<PAGE>
                                                                   EXHIBIT 10.26
 
                                                                Draft of 8/21/98

                                    ANNEX II
                                       TO
                                 NOTE PURCHASE
                                  AND EXCHANGE
                                   AGREEMENT
                                        
                         EQUALNET COMMUNICATIONS CORP.

            STATEMENT OF RESOLUTION OF BOARD OF DIRECTORS ESTABLISHING AND
            DESIGNATING SERIES D CONVERTIBLE PREFERRED STOCK AND  FIXING THE
            RIGHTS AND PREFERENCES OF SUCH SERIES

               -------------------------------------------------

TO THE SECRETARY OF STATE
    OF THE STATE OF TEXAS:

          Equalnet Communications Corp., pursuant to the provisions of Articles
2.13 and 2.19B of the Texas Business Corporation Act, submits the following
statement for the purpose of establishing and designating a series of shares and
fixing and determining the relative rights and preferences thereof:

          1.  The name of the Corporation is Equalnet Communications Corp.

          2.  The following is a true and correct copy of an extract from the
minutes of a meeting of the Board of Directors of the Corporation held on August
11, 1998, and includes a true and correct copy of certain resolutions duly
adopted  thereat.

          RESOLVED, that pursuant to authority vested in the Board of Directors
by the Articles of Incorporation of the Corporation, the Board of Directors does
hereby provide for the creation of a series of the Preferred Stock, $.01 par
value (hereinafter called the "Preferred Stock"), of the Corporation, and to the
extent that the voting powers and the designations, preferences and relative,
participating, optional or other special rights thereof and the qualifications,
limitations or restrictions of such rights have not been set forth in the
Articles of Incorporation of the Corporation, does hereby fix the same as
follows:

                      SERIES D CONVERTIBLE PREFERRED STOCK

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

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

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

          "AMEX" means the American Stock Exchange, Inc.

          "Average Market Price" for any date means the arithmetic average of
the Market Price on each of the five Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.

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

          "Ceiling Price" means $1.228 (subject to equitable adjustments from
time to time on terms reasonably acceptable to the Majority Holders for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events occurring or with respect to which "ex-" trading commences on or
after the date of filing of this Statement of Resolution with the Secretary of
State of the State of Texas); provided, however, that, notwithstanding any other
provision hereof, the Ceiling Price applicable to a particular conversion shall
be subject to reduction as provided in Section 10(b)(6); provided further,
however, that if a Registration Event occurs, then, in addition to any other
right or remedy of any holder of shares of Series D Convertible Preferred Stock
thereafter the Ceiling Price shall be permanently reduced on each Computation
Date by an amount equal to two percent of the amount that the Ceiling Price
otherwise would have been without any reduction pursuant to this proviso (pro
rated in the case of any Computation Date which is less than 30 days after a
Registration Event occurs or less than 30 days after another Computation Date).

          "Common Stock" means the Common Stock, $.01 par value, of the
Corporation.

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

          "Conversion Agent" means American Stock Transfer & Trust Company, or
its duly appointed successor, as conversion agent for the Series D Convertible
Preferred Stock pursuant to the Transfer Agent Instruction.

                                      -2-
<PAGE>
 
          "Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as herein provided.

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

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

          "Conversion Percentage" means 85%; provided, however, that,
notwithstanding any other provision hereof, if a Registration Event occurs, then
such percentage stated above shall be permanently reduced by two percentage
points on each Computation Date (pro rated in the case of any Computation Date
which is less than 30 days after a Registration Event occurs or less than 30
days after another Computation Date).

          "Conversion Price" means the lesser of:

          (1) the product of (a) the Average Market Price for such date times
(b) the applicable Conversion Percentage; and

          (2)  the Ceiling Price;

provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6).

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

          "Converted Market Price" means, for any share of Series D Convertible
Preferred Stock as of any date of determination, an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would, at
the time of such determination, be issuable on conversion in accordance with
Section 10(a) of one share of Series D Convertible Preferred Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears if a Conversion Notice were given by the holder of
such share of Series D Convertible Preferred Stock on the date of such
determination (determined without regard to any limitation on conversion based
on beneficial ownership contained in Section 10(a)) times (y) the arithmetic
average of the Market Price of the Common Stock for the five consecutive Trading
Days ending on the Trading Day prior to the date of such determination.

          "Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series D Convertible Preferred Stock
pursuant to Section 

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

          "Current Price" means with respect to any date the arithmetic average
of the Market Price of the Common Stock on the 30 consecutive Trading Days
commencing 45 Trading Days before such date.

          "Dividend Shares" means shares of Series D Convertible Preferred Stock
issued as dividends on outstanding shares of Series D Convertible Preferred
Stock in accordance with Section 5(b).

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

          "Exchange Agreements" means the several Note Purchase and Exchange
Agreements by and between the Corporation and the original holders of shares of
Series D Convertible Preferred Stock pursuant to which the shares of Series D
Convertible Preferred Stock were issued.

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

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

          "Final Redemption Price" on any date means an amount equal to the
product obtained by multiplying (a) the sum of (1) $1,000 plus (2) an amount
equal to the accrued but unpaid dividends on the share of Series D Convertible
Preferred Stock to be redeemed to the Final Redemption Date, plus (3) an amount
equal to the accrued and unpaid interest on dividends in arrears on such share
of Series D Convertible Preferred Stock to the Final Redemption Date (determined
as provided in Section 5) times (b) the Premium Percentage.

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

          "Issuance Date" means the first date of original issuance of any
shares of Series D Convertible Preferred Stock.

                                      -4-
<PAGE>
 
          "Junior Dividend Stock" means, collectively, the Common Stock and any
other class or series of capital stock of the Corporation ranking junior as to
dividends to the Series D Convertible Preferred Stock.

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

          "Liquidation Preference" means, for each share of Series D Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
such distribution, and (iii) $1,000.00.

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

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

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

          (ii) The Corporation shall issue rights or warrants to all holders of
     its outstanding shares of Common Stock, or fix a record date for such
     issuance, which rights or warrants entitle such holders (for a period
     expiring within forty-five (45) days after the date fixed for the
     determination of stockholders entitled to receive such rights or

                                      -5-
<PAGE>
 
     warrants) to subscribe for or purchase shares of Common Stock at a price
     per share less than the Market Price (determined without regard to this
     proviso) for any day in such Measurement Period or such other period which
     day is prior to the end of such 45-day period, then the Market Price for
     each such day shall be reduced so that the same shall equal the price
     determined by multiplying the Market Price (determined without regard to
     this proviso) by a fraction, the numerator of which shall be the number of
     shares of Common Stock outstanding at the close of business on the record
     date fixed for the determination of stockholders entitled to receive such
     rights or warrants plus the number of shares which the aggregate offering
     price of the total number of shares so offered would purchase at such
     Market Price, and the denominator of which shall be the number of shares of
     Common Stock outstanding on the close of business on such record date plus
     the total number of additional shares of Common Stock so offered for
     subscription or purchase. In determining whether any rights or warrants
     entitle the holders to subscribe for or purchase shares of Common Stock at
     less than the Market Price (determined without regard to this proviso), and
     in determining the aggregate offering price of such shares of Common Stock,
     there shall be taken into account any consideration received for such
     rights or warrants, the value of such consideration, if other than cash, to
     be determined in good faith by a resolution of the Board of Directors of
     the Corporation;

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

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

                                      -6-
<PAGE>
 
     proviso) for such date; provided, however, that in the event the then fair
     market value (as so determined) of the portion of the Securities so
     distributed applicable to one share of Common Stock is equal to or greater
     than the Market Price (determined without regard to this clause (iv) of
     this proviso) for any such Trading Day, in lieu of the foregoing
     adjustment, adequate provision shall be made so that the holders of shares
     of Series D Preferred Stock shall have the right to receive upon conversion
     of the shares of Series D Preferred Stock the amount of Securities the
     holders of shares of Series D Preferred Stock would have received had the
     holders of shares of Series D Preferred Stock converted the shares of
     Series D Preferred Stock immediately prior to the record date for such
     distribution. If the Board of Directors of the Corporation determines the
     fair market value of any distribution for purposes of this clause (iv) by
     reference to the actual or when issued trading market for any securities
     comprising all or part of such distribution, it must in doing so consider
     the prices in such market on the same day for which an adjustment in the
     Market Price is being determined.

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

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

                                      -7-
<PAGE>
 
     other reacquisition by the Corporation or any subsidiary of the Corporation
     of any shares of Common Stock (other than an Option Share Surrender) made
     after the Issuance Date and within the 12 months preceding the date of
     payment of such distribution or making of such repurchase or reacquisition,
     as the case may be, and in respect of which no adjustment pursuant to this
     clause (v) has been made, and (3) the aggregate of any cash plus the fair
     market value (as determined in good faith by a resolution of the Board of
     Directors of the Corporation) of consideration payable in respect of any
     Tender Offer by the Corporation or any of its subsidiaries for all or any
     portion of the Common Stock concluded within the 12 months preceding the
     date of payment of such distribution or completion of such repurchase or
     reacquisition, as the case may be, and in respect of which no adjustment
     pursuant to clause (vi) of this proviso has been made (such aggregate
     amount combined with the amounts in clauses (1), (2) and (3) above being
     the "Combined Amount"), exceeds 10% of the product of the Market Price
     (determined without regard to this proviso) for any day in such Measurement
     Period or such other period which day is prior to the earlier of (A) the
     record date with respect to such distribution and (B) the date on which ex-
     dividend trading in the Common Stock with respect to such distribution
     begins or the date of such repurchase or reacquisition, as the case may be,
     times the number of shares of Common Stock outstanding on such date, then,
     and in each such case, the Market Price for each such day shall be reduced
     so that the same shall equal the price determined by multiplying the Market
     Price (determined without regard to this proviso) for such day by a
     fraction (i) the numerator of which shall be equal to the Market Price
     (determined without regard to this proviso) for such day less an amount
     equal to the quotient of (x) the excess of such Combined Amount over such
     10% and (y) the number of shares of Common Stock outstanding on such day
     and (ii) the denominator of which shall be equal to the Market Price
     (determined without regard to this proviso) for such day; provided,
     however, that in the event the portion of the cash so distributed or paid
     for the repurchase or reacquisition of shares (determined per share based
     on the number of shares of Common Stock outstanding) applicable to one
     share of Common Stock is equal to or greater than the Market Price
     (determined without regard to this clause (v) of this proviso) of the
     Common Stock for any such day, then in lieu of the foregoing adjustment
     with respect to such day, adequate provision shall be made so that the
     holders of shares of Series D Preferred Stock shall have the right to
     receive upon conversion of shares of Series D Preferred Stock the amount of
     cash the holders of shares of Series D Preferred Stock would have received
     had the holders of shares of Series D Preferred Stock converted shares of
     Series D Preferred Stock immediately prior to the record date for such
     distribution or the payment date of such repurchase, as applicable; or

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

                                      -8-
<PAGE>
 
     expiration of such Tender Offer, of consideration payable in respect of any
     other Tender Offers, by the Corporation or any of its subsidiaries for all
     or any portion of the Common Stock expiring within the 12 months preceding
     the expiration of such Tender Offer and in respect of which no adjustment
     pursuant to this clause (vi) has been made, (2) the aggregate amount of any
     cash plus the fair market value (as determined in good faith by a
     resolution of the Board of Directors of the Corporation) of consideration
     paid in respect of any repurchase or other reacquisition by the Corporation
     or any subsidiary of the Corporation of any shares of Common Stock (other
     than an Option Share Surrender) made after the Issuance Date and within the
     12 months preceding the expiration of such Tender Offer and in respect of
     which no adjustment pursuant to clause (v) of this proviso has been made,
     and (3) the aggregate amount of any distributions to all holders of Common
     Stock made exclusively in cash within 12 months preceding the expiration of
     such Tender Offer and in respect of which no adjustment pursuant to clause
     (v) of this proviso has been made, exceeds 10% of the product of the Market
     Price (determined without regard to this proviso) for any day in such
     period times the number of shares of Common Stock outstanding on such day,
     then, and in each such case, the Market Price for such day shall be reduced
     so that the same shall equal the price determined by multiplying the Market
     Price (determined without regard to this proviso) for such day by a
     fraction, the numerator of which shall be the number of shares of Common
     Stock outstanding on such day multiplied by the Market Price (determined
     without regard to this proviso) for such day and the denominator of which
     shall be the sum of (x) the fair market value (determined as aforesaid) of
     the aggregate consideration payable to stockholders based on the acceptance
     (up to any maximum specified in the terms of the Tender Offer) of all
     shares validly tendered and not withdrawn as of the last time tenders could
     have been made pursuant to such Tender Offer (the "Expiration Time") (the
     shares deemed so accepted, up to any such maximum, being referred to as the
     "Purchased Shares") and (y) the product of the number of shares of Common
     Stock outstanding (less any Purchased Shares) on such day times the Market
     Price (determined without regard to this proviso) of the Common Stock on
     the Trading Day next succeeding the Expiration Time. If the application of
     this clause (vi) to any Tender Offer would result in an increase in the
     Market Price (determined without regard to this proviso) for any trade, no
     adjustment shall be made for such Tender Offer under this clause (vi) for
     such day.

          "Maximum Share Amount" means 1,932,562 shares, (such amount to be
subject to equitable adjustment from time to time on terms reasonably acceptable
to the Majority Holders for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring or
with respect to which "ex-" trading commences after the date of filing this
Statement of Resolution with the Secretary of State of the State of Texas), of
Common Stock, or such greater number as permitted by the rules of the Nasdaq;
provided, however, that if for purposes of Rule 4460(i) of the Nasdaq (or any
successor or replacement provision of any stock exchange or stock market on
which the Common Stock is listed or traded) the (x) the issuance of the Notes
and the issuance of shares of Common Stock upon conversion thereof or (y) the
issuance of the common stock purchase warrants issued in connection with the
issuance of the Notes and the issuance of shares of Common Stock upon exercise
thereof is not required to be integrated with the issuance of the shares of
Series D 

                                      -9-
<PAGE>
 
Convertible Preferred Stock and the issuance of shares of Common Stock upon
conversion thereof, then in each such case the "Maximum Share Amount" shall mean
such greater number as equals the maximum number of shares of Common Stock
permitted by the rules of the Nasdaq (determined by pro rata allocation of any
increase thereof among the shares of Series D Convertible Preferred Stock based
on the number of shares of Series D Convertible Preferred Stock originally
represented by each certificate therefor) (such amount to be subject to
equitable adjustment in terms reasonably acceptable to the Majority Holders from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date of filing of this Statement of Resolution with the Secretary of State
of the State of Texas).

          "Measurement Period" means, with respect to any date, the period of 25
consecutive Trading Days ending on the Trading Day prior to such date.

          "Nasdaq" means the Nasdaq National Market.

          "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

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

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

          "Optional Redemption Event" means the occurrence on or before [INSERT
MONTH AND DAY OF CLOSING], 2001 of any one of the following events:

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

          (2) The Common Stock is not listed for trading on any of the NYSE, the
     AMEX, the Nasdaq or the Nasdaq SmallCap;

          (3) The inability for 45 or more days (whether or not consecutive) of
     any holder of shares of Series D Convertible Preferred Stock to sell shares
     of Common Stock issued or issuable on conversion of shares of Series D
     Convertible Preferred Stock pursuant to the Registration Statement for any
     reason on each of such 45 days;

          (4) The Corporation shall (A) default in the timely performance of the
     obligation to issue shares of Common Stock upon conversion of shares of
     Series D Convertible Preferred Stock as and when required by Section 10 or
     shall default in the timely performance of its obligations under Section
     12(d)(7) or (B) the Corporation shall fail or default in the timely
     performance of any material obligation (other than as 

                                      -10-
<PAGE>
 
     specifically set forth elsewhere in this definition) to a holder of shares
     of Series D Convertible Preferred Stock under the terms of this Statement
     of Resolution or under the Registration Rights Agreements or any other
     agreement or document entered into in connection with the issuance of
     shares of Series D Convertible Preferred Stock, as such instruments may be
     amended from time to time and such failure or default shall continue for
     ten business days after notice thereof from any holder of shares of Series
     D Convertible Preferred Stock to the Corporation;

          (5) Any consolidation or merger of the Corporation with or into
     another entity (other than a merger or consolidation of a subsidiary of the
     Corporation into the Corporation or a wholly-owned subsidiary of the
     Corporation) where the shareholders of the Corporation immediately prior to
     such transaction do not collectively own at least 51% of the outstanding
     voting securities of the surviving corporation of such consolidation or
     merger immediately following such transaction or the common stock of such
     surviving corporation is not listed for trading on the NYSE, the AMEX, the
     Nasdaq or the Nasdaq SmallCap or any sale or other transfer of all or
     substantially all of the assets of the Corporation;

          (6) The taking of any action, including any amendment to the
     Corporation's Articles of Incorporation, without the consent of the
     Majority Holders which materially and adversely affects the rights of any
     holder of shares of Series D Convertible Preferred Stock; or

          (7) The Stockholder Approval shall not have been obtained on or before
     the date which is 120 days after the Issuance Date.

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

          "Optional Redemption Price" means the Premium Price on the applicable
redemption date.

          "Parity Dividend Stock" means any class or series or the Corporation's
capital stock ranking, as to dividends, on a parity with the Series D
Convertible Preferred Stock.

          "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series D Convertible Preferred Stock.

          "Premium Percentage" means 115%.

                                      -11-
<PAGE>
 
          "Premium Price" means, for any share of Series D Convertible Preferred
Stock as of any date of determination, the product obtained by multiplying (a)
the sum of (1) the Conversion Amount plus (2) an amount equal to the accrued but
unpaid dividends on such share of Series D Convertible Preferred Stock to the
date of determination, plus (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 5) to the date of
determination times (b) the Premium Percentage.

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

          "Redemption Price" means the greater of:

          (1) the Premium Price on the applicable Redemption Date; and

          (2) the Converted Market Price on the applicable Redemption Date;
     provided, however, that if in connection with any determination of the
     Redemption Price the amount specified in clause (y) of the definition of
     the term Converted Market Price is greater than 200% of the Ceiling Price
     on the date as of which such amount is determined, then for purposes of
     computing the Redemption Price in such instance, the amount otherwise
     specified in clause (y) of the definition of the term Converted Market
     Price shall be reduced by 20% of the amount by which (A) the amount
     otherwise specified in clause (y) of the definition of the term Converted
     Market Price exceeds (B) the Ceiling Price on the date as of which such
     amount is determined.

          "Registration Event" shall mean (1) the Registration Statement is not
effective within 105 days of the Issuance Date, if the Registration Statement is
on Form S-3, or 120 days after the Issuance Date, if the Registration Statement
is on Form S-1, (2) the Company fails to file the Registration Statement with
the SEC within 60 days after the Issuance Date, (3) the Company fails to submit
a request for acceleration of the effective date of the Registration Statement
in accordance with Section 3(a) of the Registration Rights Agreement, (4) the
Registration Statement shall cease to be available for use by any holder of
shares of Series D Convertible Preferred Stock who is named therein as a selling
stockholder for any reason (including, without limitation, by reason of an SEC
stop order, a material misstatement or omission in the Registration Statement or
the information contained in the Registration Statement having become outdated);
provided, however, that no Registration Event pursuant to this clause (4) shall
be deemed to occur prior to the SEC Effective Date, (5) the Common Stock is not
listed for trading on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq
SmallCap, or (6) a holder of shares of Series D Preferred Stock having become
unable to convert any shares of Series D Preferred Stock in accordance with
Section 10(a) for any reason (other than by reason of the 4.9% limitation on
beneficial ownership set forth therein or a redemption or repurchase thereof).

          "Registration Rights Agreements" means the several Registration Rights
Agreements entered into between the Corporation and the original holders of the
shares of Series 

                                      -12-
<PAGE>
 
D Convertible Preferred Stock, as amended or modified from time to time in
accordance with their respective terms.

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

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

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

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

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

          "Series D Convertible Preferred Stock" means the Series D Convertible
Preferred Stock, $.01 par value, of the Corporation.

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

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

          "Stockholder Approval" shall mean the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of such
Common Stock on conversion of the Series D Convertible Preferred Stock, as and
to the extent required under Rule 4460(i) of the Nasdaq as in effect from time
to time or any successor provision.

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

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

                                      -13-
<PAGE>
 
          "Transfer Agent Instruction" means the Transfer Agent Instruction from
the Corporation to the Conversion Agent for the benefit of the holders from time
to time of shares of Series D Convertible Preferred Stock, provided for in the
Exchange Agreements.

          SECTION 2.  DESIGNATION AND AMOUNT.  The shares of such series shall
be designated as "Series D Convertible Preferred Stock", and the number of
shares constituting the Series D Convertible Preferred Stock shall be 6,500, and
shall not be subject to increase.  Of the authorized shares of Series D
Convertible Preferred Stock, 1,500 shares may be issued only as dividends on the
outstanding shares of Series D Convertible Preferred Stock.

          SECTION 3.  SERIES D PREFERRED STOCK CAPITAL.  The amount to be
represented in the Series D Convertible Preferred Stock capital of the
Corporation at all times for each outstanding share of Series D Convertible
Preferred Stock shall be the greater of (i) the Premium Price and (ii) the
Converted Market Price.  The Corporation shall take such action as may be
required to maintain the amount required by this Section 3 to be represented in
stated capital for the Series D Convertible Preferred Stock capital not less
frequently than monthly.

          SECTION 4.  RANK.  All Series D Convertible Preferred Stock shall rank
(i) senior to the Common Stock, now or hereafter issued, as to payment of
dividends and distribution of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, (ii) junior to the
Series A Convertible Preferred Stock, Series B Senior Convertible Preferred
Stock and Series C Convertible Preferred Stock of the Corporation, both as to
payment of dividends and as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary
and (iii) senior to any additional series of the class of Preferred Stock which
series the Board of Directors may from time to time authorize and any additional
class of preferred stock (or series of preferred stock of such class) which the
Board of Directors or the stockholders may from time to time authorize in
accordance herewith.

          SECTION 5.  DIVIDENDS AND DISTRIBUTIONS.  (a) The holders of shares of
Series D Convertible Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $60.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
of each share of Series D Convertible Preferred Stock and shall be payable
quarterly on February 15, May 15, August 15, and November 15 of each year
commencing November 15, 1998 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board.  Dividends on the Series D
Convertible Preferred Stock shall be paid in cash or, subject to the limitations
in Section 5(b) hereof, Dividend Shares or any combination of cash and Dividend
Shares, at the option of the Corporation as hereinafter provided.  The amount of
the dividends payable per share of Series D Convertible Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual dividend
amount by four.  The amount of dividends 

                                      -14-
<PAGE>
 
payable for the initial dividend period and any period shorter than a full
quarterly dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends not paid on a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 14% per annum
until paid (or such lesser rate as shall be the maximum rate allowable by
applicable law). No dividends or other distributions, other than the dividends
payable solely in shares of any Junior Dividend Stock, shall be paid or set
apart for payment on any shares of Junior Dividend Stock, and no purchase,
redemption, or other acquisition shall be made by the Corporation of any shares
of Junior Dividend Stock (except for Option Share Surrenders), unless and until
all accrued and unpaid dividends on the Series D Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.

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

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

          (b) If the Corporation elects in the exercise of its sole discretion
to issue Dividend Shares in payment of dividends on the Series D Convertible
Preferred Stock in respect of any dividend payment date, the Corporation shall
issue and deliver, or cause to be issued and delivered, by the third Trading Day
after such dividend payment date to each holder of shares of Series D
Convertible Preferred Stock a certificate representing the number of whole
Dividend Shares arrived at by dividing (x) the total amount of cash dividends
such holder would be entitled to receive if the aggregate dividends on the
Series D Convertible Preferred Stock held by 

                                      -15-
<PAGE>
 
such holder which are being paid in Dividend Shares were being paid in cash by
(y) $1,000.00; provided, however, that if certificates representing Dividend
Shares are issued and delivered to holders of Series D Convertible Preferred
Stock subsequent to the third Trading Day after a dividend payment date, the
amount so divided into such total amount of cash dividends will be reduced by
$10.00 for each Trading Day after the third Trading Day following such dividend
payment date to the date of delivery of Dividend Shares. No fractional Dividend
Shares shall be issued in payment of dividends. In lieu thereof, the Corporation
shall pay cash in an amount equal to the balance of such dividend which is not
paid in Dividend Shares. The Corporation shall not exercise its right to issue
Dividend Shares in payment of dividends on Series D Convertible Preferred Stock
if:

          (i) the number of shares of Series D Convertible Preferred Stock at
     the time authorized, unissued and unreserved for all purposes, or held in
     the Corporation's treasury, is insufficient to permit the conversion of
     such Dividend Shares into shares of Common Stock;

          (ii) the issuance or delivery of Dividend Shares as a dividend payment
     or the issuance of shares of Common Stock upon conversion of such Dividend
     Shares by the holder thereof would require registration with or approval of
     any governmental authority under any law or regulation, and such
     registration or approval has not been effected or obtained or is not in
     effect or the Registration Statement is unavailable for use by such holder
     for the resale of such shares of Common Stock; provided, however, that this
     limitation shall not be deemed to be applicable at any time prior to the
     date which is 105 days after the Issuance Date, if the Registration
     Statement is on Form S-3, or 120 days after the Issuance Date, if the
     Registration Statement is on Form S-1, if this limitation otherwise would
     be applicable solely because the Registration Statement shall not yet have
     been declared effective, so long as the Corporation shall be in compliance
     in all material respects with its obligations under the Registration Rights
     Agreements;

          (iii)  the shares of Common Stock issuable upon conversion of such
     Dividend Shares have not been authorized for listing, upon official notice
     of issuance, on any securities exchange or market on which the Common Stock
     is then listed; or have not been approved for quotation if the Common Stock
     is traded in the over-the-counter market;

          (iv) the number of shares of Common Stock registered pursuant to
     Section 2(a) of the Registration Rights Agreements for resale upon issuance
     upon conversion of Dividend Shares shall be sufficient (after taking into
     account the number of shares of Common Stock issued or issuable upon
     conversion of Dividend Shares theretofore issued) to prevent the resale
     pursuant to the Registration Statement of the shares of Common Stock
     issuable upon conversion of such Dividend Shares;

          (v) the shares of Common Stock issuable upon conversion of such
     Dividend Shares (A) cannot be sold or transferred without restriction by
     unaffiliated holders who 

                                      -16-
<PAGE>
 
     receive such Dividend Shares or (B) are no longer listed on any of the
     NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap; or

          (vi) an Optional Redemption Event shall have occurred and any holder
     of shares of Series D Convertible Preferred Stock shall have exercised
     optional redemption rights under Section 11 by reason of such Optional
     Redemption Event and the Corporation shall not have paid the Optional
     Redemption Price to each holder.

          Dividend Shares issued in payment of dividends on Series D Convertible
Preferred Stock pursuant to this Section and shares of Common Stock issuable
upon conversion of such Dividend Shares shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of the
Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.

          (c) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one person or group of affiliated persons, unless the Corporation or such
subsidiary offers to purchase for cash from each holder of shares of Series D
Convertible Preferred Stock at the time of such redemption, repurchase or
acquisition the same percentage of such holder's shares of Series D Convertible
Preferred Stock as the percentage of the number of outstanding shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be, to
be so redeemed, repurchased or acquired at a purchase price per share of Series
D Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(c) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(c);
provided, however, that if in connection with any determination of the purchase
price payable pursuant to this Section 5(c) the amount specified in clause (y)
of the definition of the term Converted Market Price is greater than 200% of the
Ceiling Price on the date as of which such amount is determined, then for
purposes of computing the purchase price payable pursuant to this Section 5(c)
in such instance, the amount otherwise specified in clause (y) of the definition
of the term Converted Market Price shall be reduced by 20% of the amount by
which (A) the amount otherwise specified in clause (y) of the definition of the
term Converted Market Price exceeds (B) the Ceiling Price on the date as of
which such amount is determined.

          (d) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation 

                                      -17-
<PAGE>
 
contemporaneously therewith makes an offer, or (2) enter into an agreement
regarding a Tender Offer for outstanding shares of Common Stock by any person
other than the Corporation or any subsidiary of the Corporation, unless such
person agrees with the Corporation to make an offer, in either such case to each
holder of outstanding shares of Series D Convertible Preferred Stock to purchase
for cash at the time of purchase in such Tender Offer the same percentage of
shares of Series D Convertible Preferred Stock held by such holder as the
percentage of outstanding shares of Common Stock offered to be purchased in such
Tender Offer at a price per share of Series D Convertible Preferred Stock equal
to the greater of (i) the Premium Price in effect on the date of purchase
pursuant to this Section 5(d) and (ii) the Converted Market Price on the date of
purchase pursuant to this Section 5(d).

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

          SECTION 7.  MANDATORY REDEMPTION.

          (A) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT.  (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, so long as the Common Stock is listed on the Nasdaq, the Nasdaq
SmallCap, the NYSE or the AMEX, the Corporation shall not be required to issue
upon conversion of shares of Series D Convertible Preferred Stock pursuant to
Section 10 more than the Maximum Share Amount.  The Maximum Share Amount shall
be allocated among the shares of Series D Convertible Preferred Stock at the
time of initial issuance thereof pro rata based on the initial issuance of 5,000
shares of Series D Convertible Preferred Stock.  Each certificate for shares of
Series D Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series D Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof.  The Corporation shall

                                      -18-
<PAGE>
 
maintain records which show the number of shares of Series D Convertible
Preferred Stock issued by the Corporation pursuant to Section 5 as dividends on
the shares of Series D Convertible Preferred Stock represented by each
certificate, which records shall be controlling in the absence of manifest
error.  Each such additional share of Series D Convertible Preferred Stock shall
be allocated a portion of the Maximum Share Amount allocated to the shares of
Series D Convertible Preferred Stock in respect of which such additional shares
of Series D Convertible Preferred Stock are issued as a dividend and the
certificate for such additional shares of Series D Convertible Preferred Stock
shall bear a notation as to the certificate number of the share of Series D
Convertible Preferred Stock in respect of which such additional share of Series
D Convertible Preferred Stock is issued as a dividend.  Upon surrender of any
certificate for shares of Series D Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series D Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series D Convertible Preferred Stock evidenced by
such new certificate.  If any certificate for shares of Series D Convertible
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series D Convertible Preferred
Stock equal to the number of shares of Series D Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any contemporaneous
conversion of shares of Series D Convertible Preferred Stock represented by the
certificate so surrendered), each certificate issued on such split-up shall bear
a notation of the portion of the Maximum Share Amount allocated thereto
determined by pro rata allocation from among the remaining portion of the
Maximum Share Amount allocated to the certificate so surrendered.  If any shares
of Series D Convertible Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series D Convertible Preferred Stock
which remains unissued after such conversion shall be re-allocated pro rata to
the outstanding shares of Series D Convertible Preferred Stock held of record by
the holder of record at the close of business on the date of such conversion of
the shares of Series D Convertible Preferred Stock so converted, and if there
shall be no other shares of Series D Convertible Preferred Stock held of record
by such holder at the close of business on such date, then such portion of the
Maximum Share Amount shall be allocated pro rata among the shares of Series D
Convertible Preferred Stock outstanding on such date.

          (2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder of shares of
Series D Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series D Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if at any time on or
after December 16, 1998 and on or prior to [INSERT MONTH AND DAY OF CLOSING],
2001 on any ten Trading Days within any period of 20 consecutive Trading Days
the Corporation would not have been required to convert shares of 

                                      -19-
<PAGE>
 
Series D Convertible Preferred Stock of such holder in accordance with Section
10(a) as a consequence of the limitations set forth in Section 7(a)(1) had the
shares of Series D Convertible Preferred Stock held by such holder been
converted in full into Common Stock on each such day, determined without regard
to the limitation, if any, on such holder contained in the proviso to the second
sentence of Section 10(a) (any such notice, whether given by the Corporation or
a holder, an "Inconvertibility Notice"). If the Corporation shall have given or
been required to give any Inconvertibility Notice, or if a holder shall have
given any Inconvertibility Notice, then within ten Trading Days after such
Inconvertibility Notice is given or was required to be given, the holder
receiving or giving, as the case may be, such Inconvertibility Notice shall have
the right by written notice to the Corporation (which written notice may be
contained in the Inconvertibility Notice given by such holder) to direct the
Corporation to redeem the portion of such holder's outstanding shares of Series
D Convertible Preferred Stock (which, if applicable, shall be all of such
holder's outstanding shares of Series D Convertible Preferred Stock) as shall
not, on the business day prior to the date of such redemption, be convertible
into shares of Common Stock by reason of the limitations set forth in Section
7(a)(1) (determined without regard to the limitation, if any, on beneficial
ownership of Common Stock by such holder contained in the proviso to the second
sentence of Section 10(a)), within ten business days after such holder so
directs the Corporation, at a price per share equal to the Share Limitation
Redemption Price. If a holder of shares of Series D Convertible Preferred Stock
directs the Corporation to redeem outstanding shares of Series D Convertible
Preferred Stock and, prior to the date the Corporation is required to redeem
such shares of Series D Convertible Preferred Stock, the Corporation would have
been able, within the limitations set forth in Section 7(a)(1), to convert all
of such holder's shares of Series D Convertible Preferred Stock (determined
without regard to the limitation, if any, on beneficial ownership of shares of
Common Stock by such holder contained in the proviso to the second sentence of
Section 10(a)) on any ten Trading Days within any period of 15 consecutive
Trading Days commencing after the period of 20 consecutive Trading Days which
gave rise to the applicable Inconvertibility Notice from the Corporation or such
holder of shares of Series D Convertible Preferred Stock, as the case may be,
had such holder exercised its right to convert all of such holder's shares of
Series D Convertible Preferred Stock into Common Stock on each of such ten
Trading Days within such 15 Trading Day period, then the Corporation shall not
be required to redeem any shares of Series D Convertible Preferred Stock by
reason of such Inconvertibility Notice.

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

          (4) On each Share Limitation Redemption Date (or such later date as a
holder of shares of Series D Convertible Preferred Stock shall surrender to the
Corporation the certificate(s) for the shares of Series D Convertible Preferred
Stock being redeemed pursuant to this Section 7(a)), the Corporation shall make
payment in immediately available funds of the 

                                      -20-
<PAGE>
 
applicable Share Limitation Redemption Price to such holder of shares of Series
D Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one business
day prior to such Share Limitation Redemption Date. Upon redemption of less than
all of the shares of Series D Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three business days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series D Convertible Preferred
Stock evidenced by such certificate which have not been redeemed. Only whole
shares of Series D Convertible Preferred Stock may be redeemed.

          (B) NO OTHER MANDATORY REDEMPTION.  The shares of Series D Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in Section 7(a).

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

          SECTION 9.  OPTIONAL REDEMPTION.

          (A) CORPORATION OPTIONAL REDEMPTION.  If (1) the Corporation shall be
in compliance in all material respects with its obligations to the holders of
shares of Series D Convertible Preferred Stock (including, without limitation,
its obligations under the Exchange Agreement, the Registration Rights Agreements
and the provisions of this Statement of Resolution), (2) on the date the
Corporation Optional Redemption Notice is given and at all times until the
Redemption Date, the Registration Statement is effective and available for use
by each holder of shares of Series D Convertible Preferred Stock for the resale
of shares of Common Stock acquired by such holder upon conversion of all shares
of Series D Convertible Preferred Stock held by such holder and (3) no Optional
Redemption Event shall have occurred with respect to which, on the date a
Corporation Optional Redemption Notice is given or on the Redemption Date, any
holder of shares of Series D Convertible Preferred Stock shall have exercised
optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder, then the Corporation shall have the right, exercisable by
giving a Corporation Optional Redemption Notice not less than 30 days or more
than 60 days prior to the Redemption Date to all holders of record of the shares
of Series D Convertible Preferred Stock, at any time to redeem all or from time
to time to redeem any part of the outstanding shares of Series D Convertible
Preferred Stock in accordance with this Section 9(a).  If the Corporation shall
redeem less than all outstanding shares of Series D Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series D Convertible Preferred Stock.  Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series D Convertible Preferred Stock at their addresses
appearing on the records of the Corporation; provided, however, that any failure
or defect in the giving of such notice to any such holder shall not affect the
validity of notice to or the redemption of shares of Series D Convertible
Preferred Stock of any other holder.  On the Redemption Date (or such later date
as a holder of shares of Series D Convertible Preferred 

                                      -21-
<PAGE>
 
Stock surrenders to the Corporation the certificate(s) for shares of Series D
Convertible Preferred Stock to be redeemed pursuant to this Section 9(a)), the
Corporation shall make payment of the applicable Redemption Price to each holder
of shares of Series D Convertible Preferred Stock to be redeemed in immediately
available funds to such account as specified by such holder in writing to the
Corporation at least one business day prior to the Redemption Date. A holder of
shares of Series D Convertible Preferred Stock to be redeemed pursuant to this
Section 9(a) shall be entitled to convert such shares of Series D Convertible
Preferred Stock in accordance with Section 10(a) through the day prior to the
Redemption Date and (2) if the Corporation shall fail to pay the Redemption
Price of any share of Series D Convertible Preferred Stock when due, at any time
after the due date thereof until such date as the Corporation pays the
Redemption Price of such share of Series D Convertible Preferred Stock. No share
of Series D Convertible Preferred Stock as to which the holder exercises the
right of conversion pursuant to Section 10 or the optional redemption right
pursuant to Section 11 may be redeemed by the Corporation pursuant to this
Section 9(a) on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the
Corporation Optional Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.

          (B) FINAL REDEMPTION.  The Corporation shall have the right to redeem
all, but not less than all, outstanding shares of Series D Convertible Preferred
Stock at any time on or after the date which is 1,080 days after the Issuance
Date so long as (1) the Corporation shall be in compliance in all material
respects with its obligations to the holders of the Series D Convertible
Preferred Stock (including, without limitation, its obligations under the
Exchange Agreements, the Registration Rights Agreements and this Statement of
Resolution) and (2) no Optional Redemption Event shall have occurred with
respect to which on the date a Final Redemption Notice is to be given or on the
Final Redemption Date, any holder of shares of Series D Convertible Preferred
Stock shall have exercised optional redemption rights under Section 11 by reason
of such Optional Redemption Event and the Corporation shall not have paid the
Optional Redemption Price to such holder.  In order to exercise its rights under
this Section 9(b), the Corporation shall give a Final Redemption Notice not less
than 20 or more than 40 Trading Days prior to the Final Redemption Date to all
holders of record of the shares of Series D Convertible Preferred Stock.  Any
Final Redemption Notice shall be given to the holders of record of the shares of
Series D Convertible Preferred Stock by telephone line facsimile transmission to
such number as shown on the records of the Corporation for such purpose;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series D Convertible Preferred Stock of any other holder.  On the
Final Redemption Date (or such later date as a holder of shares of Series D
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series D Convertible Preferred Stock to be redeemed pursuant to this
Section 9(b)), the Corporation shall make payment of the applicable Final
Redemption Price to each holder of shares of Series D Convertible Preferred
Stock to be redeemed in immediately available funds to such account as specified
by such holder in writing to the Corporation at least one business day prior to
the Final Redemption Date.  A holder of shares of Series D Convertible Preferred
Stock to be redeemed pursuant to this Section 9(b) shall be entitled to convert
such shares of Series D Convertible Preferred Stock in accordance with Section
10 through the day prior to the Final 

                                      -22-
<PAGE>
 
Redemption Date and (2) if the Corporation shall fail to pay the Final
Redemption Price of any share of Series D Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Final Redemption Price of such share of Series D Convertible Preferred Stock
to such holder. No share of Series D Convertible Preferred Stock as to which a
holder exercises the right of conversion pursuant to Section 10 or the optional
redemption right pursuant to Section 11 may be redeemed by the Corporation
pursuant to this Section 9(b) on or after the date of exercise of such
conversion right or optional redemption right, as the case may be, regardless of
whether the Final Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be. So long as during the period from the Issuance Date
through the date the Corporation pays the Final Redemption Price the Corporation
shall not have commenced a voluntary case or other proceeding, and no person
shall have commenced an involuntary case or other proceeding against the
Corporation, in any such case seeking liquidation, reorganization or other
relief with respect to the Corporation or its debts under any bankruptcy,
insolvency, receivership, moratorium, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian,
or other similar official of the Corporation or any substantial part of the
Corporation's property, the Corporation shall not have consented to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, and the Corporation
shall not have made a general assignment for the benefit of creditors, then the
Corporation shall have the right, exercisable by a statement to such effect in
the Final Redemption Notice, to pay the Final Redemption Price by the issuance
to the holders of shares of Series D Convertible Preferred Stock to be redeemed
of shares of Common Stock, valued for this purpose at the Conversion Price on
the Final Redemption Date, in lieu of payment of cash, so long as all shares of
Common Stock to be so issued would, if issued as dividends on shares of Series D
Convertible Preferred Stock, meet the criteria in clauses (i) through (vi) of
Section 5(b).

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

          SECTION 10.  CONVERSION.

          (A) CONVERSION AT OPTION OF HOLDER.  The holders of the Series D
Convertible Preferred Stock may at any time on or after the earlier of (x) the
SEC Effective Date and (y) the date which is 90 days after the Issuance Date
convert at any time all or from time to time any part of their shares of Series
D Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as herein provided.  Each share of
Series D Convertible Preferred Stock may be converted at the office of the
Conversion Agent or at such other additional office or offices, if any, as the
Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount, (ii) accrued but unpaid dividends to the applicable
Conversion Date on the share of Series D Convertible Preferred Stock being
converted, and (iii) accrued but unpaid interest on the dividends on the share
of Series D Convertible Preferred Stock 

                                      -23-
<PAGE>
 
being converted in arrears to the applicable Conversion Date at the rate
provided in Section 5 by (y) the Conversion Price for such Conversion Date (the
"Conversion Rate"); provided, however, that in no event shall any holder of
shares of Series D Convertible Preferred Stock be entitled to convert any shares
of Series D Convertible Preferred Stock in excess of that number of shares of
Series D Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and all
Aggregated Persons of such holder (other than shares of Common Stock deemed
beneficially owned through the ownership of unconverted shares of Series D
Convertible Preferred Stock) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series D Convertible
Preferred Stock with respect to which the determination in this proviso is being
made, would result in beneficial ownership by such holder and all Aggregated
Persons of such holder of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the proviso to the immediately preceding sentence.

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

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

                                      -24-
<PAGE>
 
dividends on Common Stock or Series D Convertible Preferred Stock that may be
accrued and unpaid at the date of surrender of shares of Series D Convertible
Preferred Stock.

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

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

                                      -25-
<PAGE>
 
who has given a Conversion Notice of any claim of manifest error within one
Trading Day after such holder gives such Conversion Notice and no such claim of
error shall limit or delay performance of the Corporation's obligation to issue
upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series D Convertible
Preferred Stock being converted within one Trading Day after a Conversion Notice
has been given (which notice shall specify all defects in the Conversion Notice)
and any Conversion Notice containing any such defect shall nonetheless be
effective on the date given if the converting holder promptly undertakes to
correct all such defects.

          (4) The Corporation shall reserve from its authorized, unissued and
otherwise unreserved Common Stock free from preemptive and similar rights
7,246,371 shares (such amount to be subject to equitable adjustment from time to
time on terms reasonably acceptable to the Holder for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring on or after the Issuance Date) to provide for the
issuance of Common Stock upon the conversion in full of the Series D Convertible
Preferred Stock, subject to reduction from time to time by the number of shares
of Common Stock issued on conversion of the Series D Convertible Stock.  The
Corporation (and any successor corporation) shall take all action necessary so
that a number of shares of the authorized but unissued Common Stock (or common
stock in the case of any successor corporation) sufficient to provide for the
conversion of the Series D Convertible Preferred Stock outstanding upon the
basis hereinbefore provided are at all times reserved by the Corporation (or any
successor corporation), free from preemptive rights, for such conversion,
subject to the provisions of the next succeeding paragraph.  If the Corporation
shall issue any securities or make any change in its capital structure which
would change the number of shares of Common Stock into which each share of the
Series D Convertible Preferred Stock shall be convertible as herein provided,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series D Convertible Preferred Stock on the new basis.  If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all of the outstanding shares of Series D
Convertible Preferred Stock, the Corporation promptly shall seek, and use its
best efforts to obtain and complete, such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

          (5) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series D Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series D
Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, 

                                      -26-
<PAGE>
 
sale, transfer, or share exchange by a holder of shares of Common Stock into
which such shares of Series D Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange and on a basis which preserves the economic
benefits of the conversion rights of the holders of shares of Series D
Convertible Preferred Stock on a basis as nearly as practical as such rights
exist hereunder prior thereto. If, in connection with any such consolidation,
merger, sale, transfer, or share exchange, each holder of shares of Common Stock
is entitled to elect to receive securities, cash, or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Series D Convertible Preferred Stock the right to
elect the securities, cash, or other assets into which the Series D Convertible
Preferred Stock held by such holder shall be convertible after completion of any
such transaction on the same terms and subject to the same conditions applicable
to holders of the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election shall be made,
and the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.

          (6) If a holder shall have given a Conversion Notice for shares of
Series D Convertible Preferred Stock, the Corporation shall issue and deliver to
such person certificates for the Common Stock issuable upon such conversion
within three Trading Days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.  If a
holder shall have given a Conversion Notice as provided herein, the
Corporation's obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of any action or inaction by
the converting holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion.  If the
Corporation fails to issue and deliver the certificates for the Common Stock to
the holder converting shares of Series D Convertible Preferred Stock pursuant to
the first sentence of this paragraph as and when required to do so, in addition
to any other liabilities the Corporation may have hereunder and under applicable
law (1) the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, reasonable fees and
expenses of legal counsel incurred by such holder as a result of such failure,
(2) the Conversion Percentage used to determine the Conversion Price applicable
to such conversion shall be reduced by one percentage point from the Conversion
Percentage otherwise used to calculate the Conversion Price applicable to such
conversion or, if such conversion is based on the Ceiling Price, the Ceiling
Price used to determine the Conversion Price applicable to such conversion shall
be reduced by one percentage point from the amount that the Conversion Price
otherwise would have been without reduction 

                                      -27-
<PAGE>
 
pursuant hereto, in either such case, for each Trading Day after such third
Trading Day until such shares of Common Stock are delivered to such holder and
(3) such holder may by written notice (which may be given by mail, courier,
personal service or telephone line facsimile transmission) or oral notice
(promptly confirmed in writing) given at any time prior to delivery to such
holder of the certificates for the shares of Common Stock issuable upon such
conversion of shares of Series D Convertible Preferred Stock, rescind such
conversion, whereupon such holder shall have the right to convert such shares of
Series D Convertible Preferred Stock thereafter in accordance herewith.

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

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

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

     C\\1\\ = C x   O + N
                    -----
                 O + N x P
                     -----
                       M

where

     C\\1\\  = the adjusted Conversion Amount

     C       = the current Conversion Amount

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

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

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


                                      -28-
<PAGE>
 
     M     = the Current Price per share of Common Stock on the record date.

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

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


  C\\1\\ = C x    M
                 -----
                M - F

where

   C\\1\\  = the adjusted Conversion Amount

     C     = the current Conversion Amount

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

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

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

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

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

                                      -29-
<PAGE>
 
          (9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.

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

          (11) Whenever the Corporation shall propose to take any of the actions
specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series D Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be.  Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.

          SECTION 11.  REDEMPTION AT OPTION OF HOLDERS.

          (A) REDEMPTION RIGHT.  If an Optional Redemption Event occurs, then,
in addition to any other right or remedy of any holder of shares of Series D
Convertible Preferred Stock, each holder of shares of Series D Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series D Convertible
Preferred Stock, or any portion thereof, on the date that is 10 business days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series D Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.

          (B) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC.
(1) On or before the fifth business day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series D Convertible Preferred 

                                      -30-
<PAGE>
 
Stock a notice of the occurrence of such Optional Redemption Event and of the
redemption right set forth herein arising as a result thereof. Such notice from
the Corporation shall set forth:

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

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

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

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

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

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

          (2) An Optional Redemption Notice given by a holder of shares of
Series D Convertible Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
business days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder promptly undertakes to correct all such defects.
No such claim of error shall limit or delay performance of the Corporation's
obligation 

                                      -31-
<PAGE>
 
to redeem all shares of Series D Convertible Preferred Stock not in dispute
whether or not such holder makes such undertaking.

          SECTION 12.  VOTING RIGHTS; CERTAIN RESTRICTIONS.

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

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

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

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

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

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

          (B) The Corporation will maintain, and will cause each subsidiary of
the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not 

                                      -32-
<PAGE>
 
limited to, product liability insurance, in such amounts and covering such risks
as is reasonably adequate for the conduct of their businesses and the value of
their properties.

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

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

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

          (6) TRANSACTIONS WITH AFFILIATES.  The Corporation will not, and will
not permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors.

          (7) COMPLIANCE.  The Corporation shall (a) use its commercially
reasonable best efforts to obtain knowledge of any failure or default by the
Corporation in the timely performance of any material obligation to the holders
of the Series D Convertible Preferred Stock under the terms of this Statement of
Resolution, the Exchange Agreements, the Registration Rights Agreement, the
Transfer Agent Instruction or any other document or instrument executed and
delivered by the Corporation in connection herewith or therewith and (b) shall
notify the holders of the Series D Convertible Preferred Stock promptly, but in
no event later than three Business Days after the Corporation first learns of
any such failure or default.

                                      -33-
<PAGE>
 
          SECTION 13.  OUTSTANDING SHARES.  For purposes of this Statement of
Resolution, all shares of Series D Convertible Preferred Stock shall be deemed
outstanding except (i) from the applicable Conversion Date, each share of Series
D Convertible Preferred Stock converted into Common Stock, unless the
Corporation shall default in its obligation to issue and deliver shares of
Common Stock upon such conversion as and when required by Section 10; (ii) from
the date of registration of transfer, all shares of Series D Convertible
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
of the Corporation (other than any original holder of shares of Series D
Convertible Preferred Stock) and (iii) from the applicable Redemption Date,
Share Limitation Redemption Date, Final Redemption Date or date of redemption
pursuant to Section 11, all shares of Series D Convertible Preferred Stock which
are redeemed or repurchased, so long as in each case the Redemption Price, the
Share Limitation Redemption Price, the Final Redemption Price, the Optional
Redemption Price or other repurchase price, as the case may be, of such shares
of Series D Convertible Preferred Stock shall have been paid by the Corporation
as and when due hereunder.

          SECTION 14.  MISCELLANEOUS.

          (A) NOTICES.  Any notices required or permitted to be given under the
terms of this Statement of Resolution shall be in writing and shall be sent by
mail or delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or by
courier (a) in the case of the Corporation, addressed to the Corporation at 1250
Wood Branch Park Drive, Houston, Texas, 77079, Attention:  Chief Executive
Officer (telephone line facsimile transmission number (281) 529-4650), or, in
the case of any holder of shares of Series D Convertible Preferred Stock, at
such holder's address or telephone line facsimile transmission number shown on
the stock books maintained by the Corporation with respect to the Series D
Convertible Preferred Stock or such other address as the Corporation shall have
provided by notice to the holders of shares of Series D Convertible Preferred
Stock in accordance with this Section or any holder of shares of Series D
Convertible Preferred Stock shall have provided to the Corporation in accordance
with this Section.

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

          (C) OVERDUE AMOUNTS.  Except as otherwise specifically provided in
Section 5 with respect to dividends in arrears on the Series D Convertible
Preferred Stock, whenever any 

                                      -34-
<PAGE>
 
amount which is due to any holder of shares of Series D Convertible Preferred
Stock is not paid to such holder when due, such amount shall bear interest at
the rate of 14% per annum ( or such other rate as shall be the maximum rate
allowable by applicable law) until paid in full.

                                      -35-
<PAGE>
 
          IN WITNESS WHEREOF, Equalnet Communications Corp. has caused this
certificate to be signed by ________________________________________, its
__________________________, as of the _______ day of August,  1998.


                                 EQUALNET COMMUNICATIONS CORP.



                                 By:
                                    -------------------------------------

                                      -36-
<PAGE>
 
STATE OF TEXAS   )
                 )
COUNTY OF HARRIS )

     SWORN AND SUBSCRIBED to this ____ day of August, 1998, by ______________
______________, ______________________________ of Equalnet Communications Corp.



 
                                 NOTARY PUBLIC IN AND FOR
                                 THE STATE OF TEXAS

My Commission Expires:

 

                                      -37-