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                                                                     Exhibit 3.5

                          RHYTHMS NETCONNECTIONS INC.

                   CERTIFICATE OF DESIGNATION OF THE POWERS,
               PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
                  AND OTHER SPECIAL RIGHTS OF 8.25% SERIES E
                        CONVERTIBLE PREFERRED STOCK AND
                          QUALIFICATIONS, LIMITATIONS
                           AND RESTRICTIONS THEREOF

                          8.25% Series E Convertible

                           Preferred Stock due 2015

     Rhythms NetConnections Inc., a company organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), certifies that
pursuant to the authority contained in its Certificate of Incorporation (the
"Certificate of Incorporation") and its By-laws (the "By-laws"), and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the board of directors of the Company (the "Board of Directors") at a
meeting duly called and held on February __, 2000 duly approved and adopted the
following resolution, which resolution remains in full force and effect on the
date hereof:

     RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Certificate of Incorporation and By-laws, the Board of Directors does
hereby create, authorize and provide for the issue of a series of Preferred
Stock having the following designation, voting powers, preferences and relative,
participating, optional and other special rights:

     Certain capitalized terms used herein are defined in Section 16.

     1.  Number and Designation. The Company shall have a series of Preferred
Stock, which shall be designated as its 8.25% Series E Convertible Preferred
Stock due 2015 (the "Series E Preferred Stock"), par value $0.001 per share. The
number of shares constituting the Series E Preferred Stock shall be 250,000.
Unless otherwise specified, references herein to any "Section" refer to the
Section number specified in this Certificate of Designation.

     2.  Issuance. The Company may issue up to 250,000 shares of Series E
Preferred Stock in accordance with the Purchase Agreement.

     3.  Registered Form; Liquidation Preference; Registrar. Certificates for
shares of Series E Preferred Stock shall be issuable only in registered form and
only with an initial liquidation preference of $1,000 per share plus accrued and
unpaid dividends. The Company shall serve as initial Registrar and Transfer
Agent (the "Registrar") for the Series E Preferred Stock.

     4.  Registration; Transfer. Shares of the Series E Preferred Stock have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") and may not be resold, pledged or otherwise transferred prior
to the date when they may be resold pursuant to Rule 144 under the Securities
Act other than (i) to the Company, (ii) pursuant to an exemption from
registration under the Securities Act or (iii) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States. Until such
time as it is no longer required pursuant to the Securities
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Act, certificates evidencing the Series E Preferred Stock shall contain a legend
(the "Restricted Shares Legend") evidencing the foregoing restrictions in
substantially the form set forth on the form of Series E Preferred Stock
attached hereto as Exhibit A.

     5.  Paying Agent and Conversion Agent
         ---------------------------------
            (a)  The Company shall maintain (i) an office or agency where
shares of Series E Preferred Stock may be presented for payment (the
"Paying Agent"), (ii) an office or agency where shares of Series E
Preferred Stock may be presented for conversion (the "Conversion Agent"),
and (iii) a Registrar, which shall be an office or an agency where shares
of Series E Preferred Stock may be presented for transfer. The Company may
appoint the Registrar, the Paying Agent and the Conversion Agent and may
appoint one or more additional paying agents and one or more additional
conversion agents in such other locations as it shall determine. The term
"Paying Agent" includes any additional paying agent, and the term
"Conversion Agent" includes any additional conversion agent. The Company
may change any Paying Agent or Conversion Agent without prior notice to any
holder. The Company shall notify the Registrar of the name and address of
any Paying Agent or Conversion Agent appointed by the Company. If the
Company fails to appoint or maintain another entity as Paying Agent or
Conversion Agent, the Registrar shall act as such. Notwithstanding the
foregoing, the Company or any of its Affiliates may act as Paying Agent,
Registrar, coregistrar or Conversion Agent.

            (b)  Neither the Company nor the Registrar shall be required (A)
to issue, countersign or register the transfer of or exchange any share of
Series E Preferred Stock during a period beginning at the opening of
business 15 days before any Redemption Date (as defined under Section
10(d)) and ending at the close of business on such Redemption Date or (B)
to register the transfer of or exchange any share of Series E Preferred
Stock so selected for redemption.

            (c)  If shares of Series E Preferred Stock are issued upon the
transfer, exchange or replacement of shares of Series E Preferred Stock
bearing the Restricted Shares Legend, or if a request is made to remove
such Restricted Shares Legend on shares of Series E Preferred Stock, the
shares of Series E Preferred Stock so issued shall bear the Restricted
Shares Legend, or the Restricted Shares Legend shall not be removed, as the
case may be, unless the holders of such shares shall request such Legend be
removed, and outside counsel for such holders reasonably determines that
the transfer of such shares is no longer restricted by the Securities Act
and outside counsel for the Company reasonably concurs in such
determination.

            (d)  Each holder of a share of Series E Preferred Stock agrees to
indemnify the Company and the Registrar against any liability that may
result from the transfer, exchange or assignment by such holder of such
holder's share of Series E Preferred Stock in violation of any provision of
this Certificate of Designation and/or applicable Federal or state
securities law; provided, however, that such indemnity shall not apply to
acts of willful misconduct or gross negligence on the part of the Company
or the Registrar, as the case may be.

            (e)  Payments due on the shares of Series E Preferred Stock shall
be payable at the office or agency of the Paying Agent maintained for such
purpose in The City of New York and at any other office or agency
maintained by the Paying Agent for such purpose. If any such payment is in
cash, it shall be payable by United States dollar check drawn on, or wire
transfer

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(provided that appropriate wire instructions have been received by the Paying
Agent at least 15 days prior to the applicable date of payment) to a United
States dollar account maintained by the holder with, a bank located in New York
City; provided that at the option of the Company payment of dividends in cash
may be made by check mailed to the address of the person entitled thereto as
such address shall appear in the Series E Preferred Share Register.

     6.  Dividend Rights.
         ---------------

            (a)  The holders of Series E Preferred Stock shall be entitled to
participating cumulative dividends, in preference to dividends on any Junior
Shares, which shall accrue as provided herein. Dividends on each share of Series
E Preferred Stock will accrue on a daily basis at the rate of 8.25% per annum of
the then effective Liquidation Preference of such share from and including the
Closing Date to the first to occur of (i) the date on which such share is
redeemed in accordance with Section 10, (ii) the date on which such share is
converted in accordance with Section 12 or (iii) the date the Company is
liquidated, dissolved or wound up in accordance with Section 9(c). Dividends
shall accrue as provided herein whether or not such dividends have been
declared, whether or not there are any unrestricted funds of the Company legally
available for the payment of dividends and whether or not such dividends are
then payable in cash as provided in Section 11. The Company will take all
actions required or permitted under the DGCL to permit the payment or accrual of
dividends on the Series E Preferred Stock. On each Dividend Payment Date,
commencing March 31, 2000, to and including the March 31, 2005 Dividend Payment
Date, accrued dividends on a share of the Series E Preferred Stock for the
preceding Dividend Period shall be added cumulatively to and thereafter remain a
part of the Liquidation Preference of such share. Thereafter, accrued dividends
shall be payable quarterly on each Dividend Payment Date, commencing on June 30,
2005, to the holders of record of the Series E Preferred Stock as of the close
of business on the applicable Dividend Record Date. Accrued dividends that are
not paid in full in cash on any such Dividend Payment Date (whether or not
declared and whether or not there are sufficient funds legally available for the
payment thereof) shall be added cumulatively to the Liquidation Preference on
the applicable Dividend Payment Date and thereafter remain a part thereof.
Accrued dividends added to the Liquidation Preference of a share of Series E
Preferred Stock in accordance with the foregoing provisions of this Section 6(a)
are sometimes referred to in this Certificate as "Accumulated Dividends". For
purposes of determining the amount of dividends "accrued" (i) as of the first
Dividend Payment Date and as of any date that is not a Dividend Payment Date,
such amount shall be calculated on the basis of the rate per annum specified
above in this paragraph for the actual number of days elapsed from and including
the Closing Date (in case of the first Dividend Payment Date and any date prior
to the first Dividend Payment Date) or the last preceding Dividend Payment Date
(in case of any other date) to the date as of which such determination is to be
made, based on a 360-day year, and (ii) as of any Dividend Payment Date after
the first Dividend Payment Date, such amount shall be calculated on the basis of
such rate per annum based on a 360-day year of twelve 30-day months.

            (b)  If a Change of Control occurs prior to March 31, 2005 (the
time and date such Change of Control occurs being the "Change of Control Date"),
an amount equal to the Special Dividend shall be added to the Liquidation
Preference of each share of the Series E Preferred Stock as of the Change of
Control Date and thereafter remain a part thereof.

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           In addition to all dividends provided for above, whenever the Company
shall declare or pay any dividend in cash on any Common Stock, the holders of
Series E Preferred Stock shall be entitled to receive such dividend on an as
converted basis.  Dividends payable pursuant to this Section 6(c) shall not
reduce any dividends otherwise payable pursuant to Section 6(a) or 6(b).

     7.    Payment of Dividend; Mechanics of Payment; Dividend Rights Preserved.
           --------------------------------------------------------------------
           (a)  Subject to Sections 6 and 11, dividends on any share of Series
E Preferred
Stock that are payable, and are punctually paid or duly provided for, on
any Dividend Payment Date shall be paid in cash to the person in whose name
such share of Series E Preferred Stock (or one or more predecessor shares
of Series E Preferred Stock) is registered at the close of business on the
next preceding March 15, June 15, September 15 and December 15 (each, a
"Dividend Record Date").

           (b)  Unless full cumulative dividends on all outstanding shares of
Series E Preferred Stock for all past Dividend Periods shall have been declared
and paid or declared and a sufficient sum for the payment thereof set apart (for
purposes of this Section 7, dividends on shares of Series E Preferred Stock that
are added to the Liquidation Preference of such shares through and including the
March 31, 2005 Dividend Payment Date shall be deemed declared and paid), then:

           (i)  no dividend (other than (A) with respect to Junior Shares, a
     dividend payable solely in any Junior Shares, (B) with respect to Parity
     Shares, a dividend payable solely in Junior Shares or Parity Shares or (C)
     with respect to Parity Shares a partial dividend paid pro rata on such
     Parity Shares and the shares of Series E Preferred Stock) shall be declared
     or paid upon, or any sum set apart for the payment of dividends upon, any
     Junior Shares or Parity Shares, respectively;

           (ii) no other distribution shall be declared or made upon, or any
     sum set apart for the payment of any distribution upon, any Junior Shares
     or Parity Shares;

           (iii)  no Junior Shares or Parity Shares or any warrants, rights,
     calls or options (other than any cashless exercises of options or buybacks
     of options or restricted stock from present or former employees, directors
     or consultants) exercisable for or convertible into any Parity Share or
     Junior Share shall be purchased, redeemed or otherwise acquired (other than
     in exchange for other Junior Shares or Parity Shares, respectively) by the
     Company or any of its subsidiaries; and

           (iv) no monies shall be paid into or set apart or made available
     for a sinking or other like fund for the purchase, redemption or other
     acquisition of any Junior Shares or Parity Shares or any warrants, rights,
     calls or options exercisable for or convertible into any Parity Shares or
     Junior Shares by the Company or any of its subsidiaries (other than any
     cashless exercises of options or option buybacks).

     Except as provided in Sections 6, 12 or 13, holders of Series E Preferred
Stock will not be entitled to any dividends, whether payable in cash, property
or stock, in excess of the full cumulative dividends as herein described.

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            (c)    The Company will notify the Registrar and make a public
announcement no later than the close of business on the tenth Business Day
prior to the Record Date for each dividend as to whether it will pay such
dividend.

            (d)    Subject to the foregoing provisions of this Section 7, each
share of Series E Preferred Stock delivered under this Certificate of
Designation upon registration of transfer of or in exchange for or in lieu
of any other share of Series E Preferred Stock shall carry the rights to
dividends accumulated and unpaid, and to accrue, that were carried by such
other shares of Series E Preferred Stock.

            (e)    The holder of record of a share of Series E Preferred Stock
at the close of business on a Dividend Record Date with respect to the
payment of dividends on the shares of Series E Preferred Stock will be
entitled to receive such dividends with respect to such share of Series E
Preferred Stock on the corresponding Dividend Payment Date, notwithstanding
the conversion of such share after such Dividend Record Date and prior to
such Dividend Payment Date.

     8.  Voting Rights.
         --------------

            (a)    The holders of record of shares of Series E Preferred Stock
shall not be entitled to any voting rights except as hereinafter provided in
this Section 8 or as otherwise provided by law.

            (b)    The holders of record of shares of Series E Preferred Stock
shall be entitled to vote on all matters that the holders of the Company's
Common Stock are entitled to vote upon.

            (c)    In addition to the voting rights set forth above, the
approval of the holders of at least a majority of the then Outstanding shares of
Series E Preferred Stock voting or consenting, as the case may be, as one class,
will be required for the Company to:

            (i)    amend the Certificate of Incorporation, this Certificate of
     Designation or the By-Laws so as to (A) affect adversely the rights,
     preferences (including, without limitation, liquidation preferences,
     conversion price, dividend rate and Optional Redemption provisions),
     privileges or voting rights of holders of the shares of Series E Preferred
     Stock, or (B) increase or decrease the number of authorized shares of
     Series E Preferred Stock;

            (ii)   in a single transaction or series of related transactions,
     consolidate or merge with or into, or sell, assign, transfer, lease, convey
     or otherwise dispose of all or substantially all of its assets to, any
     person or adopt a plan of liquidation or dissolution, except as expressly
     provided in Section 14;

            (iii)  enter into, or permit any of its subsidiaries to enter into,
     any agreement that would impose material restrictions on the Company's
     ability to honor the exercise of any rights of the holders of the Series E
     Preferred Stock;

            (iv)   issue any shares of Series E Preferred Stock other than
     pursuant to the terms of the Purchase Agreement as in effect on the Closing
     Date; or

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          (v) issue any class or series of equity of the Company that would be
     deemed to be Parity Shares or Senior Shares with respect to rights relating
     (a) to payments of dividends or (b) distribution of assets upon
     liquidation, dissolution or winding-up.

          (d)  For so long as the members of the HMTF Group in the aggregate
own any combination of the shares of Series E Preferred Stock issued to members
of the HMTF Group on the Closing Date under the Purchase Agreement (the "HMTF
Issued Series E Preferred Shares") and shares of Common Stock issued upon
conversion of HMTF Issued Series E Preferred Shares that, taken together, would
represent (if all HMTF Issued Series E Preferred Shares were converted) an
amount of Common Stock issuable upon conversion of 40% or more of the HMTF
Issued Series E Preferred Shares, the HMTF Holders, voting as a single class,
shall be entitled to elect one director to serve on the Board of Directors at
any annual meeting of stockholders or special meeting held in place thereof, or
at a special meeting of the HMTF Holders called as hereinafter provided. At any
time after voting power to elect such director shall have become vested and be
continuing in the HMTF Holders pursuant to this paragraph, or if a vacancy shall
exist in the office of a director elected by the HMTF Holders at a time when the
HMTF Holders are entitled to elect a director pursuant to this paragraph, a
proper officer of the Company may, and upon the written request of the holders
of record of at least twenty-five percent (25%) of the HMTF Issued Series E
Preferred Shares then outstanding held by the HMTF Holders addressed to the
Secretary of the Company shall, call a special meeting of the HMTF Holders for
the sole purpose of electing the director that such holders are entitled to
elect. If such meeting shall not be called by a proper officer of the Company
within twenty (20) days after personal service of said written request upon the
Secretary of the Company, or within twenty (20) days after mailing the same
within the United States by certified mail, addressed to the Secretary of the
Company at its principal executive offices, then the holders of at least twenty-
five percent (25%) of the HMTF Issued Series E Preferred Shares then outstanding
held by the HMTF Holders may designate in writing one of their number to call
such meeting at the expense of the Company, and such meeting may be called by
the person so designated upon the notice required for the annual meeting of
stockholders of the Company and shall be held at the place for holding the
annual meetings of stockholders. As used herein, (i) "HMTF Group" means Hicks,
Muse, Tate & Furst Incorporated, a Texas corporation, and its Affiliates and
their respective officers, directors, partners, members, stockholders and
employees (and members of their respective families and trusts for the primary
benefit of such family members) and HM4 Rhythms Qualified Fund, LLC; HM4 Rhythms
Private Fund, LLC; HM PG-IV Rhythms, LLC; HM 4-SBS Rhythms Coinvestors, LLC; HM
4-EQ Rhythms Coinvestors LLC; and HMTF Bridge RHY, LLC and their respective
Affiliates and (ii) "HMTF Holders" means members of the HMTF Group that are
holders of all or a portion of the HMTF Issued Series E Preferred Shares or the
Common Stock into which such HMTF Issued Series E Preferred Shares are
converted. The action permitted or required to be taken by the HMTF Holders
pursuant to this Section 8(d) may be taken (1) at any annual or special meeting
of stockholders or at a special meeting of the HMTF Holders, or (2) without a
meeting, without prior notice, and without a vote if a consent or consents in
writing, setting forth the action so taken, shall be signed by the HMTF Holders
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares held by the HMTF
Holders entitled to vote thereon were present and voted and shall be delivered
to the Company by delivery to its address listed in Section 8.2 of the Purchase
Agreement.

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            (e)  In exercising the voting rights set forth in Section 8(b),
each share of Series E Preferred Stock shall be entitled to vote on an as-
converted basis with the holders of the Company's Common Stock. Except as set
forth in Section 8(d), exercising the other voting rights set forth in this
Section 8, each share of Series E Preferred Stock entitled to vote shall have
one vote per share, except that when any other series of preferred stock shall
have the right to vote with the Series E Preferred Stock as a single class on
any matter, then the Series E Preferred Stock and such other series of preferred
stock shall have with respect to such matters one vote per $1,000 of the
aggregate liquidation preference of all shares of Series E Preferred Stock and
all shares of such other series of preferred stock. Except as otherwise required
by applicable law or as set forth herein, the shares of Series E Preferred Stock
shall not have any relative, participating, optional or other special voting
rights and powers and the consent of the holders thereof shall not be required
for the taking of any corporate action.

     9.  Ranking
         -------
            (a)  The shares of Series E Preferred Stock will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
senior to all shares of Common Stock (whether issued in one or more classes) and
to each other class of capital stock or series of Preferred Stock of the Company
(including without limitation the Series 1 Junior Participating Preferred
Stock), the terms of which do not expressly provide that it ranks senior to or
on a parity with the shares of Series E Preferred Stock as to dividend rights
and rights on liquidation, winding-up and dissolution of the Company
(collectively referred to, together with all shares of Common Stock (whether
issued in one or more classes) of the Company, as "Junior Shares"); (ii) on a
parity with (A) the 6 3/4% Series F Cumulative Convertible Preferred Stock and
(B) each other class of capital stock or series of Preferred Stock of the
Company issued by the Company in compliance with Section 8, the terms of which
expressly provide that such class or series will rank on a parity with the
shares of Series E Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Parity Shares"); and (iii) junior to each class of capital stock or series
of Preferred Stock of the Company, the terms of which expressly provide that
such class or series will rank senior to the shares of Series E Preferred Stock
as to dividend rights and rights upon liquidation, winding-up and dissolution of
the Company (collectively referred to as "Senior Shares").

            (b)  No dividend whatsoever shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any outstanding shares of
Series E Preferred Stock with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividends, or
declared and added to the Liquidation Value as described herein, upon all
outstanding Senior Shares.

            (c)  In the event of any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the shares of
Series E Preferred Stock then Outstanding shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Company to the
holders of shares of Common Stock or Junior Shares by reason of their ownership
thereof, an amount equal to the greater of (i) the then effective Liquidation
Preference, plus an amount equal to all dividends accrued and unpaid thereon
from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding-up or (ii) the amount such holders would receive if such
holders converted their shares of Series E Preferred

                                       7
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Stock into Common Stock immediately prior to such liquidation, dissolution
or winding up.  If upon the occurrence of such event the assets of the
Company shall be insufficient to permit the payment to such holders of the
full preferential amount and all liquidating payments on all Parity
Securities, the entire assets of the Company legally available for
distribution shall be distributed among the holders of the shares of Series
E Preferred Stock and the holders of all Parity Shares ratably in
accordance with the respective amounts that would be payable on such shares
of Series E Preferred Stock and any such Parity Securities if all amounts
payable thereon were paid in full.  After payment of the full preferential
amount (and, if applicable, an amount equal to a pro rata dividend to the
holders of Outstanding shares of Series E Preferred Stock), such holders
shall not be entitled to any additional distribution of assets of the
Company.

     10.  Redemption
          ----------
            (a)  The shares of Series E Preferred Stock may be redeemed by the
Company at any time commencing on or after March 31, 2005 (or earlier, in
accordance with the provisions of Section 13(d) if a Change of Control Date
shall have occurred, but only as to shares of Series E Preferred Stock with
respect to which the Remarketing Option has been elected), in whole or from time
to time in part, at the election of the Company (an "Optional Redemption"), at a
redemption price (the "Redemption Price") payable in cash equal to 100% (or 101%
if a Change of Control shall have occurred prior to March 31, 2005) of the then
effective Liquidation Preference (after giving effect to the Special Dividend,
if applicable), plus accrued and unpaid dividends thereon from the last Dividend
Payment Date to the date of redemption (the "Optional Redemption Date").

            (b)  Shares of Series E Preferred Stock (if not earlier redeemed
or converted) shall be mandatorily redeemed by the Company on March 31, 2015
(the "Mandatory Redemption Date"); provided, however, that if such date is not a
Business Day, then the Mandatory Redemption Date shall be the next Business
Day), at a Redemption Price per share in cash equal to the then effective
Liquidation Preference (after giving effect to the Special Dividend, if
applicable), plus accrued and unpaid dividends thereon from the last Dividend
Payment Date to the Mandatory Redemption Date.

            (c)  In the event of a redemption of fewer than all the shares of
Series E Preferred Stock, the shares of Series E Preferred Stock will be chosen
for redemption by the Registrar from the Outstanding shares of Series E
Preferred Stock not previously called for redemption, pro rata or by lot or by
such other method as the Registrar shall deem fair and appropriate; provided,
that the Company may redeem (an "Odd-lot Redemption") all shares held by holders
of fewer than 100 shares of Series E Preferred Stock (or by holders that would
hold fewer than 100 shares of Series E Preferred Stock following such
redemption) prior to its redemption of other shares of Series E Preferred Stock;
provided, further, that the Company may not redeem a portion of any share
without redeeming the entire share. If fewer than all the shares of Series E
Preferred Stock represented by any share certificate are so to be redeemed, (i)
the Company shall issue a new certificate for the shares not redeemed and (ii)
if any shares represented thereby are converted before termination of the
conversion right with respect to such shares, such converted shares shall be
deemed (so far as may be) to be the shares represented by such share certificate
that was selected for redemption. Shares of Series E Preferred Stock that have
been converted during a

                                       8
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selection of shares of Series E Preferred Stock to be
redeemed shall be treated by the Registrar as outstanding for the purpose
of such selection but not for the purpose of the payment of the Redemption
Price.

            (d)  In the event the Company elects to effect an Optional
Redemption, the Company shall (i) make a public announcement of the
redemption and (ii) give a redemption notice (the "Redemption Notice") to
the holders not fewer than 30 days nor more than 60 days before the
date (the "Redemption Date"). Whenever a Redemption Notice is
required to be delivered to the holders, such notice shall provide the
information set forth below and be given by first class mail, postage
prepaid to each holder of shares of Series E Preferred Stock to be
redeemed, at such holder's address appearing in the Series E Preferred
Register. All Redemption Notices shall identify the shares of Series
E Preferred Stock to be redeemed (including CUSIP number) and shall state:

            (i)    the Redemption Date;

            (ii)   the applicable Redemption Price;

            (iii)  if fewer than all the outstanding shares of Series E
     Preferred Stock are to be redeemed, the identification (and,
     in the case of partial redemption, the certificate number,
     the total number of shares represented thereby and the number
     of such shares being redeemed on the Redemption Date) of the
     particular shares of Series E Preferred Stock to be redeemed;

            (iv)   that on the Redemption Date the Redemption Price, together
     with all accrued and unpaid dividends from the last Dividend
     Payment Date to the Redemption Date, will become due and
     payable upon each such share of Series E Preferred Stock to
     be redeemed and that dividends thereon will cease to accrue
     on and after said date;

            (v)    the conversion price, the date on which the right to convert
     shares of Series E Preferred Stock to be redeemed will
     terminate and the place or places where such shares of Series
     E Preferred Stock may be surrendered for conversion; and

            (vi) the place or places where such shares of Series E Preferred
     Stock are to be surrendered for payment of the Redemption Price and the
     other amounts which are then payable.

     The Redemption Notice shall be given by the Company or, at the Company's
request, by the Registrar in the name and at the expense of the Company;
provided that if the Company so requests, it shall provide the Registrar
adequate time, as reasonably determined by the Registrar, to deliver such
notices in a timely fashion.

            (e)  Prior to any Redemption Date, the Company shall deposit with
the Registrar or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust) an amount of consideration sufficient
to pay the Redemption Price of all the shares of Series E Preferred Stock that
are to be redeemed on that date plus all accrued and unpaid dividends thereon
from the last Dividend Payment Date to the Redemption Date. If any share of
Series E Preferred Stock called for redemption is converted, any consideration
deposited with the

                                       9

<PAGE>

Registrar or with any Paying Agent or so
segregated and held in trust for the redemption of such share of Series E
Preferred Stock shall be paid or delivered to the Company upon Company
Order or, if then held by the Company, shall be discharged from such trust.

            (f)  Notice of redemption having been given as aforesaid, the
shares of Series E Preferred Stock so to be redeemed shall, on the Redemption
Date, become due and payable at the Redemption Price therein specified plus all
accrued and unpaid dividends thereon from the last Dividend Payment Date to the
Redemption Date, and from and after such date (unless the Company shall default
in the payment of the Redemption Price and accrued but unpaid dividends)
dividends on such shares of Series E Preferred Stock shall cease to accrue and
such shares shall cease to be convertible into shares of Common Stock. Upon
surrender of any such shares of Series E Preferred Stock for redemption in
accordance with said notice, such shares of Series E Preferred Stock shall be
redeemed by the Company at the applicable Redemption Price, together with all
accrued and unpaid dividends thereon from the last Dividend Payment Date to the
Redemption Date. If any share of Series E Preferred Stock called for redemption
shall not be so paid upon surrender thereof for redemption, the Redemption Price
thereof, and all accrued and unpaid dividends thereon from the last Dividend
Payment Date to the Redemption Date, shall, until paid, bear interest from the
Redemption Date at the dividend rate payable on the shares of Series E Preferred
Stock and such shares shall remain convertible.

            (g)  Any certificate that represents more than one share of Series
E Preferred Stock and is to be redeemed only in part shall be surrendered at any
office agency of the Company designated for that purpose (with, if the Company
or the Registrar so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Registrar duly executed by,
the holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Registrar shall countersign and deliver to the holder of
such share of Series E Preferred Stock without service charge, a new Series E
Preferred Stock certificate or certificates, representing any number of shares
of Series E Preferred Stock as requested by such holder, in aggregate amount
equal to and in exchange for the number of shares not redeemed and represented
by the Series E Preferred Stock certificate so surrendered.

            (h)  If a share of Series E Preferred Stock is redeemed subsequent
to a Dividend Record Date with respect to any Dividend Payment Date and on or
prior to such Dividend Payment Date, then the accrued dividends payable on such
Dividend Payment Date will be paid to the person in whose name such share of
Series E Preferred Stock is registered at the close of business on such Dividend
Record Date.

     11.  Method of Payments
          ------------------

     The Company may make any dividend payments in cash with respect to any
Dividend Period beginning after March 31, 2005; provided that no payment shall
be made in cash that would violate the provisions of the Indenture dated as of
May 5, 1998 between the Company and State Street Bank and Trust Company of
California, N.A. or the Indenture dated April 23, 1999 between the same parties,
if and to the extent those Indentures are in effect.  Any dividends not paid in
cash on a current basis on the applicable Dividend Payment Date with respect to
all periods after March 31, 2005, and all dividends with respect to periods
prior to March 31, 2005, shall not be paid in cash but rather shall constitute
Accumulated Dividends as dividends.  No payment may be made in respect of
Accumulated Dividends as dividends.  Rather, Accumulated

                                      10
<PAGE>

Dividends shall be added to the Liquidation Preference. Dividends may not be
paid by delivery of shares of Series E Preferred Stock.

     12.  Conversion
          ----------
            (a)  Subject to and upon compliance with the provisions of this
Certificate of Designation, at the option of the holder thereof, any share of
Series E Preferred Stock may be converted at any time into a number of fully
paid and nonassessable shares of Common Stock (calculated as to each conversion
to the nearest 1/100 of a share) equal to (i) the then effective Liquidation
Preference thereof plus accrued and unpaid dividends to the date of conversion
divided by (ii) the Conversion Price in effect at the time of conversion. Such
conversion right shall expire at the close of business on the Business Day next
preceding the Mandatory Redemption Date. In case a share of Series E Preferred
Stock is called for redemption, such conversion right in respect of the share so
called shall expire at the close of business on the Business Day next preceding
the Redemption Date, unless the Company defaults in making the payment due upon
redemption.

     The Conversion Price shall be initially $37.50 per share of Common Stock.
The Conversion Price shall be adjusted in certain instances as provided in
Section 12(d) and Section 12(e).

            (b)  In order to exercise the conversion privilege, the holder of
any share of Series E Preferred Stock to be converted shall surrender the
certificate for such share, duly endorsed or assigned to the Company or in
blank, at any office or agency of the Company maintained for that purpose,
accompanied by written notice to the Company at such office or agency that the
holder elects to convert such share or, if fewer than all the shares of Series E
Preferred Stock represented by a single share certificate are to be converted,
the number of shares represented thereby to be converted.

     Shares of Series E Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
shares for conversion in accordance with the foregoing provisions, and at such
time the rights of the holders of such shares as holders shall cease, and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at such time.  As promptly as practicable on or
after the conversion date, the Company shall issue and shall deliver at such
office or agency a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with payment in lieu of any
fraction of a share, as provided in Section 12(c).

     In the case of any conversion of fewer than all the shares of Series E
Preferred Stock evidenced by a certificate, upon such conversion the Company
shall execute and the Registrar shall countersign and deliver to the holder
thereof, at the expense of the Company, a new certificate or certificates
representing the number of unconverted shares of Series E Preferred Stock.

            (c)  No fractional shares of Common Stock shall be issued upon the
conversion of a share of Series E Preferred Stock. If more than one share of
Series E Preferred Stock shall be

                                      11
<PAGE>

surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series E Preferred
Stock so surrendered. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any share of Series E Preferred
Stock, the Company shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction of the Closing Price (as defined in Section
12(d)(vi) per Common Share at the close of business on the Business Day prior to
the day of conversion.

            (d)  The Conversion Price shall be adjusted from time to time by
the Company as follows:

            (i)  If the Company shall hereafter pay a dividend or make a
     distribution to all holders of the outstanding shares of Common Stock in
     shares of Common Stock, the Conversion Price in effect at the opening of
     business on the date following the date fixed for the determination of
     shareholders entitled to receive such dividend or other distribution shall
     be reduced by multiplying such Conversion Price by a fraction of which the
     numerator shall be the number of shares of Common Stock outstanding at the
     close of business on the Common Stock Record Date (as defined in Section
     12(d)(vi)) fixed for such determination and the denominator shall be the
     sum of such number of shares and the total number of shares constituting
     such dividend or other distribution, such reduction to become effective
     immediately after the opening of business on the day following the Common
     Stock Record Date. If any dividend or distribution of the type described in
     this Section 12(d)(i) is declared but not so paid or made, the Conversion
     Price shall again be adjusted to the Conversion Price which would then be
     in effect if such dividend or distribution had not been declared.

            (ii) (a) In case the Company shall issue or sell any Common Stock
     in a financing conducted as an underwritten public offering or a private
     placement (in each case for cash and other than transactions with strategic
     investors) for a consideration per share that is 90% or less than the
     Current Market Price on the date of such issuance, or shall issue
     securities convertible into Common Stock having a conversion price per
     share that is 90% or less than the Current Market Price at the date of
     issuance of such convertible security, the Conversion Price to be in effect
     after such issuance or sale shall be determined by multiplying the
     Conversion Price in effect immediately prior to such issuance or sale by a
     fraction, (1) the numerator of which shall be the sum of (x) the number of
     shares of Common Stock outstanding immediately prior to such issuance or
     sale and (y) the number of shares of Common Stock which the aggregate
     consideration receivable by the Company for the total number of additional
     shares of Common Stock so issued or sold (or issuable on conversion) would
     purchase at the Current Market Price in effect immediately prior to such
     issuance or sale and (2) the denominator of which shall be the sum of the
     number of shares of Common Stock outstanding immediately prior to such
     issuance or sale and the number of additional shares of Common Stock to be
     issued or sold (or, in the case of convertible securities, issued on
     conversion). Notwithstanding the foregoing, the Conversion Price shall not
     be adjusted as a result of the circumstances described in this Section
     12(d)(ii)(a) if the HMTF Holders shall be offered the opportunity to
     purchase their pro rata portion (based on the percentage of the outstanding
     shares of Common Stock represented by the Series E Preferred Stock then
     held by the

                                      12
<PAGE>

HMTF Holders on an as-converted basis) of such offering. The preemptive right
set forth in the preceding sentence shall be deemed waived as to an HMTF Holder
if such HMTF Holder does not respond in a timely fashion to notice of the
pricing of an offering to which the preemptive right would otherwise apply.

            (b) If the Company shall offer or issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less
than the Current Market Price (as defined in Section 12(d)(vi)) on the
Common Stock Record Date fixed for the determination of shareholders
entitled to receive such rights or warrants, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying
the Conversion Price in effect at the opening of business on the date after
such Common Stock Record Date by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business
on the Common Stock Record Date plus the number of shares of Common Stock
the aggregate offering price of the total number of shares of Common
Stock subject to such rights or warrants would purchase at such Current
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the Common Stock
Record Date plus the total number of additional shares of Common Stock
subject to such rights or warrants for subscription or purchase.  Such
adjustment shall become effective immediately after the opening of business
on the day following the Common Stock Record Date fixed for determination
of shareholders entitled to purchase or receive such rights or warrants.
To the extent that shares of Common Stock are not delivered pursuant to
such rights or warrants, upon the expiration or termination of such rights
or warrants the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made on the basis of
delivery of only the number of shares of Common Stock actually delivered.
If such rights or warrants are not so issued, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect
if such date fixed for the determination of shareholders entitled to
receive such rights or warrants had not been fixed.  In determining whether
any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account (x) any consideration received for such
rights or warrants, with the value of such consideration and the amount of
such exercise or subscription price, if other than cash, to be determined
by the Board of Directors and (y) the amount of any exercise price or
subscription price required to be paid upon exercise of such warrants or
rights.

            (iii)  If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after

                                      13
<PAGE>

     the opening of business on the day following the day upon which such
     subdivision or combination becomes effective.

            (iv) If the Company shall, by dividend or otherwise, distribute to
     all holders of its shares of Common Stock any class of capital stock of the
     Company (other than any dividends or distributions to which Section
     12(d)(i) applies) or evidences of its indebtedness, cash or other assets
     (including securities, but excluding any rights or warrants of a type
     referred to in Section 12(d)(ii)(b) 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 to
     which Section 12(e) applies) (the foregoing hereinafter in this Section
     12(d)(iv) called the "Distributed Securities"), then, in each such case,
     the Conversion Price shall be reduced so that the same shall be equal to
     the price determined by multiplying the Conversion Price in effect
     immediately prior to the close of business on the Common Stock Record Date
     (as defined in Section 12(d)(vi) with respect to such distribution by a
     fraction of which the numerator shall be the Current Market Price
     (determined as provided in Section 12(d)(vi) on such date less the fair
     market value (as determined by the Board of Directors, whose good faith
     determination shall be conclusive and described in a resolution of the
     Board of Directors) on such date of the portion of the Distributed
     Securities so distributed applicable to one share of Common Stock and the
     denominator shall be such Current Market Price, such reduction to become
     effective immediately prior to the opening of business on the day following
     the Common Stock Record Date; provided, however, that, in the event the
     then fair market value (as so determined) of the portion of the Distributed
     Securities so distributed applicable to one share of Common Stock is equal
     to or greater than the Current Market Price on the Common Stock Record
     Date, in lieu of the foregoing adjustment, adequate provision shall be made
     so that each holder of shares of Series E Preferred Stock shall have the
     right to receive upon conversion of a share of Series E Preferred Stock (or
     any portion thereof) the amount of Distributed Securities such holder would
     have received had such holder converted such share of Series E Preferred
     Stock (or portion thereof) immediately prior to such Common Stock Record
     Date. If such dividend or distribution is not so paid or made, the
     Conversion Price shall again be adjusted to be the Conversion Price which
     would then be in effect if such dividend or distribution had not been
     declared. If the Board of Directors determines the fair market value of any
     distribution for purposes of this Section 12(d)(iv) by reference to the
     actual or when issued trading market for any securities constituting all or
     part of such distribution, it must in doing so consider the prices in such
     market over the same period used in computing the Current Market Price
     pursuant to Section 12(d)(vi) to the extent possible.

     Rights or warrants distributed by the Company to all holders of shares of
Common Stock entitling the holders thereof to subscribe for or purchase shares
of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("Dilution Trigger Event"): (A) are deemed to be transferred
with such shares of Common Stock; (B) are not exercisable; and (C) are also
issued in respect of future issuances of shares of Common Stock, shall be deemed
not to have been distributed for purposes of this Section 12(d)(iv) (and no
adjustment to the Conversion Price under this Section 12(d)(iv) shall be
required) until the occurrence of the earliest Dilution Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and an
appropriate

                                      14
<PAGE>

adjustment to the Conversion Price under this Section 12(d)(iv)
shall be made.  If any such rights or warrants, including any such existing
rights or warrants distributed prior to the first issuance of shares of Series E
Preferred Stock, are subject to subsequent events, upon the occurrence of each
of which such rights or warrants shall become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the occurrence of
each such event shall be deemed to be such date of issuance and record date with
respect to new rights or warrants (and a termination or expiration of the
existing rights or warrants, without exercise by the holder thereof).  In
addition, in the event of any distribution (or deemed distribution) of rights or
warrants, or any Dilution Trigger Event with respect thereto, that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 12(d) was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Dilution Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received by
a holder or holders of shares of Common Stock with respect to such rights or
warrants (assuming such holder had retained such rights or warrants), made to
all holders of shares of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.

     Notwithstanding any other provision of this Section 12(d)(iv) to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash or
other assets (including, without limitation, any rights distributed pursuant to
any shareholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 12(d)(iv) if the Company makes proper provision so that
each holder of shares of Series E Preferred Stock who converts a share of Series
E Preferred Stock (or any portion thereof) after the date fixed for
determination of shareholders entitled to receive such distribution shall be
entitled to receive upon such conversion, in addition to the shares of Common
Stock issuable upon such conversion, the amount and kind of such distributions
that such holder would have been entitled to receive if such holder had,
immediately prior to such determination date, converted such share of Series E
Preferred Stock into a share of Common Stock.

     For purposes of this Section 12(d)(iv) and Sections 12(d)(i) and (ii), any
dividend or distribution to which this Section 12(d)(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 Section 12(d)(ii) applies (or both),
shall be deemed instead to be (A) 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 Section 12(d)(ii)
applies (and any Conversion Price reduction required by this Section 12(d)(iv)
with respect to such dividend or distribution shall then be made) immediately
followed by (B) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 12(d)(i) or 12(d)(ii) with respect to such dividend or distribution
shall then be made), except that (1) the Common Stock Record Date of such
dividend or distribution shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution", "the Common Stock Record Date fixed for such determination" and
"the Common Stock Record Date" within the meaning of Section 12(d)(i) and as
"the date

                                      15
<PAGE>

fixed for the determination of shareholders entitled to receive such
rights or warrants", "the Common Stock Record Date fixed for the determination
of the share holders entitled to receive such rights or warrants" and "such
Common Stock Record Date" for purposes of Section 12(d)(ii), and (2) 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"
for the purposes of Section 12(d)(i).

            (v)  If a tender offer made by the Company or any of its
     subsidiaries for all or any portion of the Common Stock expires and such
     tender offer (as amended upon the expiration thereof) requires the payment
     to shareholders (based on the acceptance (up to any maximum specified in
     the terms of the tender offer) of Purchased Shares) of an aggregate
     consideration having a fair market value (as determined by the Board of
     Directors, whose good faith determination shall be conclusive and described
     in a resolution of the Board of Directors) that, combined together with the
     aggregate of the cash plus the fair market value (as determined by the
     Board of Directors, whose good faith determination shall be conclusive and
     described in a resolution of the Board of Directors) as of the expiration
     of such tender offer, of consideration payable in respect of any other
     tender offers by the Company or any of its subsidiaries for all or any
     portion of the shares of Common Stock expiring within the 12 months
     preceding the expiration of such tender offer and in respect of which no
     adjustment pursuant to this Section 12(d)(v) has been made, exceeds 5% of
     the net income of the Company reported for the 12 month period ending with
     the fiscal quarter next preceding such payment (the "12 Month Net Income")
     (determined as of the last time (the "Expiration Time") tenders could have
     been made pursuant to such tender offer (as it may be amended) then, and in
     each such case, immediately prior to the opening of business on the day
     after the date of the Expiration Time, the Conversion Price shall be
     adjusted so that the same shall equal the price determined by multiplying
     the Conversion Price in effect immediately prior to the close of business
     on the date of the Expiration Time by a fraction of which the numerator
     shall be the number of shares of Common Stock outstanding (including any
     tendered shares) at the Expiration Time multiplied by the Current Market
     Price of a share of Common Stock on the trading day next succeeding the
     Expiration Time and the denominator shall be the sum of (x) the fair market
     value (determined as aforesaid) of the aggregate consideration payable to
     shareholders 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 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) at the Expiration Time and the Current Market Price of the shares
     of Common Stock on the trading day next succeeding the Expiration Time,
     such reduction (if any) to become effective immediately prior to the
     opening of business on the day following the Expiration Time. If the
     Company is obligated to purchase shares pursuant to any such tender offer,
     but the Company is permanently prevented by applicable law from effecting
     any such purchases or all such purchases are rescinded, the Conversion
     Price shall again be adjusted to be the Conversion Price which would then
     be in effect if such tender offer had not been made. If the application of
     this Section 12(d)(v) to any tender offer would result in an increase in
     the Conversion Price, no adjustment shall be made for such tender offer
     under this Section 12(d)(v).

                                      16
<PAGE>

            (vi) For purposes of this Section 12(d), the following terms shall
     have the meaning indicated:

     "closing price" with respect to any securities on any day means the closing
sale price as of 4:00 p.m. Eastern Time on such day or any earlier final closing
on such day or, if no such sale takes place on such day, the average of the
reported high and low bid prices on such day, in each case on the Nasdaq
National Market, or the New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such national market or
exchange, on the national stock exchange or Commission recognized trading market
in the United States on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
stock exchange or Commission recognized trading market in the United States, the
average of the high and low bid prices of such security on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated or a similar generally accepted reporting service in the United
States, or, if not so available, in such manner as furnished by any New York
Stock Exchange member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of the
Board of Directors.

     "Common Stock Record Date" means, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).

     "Current Market Price" means the average of the daily closing prices per
share of Common Stock for the 10 consecutive trading days immediately prior to
the date in question; provided, however, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion Price
pursuant to Section 12(d)(i), (ii), (iii), (iv) or (v) occurs during such 10
consecutive trading days, the closing price for each trading day prior to the
"ex" date for such other event shall be adjusted by multiplying such closing
price by the same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (B) if the "ex" date for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to Section 12(d)(i),
(ii), (iii), (iv) or (v) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day in question, the
closing price for each trading day on and after the "ex" date for such other
event shall be adjusted by multiplying such closing price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as a
result of such other event and (C) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in question, after
taking into account any adjustment required pursuant to clause (A) or (B) of
this proviso, the closing price for each trading day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors in a manner consistent with any
good faith determination of such value for purposes of Section 12(d)(iv), whose
good faith determination shall be conclusive and described in a resolution of
the Board of Directors) of the evidences of indebtedness, shares of capital
stock or

                                      17
<PAGE>

assets being distributed applicable to one share of Common Stock as of
the close of business on the day before such "ex" date.  For purposes of any
computation under Section 12(d)(v), the Current Market Price on any date shall
be deemed to be the average of the daily closing prices per share of Common
Stock for such day and the next two succeeding trading days; provided, however,
that, if the "ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
Section 12(d)(i), (ii), (iii), (iv) or (v) occurs on or after the Expiration
Time for the tender or exchange offer requiring such computation and prior to
the day in question, the closing price for each trading day on and after the
"ex" date for such other event shall be adjusted by multiplying such closing
price by the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event.  For purposes of this
paragraph, the term "ex" date (1) when used with respect to any issuance or
distribution, means the first date on which the shares of Common Stock trade
regular way on the relevant exchange or in the relevant market from which the
closing price was obtained without the right to receive such issuance or
distribution, (2) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the shares of Common Stock
trade regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective and (3) when used with respect
to any tender or exchange offer means the first date on which the shares of
Common Stock trade regular way on such exchange or in such market after the
Expiration Time of such offer.  Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to this
Section 12(d), such adjustments shall be made to the Current Market Price as may
be necessary or appropriate to effectuate the intent of this Section 12(d) and
to avoid unjust or inequitable results, as determined in good faith by the Board
of Directors.

     "Fair Market Value" means the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.

            (vii)  No adjustment in the Conversion Price shall be required
     unless such adjustment would require an increase or decrease of at least 1%
     in such price; provided, however, that any adjustments which by reason of
     this Section 12(d)(vii) are not required to be made shall be carried
     forward and taken into account in any subsequent adjustment. All
     calculations under this Section 12 shall be made by the Company and shall
     be made to the nearest cent. No adjustment need be made for a change in the
     par value or no par value of the Common Stock.

            (viii)  Whenever the Conversion Price is adjusted as herein
     provided, the Company shall promptly file with the Registrar an Officers'
     Certificate setting forth the Conversion Price after such adjustment and
     setting forth a brief statement of the facts requiring such adjustment.
     Promptly after delivery of such certificate, the Company shall prepare a
     notice of such adjustment of the Conversion Price setting forth the
     adjusted Conversion Price and the date on which each adjustment becomes
     effective and shall mail such notice of such adjustment of the Conversion
     Price to each holder of shares of Series E Preferred Stock at such holder's
     last address appearing on the register of holders maintained for that
     purpose within 20 days of the effective date of such adjustment. Failure to
     deliver such notice shall not affect the legality or validity of any such
     adjustment.
                                       18
<PAGE>

            (ix) In any case in which this Section 12(d) provides that an
     adjustment shall become effective immediately after a Common Stock Record
     Date for an event, the Company may defer until the occurrence of such event
     issuing to the holder of any share of Series E Preferred Stock converted
     after such Common Stock Record Date and before the occurrence of such event
     the additional shares of Common Stock issuable upon such conversion by
     reason of the adjustment required by such event over and above the shares
     of Common Stock issuable upon such conversion before giving effect to such
     adjustment.

            (x)  For purposes of this Section 12(d), the number of shares of
     Common Stock at any time outstanding shall not include shares held in the
     treasury of the Company. The Company shall not pay any dividend or make any
     distribution on shares of Common Stock held in the treasury of the Company.

            (e)  Subject to Section 13, in case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any merger of another corporation into the Company (other than a merger that
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), or in case of any sale,
conveyance or transfer of all or substantially all the assets of the Company,
the holder of each share of Series E Preferred Stock shall have the right
thereafter, during the period such share of Series E Preferred Stock shall be
convertible as specified in Section 12(a), to convert such share of Series E
Preferred Stock into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by a holder
of the number of shares of Common Stock of the Company into which such share of
Series E Preferred Stock might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of shares of
Common Stock of the Company failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance or transfer (provided that, if the kind
or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer is not the same for each share of
Common Stock of the Company in respect of which such rights of election shall
not have been exercised ("nonelecting share"), then for the purpose of this
Section 12 the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer by each nonelecting
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the nonelecting shares). Such securities shall provide for
adjustments which, for events subsequent to the effective date of the triggering
event, shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 12. The above provisions of this Section 12 shall
similarly apply to successive consolidations, mergers, conveyances or transfers.

            (f)  In case:

            (i)  the Company shall declare a dividend (or any other
     distribution) on its Common Stock payable otherwise than in cash out of its
     earned surplus; or

            (ii) the Company shall authorize the granting to all holders of its
     shares of Common Stock of rights or warrants to subscribe for or purchase
     any shares of capital stock of any class or of any other rights; or

                                      19
<PAGE>

            (iii)  of any reclassification of the Common Stock (other than a
     subdivision or combination of the Company's outstanding shares of Common
     Stock), or of any consolidation or merger to which the Company is a party
     and for which approval of any shareholders of the Company is required, or
     the sale, conveyance or transfer of all or substantially all the assets of
     the Company; or

            (iv)   of the voluntary or involuntary dissolution, liquidation or
     winding-up of the Company;

            then the Company shall cause to be filed with the Registrar and at
     each office or agency maintained for the purpose of conversion of shares of
     Series E Preferred Stock, and shall cause to be mailed to all holders at
     their last addresses as they shall appear in the shares of Series E
     Preferred Stock Register, at least 20 Business Days (or 10 Business Days in
     any case specified in clause (i) or (ii) above) prior to the applicable
     date hereinafter specified, a notice stating (x) the date on which a record
     is to be taken for the purpose of such dividend, distribution, rights or
     warrants, or, if a record is not to be taken, the date as of which the
     holders of shares of Common Stock of record to be entitled to such
     dividend, distribution, rights or warrants are to be determined or (y) the
     date on which such reclassification, consolidation, merger, sale, transfer,
     dissolution, liquidation or winding-up is expected to become effective, and
     the date as of which it is expected that holders of shares of Common Stock
     of record shall be entitled to exchange their shares of Common Stock for
     securities, cash or other property deliverable upon such reclassification,
     consolidation, merger, sale, transfer, dissolution, liquidation or winding-
     up.  Failure to give the notice required by this Section 12(f) or any
     defect therein shall not affect the legality or validity of any dividend,
     distribution, right, warrant, reclassification, consolidation, merger,
     sale, transfer, dissolution, liquidation or winding-up, or the vote upon
     any such action.

             (g)  The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of shares of Series E
Preferred Stock, the full number of shares of Common Stock then issuable upon
the conversion of all outstanding shares of Series E Preferred Stock.

             (h)  The Company will pay any and all taxes that may be payable
in respect of the issue or delivery of shares of Common Stock on conversion of
shares of Series E Preferred Stock pursuant hereto. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the holder of the share of Series E Preferred Stock or shares
of Series E Preferred Stock to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid or is not payable.

                                      20
<PAGE>

     13. Change of Control
         -----------------
            (a)  If a Change of Control shall have occurred, the Company shall
cause to be filed with the Registrar and at each office or agency maintained for
the purpose of conversion of shares of Series E Preferred Stock, and shall cause
to be mailed to all holders at their last addresses as they shall appear in the
Series E Preferred Stock Register, in any case within 10 days after the Change
of Control Date, a notice stating (1) the Change of Control Date, (2) the fact
that if the Change of Control Date is prior to March 31, 2005, the holders shall
receive the Special Dividend as a result of such Change of Control, (3) the fact
that holders shall have the right to either (a) continue to hold their shares of
Series E Preferred Stock (or the shares of preferred stock issued in respect
thereof pursuant to Section 14) (the "Hold Option"), (b) convert such shares in
accordance with Section 12 or (c) elect the Remarketing Option (as defined
below), (4) the relevant circumstances and facts regarding such Change of
Control and (5) the instructions that such holder must follow in order to
exercise the rights identified above. The holders of Series E Preferred Stock
shall receive the Special Dividend as of the Change of Control Date if the
Change of Control Date occurs prior to March 31, 2005, whether they elect the
Hold Option or the Remarketing Option or whether they elect to convert their
shares in accordance with Section 12.

            (b)  Within 30 days after delivery by the Company of the notice
described in Section 13(a), each holder of shares of Series E Preferred Stock
(or the shares of preferred stock issued in respect thereof pursuant to Section
14) who wishes to exercise the Hold Option or the Remarketing Option must submit
written notice (a "COC Response Notice") to the Company setting forth the option
such holder wishes to elect (and if no option is selected within such 30 day
period such holder shall be deemed to have selected the Hold Option).

            (c)  If the Hold Option is selected with respect to a share of
Series E Preferred Stock, or if no notice from a holder is received by the date
referred to in the preceding paragraph, such holder shall be deemed to have
elected to waive such holder's right to elect the Remarketing Option with
respect to such Change of Control (but not the continuing right to convert
pursuant to Section 12) and such share of Series E Preferred Stock (or the
shares of preferred stock issued in respect thereof pursuant to Section 14)
shall remain outstanding in accordance with its current terms after giving
effect to the Special Dividend (if applicable).

            (d)  If the Remarketing Option is selected with respect to a share
of Series E Preferred Stock, such holder shall be deemed to have elected to
waive such holder's right to elect the Hold Option or to convert such holder's
shares pursuant to Section 12 during the Remarketing Period and the Company
shall thereafter have the option (the "Remarketing Option") to either (a) have
such share redeemed in accordance with the optional redemption procedures set
forth in Section 10 or (b) remarket such share for the account of such holder
and, if the net proceeds to such holder of such remarketing are less than an
amount in cash equal to 101% of the Liquidation Preference of such share (after
giving effect to the Special Dividend if applicable) plus accrued and unpaid
dividends thereon from the last Dividend Payment Date to the date payment in
full is received by such holder in respect of such share (the "Remarketing
Price"), the Company shall issue to and sell for the account of such holder a
sufficient number of shares of Common Stock to make up such shortfall; i.e.,
such that the holder receives a net amount in cash in respect of such share of
Series E Preferred Stock as to which the Remarketing Option has been selected
which, when taken together with the net proceeds received by such

                                      21
<PAGE>

holder in such remarketing, is equal to the Remarketing Price. Written notice of
the election by the Company to either redeem or remarket such share shall be
provided to such holder within 10 days after receipt of a COC Response Notice
specifying the Remarketing Option.

            (e)  In order to accomplish the remarketing, the Company shall
take all actions that may be necessary, including without limitation, preparing
and filing a registration statement under the Securities Act of 1933, and shall
pay all expenses (including without limitation, underwriting discounts)
associated with the remarketing and issuance and shall provide customary
indemnification for the benefit of the holder against securities law liabilities
in connection therewith. Without limiting the generality of the foregoing, the
Company shall use its best efforts to remarket the shares with respect to which
the Remarketing Option has been elected as expeditiously as reasonably
practicable. If the Remarketing Option has been selected and the Company has not
elected to redeem such share, payment of the full Remarketing Price in respect
of the remarketed share shall be made at a single settlement against surrender
of the share. Such settlement shall take place as soon as reasonably
practicable. If such settlement does not take place within 180 days after the
date of the Company's written notice pursuant to paragraph (d) above (the
"Remarketing Period"), the Company shall give written notice to the Holders that
have elected the Remarketing Option that such 180 day period has elapsed and
each such Holder shall have the option, for a period of 10 Business Days
following the giving of such notice, of terminating the remarketing process with
respect to such Holder's shares and electing to convert such Holder's shares
pursuant to Section 12 or the Hold Option. If such Holder does not so elect, the
Company will continue to effect the remarketing.

            (f)  The Company shall have the right to institute reasonable
procedures in order to implement this Section 13 and, to the extent reasonably
practicable, will make proper provision prior to the Change of Control Date to
ensure that the holders of shares of Series E Preferred Stock will be entitled
to receive the benefits intended to be afforded by this Section 13. Nothing in
this Section 13 shall affect the rights of the holders of Series E Preferred
Stock set forth in Section 14 hereof.

     14.  Consolidation, Merger, Conveyance or Transfer. Without the vote or
consent of the holders of a majority of the then Outstanding shares of Series E
Preferred Stock, the Company may not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets to, any person unless (i) if the Company is the surviving or
continuing person, the Series E Preferred Stock shall remain outstanding without
any amendment that would adversely affect the preferences, rights or powers of
the Series E Preferred Stock, (ii) if the Company is not the surviving or
continuing person, (a) the entity formed by such consolidation or merger or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of Bermuda, the United States or any State
thereof or the District of Columbia; and (b) the shares of Series E Preferred
Stock are converted into or exchanged for and become shares of such resulting
entity, having in respect of such resulting entity the same (or more favorable)
powers, preferences and relative, participating, optional or other special
rights that the shares of Series E Preferred Stock had immediately prior to such
transaction; and (iii) the Company shall have delivered to the Registrar an
Officers' Certificate and an opinion of counsel, reasonably satisfactory in form
and content, each stating

                                      22
<PAGE>

that such consolidation, merger, conveyance or transfer complies with this
Section 14 and that all conditions precedent herein provided for relating to
such transaction have been complied with.

     15.  SEC Reports; Reports by Company. So long as any shares of Series E
Preferred Stock are outstanding, the Company shall file with the SEC and, within
15 days after it files them with the SEC, with the Registrar and, if requested,
furnish to each holder of shares of Series E Preferred Stock all annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the SEC pursuant to Section 13(a) or 15(d) of
the Exchange Act ("SEC Reports"). In the event the Company is not required or
shall cease to be required to file SEC Reports, pursuant to the Exchange Act,
the Company will nevertheless file such reports with the SEC (unless the SEC
will not accept such a filing). Whether or not required by the Exchange Act to
file SEC Reports with the SEC, so long as any shares of Series E Preferred Stock
are Outstanding, the Company will furnish or cause to be furnished copies of the
SEC Reports to the holders of shares of Series E Preferred Stock at the time the
Company is required to make such information available to the Registrar and to
prospective investors who request it in writing.

     16.  Definitions. For purposes of this Certificate of Designation, the
following terms shall have the meaning set forth below:

     "Accumulated Dividends" has the meaning set forth in Section 6.

     "Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person.  For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

     "Board of Directors" has the meaning set forth in the Recitals.

     "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to be closed.

     "By-laws" has the meaning set forth in the Recitals.

     "COC Response Notice" has the meaning set forth in Section 13(b).

     "Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of such person's capital stock, whether
outstanding on the Closing Date or issued after the Closing Date, and any and
all rights (other than any evidence of indebtedness), warrants or options
exchangeable for or convertible into such capital stock.

     "Certificate of Incorporation" has the meaning set forth in the recitals.

     "Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is

                                      23
<PAGE>

or becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Capital Stock of
the Company or (b) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any person
consolidates with, or merges with or into the Company, in any such event
pursuant to a transaction in which the holders of the outstanding Voting Capital
Stock of the Company immediately prior to such transaction hold less than 50% of
the outstanding Voting Capital Stock of the surviving or transferee company or
its parent company immediately after such transaction or immediately after such
transaction any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Capital
Stock of the surviving or transferee company or its parent company or (c) during
any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office or (d) any transaction subject to Rule 13e-3 under the
Exchange Act if following such Rule 13e-3 transaction a person or group (as such
terms are used in Section 13(d) and 14(d) of the Exchange Act) owns more than
50% of the total Voting Capital Stock of the Company.

     "Change of Control Date" has the meaning set forth in Section 6(b).

     "Closing Date" means any Closing Date under the Purchase Agreement.

     "Closing Price" has the meaning set forth in Section 12(d)(vi).

     "Common Stock Record Date" has the meaning set forth in Section 12(d)(vi).

     "Common Stock" means the common stock of the Company, par value $.001 per
share and capital stock of any other class or series into which the common stock
may hereafter be changed.

     "Company" has the meaning set forth in the Recitals and includes any
successor to the Company hereunder.

     "Company Order" means a written request or order signed in the name of the
Company by its Chairman of the Board, its President or a Vice President and by
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary.

     "Conversion Agent" has the meaning set forth in Section 5(a).

                                      24
<PAGE>

     "Conversion Price" means the price at which shares of Common Stock shall be
delivered upon conversion.

     "Current Market Value" of the Common Stock means the average of the high
and low sale prices of the shares of Common Stock as reported on the Nasdaq
National Market or any national stock exchange or Commission recognized trading
market in the United States upon which the shares of Common Stock are then
listed or admitted to trading, for the trading day in question.

     "Current Market Price" has the meaning set forth in Section 12(d)(vi).

     "Dilution Trigger Event" has the meaning set forth in Section 12(d)(iv).

     "Distributed Securities" has the meaning set forth in Section 12(d)(iv).

     "Dividend Payment Date" shall mean the last day of March, June, September
and December of each year, commencing March 31, 2000, or the next succeeding
Business Day if any such day is not a Business Day.

     "Dividend Period" shall mean the period from and including the Closing Date
to but excluding the first Dividend Payment Date and thereafter each quarterly
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.

     "Dividend Record Date" has the meaning set forth in Section 7(a).

     "Expiration Time" has the meaning set forth in Section 12(d)(v).

     "Fair Market Value" has the meaning set forth in Section 12(d)(vi).

     "Junior Shares" has the meaning set forth in Section 9(a).

     "Liquidation Preference" means an amount initially equal to $1,000 per
share of Series E Preferred Stock, subject to increase in accordance with
Section 6, Section 7 and Section 11 hereof, including, without limitation, by
the addition of Accumulated Dividends and, if applicable, the Special Dividend.

     "Mandatory Redemption Date" has the meaning set forth in Section 10(b);
provided, however, that if such date shall not be a Business Day, then such date
shall be the next Business Day.

     "Nonelecting Share" has the meaning set forth in Section 12(e).

     "Odd-lot Redemption" has the meaning set forth in Section 10(c).

     "Officers' Certificate" means a certificate of the Company signed in the
name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.

     "Optional Redemption" has the meaning set forth in Section 10(a).

                                      25
<PAGE>

     "Optional Redemption Date" has the meaning set forth in Section 10(a).

     "Outstanding" means when used with respect to shares of Series E Preferred
Stock, as of the date of determination, all shares of Series E Preferred Stock
theretofore authenticated and delivered under this Certificate of Designation,
except (a) shares of Series E Preferred Stock theretofore converted into shares
of Common Stock in accordance with Section 12 and shares of Series E Preferred
Stock theretofore canceled by the Registrar or delivered to the Registrar for
cancellation; (b) shares of Series E Preferred Stock for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Registrar or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the holders of such shares of Series E Preferred Stock; provided
that, if such shares of Series E Preferred Stock are to be redeemed, notice of
such redemption has been duly given pursuant to this Certificate of Designation
or provision therefor satisfactory to the Registrar has been made; and (c)
shares of Series E Preferred Stock (x) that are mutilated, destroyed, lost or
stolen which the Company has decided to pay or (y) in exchange for or in lieu of
which other shares of Series E Preferred Stock have been authenticated and
delivered pursuant to this Certificate of Designation; provided, however, that,
in determining whether the holders of the shares of Series E Preferred Stock
have given any request, demand, authorization, direction, notice, consent or
waiver or taken any other action hereunder, shares of Series E Preferred Stock
owned by the Company or any other obligor upon the shares of Series E Preferred
Stock or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Registrar shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent, waiver or other action, only
shares of Series E Preferred Stock which the Registrar has actual knowledge of
being so owned shall be so disregarded.  Shares of Series E Preferred Stock so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Registrar the pledgee's right
so to act with respect to such shares of Series E Preferred Stock and that the
pledgee is not the Company or any other obligor upon the shares of Series E
Preferred Stock or any Affiliate of the Company or of such other obligor.

     "Parity Shares" has the meaning set forth in Section 9(a).

     "Paying Agent" has the meaning set forth in Section 5(a).

     "Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.

     "Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such person's preferred or preference stock, whether
now outstanding or issued after the date hereof, including all Series End
classes of such preferred or preference stock.

     "Purchase Agreement" means the Preferred Stock and Warrant Purchase
Agreement dated as of February 6, 2000, among the Company and the Purchasers
named therein, as it may be amended from time to time.

                                      26
<PAGE>

     "Purchased Shares" has the meaning set forth in Section 12(d)(v).

     "Redemption Date" has the meaning set forth in Section 10(d).

     "Redemption Notice" has the meaning set forth in Section 10(d).

     "Redemption Price" has the meaning set forth in Section 10(a).

     "Registrar" has the meaning set forth in Section 3.

     "Registration Rights Agreement" means the Registration Rights Agreement
dated as of March 16, 2000, among the Company and the Purchasers.

     "Remarketing Option" has the meaning set forth in Section 13(d).

     "Restricted Shares Legend" has the meaning set forth in Section 4(a).

     "Resulting Entity" has the meaning set forth in Section 14.

     "SEC" means the Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or, if at any
time after the adoption of this Certificate of Designation such commission is
not existing and performing the duties now assigned to it, then the body
performing such duties at such time.

     "SEC Reports" has the meaning set forth in Section 15.

     "Securities Act" has the meaning set forth in Section 4(a).

     "Senior Shares" has the meaning set forth in Section 9(a).

     "Series E Preferred Stock" has the meaning set forth in Section 1.

     "Special Dividend" means, with respect to each share of Series E Preferred
Stock, the difference between (i) $1,504.26 (as such number shall be
appropriately adjusted for stock splits, stock dividends or similar events
affecting the Series E Preferred Stock) and (ii) the amount of the actual
Liquidation Preference of such share immediately prior to the Change of Control
Date.

     "Voting Capital Stock" means with respect to any Person, securities of any
class or classes of Capital Stock in such Person ordinarily entitling the
holders thereof (whether at all times or at the times that such class of Capital
Stock has voting power by reason of the happening of any contingency) to vote in
the election of members of the board of directors or comparable governing body
of such Person.

                                      27
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
to be duly executed by Catherine Hapka, Chairman and Chief Executive Officer of
the Company, this 16th day of March, 2000.

                                            RHYTHMS NETCONNECTIONS INC.,
                                            By:
                                               -------------------------
                                            Name:   Catherine Hapka
                                            Title:  Chairman and CEO




                                      28
<PAGE>

                                                                       EXHIBIT A
                                                                       ---------

                                FACE OF SECURITY

Restricted Legend "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, AND, UNLESS SO REGISTERED, THEY MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION."

                                                                Number of Shares
    Number: ____                                                     ____ Shares
                                                               CUSIP NO.: {   }


                  8.25% SERIES E CONVERTIBLE PREFERRED STOCK

                                   DUE 2015

                                      OF

                          RHYTHMS NETCONNECTIONS INC.

     RHYTHMS NETCONNECTIONS INC., a company organized under the laws of Delaware
(the "Company"), hereby certifies that {HOLDER} (the "Holder") is the registered
owner of fully paid and non-assessable preference securities of the Company
designated the 8.25% Series E Convertible Preferred Stock due 2015, par value
U.S.$0.001 and initial liquidation preference U.S.$1,000 per share (the
"Preferred Stock").  The shares of Preferred Stock are transferable on the books
and records of the Registrar, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer.
The designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Preferred Stock represented hereby are issued and shall in
all respects be subject to the provisions of the Certificate of Designation of
the Company dated March __, 2000, as the same may be amended from time to time
in accordance with its terms (the "Preferred Stock Certificate of Designation").
Capitalized terms used herein but not defined shall have the meaning given them
in the Preferred Stock Certificate of Designation.  The Company will provide a
copy of the Preferred Stock Certificate of Designation to a Holder without
charge upon written request to the Company at its principal place of business.

     Reference is hereby made to select provisions of the Preferred Stock set
forth on the reverse hereof, and to the Preferred Stock Certificate of
Designation, which select provisions and

<PAGE>

the Preferred Stock Certificate of Designation shall for all purposes have the
same effect as if set forth at this place.

     Upon receipt of this certificate, the Holder is bound by the Preferred
Stock Certificate of Designation and is entitled to the benefits thereunder.

     Unless the Transfer Agent's valid counter-signature appears hereon, the
shares of Preferred Stock evidenced hereby shall not be entitled to any benefit
under the Preferred Stock Certificate of Designation or be valid or obligatory
for any purpose.

     IN WITNESS WHEREOF, the Company has executed this certificate as of the
date set forth below.

                                                    RHYTHMS NETCONNECTIONS INC.,
                                                    By:
                                                       -------------------------
                                                    Name:
                                                    Title:
{Seal}

                                                    By:
                                                       -------------------------
                                                    Name:
                                                    Title:
Dated:

COUNTERSIGNED AND REGISTERED
{     }
as Transfer Agent,
By:
   -------------------------
   Authorized Signatory
Dated:





                                       2
<PAGE>

                              REVERSE OF SECURITY

                          RHYTHM NETCONNECTIONS INC.

                  8.25% Series E Convertible Preferred Stock
                                   due 2015

     Dividends on each share of Preferred Stock shall be payable at a rate per
annum set forth on the face hereof or as provided in the Preferred Stock
Certificate of Designation.  Subject to the limitations set forth in Section 11
of the Preferred Stock Certificate of Designation, dividends may be paid, at the
option of the Company, in cash or as otherwise set forth in the Preferred Stock
Certificate of Designation.

     The shares of Preferred Stock shall be redeemable as provided in the
Preferred Stock Certificate of Designation.  The shares of Preferred Stock shall
be convertible into the Company's Common Stock in the manner and according to
the terms set forth in the Preferred Stock Certification of Designation.

     The Company shall furnish to any Holder upon request and without charge, a
copy of the voting rights preferences, limitations and special rights of the
shares of each class or Series E authorized to be issued by the Company so far
as they have been fixed and determined and the authority of the Board of
Directors to fix and determine the designations, voting rights, preferences,
limitations and special rights of the class and series of shares of the Company.

                                  ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of
Preferred Stock evidenced hereby to:

(Insert assignee's social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints:

agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent and Registrar.  The agent may substitute another to act for
him or her.

Date:                               Signature:
     ---------------------------              -----------------------
(Sign exactly as your name appears on the other side of this Convertible
Preferred Stock Certificate)

Signature Guarantee:*
                     ----------------------------------

<PAGE>

     * Signature must be guaranteed by an "eligible guarantor institution"
(i.e., a bank, stockbroker, savings and loan association or credit union)
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934.


                                       2
<PAGE>

                             NOTICE OF CONVERSION

                   (To be Executed by the Registered Holder

                   in order to Convert the Preferred Stock)

The undersigned hereby irrevocably elects to convert (the "Conversion")
_________ shares of 8.25% Series E Convertible Preferred Stock due 2015 (the
"Preferred Stock"), represented by stock certificate No(s). ______________ (the
"Preferred Stock Certificates") into shares of common stock, par value U.S.
$.001 per share ("Common Stock"), of Rhythms NetConnections Inc. (the "Company")
according to the conditions of the Certificate of Designation establishing the
terms of the Preferred Stock (the "Preferred Stock Certificate of Designation"),
as of the date written below.  If shares are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates.  No
fee will be charged to the holder for any conversion, except for transfer taxes,
if any.  A copy of each Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).*

The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act.

Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Preferred Stock Certificate of Designation.

Date of Conversion: __________________

Applicable Conversion Price: _________

Number of shares of Preferred Stock to be Converted: _______

Number of shares of Common Stock to be Issued: _____________

Signature: ___________________________

Name: ________________________________

Address: _____________________________

Fax No.: _____________________________

     * The Company is not required to issue shares of Common Stock until the
original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Company or its Transfer
Agent.  The Company shall issue and deliver shares of Common Stock to an
overnight courier not later than three business days following receipt of the
original Preferred Stock Certificate(s) to be converted.

<PAGE>

     ** Address where shares of Common Stock and any other payments or
certificates shall be sent by the Company.

                                       4