<PAGE>   1
                                                                   Exhibit 3.10

               CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES
             AND RIGHTS OF SERIES 1999-A CONVERTIBLE PREFERRED STOCK

                                       OF

                                   ECOGEN INC.

                                       ***

         Ecogen Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware,

         DOES HEREBY CERTIFY THAT:

         1. The name of the corporation is Ecogen Inc.

         2. A Certificate of Designations, Preferences and Rights of Series
1999-A Convertible Preferred Stock was filed in the Office of the Secretary of
State of Delaware on May 11, 1999, and that said Certificate requires correction
as permitted by Section 103(f) of the General Corporation Law of the State of
Delaware.

         3. The inaccuracies or defects to be corrected are as follows:

                  (a) Several section and subsection headings contain incorrect
         reference numbers and/or letters; and

                  (b) The date "March 11, 1999" appearing in the definitions of
         "Purchase Agreement" and "Registration Rights Agreement" should be
         restated to read "Original Issue Date".

         4. The Certificate is corrected to read in its entirety as set forth as
Annex I attached hereto.

         IN WITNESS WHEREOF, Ecogen Inc. has caused this Certificate to be
signed by James P. Reilly, Jr., its Chairman and Chief Executive Officer, this
12th day of May, 1999.

                                         ECOGEN INC.

                                         By  /s/ James P. Reilly, Jr.
                                             -----------------------------------
                                             Name:  James P. Reilly, Jr.
                                             Title: Chairman and Chief Executive
                                                    Officer



<PAGE>   2
                                                                      ANNEX I TO
                                                                    EXHIBIT 3.10

                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
             AND RIGHTS OF SERIES 1999-A CONVERTIBLE PREFERRED STOCK

                                       OF

                                   ECOGEN INC.

                                       ***


         Ecogen Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware,

         DOES HEREBY CERTIFY:

         That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation (as amended) of said corporation, and pursuant
to the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors, adopted a resolution, which resolution is as follows:

                  RESOLVED, that a series of the Company's Preferred Stock
         consisting of 30,000 shares of Preferred Stock, be and hereby is,
         designated as "7% Series 1999-A Convertible Preferred Stock", par value
         $.01 per share (the "Series A Preferred Stock"), and that the Series A
         Preferred Stock shall have the designations, powers, preferences,
         rights and qualifications, limitations and restrictions as set forth in
         the Certificate of Designations, Preferences and Rights of Series
         1999-A Convertible Preferred Stock (the "Series A Certificate")
         attached as Exhibit A.

         That said Series A Certificate states that the Board of Directors does
hereby fix and herein state and express such designations, powers, preferences
and relative and other special rights and qualifications, limitations and
restrictions thereof as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings provided
therein).

                  Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series 1999-A Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated shall be
30,000 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock (each,



<PAGE>   3



a "Holder" and collectively, the "Holders")). Each share of Preferred Stock
shall have a par value of $.01 and a stated value of $100.00 (the "Stated
Value"). Of the designated shares of Preferred Stock, 15,000 shares of Preferred
Stock are being issued initially, and up to 15,000 shares of Preferred Stock are
being authorized for payment of dividends in shares of Preferred Stock when, as
and if, declared by the Board of Directors.

                  Section 2. Dividends.

                  (a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per share
(as a percentage of the Stated Value per share) equal to 7% per annum (the
"Dividend Rate"), payable on a semi-annual basis on June 30 and December 31 of
each year during the term hereof (each a "Dividend Payment Date"), commencing on
June 30, 1999, in cash or shares of Preferred Stock (the "Preferred Dividend"),
provided, that in connection with a conversion of the Preferred Stock, the
Company shall be entitled to pay dividends in the form of Common Stock, subject
to the terms and conditions set forth herein, at the option of the Company.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Any dividends not paid
on any Dividend Payment Date shall continue to accrue and shall be due and
payable upon conversion of the Preferred Stock. A party that holds shares of
Preferred Stock on a Dividend Payment Date will be entitled to receive such
dividend payment and any other accrued and unpaid dividends which accrued prior
to such Dividend Payment Date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date. Except as otherwise
provided herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of Preferred Stock, such payment shall be
distributed ratably among the Holders based upon the number of shares held by
each Holder. The Company shall provide the Holders notice of its intention to
pay dividends in cash or shares of Preferred Stock not less than ten (10)
Business Days prior to any Dividend Payment Date for as long as shares of
Preferred Stock are outstanding. If dividends are paid in the form of Preferred
Stock, the number of shares of Preferred Stock issuable on account of such
dividend shall equal the cash amount of such dividend on such Dividend Payment
Date divided by the Stated Value. If dividends are paid in shares of Common
Stock, the number of shares of Common Stock issuable on account of such dividend
shall equal the cash amount of such dividend on such Dividend Payment Date
divided by the Conversion Price (as defined below) on such date. The Company
shall not be required to issue stock certificates representing fractions of
shares of Preferred Stock and shall make a cash payment in respect of any final
fraction of a share based on the product of such fractional share and the Stated
Value.


                                       -2-

<PAGE>   4



                  (b) Notwithstanding anything to the contrary contained herein,
the Company may not pay dividends in the form of Preferred Dividends or in
shares of Common Stock and must deliver cash in respect thereof if on the
Dividend Payment Date:

                           (i) (A) the number of shares of Preferred Stock at
the time authorized for issuance for the payment of Preferred Dividends on such
Dividend Payment Date, together with the number of shares held as treasury
stock, is insufficient to satisfy the Company's then existing obligations to
issue shares of Preferred Stock for the payment of such Preferred Dividends on
such Dividend Payment Date, or (B) the sum of (i) the number of shares of Common
Stock at the time reserved for issuance upon conversion of (x) the shares of
Preferred Stock outstanding on such Dividend Payment Date, and (y) the Preferred
Dividends on such Dividend Payment Date, (ii) the number of authorized but
unissued shares of Common stock not reserved for any purpose, and (iii) the
number of shares held as treasury stock, is insufficient to satisfy the
Company's then existing conversion and other obligations to issue shares of
Common Stock for all purposes;

                           (ii) the Common Stock is not then listed on the
Nasdaq National Market ("NASDAQ"), the NASDAQ SmallCap Market or other national
securities exchange; or

                           (iii) the Company has failed to timely satisfy its
conversion obligations hereunder.

                  (c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution upon, nor shall any distribution be made in
respect of, any Junior Securities, nor shall any moneys be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities, except for repurchases effected by the Company on the
open market, pursuant to a direct stock purchase plan or in connection with the
Company's 401(k) plan.

                  Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the Holders of all of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock, (b) alter or amend this Certificate of
Designations, (c) authorize or create any class of stock ranking as to dividends
or


                                       -3-

<PAGE>   5



distribution of assets upon a Liquidation (as defined in Section 4) senior to
the Preferred Stock, except for any series of Preferred Stock issued and sold in
accordance with the Purchase Agreement, (d) increase the authorized number of
shares of Preferred Stock or (e) enter into any agreement with respect to the
foregoing.

                  Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders of Preferred Stock shall be distributed among the
Holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than forty-five (45) days prior
to the payment date stated therein, to each record Holder of Preferred Stock.

                  Section 5. Conversion.

                  (a) (i) Each share of Preferred Stock shall be convertible
into shares of Common Stock (subject to limitation or reduction pursuant to
Sections 5(a)(ii) and (a)(iii) hereof) at the Conversion Ratio (as defined in
Section 8) at the option of the Holder, at any time and from time to time, from
and after the date (the "Initial Conversion Date") which is the earlier of (i)
the date the Underlying Securities Registration Statement (as defined in Section
8) is declared effective by the Commission, or (ii) the 120th day following the
Original Issue Date; provided, that, (A) on and after the Initial Conversion
Date, the Holders shall only be entitled to convert up to (i) 25% of the number
of shares of Preferred Stock originally issued on the Original Issue Date, and
(ii) any Preferred Dividends issued on such shares of Preferred Stock, (B) on
and after the first month anniversary of the Initial Conversion Date, the
Holders shall only be entitled to convert up to (i) 50% of the number of shares
of Preferred Stock originally issued on the Original Issue Date, and (ii) any
Preferred Dividends issued on such shares of Preferred Stock, (C) on and after
the second month anniversary of the Initial Conversion Date, the Holders shall
only be entitled to covert up to (i) 75% of the number of shares of Preferred
Stock, originally issued on the Original Issue Date, and (ii) any Preferred
Dividends issued on such shares of Preferred Stock, and (D) on and after the
third month anniversary of the


                                       -4-

<PAGE>   6



Initial Conversion Date, the Holders shall be entitled to convert all of the
shares of Preferred Stock originally issued on the Original Issue Date, together
with all Preferred Dividends issued on such shares of Preferred Stock. Holders
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as Annex I ( a
"Conversion Notice"). Each Conversion Notice shall specify the number of shares
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice to the Company by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date shall
be the date that the Conversion Notice is deemed delivered to the Company
hereunder. If the Holder is converting less than all shares of Preferred Stock
represented by the certificate or certificates tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall promptly deliver to such Holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.

                           (ii)(1) A Holder may not convert shares of Preferred
Stock (including, without limitation, shares of Preferred Stock issued as
payment of dividends hereunder) or receive shares of Common Stock in payment of
dividends hereunder to the extent such conversion or receipt would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act (as hereinafter defined)
and the rules thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies and to
the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which shares of Preferred Stock are
convertible shall be in the sole discretion of the Holder, and the Company shall
have no obligation to verify or confirm the accuracy of any such determination.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 75 days prior notice to the
Company, and the provisions of this Section shall continue to apply until such
75th day (or later, if stated in the notice of waiver). Other Holders shall be
unaffected by any such waiver.

                           (2) A Holder may not convert shares of Preferred
Stock (including, without limitation, shares of Preferred Stock as payment of
dividends hereunder) or receive shares of Common Stock in payment of dividends
hereunder to the extent such conversion or receipt would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock. The
Holder shall have the sole authority and obligation to determine whether the
restriction contained in this Section applies and to the


                                       -5-

<PAGE>   7



extent that the Holder determines that the limitation contained in this Section
applies, the determination of which shares of Preferred Stock are convertible
shall be in the sole discretion of the Holder and the Company shall have no
obligation to verify or confirm the accuracy of any such determination. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 75 days prior notice to the Company
(or later, if stated in the notice of waiver). Other Holders shall be unaffected
by any such waiver.

                           (iii) At no time while the Common Stock is listed for
trading on the NASDAQ or the Nasdaq SmallCap Market shall the Company issue on
conversions of Preferred Stock an aggregate number of shares of Common Stock
that, when added to the number of shares underlying the Trigger Warrants (as
hereinafter defined) if the same were to be issued at such time, would equal or
exceed 20% of the number of shares of Common Stock issued and outstanding on the
Original Issue Date unless the Company shall have theretofore (A) obtained the
vote of shareholders ("Shareholder Approval"), if any, as may be required by the
rules and regulations of the Nasdaq Stock Market (or successor thereto)
applicable to approve the issuance of Common Stock in excess of the Issuable
Maximum in a private placement whereby shares of Common Stock are deemed to have
been issued at a price that is less than the greater of book or fair market
value of the Common Stock, or (B) obtained an exemption from the requirement for
Shareholder Approval from The Nasdaq Stock Market (a "Nasdaq Exemption"). The
maximum number of shares of Common Stock that can be issued on conversions of
Preferred Stock under this Section 5(a)(ii) is referred to as the "Issuable
Maximum." At such time as the Company has issued, on conversions of Preferred
Stock, a number of shares of Common Stock equal to the Issuable Maximum and has
not theretofore obtained Shareholder Approval or a Nasdaq Exemption (the
"Trigger Date"), the Company shall either (i) redeem all outstanding shares of
Preferred Stock and Preferred Dividends at a price equal to the Optional
Redemption Price (as defined in Section 6(c) hereof) pursuant to the terms and
conditions of Section 6(c) hereof (the "Initial Optional Redemption"), provided,
that the conditions listed in Section 6(a)(i)-(iii) shall not apply to the
Initial Optional Redemption, or (ii) within a period of 75 days from the Trigger
Date (the "Trigger Period") obtain Shareholder Approval or a Nasdaq Exemption.
On the Trigger Date, if the Company has not exercised its right to effect the
Initial Optional Redemption, the Company shall issue to the Holders (and
distribute pro rata among the Holders based on the relative number of shares of
Preferred Stock held) warrants (the "Trigger Warrants") to purchase a number of
shares of Common Stock equal to 15% of the quotient obtained by dividing (x) the
Stated Value of the Excess Preferred Stock (as defined below) by (y) the lower
of the Per Share Market Value on the Trigger Date or on the date such warrants
are actually distributed to the Holders (the Trigger Date or such other date, as
applicable, is referred to as the "Measurement Date"). Such warrants shall be
substantially in the form attached as Exhibit B to the Purchase Agreement and
shall entitle the holders thereof to purchase shares of Common Stock at any time
during the


                                       -6-

<PAGE>   8



five year period following the date on which such warrants are actually
distributed to the Holders at an exercise price per share equal to 101% of the
Per Share Market Value on the Measurement Date. From and after the Trigger Date
until the earlier of (I) the date on which a Shareholder Approval or a Nasdaq
Exemption has been obtained, and (II) the expiration of the Trigger Period, the
Dividend Rate shall be increased to 16% per annum. From and after the expiration
of the Trigger Period, if the Company shall not have theretofore obtained either
the Shareholder Approval or a Nasdaq Exemption, and until such date, if any, as
the Company obtains Shareholder Approval or a Nasdaq Exemption, the Dividend
Rate shall be increased to 20% per annum and the Optional Redemption Price (as
defined in Section 6(c)) with respect to any redemption taking place thereafter
shall be equal to the Redemption Amount (as defined in Section 8). Unless the
Company shall have theretofore obtained Shareholder Approval or a Nasdaq
Exemption, (I) if any Holder delivers a Conversion Notice as a result of which
such Holder would be entitled to a number of shares of Common Stock that would
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum, then the Company shall issue in connection with such
conversion such number of shares of Common Stock as would not result in the
aggregate issuances exceeding the Issuable Maximum; (II) if more than one Holder
has delivered a Conversion Notice at the same time as a result of which such
Holders would be entitled to a number of shares of Common Stock that would
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum, then the Company shall issue the maximum number of shares of
Common Stock permissible to such Holders pro rata in accordance with the number
of shares of Preferred Stock submitted for conversion; and (III) if at any time
the Conversion Price is such that if all then outstanding and unconverted shares
of Preferred Stock were converted into Common Stock the number of shares of
Common Stock that would be issued would equal or exceed 85% of the Issuable
Maximum, the Company shall give prompt notice thereof to all Holders. For
purposes of Shareholder Approval, the Company shall not count any vote of the
Holders with respect to shares of Common Stock issued in connection with a
conversion of the Preferred Stock and held by the Holders.

                           (iv) Notwithstanding anything herein to the contrary
set forth herein, unless the Company shall have previously either (A) received
the shareholder approval as may be required under Rule 4310(H)(i)(b) of the
NASDAQ Stock Market or (B) obtained an exemption from the requirement from the
NASDAQ Stock Market for such shareholder approval, a Holder shall not convert
shares of Preferred Stock (including, without limitation, shares of Preferred
Stock issued as payment of dividends hereunder) to the extent such conversion
would result in such Holder holding in excess of 25% of the number of shares of
Common Stock outstanding on the Original Issue Date.

                  (b) (i) Not later than three (3) Business Days after any
Delivery Date (as hereinafter defined), the Company will deliver to the Holder
(i) a certificate or certificates


                                       -7-

<PAGE>   9



which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock (subject to limitation and reduction pursuant to Sections
5(a)(ii) and (a)(iii)), and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Preferred Stock until certificates evidencing
such shares of Preferred Stock are either delivered for conversion to the
Company or any transfer agent for the Preferred Stock or Common Stock, or the
Holder of such Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith, and the Company shall not be required to
deliver certificates evidencing the shares of Common Stock to an address outside
the United States. The date such certificates or affidavit are delivered is
referred to as the "Delivery Date." If the Delivery Date has not occurred on or
prior to the tenth (10th) Business Day following the Conversion Date, then the
Company may, on notice to the Holder, rescind the conversion. The Company shall,
upon request of the Holder, if available, use its reasonable best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the fifth (5th) Trading Day after the
Delivery Date, the Holder shall be entitled by written notice to the Company at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion.

                           (ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, prior to the fifth (5th)
Trading Day after the Delivery Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each day after such
fifth (5th) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any


                                       -8-

<PAGE>   10



such rights shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of conversions of
Preferred Stock or as payment of dividends thereon by the fifth (5th) Trading
Day after the Conversion Date, the Holder may, subject to Sections 5(a)(ii) and
(a)(iii), by notice to the Company, require the Company to issue Underlying
Shares pursuant to Section 5(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such Underlying Shares will be subject to the provision of this Section.

                           (iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, prior to the fifth (5th) Trading Day after the
Delivery Date, and if after such fifth (5th) Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company
(A) shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder was entitled to receive from the conversion at
issue multiplied by (2) the market price of the Common Stock at the time of the
sale giving rise to such purchase obligation and (B) at the option of the
Holder, either return the shares of Preferred Stock for which such conversion
was not honored or deliver to such Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its conversion
and delivery obligations under Section 5(b)(i). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to which the market price of the Underlying Shares
on the date of conversion totaled $10,000, under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In. Notwithstanding anything contained
herein to the contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates hereunder and
the Company timely pays in full such payment, the Company shall not be required
to pay such Holder liquidated damages under section 5(b)(ii) in respect of the
certificates resulting in such Buy-In.

                           (iv) The provisions of clauses (ii) and (iii) of this
Section 5(b) shall not apply if the Company is not required to honor a
Conversion Notice other than by


                                       -9-

<PAGE>   11



reason of a breach by the Company of the terms hereof, of the Purchase Agreement
or of the Registration Rights Agreement.

                  (c) (i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(1) 120% of the average of the Per Share Market Values for the ten (10) Trading
Days immediately preceding the Original Issue Date (the "Initial Conversion
Price"), and (b) 95% of the average of the three (3) lowest Per Share Market
Values during the twenty (20) consecutive Trading Day period immediately
preceding the applicable Conversion Date; provided, however, that such twenty
(20) Trading Day period shall be extended for the number of Trading Days during
such period in which (A) trading in the Common Stock was suspended from the
NASDAQ or such other national securities exchange or market on which the Common
Stock is then listed, or (B) after the date of effectiveness, the Underlying
Securities Registration Statement ceases to be effective, or (C) after the date
of effectiveness, the Prospectus included in the Underlying Securities
Registration Statement may not be used by the Holder for the resale of
Underlying Shares. If: (a) the Underlying Securities Registration Statement is
not filed on or prior to the Filing Date (as defined in the Registration Rights
Agreement (if the Company files such Underlying Securities Registration
Statement without affording the Holder the opportunity to review and comment on
the same as required by Section 3(a) of the Registration Rights Agreement, the
Company shall be in violation of this clause (a)), or (b) the Company fails to
file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or will not
be subject to further review, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the 120th
day after the Original Issue Date, or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as such
term is defined in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as such term is defined in the
Registration Rights Agreement), without being succeeded within ten (10) Business
Days by a subsequent Underlying Securities Registration Statement filed with and
declared effective by the Commission, (e) trading in the Common Stock shall be
suspended from the NASDAQ (other than temporary suspensions of less than one day
pending release of material information by the Company), or (f) if the
conversion rights of the Holders are suspended for any reason (any such failure
or breach being referred to as an "Event," and for purpose of clauses (a), (c),
(e) and (f) the date on which such Event occurs, or for purposes of clause (b)
the date on which such five (5) day period is exceeded, or for purposes of
clause (d) the date which such 10 Trading Day-period is exceeded, being referred
to as "Event Date"), the Company shall, on the Event Date and on the first day
of each monthly anniversary of the


                                      -10-

<PAGE>   12



Event Date until such time as the applicable Event is cured, pay to the Holder
2.5% of the aggregate Stated Value of the shares of Preferred Stock then held by
such Holder, in cash, as liquidated damages and not as a penalty. The provisions
of this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.

                           (ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
subdivision, combination or reclassification.

                           (iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Initial Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of


                                      -11-

<PAGE>   13



offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights, warrants or options
actually exercised.

                           (iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options, or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price, then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of shares of
Common Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock so
issued or issuable, provided, that for purposes hereof, all shares of Common
Stock that are issuable upon exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.

                           (v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders of Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 5(c)(ii)-(iv) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, if the Holders of a majority in interest of the Preferred Stock
dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good


                                      -12-

<PAGE>   14



faith by the Holders of a majority in interest of the shares of Preferred Stock
then outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the Holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

                           (vi) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.

                           (vii) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(ii), (iii), (iv), or (v) the Company shall promptly
mail to each Holder, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

                           (viii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of the Common Stock of the Company
into which such shares of Preferred Stock could have been converted immediately
prior to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.

                           (ix) If (a) the Company shall declare a dividend (or
any other distribution) on its Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock, (c)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the


                                      -13-

<PAGE>   15



Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Preferred Stock, and shall cause to be mailed to the
Holders of Preferred Stock at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert shares of Preferred Stock during the 20 day period commencing the
date of such notice to the effective date of the event triggering such notice.

                           (x) No adjustment in the Conversion Price under
Sections 5(c)(ii), (iii), (iv) or (v) shall be required to be made if such
adjustment would result in a change of less than $.10 in the Conversion Price,
but any adjustments not made by reason of this clause (x) shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment(s) which, together with any adjustment(s) so carried forward, shall
require an increase or decrease of at least $.10 in the Conversion Price then in
effect.

                  (d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and Preferred
Dividends (assuming payment of all dividends in the form of Preferred Dividends
in accordance with the terms hereof), each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders of Preferred Stock, not less than such number of shares
of Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5(a)
and Section 5(c)) upon the conversion of all outstanding shares of Preferred
Stock and payment of dividends hereunder (assuming payment of all dividends in
shares of Preferred Stock in accordance with the terms hereof). The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradeable, subject to the legend requirements of Section 3.1(b) of the
Purchase Agreement.


                                      -14-

<PAGE>   16



                  (e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

                  (f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

                  (g) Shares of Preferred Stock converted into Common Stock
shall be canceled. The Company may not reissue any shares of Preferred Stock.

                  (h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Preferred Stock at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via confirmed facsimile at the facsimile telephone
number specified in this Section prior to 8:00 p.m. (Eastern Standard Time),
(ii) the date after the date of transmission, if such notice or communication is
delivered via confirmed facsimile at the facsimile telephone number specified in
this Section later than 8:00 p.m. (Eastern Standard Time) on any date and
earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.


                                      -15-

<PAGE>   17




                  Section 6. Optional Redemption.

                  (a) The Company shall have the right, exercisable at any time
upon not less than ten (10) Trading Days notice (an "Optional Redemption
Notice") to the Holders of the Preferred Stock given at any time after the
Original Issue Date, to redeem all or any portion of the shares of Preferred
Stock which have not previously been converted or redeemed, at a price equal to
the Optional Redemption Price (as defined below), provided, that the Company
shall not be entitled to deliver an Optional Redemption Notice to the Holders
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Company's
conversion obligations of all shares of Preferred Stock then outstanding, or
(ii) the shares of Common Stock issuable upon conversion of shares of Preferred
Stock then outstanding (x) are not registered for resale pursuant to an
effective registration statement that names the Holders as selling stockholders
thereunder or (y) may not be sold without volume restrictions pursuant to Rule
144 promulgated under the Securities Act of 1933, as amended, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed on the NASDAQ.
The entire Optional Redemption Price shall be paid in cash. Holders of Preferred
Stock may convert (and the Company shall honor such conversions in accordance
with the terms hereof) any shares of Preferred Stock, including shares subject
to an Optional Redemption Notice, during the period from the date thereof
through the 10th Trading Day after the receipt of an Optional Redemption Notice.

                  (b) If any portion of the Optional Redemption Price shall not
be paid by the Company within seven (7) calendar days after the tenth (10th)
Trading Day after the delivery of an Optional Redemption Notice, interest shall
accrue thereon at the rate of 15% per annum until the Optional Redemption Price
plus all such interest is paid in full. In addition, if any portion of the
Optional Redemption Price remains unpaid for more than seven (7) calendar days
after the date due, the Holder of the Preferred Stock subject to such redemption
may elect, by written notice to the Company given at any time thereafter, to
either (i) demand conversion of all or any portion of the shares of Preferred
Stock for which such Optional Redemption Price, plus accrued liquidated damages,
has not been paid in full (the "Unpaid Redemption Shares"), in which event the
Conversion Price for such shares shall be the lower of the Conversion Price
calculated on the date the Optional Redemption Price was originally due and the
Conversion Price as of the Holder's written demand for conversion, or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise


                                      -16-

<PAGE>   18



perform its obligations hereunder with respect thereto; or, if the Holder elects
option (ii) above, the Company shall promptly, and in any event not later than
three (3) Trading Days from receipt of Holder's notice of such election, return
to the Holder all of the Unpaid Redemption Shares.

                  (c) The "Optional Redemption Price" shall, except as provided
in Section 5(a)(ii), equal the sum of (i) 125% of the Stated Value of the shares
of Preferred Stock subject to redemption hereunder and all accrued but unpaid
dividends per share of Preferred Stock subject to redemption hereunder, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect of such
shares of Preferred Stock.

                  Section 7. Triggering Events.

                  (a) Upon the occurrence of a Triggering Event, each Holder
shall (in addition to all other rights it may have hereunder or under applicable
law), have the right, exercisable at the sole option of such Holder, to require
the Company to purchase all or a portion of the Preferred Stock then held by
such Holder for a redemption price, in cash, equal to the sum of (i) the Payment
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions hereunder and then held by the Holder and (B) the Per
Share Market Value on the date such purchase is demanded or the date the
redemption price hereunder is paid in full, whichever is greater. If the Company
fails to pay the redemption price hereunder in full pursuant to this Section
within seven (7) days after the date of a demand therefor, the Company will pay
interest thereon at a rate of 15% per annum, accruing daily from such seventh
day until the redemption price, plus all such interest thereon, is paid in full.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a conversion
(or attempted conversion) thereof.

                  (b) A "Triggering Event" means any one or more of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgement, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body);

                           (i) the failure of the Company to use its best
efforts to cause an Underlying Securities Registration Statement to be declared
effective by the Commission on or prior to the 180th day after the Original
Issue Date and such failure is not cured within five (5) days after notice from
a Holder;

                           (ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Securities Registration Statement lapses for any
reason for more than ten (10) consecutive Business Days or more than fifteen
(15) Business Days in any 12-month period, or the Holder shall have been advised
by the Company that is not permitted to


                                      -17-

<PAGE>   19



resell Registrable Securities under the Underlying Securities Registration
Statement for more than ten (10) consecutive Business Days or more than fifteen
(15) Business Days in any 12-month period, in each case other than (A) as a
result of a stop order or similar order issued by the Commission not at the
request of the Company; or (B) solely as a result of actions taken by the
Holder.

                           (iii) the Company shall fail for any reason to
deliver certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the 20th day after the
Delivery Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;

                           (iv) the Company shall be a party to any Change of
Control Transaction which has been approved by the Board of Directors of the
Company, and a Holder shall have given notice to the Company of its intention
that such Change of Control transaction be a Triggering Event;

                           (v) the Company shall fail to make any payments
required to be made under Sections 5(b)(ii), 5(b)(iii) or 5(c)(i) within thirty
(30) days after the same are due and such failure is not cured within five (5)
days after notice from a Holder;

                           (vi) the Company shall fail for any reason to pay all
amounts required pursuant to a Buy-In within seven (7) days after notice is
deemed delivered hereunder and such failure is not cured within five (5) days
after notice from a Holder; or

                           (vii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to issue
to such Holder upon a conversion hereunder.

                  Section 8. Definitions. For the purposes hereof, the following
terms shall have the following meanings:

                  "Business Day" means any day except Saturday, Sunday and any
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

                  "Change of Control Transaction" means the occurrence of any
of: (i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 50% of the voting securities of the Company, (ii) a sale or other
disposition via a single transaction or series of related transactions by the
Company or any of its subsidiaries of all or


                                      -18-

<PAGE>   20



substantially all of the assets of the Company and its subsidiaries, taken as a
whole, other than a sale to a wholly owned subsidiary of the Company; (iii) the
merger or consolidation of the Company with or into another entity, if the
stockholders of the Company immediately before such merger or consolidation do
not own, directly or indirectly, immediately following such merger or
consolidation, more than 50% of the combined voting power of the resulting
outstanding voting securities in substantially the same proportion as their
pre-merger or pre-consolidation ownership, or sale of all or substantially all
of the assets of the Company in one or a series of related transactions or (iv)
the execution by the Company of an agreement to which the Company is a party or
by which it is bound, providing for any of the events set forth above in (i),
(ii) or (iii).

                  "Common Stock" means the Company's common stock, $.01 par
value, and stock of any other class into which such shares may hereafter have
been reclassified or changed.

                  "Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued and unpaid dividends but only to the
extent not theretofore paid in shares of Preferred Stock in accordance with the
terms hereof, and of which the denominator is the Conversion Price at such time.

                  "Junior Securities" means the Common Stock and all other
equity securities of the Company which are junior in rights to dividends or
liquidation preference to the Preferred Stock.

                  "Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.

                  "Payment Amount" for each share of Preferred Stock means the
sum of (i) the greater of (A) 130% of the Stated Value and all accrued dividends
with respect to such share, and (B) the product of (a) the Per Share Market
Value on the Trading Day immediately preceding (x) the date of the Triggering
Event or the Conversion Date, as the case may be, or (y) the date of payment in
full by the Company of the applicable redemption price, whichever is greater,
and (b) the Conversion Ratio calculated on the date of the Triggering Event, or
the Conversion Date, as the case may be, and (ii) all other amounts, costs,
expenses and liquidated damages due in the respect of such shares of Preferred
Stock.

                  "Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or
the Nasdaq SmallCap Market, as the case may be, or any other stock exchange or
quotation system


                                      -19-

<PAGE>   21



on which the Common Stock is then listed, or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on which
the Common Stock is listed for trading on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on the NASDAQ or the Nasdaq
SmallCap Market or any stock exchange or quotation system, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an appraiser selected in good faith by
the Holders of a majority in interest of the shares of the Preferred Stock and
approved by the Company.

                  "Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.

                  "Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the May 11, 1999, among the Company and the
original Holder of the Preferred Stock, as amended, modified or supplemented
from time to time.

                  "Redemption Amount" for each share of Preferred Stock means
the greater of (A) the Optional Redemption Amount, or (B) the sum of (i) 116%
(the "Percentage") of the Stated Value and all accrued dividends with respect to
such share, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of such share of Preferred Stock, provided, that, if any
redemption pursuant to Section 5(a)(ii) occurs after the first anniversary of
the Original Issue Date but prior to the second anniversary of the Original
Issue Date, the Percentage shall increase to 132% for any such redemption
occurring during such period, thereafter, on each subsequent yearly anniversary
of the Original Issue Date, the Percentage shall be increased by an additional
16% for any such redemption occurring during such yearly period (e.g., the
Percentage shall be 148% for such redemption occurring after the second
anniversary of the Original Issue Date and prior to the third anniversary of the
Original Issue Date).

                  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the May 11, 1999, by and among the Company and the
original Holder of the Preferred Stock, as amended, modified or supplemented
from time to time.


                                      -20-

<PAGE>   22



                  "Trading Day" means (a) day on which the Common Stock is
traded on the NASDAQ or the Nasdaq SmallCap Market as the case may be, or other
securities market or exchange on which the Common Stock has been listed, or (b)
if the Common Stock is not listed on the NASDAQ or the Nasdaq SmallCap Market or
on any exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

                  "Underlying Securities Registration Statement" means a
registration statement that meets the requirement of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the recipient
thereof, who shall be named as a "selling stockholder" thereunder.

                  "Underlying Shares" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible in accordance
with the terms hereof.


                                      -21-

<PAGE>   23



                  IN WITNESS WHEREOF, said Ecogen Inc. has caused this
certificate to be signed by James P. Reilly, Jr., as Chairman and Chief
Executive Officer, and attested by Michael Johnson, as Assistant Secretary, this
11th day of May, 1999.

                                          ECOGEN INC.

                                          By: /s/ James P. Reilly, Jr.
                                             -----------------------------------
                                             Name: James P. Reilly, Jr.
                                             Title: Chairman and Chief Executive
                                                    Officer


ATTEST:

/s/ Michael Johnson
-----------------------------------
Name:  Michael Johnson
Title: Assistant Secretary


                                      -22-

<PAGE>   24


                                     ANNEX I

                              NOTICE OF CONVERSION

              [To be Executed by the Registered Holder in order to
                       Convert shares of Preferred Stock]

The Holder written below hereby elects to convert the number of shares of 7%
Series 1999-A Convertible Preferred Stock indicated below, into shares of Common
Stock, $.01 par value (the "Common Stock"), of Ecogen Inc. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than the name of the Holder written
below such Holder will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.

Conversion calculations:
                         -------------------------------------------------------
                         Date to Effect Conversion


                         -------------------------------------------------------
                         Number of shares of Preferred Stock to be Converted


                         -------------------------------------------------------
                         Number of shares of Common Stock to be Issued


                         -------------------------------------------------------
                         Applicable Conversion Price


                         -------------------------------------------------------
                         Name of Holder


                         -------------------------------------------------------
                         Address


                         -------------------------------------------------------
                         Signature



                                      -23-