preferred Stock. If full dividends are not so paid, the Junior
Preferred Stock will share dividends pro rata with the Parity Stock.

          (vi)   The Company will not (A) declare, pay or set apart funds for
the payment of any dividend or other distribution with respect to any Junior
Stock or (B) repurchase, redeem or otherwise retire any Junior Stock or Parity
Stock, nor may funds be set apart for payment with respect thereto, unless all
accrued and unpaid dividends with respect to the Junior Preferred Stock at the
time such dividends are payable have been paid or funds have been set apart for
payment of such dividends, if payable in cash. As used herein, the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock.

          (vii)  Dividends on account of arrears for any past Dividend Period
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors of the Company.

          (viii) Dividends payable on the Junior Preferred Stock for any period
other than a Dividend Period shall be computed on the basis of a 360-day year
comprised of twelve 30-day months and the actual number of days elapsed in the
period for which payable and will be deemed to accrue on a daily basis.
Dividends payable on the Junior Preferred Stock for a full Dividend Period will
be computed by dividing the per annum dividend rate by two.

     (e)  Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, each Holder of Junior
Preferred Stock will be entitled to be paid, out of the assets of the Company
available for distribution to its shareholders, an amount (the "Liquidation
Preference") equal to the sum of (i) $1,000 per share of Junior Preferred Stock
held by such Holder plus (ii) an amount in cash equal to all accumulated and
unpaid dividends (whether or not declared, and including any accrual amounts
thereon as provided in subsection (d)(i) above) thereon to the date fixed for
liquidation, dissolution or winding-up before any distribution is made on any
Junior Stock, including, without limitation, common stock of the Company. All
assets or surplus funds of the Company available for distribution to its
shareholders, whether such assets are capital, surplus or earnings, shall be
distributed in the following order of priority:

          (i)    First, ratably among the holders of the Senior PIK Preferred
Stock (in proportion to the full liquidation preference and accumulated and
unpaid dividends that would be payable on such shares of Senior PIK Preferred
Stock, if amounts payable thereon had been paid in full);

          (ii)   Second, ratably among the holders of the Junior Preferred
Stock and the Parity Stock (in proportion to the full liquidation preference and
accumulated and unpaid dividends that would be payable on such shares of Junior
Preferred Stock and the Parity Stock, respectively, if all amounts payable
thereon had been paid in full) in any distribution of assets of the Company to
which each is entitled.

<PAGE>

          (iii)  Third, ratably among the holders of the Junior Stock.

          After payment of the full amount of the Liquidation Preference of the
outstanding shares of Junior Preferred Stock (plus all accumulated and unpaid
dividends), the holders of shares of Junior Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Company.

          For the purposes of this paragraph (e), neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.

     (f)  Optional Redemption.

          (i)    Each share of the Junior Preferred Stock may be redeemed at
any time or from time to time, in whole or in part, at the option of the Company
at the redemption price of the 100% of the Liquidation Preference of such
share(the "Redemption Price").

          (ii)   In the event of a redemption of only a portion of the then
outstanding shares of Junior Preferred Stock, the Company shall effect such
redemption on a pro rata basis, except that the Company may redeem all of the
shares held by Holders of fewer than 100 shares (or all of the shares held by
Holders who would hold lower than 100 shares as a result of such redemption), as
may be determined by the Company.

          (iii)  Procedure for Optional Redemption.

                 (A)  On and after the Optional Redemption Date (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Junior
Preferred Stock called for redemption and all rights of Holders of such shares
will terminate except for the right to receive the Optional Redemption Price,
without interest; provided, however, that if a notice of redemption shall have
been given as provided in subparagraph (iii)(B) and the funds necessary for
redemption (including an amount in respect of all dividends that will accrue to
the Redemption Date) shall have been segregated and irrevocably set apart by the
Company, in trust for the benefit of the Holders of the shares called for
redemption, then dividends shall cease to accumulate on the Redemption Date on
the shares to be redeemed and, at the close of business on the day on which such
funds are segregated and set apart, the Holders of the shares to be redeemed
shall, with respect to the shares to be redeemed, cease to be Stockholders of
the Company and shall be entitled only to receive the Optional Redemption Price,
for such shares without interest from the Redemption Date.

                 (B)  With respect to a redemption, the Company will send a
written notice of redemption by first class mail to each holder of record of
shares of Junior Preferred Stock, not fewer than 30 days nor more than 60 days
prior to the Redemption Date at its registered address (the "Redemption Notice")
and notice, if mailed in the manner herein provided, shall conclusively be
presumed to have been given, whether or not the Holder receives such notice;
provided, however, that no failure to give such notice nor any deficiency
therein


<PAGE>

shall affect the validity of the procedure for the redemption of any shares of
Junior Preferred Stock to be redeemed except as to the Holder or Holders to whom
the Company has failed to give said notice or except as to the Holder or Holders
whose notice was defective. The Redemption Notice shall state:

                      (1)  the Optional Redemption Price;

                      (2)  whether all or less than all the outstanding shares
                           of Junior Preferred Stock are to be redeemed and the
                           total number of shares of Junior Preferred Stock
                           being redeemed;

                      (3)  the Redemption Date;

                      (4)  that the Holder is to surrender to the Company, in
                           the manner, at the place or places and at the price
                           designated, his certificate or certificates
                           representing the shares of Junior Preferred Stock to
                           be redeemed; and

                      (5)  that dividends on the shares of the Junior Preferred
                           Stock to be redeemed shall cease to accumulate on
                           such Redemption Date unless the Company defaults in
                           the payment of the Optional Redemption Price.

                 (C)  Each Holder of Junior Preferred Stock shall surrender the
certificate or certificates representing such shares of Junior Preferred Stock
to the Company, duly endorsed (or otherwise in proper form for transfer, as
determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption
Price, for such shares shall be payable in cash to the person whose name appears
on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.

     (g)  Voting Rights.

          (i)    The Holders of Junior Preferred Stock, in addition to any
other voting rights required under California law, shall be entitled, subject to
paragraph (g)(ii)(A), to cast a one-half vote per share on matters required or
permitted to be voted upon by the shareholders of the Company, and the Junior
Preferred Stock shall vote together with the Company's common stock ("Common
Stock") as a single class on all such matters. Further, the Holders of the
Junior Preferred Stock, voting as a separate class, shall have the voting rights
set forth in paragraph (g)(ii).

          (ii)   (A)  So long as any shares of Junior Preferred Stock are
outstanding, the Company will not authorize, create or increase the authorized
amount of any class or series of Capital Stock or Preferred Stock, the terms of
which expressly provide that such class or series will rank senior to the Junior
Preferred Stock as to dividend rights and rights upon liquidation, winding-up
and dissolution of the Company (collectively referred to as "Senior Stock") or
Parity Stock without the affirmative vote or consent of Holders of at least
two-thirds of the shares of


<PAGE>

Junior Preferred Stock then outstanding, voting or consenting, as the case may
be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.

                 (B)  So long as any shares of the Junior Preferred Stock are
outstanding, the Company will not amend this Certificate of Determination so as
to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Junior Preferred Stock or to authorize the
issuance of any additional shares of Junior Preferred Stock (except to authorize
the issuance of additional shares of Junior Preferred Stock to be paid as
dividends on the Junior Preferred Stock, for which no consent shall be
necessary) without the affirmative vote or consent of Holders of at least a
majority of the issued and then outstanding shares of Junior Preferred Stock,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting; provided that this paragraph shall not prohibit the merger of the
Company and a Wholly Owned Subsidiary of the Company or the Company incorporated
in another state of the United States solely for the purpose of reincorporating
the Company to the extent that the surviving corporation issues to the Company
shares of a series of Preferred Stock having an aggregate liquidation preference
equal to the Liquidation Preference of the Junior Preferred Stock outstanding
immediately prior to such merger and terms and provisions substantially similar
to those of the Junior Preferred Stock.

                 (C)  Except as required under California law or as set forth
in paragraph (g)(ii)(A) or (B) above, (x) the creation, authorization or
issuance of any shares of any Junior Stock, Parity Stock or Senior Stock,
including the designation of a series thereof within the existing class of
Junior Preferred Stock, or (y) the increase or decrease in the amount of
authorized capital stock of any class, including any Junior Preferred Stock,
shall not require the consent of Holders of Junior Preferred Stock and shall not
be deemed to affect adversely the rights, preferences, privileges or voting
rights of shares of Junior Preferred Stock.

     (h)  Conversion or Exchange.

          (i)    Optional Conversion. Each share of Junior Preferred Stock
shall be convertible, without the payment of any additional consideration by the
Holder thereof and at the option of the Holder thereof, at any time after the
date of issuance of such share, at the office of the Company into such number of
fully paid and nonassessable shares of Common Stock as determined by dividing
$1,000 (the "Original Purchase Price") by the Conversion Price in effect at the
time of conversion. In addition, each Holder of Junior Preferred Stock shall
also receive in respect of each share converted all accrued and unpaid dividends
on such share payable at the election of the Holder, either (1) in a number of
additional shares of Common Stock obtained by dividing the amount of accrued and
unpaid dividends on each share of Junior Preferred Stock by the Conversion Price
in effect at the time of the conversion or (2) in cash in the amount of such
accrued and unpaid dividends on such share of Junior Preferred Stock. The
initial Conversion Price at which shares of Common Stock shall be deliverable
upon conversion(the "Conversion Price") shall be $10 per share. Such Conversion
Price shall be subject to adjustment as provided in section (h)(vi) below.

          (ii)   Automatic Conversion. Each share of Junior Preferred Stock
shall automatically be converted into that number of shares of Common Stock as
determined by


<PAGE>

dividing $1,000 (the "Original Purchase Price") by the Conversion Price in
effect at the time of conversion. In addition, each Holder of Junior Preferred
Stock shall also received for accrued and unpaid dividends on each share,
subject to the election of the Holder, either (1) a number of additional shares
of Common Stock obtained by dividing the amount of accrued and unpaid dividends
on each share of Junior Preferred Stock by the Conversion Price in effect at the
time of the conversion or (2) cash in the amount of such accrued and unpaid
dividends on such share of Junior Preferred Stock upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of the Company's Common Stock..

                 (B)  Additionally, each share series of Junior Preferred Stock
shall be automatically converted into shares of Common Stock at the Conversion
Price in effect at the time of conversion upon the optional conversion into
Common Stock of a cumulative number of shares of Junior Preferred Stock
representing two thirds of the aggregate number of shares of Junior Preferred
Stock theretofore issued by the Company.

          (iii)  Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Junior Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to such fraction multiplied by the Conversion Price.

          (iv)   Mechanics of Optional Conversion. Before any holder of Junior
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock, such Holder shall surrender the certificate or certificates therefor,
endorsed or accompanied by written instrument or instruments of transfer, in a
form satisfactory to the Company, duly executed by the registered Holder or by
such Holder's his or its attorney duly authorized in writing, at the office of
the Company, and shall give written notice to the Company at such office that
such holder elects to convert the same and shall state therein such Holder's
name or the names of the nominees in which such Holder wishers the certificate
or certificates for shares of Common Stock to be issued. The Company shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Junior Preferred Stock, or to his or its nominee or nominees, a certificate
or certificates for the number of shares of Common stock to which such holder
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Junior
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. From and after such date, all rights of the Holder with respect to the
Junior Preferred Stock so converted shall terminate, except only the right of
such holder, upon surrender of his or its certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock issuable upon
conversion thereof and cash for fractional shares.

          (v)    Mechanics of Automatic Conversion. All holders of record of
shares of Junior Preferred Stock will be given written notice of the date of any
automatic conversion referenced in Section (h) (ii). Such notice will be sent by
mail, first class, postage prepaid, to each record holder of Junior Preferred
Stock at such holder's address appearing on the stock register. Each holder of
shares of Junior Preferred Stock shall, promptly after receiving such


<PAGE>

notice, surrender such holder's certificate or certificates for all such shares
to the Company at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock or other
securities to which such holder is entitled. Upon the date of any such automatic
conversion, all rights with respect to the Junior Preferred Stock will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock or other securities into which such Junior
Preferred Stock has been converted and cash for fractional shares, plus any
dividends thereon declared and unpaid as of the time of such conversion. All
certificates evidencing shares of Junior Preferred Stock which are automatically
converted in accordance with the provisions hereof shall, from and after the
date of such automatic conversion, be deemed to have been retired and canceled
and the shares of Junior Preferred Stock represented thereby converted into
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates. As soon as practicable after the
date of any such automatic conversion and the surrender of the certificate or
certificates for Junior Preferred Stock as aforesaid, the Company shall cause to
be issued and delivered to such holder, or to such holder's written order, a
certificate or certificates for the number of full shares of Common Stock or
other securities issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection (h) (iii) in respect of any fraction
of a share of Common Stock otherwise issuable upon such conversion.

          (vi)   Certain Adjustments to Conversion Price.

                 (A)  Adjustment for Stock Splits, Stock Dividends and
Combinations of Common Stock. In the event the outstanding shares of Common
Stock shall, after the filing of this Certificate of Designation, be further
subdivided (split), or combined (reverse split), by reclassification or
otherwise, or in the event of any dividend or other distribution payable on the
Common Stock in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision, combination, dividend or other
distribution shall, concurrently with the effectiveness of such subdivision,
combination or dividend or other distribution, be proportionately adjusted.

                 (B)  Adjustment for Merger or Reorganization, Etc. In case of
a reclassification, reorganization or exchange transaction or any consolidation
or merger of the Company with another corporation (other than a merger or other
reorganization which is deemed to be a liquidation pursuant to Section (d)),
each share of Junior Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Company deliverable upon conversion
of such Junior Preferred Stock would have been entitled upon such
reclassification, reorganization, exchange, consolidation, merger or conveyance;
and, in any such case, appropriate adjustment (as determined by the Board) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of the Junior Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Junior Preferred Stock.

<PAGE>

                 (C)  Adjustments for Other Dividends and Distributions. In the
event the Company at any time or from time to time after the filing of this
Certificate of Determination makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company other than shares of Common Stock, then and
in each such event provision shall be made so that the holders of Junior
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Company which they would have received had their Junior Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section (h) with respect to the rights of the holders of the Junior
Preferred Stock.

          (i)    Reissuance of Junior Preferred Stock. Shares of Junior
Preferred Stock that have been issued and reacquired in any manner shall not be
reissued as shares of Junior Preferred Stock and shall (upon compliance with any
applicable provisions of the laws of California) have the status of authorized
and unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock; provided,
however, that so long as any shares of Junior Preferred Stock are outstanding,
any issuance of such shares must be in compliance with the terms hereof.

          (j)    Certificates.

                 (i)   Form and Dating. The Junior Preferred Stock shall be in
the form approved by the Company in accordance with the applicable provision of
the laws of California. The Junior Preferred Stock certificate may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).

                 (ii)  Execution. Two Officers shall sign the certificates
representing Junior Preferred Stock for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Junior Preferred Stock and may be in facsimile form.

                 (iii) Legend. Each certificate evidencing the Junior Preferred
Stock shall bear a legend in substantially the following form:

     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
A TRANSACTION REGISTERED UNDER SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
THEREFROM UNDER SAID ACT OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER.

     RESOLVED FURTHER, that the President and Secretary of the Company are
hereby authorized and directed to execute, acknowledge, file and record a
Certificate of Determination of Preferences in accordance with the foregoing
resolutions and provisions of California law.


<PAGE>

     The undersigned each further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of his own knowledge and that this certificate has been
executed on August 2, 2001 in Temecula, California.


                                        /s/ Richard W. Johansen
                                        ----------------------------------------
                                        Richard W. Johansen, President


                                        /s/ Patrick Yount
                                        ----------------------------------------
                                        Patrick Yount, Secretary