<PAGE>   1
                                                                   EXHIBIT 3.1

                          CERTIFICATE OF INCORPORATION

                                       OF

                        P.F. CHANG'S CHINA BISTRO, INC.

          FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is:

                        P.F. CHANG'S CHINA BISTRO, INC.

          SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware
19805-1297. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.

          THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.

          FOURTH: The aggregate number of all classes of shares which the
Corporation shall have authority to issue is Ten Million (10,000,000) shares
divided into two classes of which Two Million (2,000,000) shares of par value
$.01 per share shall be designated Preferred Stock and Eight Million (8,000,000)
shares of par value $.01 per share shall be designated Common Stock.

          At all times, each holder of common stock of the Corporation shall be
entitled to one vote for each share of common stock held by such stockholder
standing in the name of such stockholder on the books of the Corporation.

          The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
one or more series, to establish the 


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<PAGE>   2
number of shares to be included in each such series, and to fix the
designations, powers, preferences, and rights of the shares of each such
series, and any qualifications, limitations or restrictions thereof.

          FIFTH:    The name and address of the Incorporator is as follows:
                              
                                Paul M. Fleming
                             2201 E. Camelback Road
                             Phoenix, Arizona 85016

          SIXTH:    In furtherance and not in limitation of the power conferred
by statute, the Board of Directors is expressly authorized to make, alter or
repeal the Bylaws of the Corporation.

          SEVENTH:  No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for the breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.

          If the Delaware General Corporation Law is amended to authorize
corporate actions further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this Article
SEVENTH by the shareholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification. The Corporation may adopt such provisions with
respect to indemnification of 


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<PAGE>   3


directors, officers, or employees of the Corporation, consistent with this
Article SEVENTH, as may be set forth from time to time in the Bylaws of the
Corporation or a resolution adopted by the Board of Directors.

     EIGHTH:  Election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.

     NINTH:  The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the law of the State of Delaware. All
rights conferred upon stockholders herein are granted subject to this
reservation.

     I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, herein declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 30th day of January, 1996.


                                        /s/ Paul M. Fleming      
                                        -------------------------
                                        Paul M. Fleming,
                                        Sole Incorporator




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                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                        P.F. CHANG'S CHINA BISTRO, INC.

     P.F. Chang's China Bistro, Inc., a corporation organized and existing under
and by virtue of the General Corporation's Law of the State of Delaware,
     
          DOES HEREBY CERTIFY:

FIRST:    That the Board of Directors of the corporation, by unanimous written
          consent, adopted a resolutions proposing and declaring advisable the
          following amendments to the Certificate of Incorporation of the
          corporation:

                RESOLVED, that Article IV of the Certificate of Incorporation of
          P.F. Chang's China Bistro, Inc., a Delaware corporation (the
          "Corporation"), is amended in its entirety to read as follows:

                  FOURTH: The aggregate number of all classes of shares which
               the Corporation shall have authority to issue is Thirty Million
               (30,000,000) shares divided into two classes of which Ten Million
               (10,000,000) shares of par value $.001 per share shall be
               designated Preferred Stock and Twenty Million (20,000,000) shares
               of par value $.001 per share shall be designated Common Stock.

               At all times, each holder of Common Stock of the Corporation
               shall be entitled to one vote for each share of Common Stock held
               by such stockholder standing in the name of such stockholder on
               the books of the Corporation.

               The Board of Directors is authorized, subject to limitations
               prescribed by law, to provide for the issuance of shares of
               Preferred Stock in one or more series, to establish the number of
               shares to be included in each such series, and to fix the
               designations, powers, preferences, and rights of the

     
<PAGE>   5
              shares of each such series, and any qualifications, limitations,
              or restrictions thereof.

              FURTHER RESOLVED that the resolutions of the Board of Directors as
         set forth in the Certificate of Designations, Preferences and Relative,
         Participating, Optional and Other Special Rights of Preferred Stock and
         Qualifications, Limitations and Restrictions Thereof of Series A
         Convertible Preferred Stock of P.F. Chang's China Bistro, Inc. are
         amended to increase the number of shares designated as "Series A
         Convertible Preferred Stock" to 7,500,000 shares and to change the par
         value of such shares to $.001 per share.

              FURTHER RESOLVED that in order to effect a 10:1 stock split of the
         outstanding capital stock of the Corporation, effective upon the date
         of filing (the "Effective Date") of a Certificate of Amendment with the
         Secretary of State of the State of Delaware, each issued and
         outstanding share of the Corporation's capital stock, including without
         limitation all issued and outstanding shares of Common Stock and Series
         A Convertible Preferred Stock and options and warrants exercisable for
         such shares, shall be divided into 10 shares of validly issued, fully
         paid and non-assessable stock of the same class or series. As soon as
         practicable after the Effective Date, the Corporation shall request in
         writing the holders of its capital stock outstanding as of the
         Effective Date to surrender certificates representing the Corporation's
         capital stock to the Corporation and each such shareholder shall
         receive upon such surrender a stock certificate or certificates to
         evidence and represent the number of shares of post-split capital stock
         to which such shareholder is entitled.

SECOND:  That in lieu of a meeting and vote of stockholders, the stockholders
         have given written consent to the amendments in accordance with the
         provisions of Section 228 of the General Corporation Law of the State
         of Delaware and written notice of the adoption of the amendments has
         been given as provided in Section 228 of the General Corporation Law of
         the State of Delaware to every stockholder entitled to such notice.
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THIRD:   That the amendments were duly adopted in accordance with the applicable
         provisions of Sections 242 and 228 of the General Corporation Law of
         the State of Delaware.

         IN WITNESS WHEREOF, P.F. Chang's China Bistro, Inc. has caused this
certificate to be signed by Richard L. Federico, its President, this 24th day
of April, 1997.

                                             P.F. Chang's China Bistro, Inc.



                                           By  /s/  R. L. Federico
                                             -------------------------------
                                             Richard L. Federico, President
<PAGE>   7



                              AMENDED AND RESTATED
                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
                      AND RELATIVE, PARTICIPATING, OPTIONAL
                      AND OTHER SPECIAL RIGHTS OF PREFERRED
                      STOCK AND QUALIFICATIONS, LIMITATIONS
                            AND RESTRICTIONS THEREOF
                                       OF
                                    SERIES A
                           CONVERTIBLE PREFERRED STOCK
                                       OF
                         P.F. CHANG'S CHINA BISTRO, INC.



                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware




              P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware (the "DGCL"), the Board of Directors of the
Corporation by written consent dated as of April 30, 1997, duly adopted the
following resolution, which resolution (i) amended and restated prior
resolutions of the Board of Directors of the Corporation adopted by written
consent as of February 22, 1996 pursuant to which the Corporation had originally
established the Series A Preferred Stock (as defined below), (ii) was approved
by written consent of the holders of the Series A Preferred Stock, and (iii)
remains in full force and effect on the date hereof:

              RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 7,700,000 shares,
$.001 par value per share, to be designated the "Series A Convertible Preferred
Stock" (hereinafter, "Series A Preferred Stock"); that the Board of Directors be
and hereby is authorized to issue such shares of Series A Preferred Stock from
time to time and for such consideration and on such terms as the Board of
Directors shall determine; and that, subject to the limitations provided by law
and by the Certificate of Incorporation, the voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof shall be as follows:



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              1. Certain Definitions.

              Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).

              "Affiliate" shall have the meaning given to such term under Rule
12b-2 of the rules promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.

              "Annual Per Share Cash Dividend Amount" shall mean a cash payment
equal to ten percent (10%) per annum of the Liquidation Price of one share of
the Series A Preferred Stock.

              "Annual Per Share PIK Dividend Amount" shall mean a fraction of
one share of Series A Preferred Stock equal to six percent (6%) per annum of one
share of the Series A Preferred Stock.

              "Business Day" shall mean a day other than a Saturday, a Sunday or
any other day on which banking institutions in New York, New York are authorized
or obligated by law to close.

              "Common Equity" shall mean all shares now or hereafter authorized
of any class of common stock of the Corporation, however, designated, including
the Comon Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.

              "Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.

              "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale,
L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C.,
an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona
limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited
liability company; (v) PFC Building III Limited Partnership, an Arizona limited
partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership;
and (vii) PFCCB NUC LLC, an Arizona limited liability company.

              "Conversion Date" shall have the meaning set forth in subparagraph
4.1(b) below.

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<PAGE>   9

              "Debt" shall mean any indebtedness, contingent or otherwise, of
any person in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments or
letters of credit or representing the balance deferred and unpaid of the
purchase price of any property or interest therein, except any such balance that
constitutes a trade payable, if and to the extent such indebtedness would appear
as a liability upon a balance sheet of such person prepared on a consolidated
basis in accordance with generally accepted accounting principles.

              "Debt to Equity Ratio" shall mean the ratio of (i) the total
Indebtedness to (ii) Total Stockholders' Equity.

              "Delinquent Mandatory Redemption Price" shall mean, with respect
to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus all accrued and
unpaid dividends payable in respect of such a share of the Series A Preferred
Stock, plus an amount thereon accruing from the Mandatory Redemption Date
relating thereto at the Increasing Rate.

              "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if
such day is not a Business Day, the next succeeding Business Day.

              "Increasing Rate" shall mean, with respect to any obligation, an
annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent
after the first completed six-month period that the obligation subject to the
Increasing Rate has been outstanding and has not been paid in full.

              "Indebtedness" shall mean the Debt of the Corporation or a
subsidiary of the Corporation plus, to the extent not otherwise included, (i)
the guaranty of any Debt of any other person; and (ii) obligations in respect of
borrowed money secured by any Lien to which any property or asset owned or held
by the Corporation or a subsidiary is subject, whether or not the obligations
secured thereby shall have been assumed by the Corporation or such subsidiary;
and (iii) capitalized lease obligations.

              "Initial Issue Date" shall mean the date that shares of Series A
Preferred Stock are first issued by the Corporation.

              "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if
such day is not a Business Day, the next succeeding Business Day.

              "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital 



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lease obligation, or any financing lease having substantially the same economic
effect as any of the foregoing.

              "Liquidation Price" shall mean $2.00 per share of Series A
Preferred Stock (adjusted for stock splits, subdivisions, combinations and
similar transactions), plus all accrued and unpaid dividends payable in respect
of such share of Series A Preferred Stock pursuant to subparagraph 2(c).

              "Mandatory Redemption Date" shall mean the Initial Mandatory
Redemption Date and the Final Mandatory Redemption Date.

              "Mandatory Redemption Obligation" shall have the meaning set forth
in subparagraph 5(c) below.

              "Non-Investor Directors" shall mean those directors elected to the
Corporation's Board of Directors other than those directors that are elected
solely by the holders of Series A Preferred Stock or Parity Stock pursuant to
the Shareholders Agreement.

              "Parity Stock" shall mean any class or series of capital stock of
the Corporation ranking on a parity with the Series A Preferred Stock as to (i)
priority of payment of cash and stock dividends and other distributions, (ii)
priority of payment upon liquidation, dissolution or winding up of the
Corporation, and (iii) the time of, and priority of payment upon, any mandatory
redemption. For purposes of this definition, differences between any class or
series of capital stock and the Series A Preferred Stock as to the amount of the
liquidation price (or other fixed amount) to which any cash dividend rate is
applied, the amount of the liquidation price payable upon liquidation,
dissolution or winding up of the Corporation, the amount of the redemption price
payable upon any mandatory redemption, or the time when cash or stock dividends
or other distributions shall begin to accrue, shall not be considered in
determining whether such class or series of capital stock is on a parity with
the Series A Preferred Stock.

              "PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in subparagraph 2(a) below.

              "PIK Dividend Payment Date" shall mean March 31, June 30,
September 30, and December 31, of each year during the PIK Dividend Payment
Period.

              "PIK Dividend Payment Period" shall mean the period from, and
including, January 1, 1998, to and including the Final Mandatory Redemption
Date.

              "PIK Dividend Period" shall mean the period from, and including,
January 1, 1998, to, but not including, the first PIK Dividend Payment Date and
thereafter, each quarterly period, including any PIK Dividend Payment Date to,
but not including, the next PIK Dividend Payment Date.



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<PAGE>   11

              "PIK Record Date" shall mean the date that is ten Business Days
prior to any PIK Dividend Payment Date.

              "Preferred Cash Dividends" shall mean the cash dividends as set
forth in subparagraph 2(f) below.

              "Prime Rate" shall mean the rate announced as the "prime rate" by
NationsBank, N.A. whether or not such rate is actually charged.

              "Pro Rata" shall mean, in the case of stock dividends, stock
dividends of the same class or series as the stock upon which the dividends are
being paid and that are proportionate to the number of outstanding shares of
such stock, and, in the case of cash dividends or dividends in property, cash
dividends or dividends in property that are proportionate to the liquidation
price of the class or series of stock upon which the dividends are being paid.

              "Qualified Initial Public Offering" shall mean an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross
proceeds of which equal or exceed $15,000,000 and (ii) the per share offering
price of which equals or exceeds $10.00; provided, however, that the per share
offering price referred to in clause (ii) shall be adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination or
like event of or with respect to outstanding shares of Common Stock occurring
after May 1, 1997.

              "Quoted Price" shall mean with respect to any security the
arithmetic mean of the last bid and ask price for one (1) share of the
applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"),
or, if the applicable security is listed or admitted for trading on a securities
exchange, the arithmetic mean of the high and low trading prices during the
relevant trading day for one (1) share of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), in each case, on the Trading Day in question.

              "Redemption Price" shall mean, with respect to each share of
Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions,
combinations and similar transactions) plus all accrued and unpaid dividends
payable in respect of such share of the Series A Preferred Stock.

              "Series A Directors" shall mean those members of the Board of
Directors of the Corporation elected solely by the holders of the Series A
Preferred Stock pursuant to the Shareholders Agreement.



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<PAGE>   12

              "Shareholders Agreement" shall mean the Amended and Restated
Shareholders Agreement among the Corporation and the holders of the Common
Stock, Series A Preferred Stock and Parity Stock dated as of May 1, 1997, as the
same may be amended from time to time.

              "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
among the Corporation, Paul Fleming and the Purchasers listed therein dated as
of February 1, 1996, as the same may be amended from time to time.

              "Subordinate Stock" shall mean the Common Equity and any class or
series of capital stock of the Corporation, however designated, which is not
entitled to receive (i) any dividends unless all dividends required to have been
paid or declared and set apart for payment on the Series A Preferred Stock shall
have been so paid or declared and set apart for payment or (ii) any assets upon
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series A Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.

              "Total Stockholders' Equity" shall mean the stockholders' equity
of the Corporation as it appears in the monthly balance sheet of the
Corporation.

              "Trading Days" shall mean any day on which any market in which the
applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.

              2. Dividends.

              (a) The record holders of Series A Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK Dividends
shall be paid by delivering to the record holders of Series A Preferred Stock a
number of shares of Series A Preferred Stock equal to (i) the number of shares
of Series A Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK
Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation
shall not issue fractional shares of Series A Preferred Stock to which holders
may become entitled pursuant to this subparagraph, but in lieu thereof, the
Corporation shall at the option of the holder either (i) deliver its check in an
amount equal to the applicable fraction of one (1) share of Series A Preferred
Stock multiplied by $2.00 (adjusted for stock splits, subdivisions, combinations
or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer
delivery of the fractional PIK Cash Dividend Payment to the holder and apply
such amount to PIK Dividends issued to such holder on the subsequent PIK
Dividend Date. Any additional shares of Series A Preferred Stock issued pursuant
to this paragraph shall be governed by this 



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<PAGE>   13

resolution and shall be subject in all respects, except as to the date of
issuance and date from which PIK Dividends accrue and cumulate as set forth
below, to the same terms as the shares of Series A Preferred Stock originally
issued hereunder; provided, however, in no event shall any PIK Dividends accrue
prior to January 1, 1998.

              (b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall declare
PIK Dividends on the Series A Preferred Stock in accordance with subparagraph
2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which
shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment
due pursuant to subparagraph 2(a)) on shares of Series A Preferred Stock shall
accrue and be cumulative from the later of (i) January 1, 1998 and (ii) the date
of issuance of such shares, notwithstanding the failure of the Board of
Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend
Period. PIK Dividends shall be payable in arrears during the PIK Dividend
Payment Period on each PIK Dividend Payment Date, commencing on the first PIK
Dividend Payment Date subsequent to January 1, 1998, and for shares issued as
PIK Dividends, commencing on the first PIK Dividend Payment Date after such
shares are issued. If any PIK Dividend Payment Date occurs on a day that is not
a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend
Payment Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid on each PIK Dividend Payment Date to the holders of record of the
Series A Preferred Stock as their names shall appear on the share register of
the Corporation on the PIK Record Date immediately preceding such PIK Dividend
Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that
would otherwise be issued as fractional shares may not legally be paid in the
full amount to which shares of Series A Preferred Stock are entitled with
respect to any PIK Dividend Period, dividends in the full preferential amount
hereby provided shall be, to the extent legally and contractually permissible,
declared and paid as PIK Dividends in the form of shares of Series A Preferred
Stock (including fractional shares thereof). PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to the
holders of record on the PIK Record Dates applicable to such past PIK Dividend
Periods.

              (c) In addition to the PIK Dividends and the PIK Cash Dividend
Payments referred to in subparagraph 2(a) hereof and the Preferred Cash
Dividends referred to in subparagraph 2(f), at any time during which any shares
of Series A Preferred Stock remain outstanding, the Corporation may declare, pay
or set apart for payment cash and/or property to be distributed or paid as a
dividend in respect of shares of Series A Preferred Stock. The foregoing
notwithstanding, no dividends may be declared or paid on the Series A Preferred
Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are
contemporaneously declared or paid on any then outstanding Parity Stock.

              (d) So long as any shares of Series A Preferred Stock shall be
outstanding:

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<PAGE>   14

                      (i) the Corporation shall not declare, pay or set apart
     for payment on any Subordinate Stock any dividends or distributions
     whatsoever, whether in cash, property or otherwise (other than dividends
     payable in shares of the class or series upon which such dividends are
     declared or paid, or payable in shares of Common Stock with respect to
     Subordinate Stock other than Common Stock, together with cash in lieu of
     fractional shares), nor shall any Subordinate Stock be purchased, redeemed
     or otherwise acquired by the Corporation or any of its subsidiaries of
     which it owns not less than a majority of the outstanding voting power, nor
     shall any monies be paid or made available for a sinking fund for the
     purchase or redemption of any Subordinate Stock, without the prior written
     consent of the holders of at least a majority of the outstanding shares of
     Series A Preferred Stock and unless all dividends to which the holders of
     Series A Preferred Stock shall have been entitled for all previous PIK
     Dividend Periods shall have been (A) paid or (B) declared and a sum of
     money, in the case of dividends payable in cash, sufficient for the payment
     thereof has been set apart;

                      (ii) the Corporation shall not declare, pay or set apart
     for payment on any Parity Stock any dividends or distributions whatsoever,
     whether in cash, property or otherwise, unless Pro Rata dividends are
     contemporaneously declared, paid or set apart for payment on the Series A
     Preferred Stock; and

                      (iii) neither the Corporation nor any of its subsidiaries
     of which it owns not less than a majority of the outstanding voting power
     shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any
     monies to or make any monies available for a sinking fund for the purchase
     or redemption of any Parity Stock, without the prior written consent of the
     holders of at least a majority of the outstanding shares of Series A
     Preferred Stock and unless all dividends to which the holders of Series A
     Preferred Stock shall have been entitled for all previous PIK Dividend
     Periods shall have been (A) paid or (B) declared and a sum of money, in the
     case of dividends payable in cash, sufficient for the payment thereof has
     been set apart, except that the Corporation may redeem Parity Stock so long
     as it contemporaneously redeems a proportionate percentage of the
     outstanding Series A Preferred Stock, ratably among the holders thereof.

              (e) In the event that full dividends, in cash or property, if
declared, are not paid or made available to the holders of all outstanding
shares of Series A Preferred Stock and Parity Stock and funds or property
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of Series A Preferred Stock
and Parity Stock in proportion to the full amount to which they would otherwise
be respectively entitled.



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<PAGE>   15

              (f) Notwithstanding anything to the contrary set forth herein,
with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment
Date pursuant to this paragraph 2, the Corporation may, upon the unanimous
approval of the Non-Investor Directors by vote on or prior to the applicable PIK
Record Date, declare on such PIK Record Date and pay on such PIK Dividend
Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders
of Series A Preferred Stock on such PIK Record Date in an amount per share equal
to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount.
Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall
be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date.
The foregoing notwithstanding, no Preferred Cash Dividend may be declared and
paid on the Series A Preferred Stock unless Pro Rata cash dividends are
contemporaneously declared and then paid on any then outstanding Parity Stock.

              (g) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.

              3.      Distributions Upon Liquidation, Dissolution or Winding Up.

              (a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before any
payment or distribution shall be made to the holders of Subordinate Stock and
contemporaneously with any payment or distribution to the holders of Parity
Stock, the holders of Series A Preferred Stock shall be entitled to be paid out
of the assets of the Corporation in cash, or, if the Corporation does not have
sufficient cash on hand to pay such amounts, property of the Corporation at its
fair market value as determined by the Board of Directors of the Corporation,
the greater of (i) the Liquidation Price per share of Series A Preferred Stock,
or (ii) such amount per share of Series A Preferred Stock as would have been
payable had each such share been converted into Common Stock pursuant to
paragraph 4 immediately prior to such liquidation, dissolution or other winding
up of the affairs of the Corporation. Immediately preceding such liquidation,
dissolution or winding up, adjustment shall be made for accrued but unpaid
dividends (including, without limitation, PIK Dividends).

              (b) If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for each
share of the Series A Preferred Stock and the applicable liquidation price for
each share of any Parity Stock then outstanding, then the assets of the
Corporation shall be ratably distributed among the holders of Series A Preferred
Stock and Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
Neither the consolidation or merger of the Corporation into or with another
corporation or corporations, nor the sale, lease, transfer or conveyance of all
or any 



                                       9
<PAGE>   16

portion of the assets of the Corporation to another corporation or any other
entity shall be deemed a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this paragraph 3.

              4. Conversion Rights.

                 4.1 Conversion at the Option of the Holder.

              (a) At any time before the close of business on the Final
Mandatory Redemption Date (unless the Corporation shall default in payment of
the Redemption Price or the Delinquent Mandatory Redemption Price, in which
case, the conversion rights set forth in this paragraph shall continue until the
cure of any such default), each holder of Series A Preferred Stock may, at its
option, convert each share of Series A Preferred Stock held by such holder into
one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3.
Upon such conversion, the rights of the holders of converted Series A Preferred
Stock with respect to the shares of Series A Preferred Stock so converted shall
cease.

              (b) To convert Series A Preferred Stock in accordance with this
paragraph 4.1, a holder must (i) surrender the certificate or certificates
evidencing the shares of Series A Preferred Stock to be converted (or a duly
executed affidavit of lost certificate in accordance with the bylaws of the
Corporation), duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Series A Preferred Stock,
(ii) notify the Corporation at such office in writing that it elects to convert
Series A Preferred Stock, and the number of shares it wishes to convert, (iii)
state in writing the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued, and (iv) pay any transfer
or similar tax with respect to the transfer of the shares of Series A Preferred
Stock converted, if required. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." As soon as practical but
in any event within five (5) Business Days of the Conversion Date, the
Corporation shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion, a check for the amount payable in respect of any
fractional share pursuant to subparagraph 4.1(c) and a new certificate
representing the unconverted portion, if any, of the shares of Series A
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid
dividends (including, without limitation, PIK Dividends), as of the Conversion
Date, on converted shares of Series A Preferred Stock. PIK Dividends will be
paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock
surrendered for conversion at any time on or after a PIK Record Date for the
payment of a PIK Dividend to the registered holder of Series A Preferred Stock
on such PIK Record Date. If the last day on which Series A Preferred Stock may
be converted is not a Business 



                                       10
<PAGE>   17

Day, Series A Preferred Stock may be surrendered for conversion on the next
succeeding day that is a Business Day.

              (c) The Corporation will not issue a fractional share of Common
Stock upon conversion of Series A Preferred Stock. Instead the Corporation will
deliver its check in an amount equal to the applicable fraction multiplied by
the fair market value of the Common Stock.

              (d) If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion; provided,
however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax
which is due because the shares are issued in a name other than the holder's
name.

                  4.2 Mandatory Conversion. Subject to the adjustments set forth
in paragraph 4.3, each share of the Series A Preferred Stock shall be
automatically converted into one (1) share of Common Stock on the date a
Qualified Initial Public Offering is consummated ("Mandatory Conversion Date").
Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation
shall (i) notify all holders of the Series A Preferred Stock not later than five
(5) Business Days subsequent to approval by the Board of Directors of the
Corporation to undertake a Qualified Initial Public Offering, (ii) demand that
all shares representing the Series A Preferred Stock be returned to the
Corporation's offices or to the designated transfer agent, and (iii) pay any
transfer or similar tax with respect to the conversion, if any. As soon as
practical but in any event within thirty (30) days of the Mandatory Conversion
Date, the Corporation shall deliver a certificate to and in the name of the
holder of the Series A Preferred Stock for the number of shares of Common Stock
issuable upon the conversion and a check in an amount calculated in accordance
with subparagraph 4.1(c) for any fractional shares, if any, for the shares of
Series A Preferred Stock represented by the certificate. The name of the person
in which the Series A Preferred Stock was issued shall be treated as the
stockholder of record of the Common Stock in which the Series A Preferred Stock
was converted on and after the Mandatory Conversion Date. Adjustment (or cash
payment, if applicable) shall be made for accrued and unpaid dividends
(including, without limitation, PIK Dividends), as of the Mandatory Conversion
Date, on shares of Series A Preferred Stock converted pursuant to this paragraph
4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to
Series A Preferred Stock converted pursuant to this paragraph 4.2 on or after a
PIK Record Date to the registered holder of Series A Preferred Stock on such PIK
Record Date, and the shares of Series A Preferred Stock received in payment of
such PIK Dividend shall be deemed automatically converted to one (1) share of
Common Stock, subject to adjustment in accordance with paragraph 4.3, effective
as of the Mandatory Conversion Date. Upon such conversion, the rights of the
holders of converted Series A Preferred Stock with respect to the shares of
Series A Preferred Stock so converted shall cease.



                                       11
<PAGE>   18

                  4.3 Certain Matters With Respect to Conversion.

              (a) The Corporation has reserved and shall continue to reserve out
of its authorized but unissued Common Stock enough shares of Common Stock to
permit the conversion of the Series A Preferred Stock in full. All shares of
Common Stock which are issued upon conversion of Series A Preferred Stock shall
be duly authorized, validly issued, fully paid and nonassessable. The
Corporation shall comply with all securities laws regulating the offer and
delivery of shares of common stock upon conversion of Series A Preferred Stock
and will list such shares on each national securities exchange on which the
common stock is listed.

              (b) If the Corporation:

                      (i) pays a dividend or makes a distribution on its Common
     Stock or any other class of the Corporation's stock other than the Series A
     Preferred Stock in shares of its Common Stock;

                      (ii) subdivides  its  outstanding  shares  of Common  
     Stock into a greater number of shares;

                      (iii) combines its outstanding  shares of Common Stock 
     into a smaller number of shares;

                      (iv) issues by  reclassification  of its  Common  
     Stock any shares of its capital stock;

then an appropriate and proportionate adjustment shall be made to the number of
shares into which each share of Series A Preferred Stock is convertible so that
immediately after the occurrence of such event the holders of Series A Preferred
Stock shall be entitled to receive the same percentage of the issued and
outstanding Common Stock upon conversion of the Series A Preferred Stock as such
holders would have received if converted immediately prior to such dividend,
distribution, subdivision, combination or reclassification. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.

              (c) If the Corporation distributes any rights, options or warrants
to all holders of its Common Stock entitling them for a period expiring within
sixty (60) days after the record date referenced in subparagraph (l) below to
purchase additional shares of Common Stock at a price per share less than $2.00
per share (as adjusted to reflect any stock split or any subdivision,
reclassification, combination of or with respect to outstanding shares of Common
Stock or any similar transaction) on that record date, the number of shares of
Common Stock into which each share of Series A Preferred Stock is convertible
shall be adjusted, in accordance with the following formula:



                                       12
<PAGE>   19


                                                       N x (O+A)
                                                       --------
                               N'       =              O + AxP
                                                           ---
                                                            M

where:

              N'      =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock is
                               convertible after such distribution.

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

              N       =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock was
                               convertible prior to such distribution.

              P       =        the offering price per share of the additional 
                               shares of Common Stock.

              M       =        the current market price per share of Common 
                               Stock on the record date.

              A       =        the number of additional shares of Common Stock 
                               offered.

              The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which such
warrants, options or rights are exercisable, not all warrants, options or rights
shall have been exercised, the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be immediately readjusted
to what it would have been if "A" in the above formula had been the number of
shares actually issued.

              (d) If the Corporation issues shares of Common Stock for a
consideration per share less than $2.00 per share (as adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination of
or with respect to outstanding shares of Common Stock or any similar
transaction) on the date the Corporation fixes the offering price of such
additional shares, the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall be adjusted in accordance with the
following formula:

                                                       N x A
                                                       -----
                               N'       =              O + P
                                                           -
                                                           M


                                       13
<PAGE>   20

where:

              N'      =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock is
                               convertible after such issuance.

              N       =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock was
                               convertible prior to such issuance.

              O       =        the number of shares of Common Stock
                               outstanding immediately prior to the issuance of
                               such additional shares.

              P       =        the  aggregate   consideration  received  for  
                               the issuance of such additional shares.

              M       =        the current market price per share of Common
                               Stock on the date of issuance of such additional
                               shares.

              A       =        the number of shares outstanding immediately
                               after the issuance of such additional shares.

              The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subparagraph 4.3(d) does not apply to (i) any transaction or issuance
described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below,
including issuances of Common Stock pursuant to warrants, options, rights or
other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii)
the conversion of Series A Preferred Stock, or the conversion, exchange or
exercise of other securities convertible into or exchangeable or exercisable for
Common Stock, (iii) Common Stock issued to the Corporation's employees under
bona fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law, if
such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but
only to the extent that the aggregate number of shares excluded hereby (together
with the aggregate number of shares issuable upon conversion, exchange or
exercise of the securities excluded by clause (iii) of subparagraph 4.3(e)
below) and issued shall not exceed 15% of the Common Stock of the Corporation on
a fully diluted basis at the time of any such issuance excluding options to
purchase Common Stock held by directors of the Corporation), or (iv) Common
Stock issued in a bona fide public offering pursuant to a firm commitment
underwriting.

              (e) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series A Preferred Stock or securities issued in transactions
described in subparagraph 4.3(c) above) for a consideration per share of Common
Stock initially deliverable upon 



                                       14
<PAGE>   21

conversion, exchange or exercise of such securities of less than $2.00 per share
of Common Stock (as adjusted to reflect the effect of any stock split or any
subdivision, reclassification, combination of or with respect to outstanding
shares of Common Stock or any similar transaction) on the date of issuance of
such securities, the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall be adjusted in accordance with the
following formula:

                                                       N x (O+D)
                                                       ---------
                               N'       =              O + P
                                                           -
                                                           M
where:

              N'      =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock is
                               convertible immediately after such issuance.

              N       =        the number of shares of Common Stock into which
                               each share of Series A Preferred Stock was
                               convertible immediately prior to such issuance.

              O       =        the number of shares of Common Stock
                               outstanding immediately prior to the issuance of
                               such securities.

              P       =        the  aggregate   consideration  received  for  
                               the issuance of such securities.

              M       =        the current market price per share of Common
                               Stock on the date of issuance of such securities.

              D       =        the maximum number of shares deliverable upon
                               conversion or in exchange for or upon exercise of
                               such securities at the initial conversion,
                               exchange or exercise rate.

              The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance. If
all of the Common Stock deliverable upon conversion, exchange or exercise of
such securities has not been issued when such securities are no longer
outstanding, then the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall promptly be readjusted to the
basis of the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. This subparagraph 4.3(e) does not apply
to (i) the issuance of any such securities in a bona fide public offering
pursuant to a firm commitment underwriting, (ii) the issuance of any such
securities to the Corporation's employees under bona fide employee benefit plans
adopted by the Board of Directors of the Corporation and approved by the holders
of Common Stock when required by law, if such securities would otherwise be
covered 



                                       15
<PAGE>   22

by this subparagraph 4.3(e) (but only to the extent that the aggregate number of
shares issuable upon the conversion, exchange or exercise of the aggregate
number of securities excluded hereby (together with the aggregate number of
shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall
not exceed 15% of the Common Stock of the Corporation on a fully diluted basis
at the time of any such issuance excluding options to purchase Common Stock held
by directors of the Corporation), or (iii) shares issued as PIK Dividends or as
"paid-in-kind" dividends on any Parity Stock provided such dividends are
required by the terms of such Parity Stock.

              (f) If the Corporation (i) distributes any rights, options or
warrants to all holders of its Common Stock entitling them for a period expiring
within sixty (60) days after the record date referenced in subparagraph (l)
herein to purchase additional shares of Common Stock; (ii) issues shares of
Common Stock; or (iii) issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series A Preferred Stock or securities issued in transactions described in (i)
above) at a price reflecting an implied price per share less than $2.00 per
share, the number of shares of Common Stock into which each share of Series A
Preferred Stock is convertible shall be reduced proportionally to reflect the
price at which the Corporation issued or sold such shares of Common Stock
pursuant to this subparagraph 4.3(f).

              (g) For the purpose hereof, the current market price per share of
any security on any date is the average of the Quoted Prices for thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question. If the Quoted Price is not ascertainable, the current market price
per share of any security on any date shall be the current market price as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith. Notwithstanding the foregoing, the current
market price per share of any security shall be deemed to be the greater of (i)
the current market price as determined above and (ii) the Liquidation Price.

              (h) For purposes of any computation respecting consideration
received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall
apply:

                      (i) in case of the issuance of shares of Common Stock for
     cash, the consideration shall be the amount of such cash, provided that in
     no case shall any deduction be made for any commissions, discounts or other
     expenses incurred by the Corporation for any underwriting of the issue or
     otherwise in connection therewith;

                      (ii) in the case of the issuance of shares of Common Stock
     for a consideration in whole or in part other than cash, the consideration
     other than cash shall be deemed to be the fair market value thereof as
     determined by the Board of


                                       16



<PAGE>   23

     Directors of the Corporation in its reasonable judgment exercised in good
     faith (irrespective of the accounting treatment thereof); and

                      (iii) in the case of the issuance of options, warrants or
     other securities convertible into or exchangeable or exercisable for shares
     of Common Stock, the aggregate consideration received therefor shall be
     deemed to be the consideration received by the Corporation for the issuance
     of such options, warrants or other securities plus the additional minimum
     consideration, if any, to be received by the Corporation upon the
     conversion or exchange or exercise thereof (the consideration in each case
     to be determined in the same manner as provided in clauses (i) and (ii) of
     this subparagraph 4.3(h)).

              (i) No adjustment in the number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible need be made unless
the adjustment would require an increase or decrease of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this paragraph 4.3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.

              (j) No adjustment in the number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible need be made under
this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends or interest, or (ii) any change
in the par value or change from no par value to par value of the Common Stock.
If an adjustment is made to the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible upon a record date established
for a distribution subject to this paragraph 4.3 and if such distribution is
subsequently cancelled, the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible then in effect shall be
readjusted, effective as of the date when the Board of Directors of the
Corporation determines to cancel such distribution, to the number of shares of
Common Stock into which each share of Series A Preferred Stock is convertible as
would have been in effect if such record date had not been fixed. No adjustment
need be made under paragraph 4.3 if the Corporation issues or distributes to
each holder of Series A Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to in such paragraph
which each holder would have been entitled to receive had Series A Preferred
Stock been converted into Common Stock prior to or simultaneously with the
happening of such event or the record date with respect thereto.

              (k) Whenever the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible is adjusted, the Corporation
shall promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for 



                                       17
<PAGE>   24

Series A Preferred Stock a certificate from the Corporation's independent public
accountants briefly stating the facts requiring the adjustment and the manner of
computing it. Subject to subparagraph 4.3(o) below, the certificate shall be
conclusive evidence that the adjustment is correct.

              (l) If:

                      (i)   the  Corporation  takes any action  that would  
     require an adjustment pursuant to paragraph 4.3;

                      (ii)  the  Corporation  consolidates  or merges with,  
     or transfers all or substantially all of its assets to, another
     corporation, and stockholders of the Corporation must approve the
     transaction; or

                      (iii) there is a dissolution or liquidation of the 
     Corporation;

a holder of Series A Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least thirty (30) days before such date.

              (m) If the Corporation is party to a consolidation or merger which
reclassifies or changes its Common Stock or to the sale of all or substantially
all of the assets of the Corporation, upon consummation of such transaction the
Series A Preferred Stock shall automatically become convertible at the option of
their respective holders into the kind and amount of securities, cash or other
assets which the holder of Series A Preferred Stock would have owned immediately
after the sale, consolidation or merger, if such holder had converted Series A
Preferred Stock immediately before the effective date of the transaction, and an
appropriate adjustment (as determined by the Board of Directors of the
Corporation) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of Series A
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to liquidation preferences and changes in and other
adjustment of the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
securities or property thereafter deliverable upon the conversion of Series A
Preferred Stock. The Corporation shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets assumes by written instrument (in a form
reasonably satisfactory to the holders of a majority of the Series A Preferred
Stock then outstanding), the obligation to deliver to each such holder such




                                       18
<PAGE>   25

shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m)
applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply.

              (n) In any case in which this paragraph 4.3 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series A Preferred Stock
converted after such record date and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable immediately prior to adjustment and (ii) the delivery of a
check for any remaining fractional shares as provided in subparagraph 4.1(c)
above.

              (o) Whenever the Corporation or its Board of Directors shall be
required to make a determination under this paragraph 4.3, such determination
shall be made in good faith and may be challenged in good faith by the holders
of a majority of the Series A Preferred Stock, and any dispute shall be resolved
promptly (and in no event later than ninety (90) days after any challenge), at
the Corporation's expense, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series A
Preferred Stock. Any such determination shall be deemed approved if the
requisite holders have not notified the Corporation of any challenge within
thirty (30) days after receiving notice (including a statement in reasonable
detail of the bases therefor) of such determination.

              (p) If any event occurs of the type contemplated by the provisions
of this paragraph 4.3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment to the
number of shares of Common Stock into which each share of Series A Preferred
Stock is convertible so as to protect the rights of the holders of Series A
Preferred Stock; provided that no such adjustment shall increase the number of
shares of Common Stock into which a share of Series A Preferred Stock is
convertible if otherwise adjusted pursuant to another provision of this
paragraph 4.3 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.



                                       19
<PAGE>   26

              5. Mandatory Redemption by the Corporation.

              (a) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem on the
Initial Mandatory Redemption Date at least fifty percent (50%) of the then
outstanding shares of Series A Preferred Stock at the Redemption Price, ratably
among the holders thereof. In addition, to the extent the Corporation shall have
funds legally available for such payment under the DGCL, the Corporation shall
redeem on the Final Mandatory Redemption Date all of the then outstanding shares
of Series A Preferred Stock at the Redemption Price, plus an amount accruing
thereon at the Increasing Rate from the Initial Mandatory Redemption Date.

              (b) Shares of Series A Preferred Stock which have been issued and
converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the DGCL) have the
status of authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued as
part of any series of preferred stock of the Corporation; provided, however,
that no such issued and reacquired shares of Series A Preferred Stock shall be
reissued as Series A Preferred Stock.

              (c) If on any Mandatory Redemption Date the Corporation is unable
or shall fail to discharge its obligation to redeem all outstanding shares of
Series A Preferred Stock required to be redeemed on such date pursuant to
subparagraph 5(a) and all outstanding shares of Parity Stock required to be
redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation
shall redeem on such Mandatory Redemption Date the number of shares of Series A
Preferred Stock and Parity Stock which it is able to redeem, ratably among the
holders of Series A Preferred Stock and Parity Stock in proportion to the full
amounts to which they would otherwise be respectively entitled if all shares of
Series A Preferred Stock and Parity Stock required to be redeemed on such date
were redeemed. In such a case, the remainder of the Redemption Price payable but
not paid at the Mandatory Redemption Date shall be converted into the Delinquent
Mandatory Redemption Price and shall be discharged as soon as the Corporation is
able to discharge such Delinquent Mandatory Redemption Price out of funds
legally available therefor. If and so long as any Mandatory Redemption
Obligation (or any obligation in respect of the Delinquent Mandatory Redemption
Price) with respect to the Series A Preferred Stock and any Parity Stock shall
not be fully discharged and paid, the Corporation shall not declare or pay any
dividend or make any distribution on, or, directly or indirectly, purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of Subordinate Stock (other than repurchases of shares of
Subordinate Stock in accordance with the terms of restricted stock vesting
agreements with employees of the Corporation approved by the Board of Directors
of the Corporation).

              (d) Notwithstanding the foregoing provisions of this paragraph 5,
unless the full cumulative dividends on all outstanding shares of Series A
Preferred Stock and 



                                       20
<PAGE>   27

Parity Stock have been paid or contemporaneously are declared and paid for all
dividend periods to and including the Mandatory Redemption Date, none of the
shares of Series A Preferred Stock or Parity Stock shall be redeemed or set
aside for redemption, unless such shares of Series A Preferred Stock and Parity
Stock are redeemed pro rata based upon the full amounts to which the holders
thereof would otherwise be respectively entitled.

              (e) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days prior
to any Mandatory Redemption Date, by first class mail, postage prepaid, to all
holders of record of the Series A Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series A Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series A Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
A Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vi) the number of shares of Common Stock into which
each share of Series A Preferred Stock is convertible as of the notice date and,
if any transactions are contemplated to occur between the notice date and the
Mandatory Redemption Date which would cause such number of shares of Common
Stock to be adjusted, the number of shares of Common Stock into which each share
of Series A Preferred Stock would be convertible after giving effect to such
transaction(s); (vii) that Series A Preferred Stock called for redemption may be
converted at any time before the close of business on the Mandatory Redemption
Date; and (viii) that holders of Series A Preferred Stock must satisfy the
requirements of subparagraph 4.1(b) above if such holders desire to convert such
shares. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified therein all
shares called for redemption other than shares converted into Common Stock prior
to the Mandatory Redemption Date.

              (f) If notice has been mailed in accordance with subparagraph 5(e)
above and provided that on or before the Mandatory Redemption Date specified in
such notice, all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of the holders of the shares so called for redemption, so as to be,
and to continue to be available therefor, then, from and after the Mandatory
Redemption Date, dividends on the shares of the Series A Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and shall not have the status of shares of Series A
Preferred Stock, and all rights of the holders thereof as 



                                       21
<PAGE>   28

shareholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease, irrespective of whether any
certificates for shares called for redemption have been surrendered to the
Corporation. Upon surrender, in accordance with said notice, of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the Corporation at the Redemption Price and no
holder of shares called for redemption shall be entitled to receive payment of
the Redemption Price therefor until such surrender to the Corporation has been
accomplished or a duly executed affidavit of lost certificate shall have been
delivered to the Corporation. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate or certificates shall be
issued representing the unredeemed shares without cost to the holder thereof (so
long as such certificate is issued to the holder).

              (g) Any funds deposited with a bank or trust company for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except that:

                      (i) the Corporation shall be entitled to receive from such
     bank or trust company the interest or other earnings, if any, earned on any
     money so deposited in trust, and the holders of any shares redeemed shall
     have no claim to such interest or other earnings; and

                      (ii) any balance of monies so deposited by the Corporation
     and unclaimed by the holders of the Series A Preferred Stock entitled
     thereto at the expiration of two (2) years from the applicable Mandatory
     Redemption Date shall be repaid, together with any interest or other
     earnings earned thereon, to the Corporation, and after any such repayment,
     the holders of the shares entitled to the funds so repaid to the
     Corporation shall look only to the Corporation for payment without interest
     or other earnings.

              (h) Notwithstanding anything to the contrary herein, no shares of
Series A Preferred Stock may be redeemed except with funds legally available for
the payment of the Redemption Price.

               6. Voting Rights.

              (a) Except as otherwise set forth in this paragraph 6 and the
Shareholders Agreement or as otherwise required by law, each share of Series A
Preferred Stock issued and outstanding shall have the right to vote on all
matters presented to the holders of the Common Stock for vote in the number of
votes equal at any time to the number of shares of Common Stock into which each
share of Series A Preferred Stock would then be convertible, and the holders of
the Series A Preferred Stock and Parity Stock shall vote with the holders of the
Common Stock as a single class.



                                       22
<PAGE>   29

              (b) In addition to any vote or consent of shareholders required by
law or the Certificate of Incorporation of the Corporation, the affirmative
consent of the holders of a majority of the issued and outstanding shares of
Series A Preferred Stock at the time outstanding, voting as a single class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:

                      (i) (x) Any amendment, alteration or repeal of any of the
     provisions of the Certificate of Incorporation (including without
     limitation this Certificate of Designation) of the Corporation or (y) any
     amendment of the by-laws of the Corporation that materially affects the
     rights of the holders of the Series A Preferred Stock;

                      (ii) Any action by the Corporation or any of its
     subsidiaries not approved in advance by all Series A Directors to effect
     any amendment, alteration or repeal of any of the provisions of the
     articles of organization, operating agreements, certificates of limited
     partnership, or partnership agreements of any of the Corporation's
     Affiliates or subsidiaries (except such amendments, alterations or repeals
     that are ministerial in nature or required to effect a transfer of
     ownership interests in the Corporation's Affiliates or subsidiaries (other
     than any ownership interest beneficially owned by the Corporation));

                      (iii) Any authorization, issuance or creation of, or
     increase in the authorized amount of, (x) any shares of any class or any
     security of any class ranking senior to the shares of Series A Preferred
     Stock in the distribution of assets on any liquidation, dissolution or
     winding up of the Corporation or in the payment of dividends or requiring
     redemption at any time any shares of Series A Preferred Stock are still
     outstanding, or (y) any shares of Parity Stock (except shares issued as
     "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have
     also been declared and paid on the Series A Preferred Stock);

                      (iv) Any action by the Corporation or any of its
     subsidiaries not approved in advance by all Series A Directors to effect
     the authorization, issuance or creation of, or increase in the authorized
     amount of, any membership interests, limited partnership interests or other
     equity security interests of any of the Corporation's Affiliates or
     subsidiaries;

                      (v) Any increase or decrease (other than by redemption or
     conversion) in the total number of authorized shares of Series A Preferred
     Stock or any issuance of the currently authorized shares of the Series A
     Preferred Stock other than the issuance of shares of Series A Preferred
     Stock pursuant to the Stock Purchase Agreement or as PIK Dividends;

                      (vi) Any transaction or series of related transactions
     that entails the sale, lease, assignment, transfer or other conveyance of
     assets having a value 



                                       23
<PAGE>   30

     greater than $10 million (measured by the book value at the date of such
     transaction) of the Corporation and its subsidiaries (determined on a
     consolidated basis); any sale or issuance of shares of capital stock of any
     subsidiary (other than such sales or issuance approved in advance by all
     Series A Directors), any consolidation or merger involving the Corporation
     or any of such subsidiaries other than a consolidation or merger in which
     the Corporation or subsidiary, as the case may be, is the surviving entity
     and no change in the capital stock or ownership of the Corporation or the
     subsidiary, as the case may be, occurs, or any reclassification or
     recapitalization of any capital stock of the Corporation, or any
     dissolution, liquidation, or winding up of the Corporation, or any
     agreement to become so obligated;

                      (vii) Any acquisition or series of related acquisitions of
     a business, businesses or assets involving aggregate consideration of $10
     million or more;

                      (viii) The incurrence of, or agreement to incur, any
     Indebtedness which would result in a Debt to Equity Ratio at the time the
     Indebtedness is incurred (after giving effect to such incurrence) of
     greater than 1:1, as measured based upon the balance sheet of the
     Corporation prepared as of the last day of the immediately preceding month,
     with a pro forma adjustment for the Indebtedness incurred and any equity
     invested in the Corporation since such date, other than such incurrences or
     agreements to incur Indebtedness that have been approved in advance by all
     Series A Directors;

                      (ix) Any action by the Corporation or any of its
     subsidiaries not approved in advance by all Series A Directors to effect
     the incurrence of, or agreement to incur, any Indebtedness by any of the
     Corporation's Affiliates or subsidiaries;

                      (x) Any loan, advance or guarantee to, or for the benefit
     of, or any sale, lease, transfer or disposition of any of the properties or
     assets of the Corporation or its subsidiaries to, or for the benefit of, or
     any purchase or lease of any property or assets from, or the execution,
     performance or amendment of any contract, agreement or understanding with,
     or for the benefit of, any Affiliate of the Corporation or its
     subsidiaries;

                      (xi) Any declaration or payment of any dividends on or any
     declaration or making of any other distribution, directly or indirectly,
     through subsidiaries (excluding dividends and distributions made to all
     owners of the Corporation's Affiliates in proportion to their respective
     ownership interests) or otherwise, on account of any Parity Stock (unless
     Pro Rata dividends have also been declared or paid on the Series A
     Preferred Stock) or Subordinate Stock or the setting apart of any sum for
     any such purpose;



                                       24
<PAGE>   31

                      (xii) The  appointment  or  involuntary  termination  of 
     the Chairman of the Board, Chief Executive Officer, Chief Financial
     Officer, Chief Operating Officer or other senior officers of the
     Corporation or its subsidiaries;

              (c) The rights of the holders of the Series A Preferred Stock may
be exercised in writing without a meeting or by proxy or in person at a special
meeting of the holders of Series A Preferred Stock, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such annual meetings or by a holder of
Series A Preferred Stock designated in writing by the written consent of the
holders of Series A Preferred Stock.

              (d) A special meeting of the holders of Series A Preferred Stock
for purposes of voting on matters with respect to which the holders of such
shares are entitled to vote as a class may be called by the Secretary of the
Corporation or by a holder of Series A Preferred Stock designated in writing by
the holders of ten percent (10%) of the shares of Series A Preferred Stock then
outstanding. Such meeting may be called at the expense of the Corporation by
either such person. At any meeting of the holders of Series A Preferred Stock,
the presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of voting on matters to be acted upon
by holders of the Series A Preferred Stock.

              7. Exclusion of Other Rights.

              Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation of the Corporation.

              8. Headings of Subdivisions.

              The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.



                                       25
<PAGE>   32

              9. Severability of Provisions.

              If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.

              IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be duly executed by an authorized officer and attested by its Secretary, this
_________ day of ______________________, 1997.



                                         P.F. CHANG'S CHINA BISTRO, INC.


                                         By:
                                            ------------------------------------
                                              Richard L. Federico, President

Attest:


------------------------------------
Robert T. Vivian, Secretary


                                       26
<PAGE>   33
                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
                      AND RELATIVE, PARTICIPATING, OPTIONAL
                      AND OTHER SPECIAL RIGHTS OF PREFERRED
                      STOCK AND QUALIFICATIONS, LIMITATIONS
                            AND RESTRICTIONS THEREOF
                                       OF
                                    SERIES B
                           CONVERTIBLE PREFERRED STOCK
                                       OF
                         P.F. CHANG'S CHINA BISTRO, INC.



                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware




              P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware (the "DGCL"), the Board of Directors of the
Corporation by written consent dated as of April 30, 1997, duly adopted the
following resolution, which resolution was approved by written consent of the
holders of the Series A Convertible Preferred Stock of the Corporation and
remains in full force and effect on the date hereof:

              RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 2,300,000 shares,
$.001 par value per share, to be designated the "Series B Convertible Preferred
Stock" (hereinafter, "Series B Preferred Stock"); that the Board of Directors be
and hereby is authorized to issue such shares of Series B Preferred Stock from
time to time and for such consideration and on such terms as the Board of
Directors shall determine; and that, subject to the limitations provided by law
and by the Certificate of Incorporation, the voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof shall be as follows:

              1.      Certain Definitions.
<PAGE>   34

              Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).

              "Affiliate" shall have the meaning given to such term under Rule
12b-2 of the rules promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.

              "Annual Per Share Cash Dividend Amount" shall mean a cash payment
equal to ten percent (10%) per annum of the Liquidation Price of one share of
the Series B Preferred Stock.

              "Annual Per Share PIK Dividend Amount" shall mean a fraction of
one share of Series B Preferred Stock equal to six percent (6%) per annum of one
share of the Series B Preferred Stock.

              "Business Day" shall mean a day other than a Saturday, a Sunday or
any other day on which banking institutions in New York, New York are authorized
or obligated by law to close.

              "Common Equity" shall mean all shares now or hereafter authorized
of any class of common stock of the Corporation, however, designated, including
the Comon Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.

              "Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.

              "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale,
L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C.,
an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona
limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited
liability company; (v) PFC Building III Limited Partnership, an Arizona limited
partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership;
and (vii) PFCCB NUC LLC, an Arizona limited liability company.

              "Conversion Date" shall have the meaning set forth in subparagraph
4.1(b) below.

              "Debt" shall mean any indebtedness, contingent or otherwise, of
any person in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments or
letters of credit or representing the balance deferred 


                                       2

<PAGE>   35

and unpaid of the purchase price of any property or interest therein, except any
such balance that constitutes a trade payable, if and to the extent such
indebtedness would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with generally accepted
accounting principles.

              "Debt to Equity Ratio" shall mean the ratio of (i) the total
Indebtedness to (ii) Total Stockholders' Equity.

              "Delinquent Mandatory Redemption Price" shall mean, with respect
to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus all accrued and
unpaid dividends payable in respect of such a share of the Series B Preferred
Stock, plus an amount thereon accruing from the Mandatory Redemption Date
relating thereto at the Increasing Rate.

              "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if
such day is not a Business Day, the next succeeding Business Day.

              "Increasing Rate" shall mean, with respect to any obligation, an
annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent
after the first completed six-month period that the obligation subject to the
Increasing Rate has been outstanding and has not been paid in full.

              "Indebtedness" shall mean the Debt of the Corporation or a
subsidiary of the Corporation plus, to the extent not otherwise included, (i)
the guaranty of any Debt of any other person; and (ii) obligations in respect of
borrowed money secured by any Lien to which any property or asset owned or held
by the Corporation or a subsidiary is subject, whether or not the obligations
secured thereby shall have been assumed by the Corporation or such subsidiary;
and (iii) capitalized lease obligations.

              "Initial Issue Date" shall mean the date that shares of Series B
Preferred Stock are first issued by the Corporation.

              "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if
such day is not a Business Day, the next succeeding Business Day.

              "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.

              "Liquidation Price" shall mean $4.35 per share of Series B
Preferred Stock (adjusted for stock splits, subdivisions, combinations and
similar transactions), plus all 



                                       3
<PAGE>   36

accrued and unpaid dividends payable in respect of such share of Series B
Preferred Stock pursuant to subparagraph 2(c).

              "Mandatory Redemption Date" shall mean the Initial Mandatory
Redemption Date and the Final Mandatory Redemption Date.

              "Mandatory Redemption Obligation" shall have the meaning set forth
in subparagraph 5(c) below.

              "Non-Investor Directors" shall mean those directors elected to the
Corporation's Board of Directors other than those directors that are elected
solely by the holders of Series B Preferred Stock or Parity Stock pursuant to
the Shareholders Agreement.

              "Parity Stock" shall mean any class or series of capital stock of
the Corporation ranking on a parity with the Series B Preferred Stock as to (i)
priority of payment of cash and stock dividends and other distributions, (ii)
priority of payment upon liquidation, dissolution or winding up of the
Corporation, and (iii) the time of, and priority of payment upon, any mandatory
redemption. For purposes of this definition, differences between any class or
series of capital stock and the Series B Preferred Stock as to the amount of the
liquidation price (or other fixed amount) to which any cash dividend rate is
applied, the amount of the liquidation price payable upon liquidation,
dissolution or winding up of the Corporation, the amount of the redemption price
payable upon any mandatory redemption, or the time when cash or stock dividends
or other distributions shall begin to accrue, shall not be considered in
determining whether such class or series of capital stock is on a parity with
the Series B Preferred Stock.

              "PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in subparagraph 2(a) below.

              "PIK Dividend Payment Date" shall mean March 31, June 30,
September 30, and December 31, of each year during the PIK Dividend Payment
Period.

              "PIK Dividend Payment Period" shall mean the period from, and
including, April 1, 1999, to and including the Final Mandatory Redemption Date.

              "PIK Dividend Period" shall mean the period from, and including,
April 1, 1999, to, but not including, the first PIK Dividend Payment Date and
thereafter, each quarterly period, including any PIK Dividend Payment Date to,
but not including, the next PIK Dividend Payment Date.

              "PIK Record Date" shall mean the date that is ten Business Days
prior to any PIK Dividend Payment Date.



                                       4
<PAGE>   37

              "Preferred Cash Dividends" shall mean the cash dividends as set
forth in subparagraph 2(f) below.

              "Prime Rate" shall mean the rate announced as the "prime rate" by
NationsBank, N.A. whether or not such rate is actually charged.

              "Pro Rata" shall mean, in the case of stock dividends, stock
dividends of the same class or series as the stock upon which the dividends are
being paid and that are proportionate to the number of outstanding shares of
such stock, and, in the case of cash dividends or dividends in property, cash
dividends or dividends in property that are proportionate to the liquidation
price of the class or series of stock upon which the dividends are being paid.

              "Qualified Initial Public Offering" shall mean an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross
proceeds of which equal or exceed $15,000,000 and (ii) the per share offering
price of which equals or exceeds $10.00; provided, however, that the per share
offering price referred to in clause (ii) shall be adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination or
like event of or with respect to outstanding shares of Common Stock occurring
after the Initial Issue Date.

              "Quoted Price" shall mean with respect to any security the
arithmetic mean of the last bid and ask price for one (1) share of the
applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"),
or, if the applicable security is listed or admitted for trading on a securities
exchange, the arithmetic mean of the high and low trading prices during the
relevant trading day for one (1) share of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), in each case, on the Trading Day in question.

              "Redemption Price" shall mean, with respect to each share of
Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions,
combinations and similar transactions) plus all accrued and unpaid dividends
payable in respect of such share of the Series B Preferred Stock.

              "Series B Director" shall mean that member of the Board of
Directors of the Corporation elected solely by the holders of the Series B
Preferred Stock pursuant to the Shareholders Agreement.

              "Shareholders Agreement" shall mean the Amended and Restated
Shareholders Agreement among the Corporation and the holders of the Common
Stock, Series B Preferred Stock and Parity Stock dated as of May 1, 1997, as the
same may be amended from time to time.



                                       5
<PAGE>   38

              "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
among the Corporation and the Purchasers listed therein dated as of April 28,
1997, as the same may be amended from time to time.

              "Subordinate Stock" shall mean the Common Equity and any class or
series of capital stock of the Corporation, however designated, which is not
entitled to receive (i) any dividends unless all dividends required to have been
paid or declared and set apart for payment on the Series B Preferred Stock shall
have been so paid or declared and set apart for payment or (ii) any assets upon
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series B Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.

              "Total Stockholders' Equity" shall mean the stockholders' equity
of the Corporation as it appears in the monthly balance sheet of the
Corporation.

              "Trading Days" shall mean any day on which any market in which the
applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.

              2.      Dividends.

              (a) The record holders of Series B Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series B Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK Dividends
shall be paid by delivering to the record holders of Series B Preferred Stock a
number of shares of Series B Preferred Stock equal to (i) the number of shares
of Series B Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK
Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation
shall not issue fractional shares of Series B Preferred Stock to which holders
may become entitled pursuant to this subparagraph, but in lieu thereof, the
Corporation shall at the option of the holder either (i) deliver its check in an
amount equal to the applicable fraction of one (1) share of Series B Preferred
Stock multiplied by $4.35 (adjusted for stock splits, subdivisions, combinations
or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer
delivery of the fractional PIK Cash Dividend Payment to the holder and apply
such amount to PIK Dividends issued to such holder on the subsequent PIK
Dividend Date. Any additional shares of Series B Preferred Stock issued pursuant
to this paragraph shall be governed by this resolution and shall be subject in
all respects, except as to the date of issuance and date from which PIK
Dividends accrue and cumulate as set forth below, to the same terms as the
shares of Series B Preferred Stock originally issued hereunder; provided,
however, in no event shall any PIK Dividends accrue prior to April 1, 1999.



                                       6
<PAGE>   39

              (b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall declare
PIK Dividends on the Series B Preferred Stock in accordance with subparagraph
2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which
shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment
due pursuant to subparagraph 2(a)) on shares of Series B Preferred Stock shall
accrue and be cumulative from the later of (i) April 1, 1999 and (ii) the date
of issuance of such shares, notwithstanding the failure of the Board of
Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend
Period. PIK Dividends shall be payable in arrears during the PIK Dividend
Payment Period on each PIK Dividend Payment Date, commencing on the first PIK
Dividend Payment Date subsequent to April 1, 1999, and for shares issued as PIK
Dividends, commencing on the first PIK Dividend Payment Date after such shares
are issued. If any PIK Dividend Payment Date occurs on a day that is not a
Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend
Payment Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid on each PIK Dividend Payment Date to the holders of record of the
Series B Preferred Stock as their names shall appear on the share register of
the Corporation on the PIK Record Date immediately preceding such PIK Dividend
Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that
would otherwise be issued as fractional shares may not legally be paid in the
full amount to which shares of Series B Preferred Stock are entitled with
respect to any PIK Dividend Period, dividends in the full preferential amount
hereby provided shall be, to the extent legally and contractually permissible,
declared and paid as PIK Dividends in the form of shares of Series B Preferred
Stock (including fractional shares thereof). PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to the
holders of record on the PIK Record Dates applicable to such past PIK Dividend
Periods.

              (c) In addition to the PIK Dividends and the PIK Cash Dividend
Payments referred to in subparagraph 2(a) hereof and the Preferred Cash
Dividends referred to in subparagraph 2(f), at any time during which any shares
of Series B Preferred Stock remain outstanding, the Corporation may declare, pay
or set apart for payment cash and/or property to be distributed or paid as a
dividend in respect of shares of Series B Preferred Stock. The foregoing
notwithstanding, no dividends may be declared or paid on the Series B Preferred
Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are
contemporaneously declared or paid on any then outstanding Parity Stock.

              (d) So long as any shares of Series B Preferred Stock shall be
outstanding:

                      (i) the Corporation shall not declare, pay or set apart
     for payment on any Subordinate Stock any dividends or distributions
     whatsoever, whether in cash, property or otherwise (other than dividends
     payable in shares of the 



                                       7
<PAGE>   40

     class or series upon which such dividends are declared or paid, or payable
     in shares of Common Stock with respect to Subordinate Stock other than
     Common Stock, together with cash in lieu of fractional shares), nor shall
     any Subordinate Stock be purchased, redeemed or otherwise acquired by the
     Corporation or any of its subsidiaries of which it owns not less than a
     majority of the outstanding voting power, nor shall any monies be paid or
     made available for a sinking fund for the purchase or redemption of any
     Subordinate Stock, without the prior written consent of the holders of at
     least a majority of the outstanding shares of Series B Preferred Stock and
     unless all dividends to which the holders of Series B Preferred Stock shall
     have been entitled for all previous PIK Dividend Periods shall have been
     (A) paid or (B) declared and a sum of money, in the case of dividends
     payable in cash, sufficient for the payment thereof has been set apart;

                      (ii) the Corporation shall not declare, pay or set apart
     for payment on any Parity Stock any dividends or distributions whatsoever,
     whether in cash, property or otherwise, unless Pro Rata dividends are
     contemporaneously declared, paid or set apart for payment on the Series B
     Preferred Stock, except that, prior to the commencement of the PIK Dividend
     Payment Period, the Corporation may declare and pay dividends on the Series
     A Convertible Preferred Stock of the Corporation as required by the terms
     thereof as in effect on the Initial Issue Date of the Series B Preferred
     Stock; and

                      (iii) neither the Corporation nor any of its subsidiaries
     of which it owns not less than a majority of the outstanding voting power
     shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any
     monies to or make any monies available for a sinking fund for the purchase
     or redemption of any Parity Stock, without the prior written consent of the
     holders of at least a majority of the outstanding shares of Series B
     Preferred Stock and unless all dividends to which the holders of Series B
     Preferred Stock shall have been entitled for all previous PIK Dividend
     Periods shall have been (A) paid or (B) declared and a sum of money, in the
     case of dividends payable in cash, sufficient for the payment thereof has
     been set apart, except that the Corporation may redeem Parity Stock so long
     as it contemporaneously redeems a proportionate percentage of the
     outstanding Series B Preferred Stock, ratably among the holders thereof.

              (e) In the event that full dividends, in cash or property, if
declared, are not paid or made available to the holders of all outstanding
shares of Series B Preferred Stock and Parity Stock and funds or property
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of Series B Preferred Stock
and Parity Stock in proportion to the full amount to which they would otherwise
be respectively entitled.



                                       8
<PAGE>   41

              (f) Notwithstanding anything to the contrary set forth herein,
with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment
Date pursuant to this paragraph 2, the Corporation may, upon the unanimous
approval of the Non-Investor Directors by vote on or prior to the applicable PIK
Record Date, declare on such PIK Record Date and pay on such PIK Dividend
Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders
of Series B Preferred Stock on such PIK Record Date in an amount per share equal
to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount.
Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall
be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date.
The foregoing notwithstanding, no Preferred Cash Dividend may be declared and
paid on the Series B Preferred Stock unless Pro Rata cash dividends are
contemporaneously declared and then paid on any then outstanding Parity Stock.

              (g) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series B Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.

              3. Distributions Upon Liquidation, Dissolution or Winding Up.

              (a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before any
payment or distribution shall be made to the holders of Subordinate Stock and
contemporaneously with any payment or distribution to the holders of Parity
Stock, the holders of Series B Preferred Stock shall be entitled to be paid out
of the assets of the Corporation in cash, or, if the Corporation does not have
sufficient cash on hand to pay such amounts, property of the Corporation at its
fair market value as determined by the Board of Directors of the Corporation,
the greater of (i) the Liquidation Price per share of Series B Preferred Stock,
or (ii) such amount per share of Series B Preferred Stock as would have been
payable had each such share been converted into Common Stock pursuant to
paragraph 4 immediately prior to such liquidation, dissolution or other winding
up of the affairs of the Corporation. Immediately preceding such liquidation,
dissolution or winding up, adjustment shall be made for accrued but unpaid
dividends (including, without limitation, PIK Dividends).

              (b) If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for each
share of the Series B Preferred Stock and the applicable liquidation price for
each share of any Parity Stock then outstanding, then the assets of the
Corporation shall be ratably distributed among the holders of Series B Preferred
Stock and Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
Neither the consolidation or merger of the Corporation into or with another
corporation or corporations, nor the sale, lease, transfer or conveyance of all
or any 



                                       9
<PAGE>   42

portion of the assets of the Corporation to another corporation or any other
entity shall be deemed a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this paragraph 3.

              4. Conversion Rights.

                  4.1 Conversion at the Option of the Holder.

              (a) At any time before the close of business on the Final
Mandatory Redemption Date (unless the Corporation shall default in payment of
the Redemption Price or the Delinquent Mandatory Redemption Price, in which
case, the conversion rights set forth in this paragraph shall continue until the
cure of any such default), each holder of Series B Preferred Stock may, at its
option, convert each share of Series B Preferred Stock held by such holder into
one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3.
Upon such conversion, the rights of the holders of converted Series B Preferred
Stock with respect to the shares of Series B Preferred Stock so converted shall
cease.

              (b) To convert Series B Preferred Stock in accordance with this
paragraph 4.1, a holder must (i) surrender the certificate or certificates
evidencing the shares of Series B Preferred Stock to be converted (or a duly
executed affidavit of lost certificate in accordance with the bylaws of the
Corporation), duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Series B Preferred Stock,
(ii) notify the Corporation at such office in writing that it elects to convert
Series B Preferred Stock, and the number of shares it wishes to convert, (iii)
state in writing the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued, and (iv) pay any transfer
or similar tax with respect to the transfer of the shares of Series B Preferred
Stock converted, if required. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." As soon as practical but
in any event within five (5) Business Days of the Conversion Date, the
Corporation shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion, a check for the amount payable in respect of any
fractional share pursuant to subparagraph 4.1(c) and a new certificate
representing the unconverted portion, if any, of the shares of Series B
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid
dividends (including, without limitation, PIK Dividends), as of the Conversion
Date, on converted shares of Series B Preferred Stock. PIK Dividends will be
paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock
surrendered for conversion at any time on or after a PIK Record Date for the
payment of a PIK Dividend to the registered holder of Series B Preferred Stock
on such PIK Record Date. If the last day on which Series B Preferred Stock may
be converted is not a Business 



                                       10
<PAGE>   43

Day, Series B Preferred Stock may be surrendered for conversion on the next
succeeding day that is a Business Day.

              (c) The Corporation will not issue a fractional share of Common
Stock upon conversion of Series B Preferred Stock. Instead the Corporation will
deliver its check in an amount equal to the applicable fraction multiplied by
the fair market value of the Common Stock.

              (d) If a holder converts shares of Series B Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion; provided,
however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax
which is due because the shares are issued in a name other than the holder's
name.

                 4.2 Mandatory Conversion. Subject to the adjustments set 
forth in paragraph 4.3, each share of the Series B Preferred Stock shall be
automatically converted into one (1) share of Common Stock on the date a
Qualified Initial Public Offering is consummated ("Mandatory Conversion Date").
Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation
shall (i) notify all holders of the Series B Preferred Stock not later than five
(5) Business Days subsequent to approval by the Board of Directors of the
Corporation to undertake a Qualified Initial Public Offering, (ii) demand that
all shares representing the Series B Preferred Stock be returned to the
Corporation's offices or to the designated transfer agent, and (iii) pay any
transfer or similar tax with respect to the conversion, if any. As soon as
practical but in any event within thirty (30) days of the Mandatory Conversion
Date, the Corporation shall deliver a certificate to and in the name of the
holder of the Series B Preferred Stock for the number of shares of Common Stock
issuable upon the conversion and a check in an amount calculated in accordance
with subparagraph 4.1(c) for any fractional shares, if any, for the shares of
Series B Preferred Stock represented by the certificate. The name of the person
in which the Series B Preferred Stock was issued shall be treated as the
stockholder of record of the Common Stock in which the Series B Preferred Stock
was converted on and after the Mandatory Conversion Date. Adjustment (or cash
payment, if applicable) shall be made for accrued and unpaid dividends
(including, without limitation, PIK Dividends), as of the Mandatory Conversion
Date, on shares of Series B Preferred Stock converted pursuant to this paragraph
4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to
Series B Preferred Stock converted pursuant to this paragraph 4.2 on or after a
PIK Record Date to the registered holder of Series B Preferred Stock on such PIK
Record Date, and the shares of Series B Preferred Stock received in payment of
such PIK Dividend shall be deemed automatically converted to one (1) share of
Common Stock, subject to adjustment in accordance with paragraph 4.3, effective
as of the Mandatory Conversion Date. Upon such conversion, the rights of the
holders of converted Series B Preferred Stock with respect to the shares of
Series B Preferred Stock so converted shall cease.



                                       11
<PAGE>   44

                  4.3 Certain Matters With Respect to Conversion.

              (a) The Corporation has reserved and shall continue to reserve out
of its authorized but unissued Common Stock enough shares of Common Stock to
permit the conversion of the Series B Preferred Stock in full. All shares of
Common Stock which are issued upon conversion of Series B Preferred Stock shall
be duly authorized, validly issued, fully paid and nonassessable. The
Corporation shall comply with all securities laws regulating the offer and
delivery of shares of common stock upon conversion of Series B Preferred Stock
and will list such shares on each national securities exchange on which the
common stock is listed.

              (b) If the Corporation:

                      (i) pays a dividend or makes a distribution on its Common
     Stock or any other class of the Corporation's stock other than the Series B
     Preferred Stock in shares of its Common Stock;

                      (ii) subdivides its outstanding shares of Common Stock 
     into a greater number of shares;

                      (iii)combines its outstanding shares of Common Stock 
     into a smaller number of shares;

                      (iv) issues by reclassification of its Common Stock any 
     shares of its capital stock;

then an appropriate and proportionate adjustment shall be made to the number of
shares into which each share of Series B Preferred Stock is convertible so that
immediately after the occurrence of such event the holders of Series B Preferred
Stock shall be entitled to receive the same percentage of the issued and
outstanding Common Stock upon conversion of the Series B Preferred Stock as such
holders would have received if converted immediately prior to such dividend,
distribution, subdivision, combination or reclassification. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.

              (c) If the Corporation distributes any rights, options or warrants
to all holders of its Common Stock entitling them for a period expiring within
sixty (60) days after the record date referenced in subparagraph (l) below to
purchase additional shares of Common Stock at a price per share less than $4.35
per share (as adjusted to reflect any stock split or any subdivision,
reclassification, combination of or with respect to outstanding shares of Common
Stock or any similar transaction) on that record date, the number of shares of
Common Stock into which each share of Series B Preferred Stock is convertible
shall be adjusted, in accordance with the following formula:



                                       12
<PAGE>   45

                                                       N x (O+A)
                                                       ---------
                               N'       =              O + AxP
                                                           ---
                                                            M
where:

              N'      =        the number of shares of Common Stock into which
                               each share of Series B Preferred Stock is
                               convertible after such distribution.

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

              N       =        the number of shares of Common Stock into which
                               each share of Series B Preferred Stock was
                               convertible prior to such distribution.

              P       =        the offering price per share of the additional 
                               shares of Common Stock.

              M       =        the current market price per share of Common 
                               Stock on the record date.

              A       =        the number of additional shares of Common Stock 
                               offered.

The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights, options or
warrants. If at the end of the period during which such warrants, options or
rights are exercisable, not all warrants, options or rights shall have been
exercised, the number of shares of Common Stock into which each share of Series
B Preferred Stock is convertible shall be immediately readjusted to what it
would have been if "A" in the above formula had been the number of shares
actually issued.



                                       13
<PAGE>   46

              (d) If the Corporation issues shares of Common Stock for a
consideration per share less than $4.35 per share (as adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination of
or with respect to outstanding shares of Common Stock or any similar
transaction) on the date the Corporation fixes the offering price of such
additional shares, the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible shall be adjusted in accordance with the
following formula:

                                                       N x A
                                                       -----
                               N'       =              O + P
                                                           -
                                                           M
where:

              N'      =        the number of shares of Common Stock into which
                               each share of Series B Preferred Stock is
                               convertible after such issuance.

              N       =        the number of shares of Common Stock into which
                               each share of Series B Preferred Stock was
                               convertible prior to such issuance.

              O       =        the number of shares of Common Stock
                               outstanding immediately prior to the issuance of
                               such additional shares.

              P       =        the aggregate consideration received for the 
                               issuance of such additional shares.

              M       =        the current market price per share of Common
                               Stock on the date of issuance of such additional
                               shares.

              A       =        the number of shares outstanding immediately
                               after the issuance of such additional shares.

              The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subparagraph 4.3(d) does not apply to (i) any transaction or issuance
described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below,
including issuances of Common Stock pursuant to warrants, options, rights or
other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii)
the conversion of Series B Preferred Stock, or the conversion, exchange or
exercise of other securities convertible into or exchangeable or exercisable for
Common Stock, (iii) Common Stock issued to the Corporation's employees under
bona fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law, if
such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but
only to the extent that the aggregate number of shares excluded hereby (together
with 



                                       14
<PAGE>   47

the aggregate number of shares issuable upon conversion, exchange or exercise of
the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued
shall not exceed 15% of the Common Stock of the Corporation on a fully diluted
basis at the time of any such issuance excluding options to purchase Common
Stock held by directors of the Corporation), or (iv) Common Stock issued in a
bona fide public offering pursuant to a firm commitment underwriting.

              (e) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series B Preferred Stock or securities issued in transactions
described in subparagraph 4.3(c) above) for a consideration per share of Common
Stock initially deliverable upon conversion, exchange or exercise of such
securities of less than $4.35 per share of Common Stock (as adjusted to reflect
the effect of any stock split or any subdivision, reclassification, combination
of or with respect to outstanding shares of Common Stock or any similar
transaction) on the date of issuance of such securities, the number of shares of
Common Stock into which each share of Series B Preferred Stock is convertible
shall be adjusted in accordance with the following formula:

                                                       N x (O+D)
                                                       ---------
                               N'       =               O + P
                                                            -
                                                            M
where:

              N'       =       the number of shares of Common Stock into which
                               each share of Series B Preferred Stock is
                               convertible immediately after such issuance.

              N        =       the number of shares of Common Stock into which
                               each share of Series B Preferred Stock was
                               convertible immediately prior to such issuance.

              O       =        the number of shares of Common Stock
                               outstanding immediately prior to the issuance of
                               such securities.

              P       =        the aggregate consideration received for the 
                               issuance of such securities.

              M       =        the current market price per share of Common
                               Stock on the date of issuance of such securities.

              D       =        the maximum number of shares deliverable upon
                               conversion or in exchange for or upon exercise of
                               such securities at the initial conversion,
                               exchange or exercise rate.

                                       15
<PAGE>   48

              The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance. If
all of the Common Stock deliverable upon conversion, exchange or exercise of
such securities has not been issued when such securities are no longer
outstanding, then the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible shall promptly be readjusted to the
basis of the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. This subparagraph 4.3(e) does not apply
to (i) the issuance of any such securities in a bona fide public offering
pursuant to a firm commitment underwriting, (ii) the issuance of any such
securities to the Corporation's employees under bona fide employee benefit plans
adopted by the Board of Directors of the Corporation and approved by the holders
of Common Stock when required by law, if such securities would otherwise be
covered by this subparagraph 4.3(e) (but only to the extent that the aggregate
number of shares issuable upon the conversion, exchange or exercise of the
aggregate number of securities excluded hereby (together with the aggregate
number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and
issued shall not exceed 15% of the Common Stock of the Corporation on a fully
diluted basis at the time of any such issuance excluding options to purchase
Common Stock held by directors of the Corporation), or (iii) shares issued as
PIK Dividends, shares issued as "paid-in-kind" dividends on the Series A
Convertible Preferred Stock of the Corporation as required by the terms thereof
as in effect on the Initial Issue Date of the Series B Preferred Stock, or
shares issued as "paid-in-kind" dividends on Parity Stock provided such
dividends are required by the terms of such Parity Stock.

              (f) If the Corporation (i) distributes any rights, options or
warrants to all holders of its Common Stock entitling them for a period expiring
within sixty (60) days after the record date referenced in subparagraph (l)
herein to purchase additional shares of Common Stock; (ii) issues shares of
Common Stock; or (iii) issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series B Preferred Stock or securities issued in transactions described in (i)
above) at a price reflecting an implied price per share less than $4.35 per
share, the number of shares of Common Stock into which each share of Series B
Preferred Stock is convertible shall be reduced proportionally to reflect the
price at which the Corporation issued or sold such shares of Common Stock
pursuant to this subparagraph 4.3(f).

              (g) For the purpose hereof, the current market price per share of
any security on any date is the average of the Quoted Prices for thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question. If the Quoted Price is not ascertainable, the current market price
per share of any security on any date shall be the current market price as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith. Notwithstanding the foregoing, the current
market price per share of any security shall be deemed to be the greater of (i)
the current market price as determined above and (ii) the Liquidation Price.


                                       16
<PAGE>   49

              (h) For purposes of any computation respecting consideration
received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall
apply:

                      (i) in case of the issuance of shares of Common Stock for
     cash, the consideration shall be the amount of such cash, provided that in
     no case shall any deduction be made for any commissions, discounts or other
     expenses incurred by the Corporation for any underwriting of the issue or
     otherwise in connection therewith;

                      (ii) in the case of the issuance of shares of Common Stock
     for a consideration in whole or in part other than cash, the consideration
     other than cash shall be deemed to be the fair market value thereof as
     determined by the Board of Directors of the Corporation in its reasonable
     judgment exercised in good faith (irrespective of the accounting treatment
     thereof); and

                      (iii) in the case of the issuance of options, warrants or
     other securities convertible into or exchangeable or exercisable for shares
     of Common Stock, the aggregate consideration received therefor shall be
     deemed to be the consideration received by the Corporation for the issuance
     of such options, warrants or other securities plus the additional minimum
     consideration, if any, to be received by the Corporation upon the
     conversion or exchange or exercise thereof (the consideration in each case
     to be determined in the same manner as provided in clauses (i) and (ii) of
     this subparagraph 4.3(h)).

              (i) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made unless
the adjustment would require an increase or decrease of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this paragraph 4.3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.

              (j) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made under
this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends or interest, or (ii) any change
in the par value or change from no par value to par value of the Common Stock.
If an adjustment is made to the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible upon a record date established
for a distribution subject to this paragraph 4.3 and if such distribution is
subsequently cancelled, the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible then in effect shall be
readjusted, effective as of the date when the Board of Directors of the
Corporation determines to cancel such distribution, to the number of shares of
Common 



                                       17
<PAGE>   50
Stock into which each share of Series B Preferred Stock is convertible as would
have been in effect if such record date had not been fixed. No adjustment need
be made under paragraph 4.3 if the Corporation issues or distributes to each
holder of Series B Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to in such paragraph
which each holder would have been entitled to receive had Series B Preferred
Stock been converted into Common Stock prior to or simultaneously with the
happening of such event or the record date with respect thereto.

              (k) Whenever the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible is adjusted, the Corporation
shall promptly mail to holders of Series B Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Series B Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating the facts requiring
the adjustment and the manner of computing it. Subject to subparagraph 4.3(o)
below, the certificate shall be conclusive evidence that the adjustment is
correct.

              (l) If:

                      (i)      the Corporation takes any action that would 
     require an adjustment pursuant to paragraph 4.3;

                      (ii)     the Corporation consolidates or merges with, or 
     transfers all or substantially all of its assets to, another corporation,
     and stockholders of the Corporation must approve the transaction; or

                      (iii)    there is a dissolution or liquidation of the 
     Corporation;

a holder of Series B Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least thirty (30) days before such date.

              (m) If the Corporation is party to a consolidation or merger which
reclassifies or changes its Common Stock or to the sale of all or substantially
all of the assets of the Corporation, upon consummation of such transaction the
Series B Preferred Stock shall automatically become convertible at the option of
their respective holders into the kind and amount of securities, cash or other
assets which the holder of Series B Preferred Stock would have owned immediately
after the sale, consolidation or merger, if such holder had converted Series B
Preferred Stock immediately before the effective date of the transaction, and an
appropriate adjustment (as determined by the 



                                       18
<PAGE>   51

Board of Directors of the Corporation) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Series B Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to liquidation preferences and
changes in and other adjustment of the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the conversion of
Series B Preferred Stock. The Corporation shall not affect any such
consolidation, merge or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets assumes by
written instrument (in a form reasonably satisfactory to the holders of a
majority of the Series B Preferred Stock then outstanding), the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c),
4.3(d) and 4.3(e) do not apply.

              (n) In any case in which this paragraph 4.3 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series B Preferred Stock
converted after such record date and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable immediately prior to adjustment and (ii) the delivery of a
check for any remaining fractional shares as provided in subparagraph 4.1(c)
above.

              (o) Whenever the Corporation or its Board of Directors shall be
required to make a determination under this paragraph 4.3, such determination
shall be made in good faith and may be challenged in good faith by the holders
of a majority of the Series B Preferred Stock, and any dispute shall be resolved
promptly (and in no event later than ninety (90) days after any challenge), at
the Corporation's expense, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series B
Preferred Stock. Any such determination shall be deemed approved if the
requisite holders have not notified the Corporation of any challenge within
thirty (30) days after receiving notice (including a statement in reasonable
detail of the bases therefor) of such determination.

              (p) If any event occurs of the type contemplated by the provisions
of this paragraph 4.3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment to the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible so as to protect the rights of the holders of Series B
Preferred Stock; provided that no such adjustment shall increase the number of
shares of Common Stock into which a share of Series B Preferred Stock is 



                                       19
<PAGE>   52
convertible if otherwise adjusted pursuant to another provision of this
paragraph 4.3 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series B Preferred Stock.

              5. Mandatory Redemption by the Corporation.

              (a) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem on the
Initial Mandatory Redemption Date at least fifty percent (50%) of the then
outstanding shares of Series B Preferred Stock at the Redemption Price, ratably
among the holders thereof. In addition, to the extent the Corporation shall have
funds legally available for such payment under the DGCL, the Corporation shall
redeem on the Final Mandatory Redemption Date all of the then outstanding shares
of Series B Preferred Stock at the Redemption Price, plus an amount accruing
thereon at the Increasing Rate from the Initial Mandatory Redemption Date.

              (b) Shares of Series B Preferred Stock which have been issued and
converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the DGCL) have the
status of authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued as
part of any series of preferred stock of the Corporation; provided, however,
that no such issued and reacquired shares of Series B Preferred Stock shall be
reissued as Series B Preferred Stock.

              (c) If on any Mandatory Redemption Date the Corporation is unable
or shall fail to discharge its obligation to redeem all outstanding shares of
Series B Preferred Stock required to be redeemed on such date pursuant to
subparagraph 5(a) and all outstanding shares of Parity Stock required to be
redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation
shall redeem on such Mandatory Redemption Date the number of shares of Series B
Preferred Stock and Parity Stock which it is able to redeem, ratably among the
holders of Series B Preferred Stock and Parity Stock in proportion to the full
amounts to which they would otherwise be respectively entitled if all shares of
Series B Preferred Stock and Parity Stock required to be redeemed on such date
were redeemed. In such a case, the remainder of the Redemption Price payable but
not paid at the Mandatory Redemption Date shall be converted into the Delinquent
Mandatory Redemption Price and shall be discharged as soon as the Corporation is
able to discharge such Delinquent Mandatory Redemption Price out of funds
legally available therefor. If and so long as any Mandatory Redemption
Obligation (or any obligation in respect of the Delinquent Mandatory Redemption
Price) with respect to the Series B Preferred Stock and any Parity Stock shall
not be fully discharged and paid, the Corporation shall not declare or pay any
dividend or make any distribution on, or, directly or indirectly, purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of Subordinate Stock (other than repurchases of shares of
Subordinate Stock in accordance 



                                       20
<PAGE>   53

with the terms of restricted stock vesting agreements with employees of the
Corporation approved by the Board of Directors of the Corporation).

              (d) Notwithstanding the foregoing provisions of this paragraph 5,
unless the full cumulative dividends on all outstanding shares of Series B
Preferred Stock and Parity Stock have been paid or contemporaneously are
declared and paid for all dividend periods to and including the Mandatory
Redemption Date, none of the shares of Series B Preferred Stock or Parity Stock
shall be redeemed or set aside for redemption, unless such shares of Series B
Preferred Stock and Parity Stock are redeemed pro rata based upon the full
amounts to which the holders thereof would otherwise be respectively entitled.

              (e) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days prior
to any Mandatory Redemption Date, by first class mail, postage prepaid, to all
holders of record of the Series B Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series B Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series B Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
B Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vi) the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible as of the notice date and,
if any transactions are contemplated to occur between the notice date and the
Mandatory Redemption Date which would cause such number of shares of Common
Stock to be adjusted, the number of shares of Common Stock into which each share
of Series B Preferred Stock would be convertible after giving effect to such
transaction(s); (vii) that Series B Preferred Stock called for redemption may be
converted at any time before the close of business on the Mandatory Redemption
Date; and (viii) that holders of Series B Preferred Stock must satisfy the
requirements of subparagraph 4.1(b) above if such holders desire to convert such
shares. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified therein all
shares called for redemption other than shares converted into Common Stock prior
to the Mandatory Redemption Date.

              (f) If notice has been mailed in accordance with subparagraph 5(e)
above and provided that on or before the Mandatory Redemption Date specified in
such notice, all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of 



                                       21
<PAGE>   54

the holders of the shares so called for redemption, so as to be, and to continue
to be available therefor, then, from and after the Mandatory Redemption Date,
dividends on the shares of the Series B Preferred Stock so called for redemption
shall cease to accrue, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series B Preferred Stock,
and all rights of the holders thereof as shareholders of the Corporation (except
the right to receive from the Corporation the Redemption Price) shall cease,
irrespective of whether any certificates for shares called for redemption have
been surrendered to the Corporation. Upon surrender, in accordance with said
notice, of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer), such shares shall be redeemed by the Corporation at the
Redemption Price and no holder of shares called for redemption shall be entitled
to receive payment of the Redemption Price therefor until such surrender to the
Corporation has been accomplished or a duly executed affidavit of lost
certificate shall have been delivered to the Corporation. In case fewer than all
the shares represented by any such certificate are redeemed, a new certificate
or certificates shall be issued representing the unredeemed shares without cost
to the holder thereof (so long as such certificate is issued to the holder).

              (g) Any funds deposited with a bank or trust company for the
purpose of redeeming Series B Preferred Stock shall be irrevocable except that:

                      (i) the Corporation shall be entitled to receive from such
     bank or trust company the interest or other earnings, if any, earned on any
     money so deposited in trust, and the holders of any shares redeemed shall
     have no claim to such interest or other earnings; and

                      (ii) any balance of monies so deposited by the Corporation
     and unclaimed by the holders of the Series B Preferred Stock entitled
     thereto at the expiration of two (2) years from the applicable Mandatory
     Redemption Date shall be repaid, together with any interest or other
     earnings earned thereon, to the Corporation, and after any such repayment,
     the holders of the shares entitled to the funds so repaid to the
     Corporation shall look only to the Corporation for payment without interest
     or other earnings.

              (h) Notwithstanding anything to the contrary herein, no shares of
Series B Preferred Stock may be redeemed except with funds legally available for
the payment of the Redemption Price.

              6. Voting Rights.

              (a) Except as otherwise set forth in this paragraph 6 and the
Shareholders Agreement or as otherwise required by law, each share of Series B
Preferred Stock issued and outstanding shall have the right to vote on all
matters presented to the holders of the Common Stock for vote in the number of
votes equal at any time to the number of shares of Common Stock into which each
share of Series B 



                                       22
<PAGE>   55

Preferred Stock would then be convertible, and the holders of the Series B
Preferred Stock and Parity Stock shall vote with the holders of the Common Stock
as a single class.

              (b) In addition to any vote or consent of shareholders required by
law or the Certificate of Incorporation of the Corporation, the affirmative
consent of the holders of a majority of the issued and outstanding shares of
Series B Preferred Stock at the time outstanding, voting as a single class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:

                      (i) (x) Any amendment, alteration or repeal of any of the
     provisions of the Certificate of Incorporation (including without
     limitation this Certificate of Designation) of the Corporation or (y) any
     amendment of the by-laws of the Corporation that materially affects the
     rights of the holders of the Series B Preferred Stock;

                      (ii) Any action by the Corporation or any of its
     subsidiaries not approved in advance by the Series B Director to effect any
     amendment, alteration or repeal of any of the provisions of the articles of
     organization, operating agreements, certificates of limited partnership, or
     partnership agreements of any of the Corporation's Affiliates or
     subsidiaries (except such amendments, alterations or repeals that are
     ministerial in nature or required to effect a transfer of ownership
     interests in the Corporation's Affiliates or subsidiaries (other than any
     ownership interest beneficially owned by the Corporation));

                      (iii) Any authorization, issuance or creation of, or
     increase in the authorized amount of, (x) any shares of any class or any
     security of any class ranking senior to the shares of Series B Preferred
     Stock in the distribution of assets on any liquidation, dissolution or
     winding up of the Corporation or in the payment of dividends or requiring
     redemption at any time any shares of Series B Preferred Stock are still
     outstanding, or (y) any shares of Parity Stock (except shares issued as
     "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have
     also been declared and paid on the Series B Preferred Stock and except,
     prior to the commencement of the PIK Dividend Payment Period, shares issued
     as "paid-in-kind" dividends on the Series A Preferred Stock as required by
     the terms thereof as in effect on the Initial Issue Date of the Series B
     Preferred Stock);

                      (iv) Any action by the Corporation or any of its
     subsidiaries not approved in advance by the Series B Director to effect the
     authorization, issuance or creation of, or increase in the authorized
     amount of, any membership interests, limited partnership interests or other
     equity security interests of any of the Corporation's Affiliates or
     subsidiaries;



                                       23
<PAGE>   56

                      (v) Any increase or decrease (other than by redemption or
     conversion) in the total number of authorized shares of Series B Preferred
     Stock or any issuance of the currently authorized shares of the Series B
     Preferred Stock other than the issuance of shares of Series B Preferred
     Stock pursuant to the Stock Purchase Agreement or as PIK Dividends;

                      (vi) Any transaction or series of related transactions
     that entails the sale, lease, assignment, transfer or other conveyance of
     assets having a value greater than $10 million (measured by the book value
     at the date of such transaction) of the Corporation and its subsidiaries
     (determined on a consolidated basis); any sale or issuance of shares of
     capital stock of any subsidiary (other than such sales or issuance approved
     in advance by the Series B Director), any consolidation or merger involving
     the Corporation or any of such subsidiaries other than a consolidation or
     merger in which the Corporation or subsidiary, as the case may be, is the
     surviving entity and no change in the capital stock or ownership of the
     Corporation or the subsidiary, as the case may be, occurs, or any
     reclassification or recapitalization of any capital stock of the
     Corporation, or any dissolution, liquidation, or winding up of the
     Corporation, or any agreement to become so obligated;

                      (vii) Any acquisition or series of related acquisitions of
     a business, businesses or assets involving aggregate consideration of $10
     million or more;

                      (viii) The incurrence of, or agreement to incur, any
     Indebtedness which would result in a Debt to Equity Ratio at the time the
     Indebtedness is incurred (after giving effect to such incurrence) of
     greater than 1:1, as measured based upon the balance sheet of the
     Corporation prepared as of the last day of the immediately preceding month,
     with a pro forma adjustment for the Indebtedness incurred and any equity
     invested in the Corporation since such date, other than such incurrences or
     agreements to incur Indebtedness that have been approved in advance by the
     Series B Director;

                      (ix) Any action by the Corporation or any of its
     subsidiaries not approved in advance by the Series B Director to effect the
     incurrence of, or agreement to incur, any Indebtedness by any of the
     Corporation's Affiliates or subsidiaries;

                      (x) Any loan, advance or guarantee to, or for the benefit
     of, or any sale, lease, transfer or disposition of any of the properties or
     assets of the Corporation or its subsidiaries to, or for the benefit of, or
     any purchase or lease of any property or assets from, or the execution,
     performance or amendment of any contract, agreement or understanding with,
     or for the benefit of, any Affiliate of the Corporation or its
     subsidiaries;

                                       24
<PAGE>   57

                      (xi) Any declaration or payment of any dividends on or any
     declaration or making of any other distribution, directly or indirectly,
     through subsidiaries (excluding dividends and distributions made to all
     owners of the Corporation's Affiliates in proportion to their respective
     ownership interests) or otherwise, on account of any Parity Stock (unless
     Pro Rata dividends have also been declared or paid on the Series B
     Preferred Stock and except that, prior to the commencement of the PIK
     Dividend Payment Period, "paid-in-kind" dividends on the Series A
     Convertible Preferred Stock of the Corporation may be paid thereon as
     required by the terms thereof as in effect on the Initial Issue Date of the
     Series B Preferred Stock) or Subordinate Stock or the setting apart of any
     sum for any such purpose;

                      (xii) The appointment or involuntary termination of the
     Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
     Chief Operating Officer or other senior officers of the Corporation or its
     subsidiaries;

              (c) The rights of the holders of the Series B Preferred Stock may
be exercised in writing without a meeting or by proxy or in person at a special
meeting of the holders of Series B Preferred Stock, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such annual meetings or by a holder of
Series B Preferred Stock designated in writing by the written consent of the
holders of Series B Preferred Stock.

              (d) A special meeting of the holders of Series B Preferred Stock
for purposes of voting on matters with respect to which the holders of such
shares are entitled to vote as a class may be called by the Secretary of the
Corporation or by a holder of Series B Preferred Stock designated in writing by
the holders of ten percent (10%) of the shares of Series B Preferred Stock then
outstanding. Such meeting may be called at the expense of the Corporation by
either such person. At any meeting of the holders of Series B Preferred Stock,
the presence in person or by proxy of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum of the
Series B Preferred Stock for the purpose of voting on matters to be acted upon
by holders of the Series B Preferred Stock.

              7. Exclusion of Other Rights.

              Except as may otherwise be required by law, the shares of Series B
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation of the Corporation.

              8. Headings of Subdivisions.



                                       25
<PAGE>   58

              The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.

              9. Severability of Provisions.

              If any voting powers, preferences and relative, participating,
optional and other special rights of the Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.


                                       26
<PAGE>   59




              IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be duly executed by an authorized officer and attested by its Secretary, this
________ day of _________________, 1997.



                                         P.F. CHANG'S CHINA BISTRO, INC.


                                         By:
                                            ------------------------------------
                                               Richard L. Federico, President

Attest:


------------------------------
Robert T. Vivian, Secretary



                                       27