CERTIFICATE OF DESIGNATIONS, PREFERENCES
               AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
                                  OF DIGS, INC.

         Digs, Inc. (the "Company"),  a corporation organized and existing under
the General Corporation Law of the State of Delaware,  does hereby certify that,
pursuant to  authority  conferred  upon the Board of Directors of the Company by
the Certificate of Incorporation,  as amended,  of the Company,  and pursuant to
Section 151 of the General  Corporation Law of the State of Delaware,  the Board
of  Directors  of the Company at a meeting duly held,  adopted  resolutions  (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $0.01 per share, and (ii) providing for the designations,  preferences and
relative,  participating,  optional  or other  rights,  and the  qualifications,
limitations or restrictions  thereof, of Two Thousand Five Hundred(2,500) shares
of Series A Convertible Preferred Stock of the Company, as follows:

                  RESOLVED, that the Company is authorized to issue 2,500 shares
         of Series A Convertible  Preferred Stock (the "Preferred Shares"),  par
         value  $0.01  per  share,   which  shall  have  the  following  powers,
         designations, preferences and other special rights:

          (1) Dividends.  The holders of the Preferred  Shares shall be entitled
to receive dividends  ("Dividends") at a rate of 6.0% per annum,  which shall be
cumulative,  accrue  daily  from the  Issuance  Date (as  defined  below) and be
payable on the Conversion  Date.  Dividends shall be payable in shares of Common
Stock (as defined below) ("Dividend Shares") or, at the option of the Holder, in
cash.  Dividends  to be paid in shares of Common Stock shall be paid in a number
of fully paid and  nonassessable  shares  (rounded to the nearest whole share in
accordance  with Section  2(b)) of Common Stock equal to the quotient of (a) the
accrued and unpaid  Dividends and (b) the Conversion Price (as defined below) on
the applicable Conversion Date.

          (2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.

               (a) Certain  Defined Terms.  For purposes of this  Certificate of
          Designations, the following terms shall have the following meanings:

                    (i) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in the city of New York are authorized or
required by law to remain closed.

<PAGE>


                    (ii) "Closing Bid Price"  means,  for any security as of any
date,  the last closing bid price for such security on the Principal  Market (as
defined below) as reported by Bloomberg Financial Markets ("Bloomberg"),  or, if
the Principal Market is not the principal  securities exchange or trading market
for such security,  the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg,  or if the  foregoing do not apply,  the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such  security by  Bloomberg,  the last closing trade price of such
security  as  reported  by  Bloomberg,  or, if no last  closing  trade  price is
reported for such  security by  Bloomberg,  the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation  Bureau,  Inc. If the Closing Bid Price cannot be calculated  for such
security on such date on any of the  foregoing  bases,  the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the  Company  and the  holders of  Preferred  Shares.  If the Company and the
holders of  Preferred  Shares are unable to agree upon the fair market  value of
the Common  Stock,  then such  dispute  shall be  resolved  pursuant  to Section
2(d)(iii)  except  that  such  dispute  shall  be  submitted  to an  independent
reputable investment bank selected by the Company and approved by the holders of
at  least  two-thirds  of  the  Preferred  Shares  then  outstanding  (All  such
determinations to be appropriately adjusted for any stock dividend,  stock split
or other similar transaction during such period).

                    (iii) "Conversion  Amount" means, the sum of (1) any accrued
and unpaid  Dividends as provided Section 1 and (2) the Stated Value (as defined
below).

                    (iv) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, the lower of the Fixed Conversion
Price  and the  Floating  Conversion  Price,  each in effect as of such date and
subject to adjustment as provided herein.

                    (v)  "Fixed  Conversion  Price"  means,  with respect to any
Preferred Share, as of any Conversion Date or other date of  determination  125%
of the Closing Bid Price on the Issuance Date, subject to adjustment as provided
herein.
                    (vi) "Floating  Conversion  Price" means,  as of any date of
determination,  the arithmetic average of 75% of the lowest Closing Bid Price of
the  Common  Stock  during any three (3)  trading  days  during the twenty  (20)
consecutive trading days ending on and including such date of determination. All
such determinations to be appropriately  adjusted for any stock dividend,  stock
split or other similar transaction during such period.


<PAGE>


                    (vii)"Issuance  Date" means,  with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.

                    (viii)  "Maturity  Date"  means the date  which is three (3)
years after the applicable Issuance Date.

                    (ix) "Person"  means  an  individual,  a  limited  liability
company,  a  partnership,   a  joint  venture,   a  corporation,   a  trust,  an
unincorporated  organization  and a  government  or  any  department  or  agency
thereof.

                    (x)  "Principal  Market" means the National  Association  of
Securities  Dealers  Inc.'s OTC  Bulletin  Board (the  "Bulletin  Board") if the
Common Stock is not traded on the Bulletin Board, then the principal  securities
exchange or trading market for the Common Stock.

                    (xi) "Registration  Rights  Agreement"  means  that  certain
registration rights agreement between the Company and the initial holders of the
Preferred Shares relating to the filing of a registration statement covering the
resale of the shares of Common Stock  issuable upon  conversion of the Preferred
Shares.

                    (xii)"SEC" means the United States  Securities  and Exchange
Commission.

                    (xiii) "Securities  Purchase  Agreement"  means that certain
securities purchase agreement between the Company and the initial holders of the
Preferred Shares.

                    (xiv) "Stated Value" means $1,000.

                    (xv) "Warrants"  means  warrants to acquire shares of Common
Stock issued pursuant to the Securities Purchase Agreement.

          (b) Holder's Conversion Right;  Mandatory  Conversion.  Subject to the
provisions  of  Section  5, at any  time or times  on or  after  the  applicable
Issuance Date,  any holder of Preferred  Shares shall be entitled to convert any
whole or fractional number of Preferred Shares into fully paid and nonassessable
shares of Common Stock in accordance  with Section 2(d), at the Conversion  Rate
(as defined below).  If any Preferred Shares remain  outstanding on the Maturity
Date,  then all such Preferred  Shares shall be converted at the Conversion Rate
as of such date in accordance with Section 2(d). The Company shall not issue any


<PAGE>


fraction of a share of Common  Stock upon any  conversion.  All shares of Common
Stock (including  fractions  thereof)  issuable upon conversion of more than one
Preferred  Share by a  holder  thereof  shall  be  aggregated  for  purposes  of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation,  the issuance
would  result in the  issuance  of a fraction  of a share of Common  Stock,  the
Company  shall round such  fraction of a share of Common Stock up or down to the
nearest whole share.

          (c)  Conversion  Rate.  The number of shares of Common Stock  issuable
upon  conversion  of each  Preferred  Share  pursuant  to Section  2(b) shall be
determined according to the following formula (the "Conversion Rate"):

                                Conversion Amount
                                -----------------
                                Conversion Price

          (d) Mechanics of Conversion.  The conversion of Preferred Shares shall
be conducted in the following manner:

                    (i)  Holder's  Delivery  Requirements.  To convert Preferred
Shares  into shares of Common  Stock on any date (the  "Conversion  Date"),  the
holder  thereof  shall (A) transmit by facsimile  (or  otherwise  deliver),  for
receipt on or prior to 4:59 p.m.,  Pacific  Time on such date, a copy of a fully
executed  notice of  conversion  in the form  attached  hereto as Exhibit I (the
"Conversion  Notice") to the Company and (B) if required by Section  2(d)(viii),
surrender to a common carrier for delivery to the Company as soon as practicable
following such date the original certificates  representing the Preferred Shares
being converted (or an  indemnification  undertaking with respect to such shares
in the  case  of  their  loss,  theft  or  destruction)  (the  "Preferred  Stock
Certificates").

                    (ii) Company's  Response.  Upon  receipt by the Company of a
copy of a  Conversion  Notice,  the  Company  (I) shall  immediately  send,  via
facsimile,  a confirmation of receipt of such  Conversion  Notice to such holder
and the  Company's  designated  transfer  agent (the  "Transfer  Agent"),  which
confirmation  shall  constitute an  instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (II) on or before
the second  Business  Day  following  the date of receipt by the  Company of the
facsimile or other copy of such Conversion  Notice (the "Share Delivery  Date"),
(A) issue and deliver to the address as specified in the  Conversion  Notice,  a
certificate,  registered  in the name of the  holder  or its  designee,  for the
number of shares of Common Stock to which the holder  shall be entitled,  or (B)
provided the Transfer Agent is  participating  in The  Depository  Trust Company
("DTC") Fast  Automated  Securities  Transfer  Program,  upon the request of the
holder,  credit  such  aggregate  number of shares of Common  Stock to which the
holder shall be entitled to the holder's or its designee's  balance account with
DTC through its Deposit  Withdrawal  Agent Commission  system.  If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being converted,  then
the  Company  shall,  as soon as  practicable  and in no event  later than three
Business  Days  after  receipt  of  the  Preferred  Stock   Certificate(s)  (the
"Preferred  Stock Delivery  Date") and at its own expense,  issue and deliver to
the  holder  a new  Preferred  Stock  Certificate  representing  the  number  of
Preferred Shares not converted.



<PAGE>

               (iii)  Dispute  Resolution.  In the case of a  dispute  as to the
determination of the arithmetic  calculation of the Conversion Rate, the Company
shall instruct the Transfer Agent to issue to the holder the number of shares of
Common Stock that is not  disputed and shall submit the disputed  determinations
or arithmetic  calculations to the holder via facsimile  within one (1) Business
Day of  receipt  of such  holder's  Conversion  Notice.  If such  holder and the
Company are unable to agree upon the determination of arithmetic  calculation of
the   Conversion   Rate  within  three  (3)  Business   Days  of  such  disputed
determination or arithmetic  calculation being submitted to the holder, then the
Company  shall within two (2) Business  Days submit via  facsimile  the disputed
arithmetic  calculation  of the  Conversion  Rate to the Company's  independent,
outside  accountant.  The  Company  shall  cause the  accountant  to perform the
determinations  or  calculations  and notify the  Company  and the holder of the
results no later  than three (3)  Business  Days from the time it  receives  the
disputed  determinations  or calculations.  Such  accountant's  determination or
calculation shall be binding upon all parties absent error.

               (iv) Record Holder. The person or persons entitled to receive the
shares of Common Stock  issuable upon a conversion of Preferred  Shares shall be
treated  for all  purposes  as the record  holder or  holders of such  shares of
Common Stock on the Conversion Date.


<PAGE>


               (v) Company's Failure to Timely Convert.

                    (A) Cash  Damages.  If within three (3) Business  Days after
the Company's  receipt of the facsimile copy of a Conversion  Notice the Company
shall fail to issue a certificate  to a holder or credit such  holder's  balance
account  with DTC for the number of shares of Common  Stock to which such holder
is entitled upon such holder's  conversion of Preferred Shares or to issue a new
Preferred Stock Certificate representing the number of Preferred Shares to which
such holder is entitled pursuant to Section  2(d)(ii),  in addition to all other
available  remedies  which  such  holder  may  pursue  hereunder  and  under the
Securities Purchase Agreement (including  indemnification  pursuant to Section 8
thereof),  the Company shall pay additional damages to such holder for each date
after the Share Delivery Date such conversion is not timely effected and/or each
date after the Preferred Stock Delivery Date such Preferred Stock Certificate is
not  delivered  in an amount  equal to 0.5% of the sum of (a) the product of (I)
the number of shares of Common Stock not issued to the holder on or prior to the
Share  Delivery  Date and to which such holder is entitled  and (II) the Closing
Bid Price of the Common Stock on the Share  Delivery  Date, and (b) in the event
the Company has failed to deliver a Preferred Stock Certificate to the holder on
or prior to the Preferred  Stock Delivery Date, the product of (y) the number of
shares  of  Common  Stock  issuable  upon  conversion  of the  Preferred  Shares
represented  by such  Preferred  Stock  Certificate,  as of the Preferred  Stock
Delivery Date and (z) the Closing Bid Price of the Common Stock on the Preferred
Stock  Delivery  Date.  If the Company fails to pay the  additional  damages set
forth in this Section  2(d)(v)  within five Business Days of the date  incurred,
then the holder  entitled to such payments  shall have the right at any time, so
long as the  Company  continues  to fail to make such  payments,  to require the
Company,  upon  written  notice,  to  immediately  issue,  in lieu of such  cash
damages,  the number of shares of Common  Stock equal to the quotient of (X) the
aggregate  amount of the damages  payments  described  herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the holder in
the Conversion Notice. The foregoing  notwithstanding,  the damages set forth in
this Section  2(d)(v)(A) shall be stayed with respect to the number of shares of
Common Stock and, if applicable, the Preferred Stock Certificate for which there
is a good faith dispute being resolved  pursuant to, and within the time periods
provided for in Section 2(d)(iii), pending the resolution of such dispute.

                    (B) Void Conversion Notice;  Adjustment to Conversion Price.
If for any reason a holder has not  received  all of the shares of Common  Stock
prior to the tenth  (10th)  Business  Day after  the  Share  Delivery  Date with
respect to a  conversion  of  Preferred  Shares,  then the holder,  upon written
notice  to the  Company,  with a  copy  to the  Transfer  Agent,  may  void  its
Conversion Notice with respect to, and retain or have returned,  as the case may
be, any Preferred Shares that have not been converted  pursuant to such holder's
Conversion  Notice;  provided that the voiding of a holder's  Conversion  Notice
shall not effect  the  Company's  obligations  to make any  payments  which have

<PAGE>


accrued  prior to the date of such  notice  pursuant  to Section  2(d)(v)(A)  or
otherwise.  Thereafter,  the  Fixed  Conversion  Price of any  Preferred  Shares
returned  or  retained  by the holder for  failure  to timely  convert  shall be
adjusted to the lowest  Closing  Bid Price  during the period  beginning  on the
Conversion Date and ending on the date such holder voided the Conversion Notice.

                    (C) Redemption.  If for any reason a holder has not received
all of the shares of Common Stock prior to the tenth  (10th)  Business Day after
the Share  Delivery  Date with  respect to a conversion  of Preferred  Shares (a
"Conversion Failure"),  then the holder, upon written notice to the Company, may
require that the Company  redeem,  in  accordance  with Section 3, all Preferred
Shares held by such holder,  including the Preferred Shares previously submitted
for conversion and with respect to which the Company has not delivered shares of
Common Stock.

               (vi) Pro Rata  Conversion.  In the event the  Company  receives a
Conversion  Notice  from more than one holder of  Preferred  Shares for the same
Conversion Date and the Company can convert some, but not all, of such Preferred
Shares,  the Company shall convert from each holder of Preferred Shares electing
to have  Preferred  Shares  converted  at such  time a pro rata  amount  of such
holder's  Preferred  Shares  submitted  for  conversion  based on the  number of
Preferred  Shares  submitted for conversion on such date by such holder relative
to the number of Preferred Shares submitted for conversion on such date.

               (vii)  Mandatory  Conversion or  Redemption  at Maturity.  If any
Preferred  Shares  remain  outstanding  on the  Maturity  Date,  then  all  such
Preferred Shares, at the Company's option,  either (i) shall be converted at the
Maturity Date Conversion  Price (as defined below) for such Preferred  Shares as
of such date without the holders of such Preferred Shares being required to give
a  Conversion   Notice  on  the  Maturity  Date  (a  "Maturity   Date  Mandatory
Conversion"),  or (ii) shall be  redeemed  as of such date for an amount in cash
per  Preferred  Share  (the  "Maturity  Date  Redemption  Price")  equal  to the
Liquidation  Preference  (as defined in Section 9) (a "Maturity  Date  Mandatory
Redemption").  The  Company  shall be deemed to have  elected  a  Maturity  Date
Mandatory  Redemption  unless  it  delivers  written  notice  to each  holder of
Preferred  Shares at least 20 Business  Days prior to the  Maturity  Date of its
election to effect a Maturity Date Mandatory Conversion. If the Company elects a
Maturity Date Mandatory Redemption,  then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity Date, by wire
transfer of immediately  available funds, an amount per Preferred Share equal to
the  Maturity  Date  Redemption  Price.  If the Company  elects a Maturity  Date
Mandatory Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the Maturity Date Redemption  Price,  then in
addition  to any  remedy  such  holder of  Preferred  Shares may have under this
Certificate  of  Designations,   the  Securities   Purchase  Agreement  and  the

<PAGE>

Registration Rights Agreement, (X) the applicable Maturity Date Redemption Price
payable in respect of such  unredeemed  Preferred  Shares shall bear interest at
the rate of 2.0 % per month,  prorated for partial  months,  until paid in full,
and (Y) any holder of  Preferred  Shares  shall  have the option to require  the
Company to convert any or all of such holder's Preferred Shares that the Company
elected (or is deemed to have  elected) to redeem under this  Section  2(d)(vii)
and for which the Maturity Date  Redemption  Price  (together  with any interest
thereon) has not been paid into the number of shares of Common Stock such holder
would  have  received  if such  holder  had given a  Conversion  Notice for such
Preferred  Shares on the Maturity  Date.  On the Maturity  Date,  all holders of
Preferred Shares shall surrender all Preferred Stock Certificates, duly endorsed
for  cancellation,  to the  Company or the  Transfer  Agent.  If the Company has
elected a Maturity Date  Mandatory  Conversion or has failed to pay the Maturity
Date Redemption Price in a timely manner as described  above,  then the Maturity
Date  shall  be  extended  for  any  Preferred  Shares  for as  long  as (A) the
conversion of such  Preferred  Shares would violate the provisions of Section 5,
(B) a Triggering  Event shall have occurred and be  continuing,  or (C) an event
shall have  occurred  and be  continuing  which with the passage of time and the
failure to cure would result in a Triggering Event. In addition to the extension
described in the foregoing sentence,  the Maturity Date shall be extended by two
(2) days for each day during a Grace  Period (as defined in Section  3(u) of the
Registration  Rights  Agreement).   For  purposes  of  this  Section  2(d)(vii),
"Maturity  Date  Conversion  Price" means 75% of the  arithmetic  average of the
lowest  Closing  Bid Prices on any three (3)  trading  days of the Common  Stock
during the 20 consecutive trading days immediately preceding the Maturity Date.

               (viii) Book-Entry.  Notwithstanding  anything to the contrary set
forth herein,  upon conversion of Preferred  Shares in accordance with the terms
hereof,  the holder  thereof shall not be required to  physically  surrender the
certificate  representing  the Preferred  Shares to the Company  unless the full
number of Preferred  Shares  represented by the certificate are being converted.
The  holder  and the  Company  shall  maintain  records  showing  the  number of
Preferred  Shares so converted  and the dates of such  conversions  or shall use
such other method,  reasonably satisfactory to the holder and the Company, so as
not to require physical surrender of the certificate  representing the Preferred
Shares upon each such  conversion.  In the event of any dispute or  discrepancy,
such  records of the  Company  shall be  controlling  and  determinative  in the
absence of manifest error.  Notwithstanding  the foregoing,  if Preferred Shares
represented  by a certificate  are  converted as  aforesaid,  the holder may not
transfer the  certificate  representing  the Preferred  Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company,  whereupon  the Company will  forthwith  issue and deliver upon the
order of the holder a new  certificate  of like tenor,  registered as the holder
may request,  representing  in the aggregate  the remaining  number of Preferred
Shares  represented  by  such  certificate.  The  holder  and any  assignee,  by

<PAGE>


acceptance  of a  certificate,  acknowledge  and  agree  that,  by reason of the
provisions of this paragraph,  following conversion of any Preferred Shares, the
number of Preferred Shares  represented by such certificate may be less than the
number of Preferred  Shares stated of the face  thereof.  Each  certificate  for
Preferred Shares shall bear the following legend:


                  ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
                  TERMS   OF  THE   COMPANY'S   CERTIFICATE   OF   DESIGNATIONS,
                  PREFERENCES AND RIGHTS OF THE PREFERRED SHARES  REPRESENTED BY
                  THIS CERTIFICATE,  INCLUDING SECTION 2(d)(viii)  THEREOF.  THE
                  NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY
                  BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON THE FACE
                  HEREOF  PURSUANT TO SECTION  2(d)(viii) OF THE  CERTIFICATE OF
                  DESIGNATIONS, PREFERENCES AND RIGHTS.

          (e) Taxes. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Preferred Shares.

          (f)  Adjustments to Conversion  Price.  The  Conversion  Price will be
subject to adjustment from time to time as provided in this Section 2(f).

               (i) Adjustment of Fixed  Conversion Price upon Issuance of Common
Stock. If and whenever on or after the date of issuance of the Preferred Shares,
the Company issues or sells,  or in accordance  with this Section 2(f) is deemed
to have issued or sold,  any shares of Common Stock  (including  the issuance or
sale of  shares  of  Common  Stock  owned or held by or for the  account  of the
Company,  but excluding (a) the Excluded  Securities  (as defined below) and (b)
shares of Common Stock  deemed to have been issued by the Company in  connection
with an  Approved  Stock  Plan (as  defined  below)  or upon  conversion  of the
Preferred Shares or exercise of the Warrants) for a consideration per share less
than a price (the  "Applicable  Price") equal to the Fixed  Conversion  Price in
effect  immediately  prior to such time,  then  immediately  after such issue or
sale,  the Fixed  Conversion  Price then in effect shall be reduced to an amount
equal to such  consideration per share. For purposes of determining the adjusted
Fixed  Conversion  Price under this  Section  2(f)(i),  the  following  shall be
applicable:


<PAGE>

                    (A) Issuance of Options. If the Company in any manner grants
or sells any Options (as defined below) and the lowest price per share for which
one share of Common  Stock is issuable  upon the  exercise of any such Option or
upon  conversion or exchange of any  Convertible  Securities  (as defined below)
issuable upon exercise of such Option is less than the  Applicable  Price,  then
such share of Common  Stock shall be deemed to be  outstanding  and to have been
issued  and  sold by the  Company  at the time of the  granting  or sale of such
Option for such price per share.  For purposes of this Section  2(f)(i)(A),  the
"lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon  conversion  or exchange of any  Convertible
Securities  issuable  upon exercise of such Option" shall be equal to the sum of
the lowest  amounts of  consideration  (if any)  received or  receivable  by the
Company with  respect to any one share of Common Stock upon  granting or sale of
the Option,  upon exercise of the Option and upon  conversion or exchange of any
Convertible   Security  issuable  upon  exercise  of  such  Option.  No  further
adjustment of the Fixed  Conversion Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual  issuance of such  Common  Stock upon  conversion  or
exchange of such Convertible Securities.

                    (B) Issuance of  Convertible  Securities.  If the Company in
any manner issues or sells any  Convertible  Securities and the lowest price per
share for which one share of Common Stock is issuable  upon such  conversion  or
exchange  thereof is less than the Applicable  Price,  then such share of Common
Stock shall be deemed to be outstanding  and to have been issued and sold by the
Company at the time of the issuance of sale of such  Convertible  Securities for
such price per share. For the purposes of this Section  2(f)(i)(B),  the "lowest
price per share for  which  one  share of  Common  Stock is  issuable  upon such
conversion  or  exchange"  shall be equal to the sum of the  lowest  amounts  of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the Convertible  Security
and upon the  conversion or exchange of such  Convertible  Security.  No further
adjustment of the Fixed  Conversion Price shall be made upon the actual issuance
of such Common Stock upon conversion or exchange of such Convertible Securities,
and if any  such  issue  or sale of such  Convertible  Securities  is made  upon
exercise of any Options for which  adjustment of the Fixed  Conversion Price had
been or are to be made pursuant to other provisions of this Section 2(f)(i),  no
further adjustment of the Fixed Conversion Price shall be made by reason of such
issue or sale.

                    (C)  Change in Option  Price or Rate of  Conversion.  If the
purchase price provided for in any Options,  the  additional  consideration,  if
any,  payable  upon  the  issue,  conversion  or  exchange  of  any  Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Fixed Conversion Price
in effect at the time of such change  shall be adjusted to the Fixed  Conversion

<PAGE>


Price  which  would  have  been in  effect  at such  time  had such  Options  or
Convertible  Securities  provided for such changed  purchase  price,  additional
consideration  or  changed  conversion  rate,  as the case  may be,  at the time
initially granted,  issued or sold. For purposes of this Section 2(f)(i)(C),  if
the terms of any Option or Convertible  Security that was  outstanding as of the
date of issuance of the Preferred  Shares are changed in the manner described in
the immediately preceding sentence, then such Option or Convertible Security and
the Common Stock deemed issuable upon exercise,  conversion or exchange  thereof
shall be deemed to have been issued as of the date of such change. No adjustment
shall be made if such  adjustment  would  result  in an  increase  of the  Fixed
Conversion Price then in effect.

                    (D)  Calculation  of  Consideration  Received.  In case  any
Option is issued in connection with the issue or sale of other securities of the
Company,  together  comprising one  integrated  transaction in which no specific
consideration is allocated to such Options by the parties  thereto,  the Options
will be deemed to have been issued for a  consideration  of $0.01. If any Common
Stock,  Options or  Convertible  Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount  received by the  Company  therefor.  If any Common  Stock,
Options or Convertible  Securities are issued or sold for a consideration  other
than cash,  the amount of the  consideration  other  than cash  received  by the
Company  will  be the  fair  value  of such  consideration,  except  where  such
consideration  consists of  marketable  securities,  in which case the amount of
consideration  received  by  the  Company  will  be the  market  price  of  such
securities on the date of receipt.  If any Common Stock,  Options or Convertible
Securities  are issued to the owners of the  non-surviving  entity in connection
with any merger in which the  Company  is the  surviving  entity,  the amount of
consideration  therefor  will be deemed to be the fair value of such  portion of
the net assets and business of the  non-surviving  entity as is  attributable to
such Common Stock,  Options or Convertible  Securities,  as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the  holders of a majority  of the  Preferred  Shares
then  outstanding.  If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring  valuation (the  "Valuation  Event"),
the fair value of such  consideration  will be  determined  within five Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable  appraiser  jointly  selected  by the  Company  and the  holders  of a
majority of the Preferred  Shares then  outstanding.  The  determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such  appraiser  shall be borne  equally by the Company and
the holders of the Preferred Shares.

                    (E)  Record  Date.  If the  Company  takes a  record  of the
holders  of Common  Stock for the  purpose  of  entitling  them (1) to receive a
dividend  or  other  distribution   payable  in  Common  Stock,  Options  or  in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options

<PAGE>


or Convertible  Securities,  then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold  upon  the  declaration  of such  dividend  or the  making  of  such  other
distribution  or the  date of the  granting  of such  right of  subscription  or
purchase, as the case may be.

                    (F)  Certain  Definitions.  For  purposes  of  this  Section
2(f)(i), the following terms have the respective meanings set forth below:

                         (I)  "Approved  Stock  Plan"  shall  mean any  employee
benefit  plan which has been  approved by the Board of Directors of the Company,
pursuant  to which the  Company's  securities  may be  issued  to any  employee,
officer, director or consultant for services provided to the Company.

                         (II) "Common Stock Deemed  Outstanding"  means,  at any
given time,  the number of shares of Common Stock  actually  outstanding at such
time,  plus the  number  of  shares of  Common  Stock  deemed to be  outstanding
pursuant to Sections  2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the
Options or  Convertible  Securities  are actually  exercisable at such time, but
excluding  any shares of Common Stock owned or held by or for the account of the
Company or issuable upon  conversion of the Preferred  Shares or exercise of the
Warrants.

                         (III)  "Convertible  Securities"  means  any  stock  or
securities  (other than  Options)  directly or  indirectly  convertible  into or
exchangeable for Common Stock.

                         (IV) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

                         (V)  "Excluded  Securities"  means  (A)  provided  such
security is issued at a price which is greater  than or equal to the  arithmetic
average  of the  Closing  Bid  Prices  of the  Common  Stock  for the  ten  (10)
consecutive trading days immediately preceding the date of issuance,  any of the
following (i) any issuance by the Company of  securities  in  connection  with a
strategic partnership or a joint venture (the primary purpose of which is not to
raise  equity  capital) and (ii) any  issuance by the Company of  securities  as
consideration  for a merger or  consolidation  or the acquisition of a business,
product,  license,  or other  assets of  another  person  or entity  and (B) any
warrants  or options  outstanding  as of the  Issuance  Date which have not been
modified or amended since such Issuance Date and (C) options to purchase  shares
of Common Stock, provided (I) such options are issued after the Issuance Date to
employees  of the  Company  within  30  days  of such  employee  starting  their
employment with the Company, (II) an aggregate of no more than 1,000,000 options

<PAGE>


are issued in reliance on this  exclusion  and (III) the exercise  price of such
options is not less than 75% of the market price of the Common Stock on the date
of issuance of such options.

               (ii) Adjustment of the Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding  shares of Common Stock into a greater  number of shares,  the Fixed
Conversion  Price  in  effect  immediately  prior  to such  subdivision  will be
proportionately  reduced.  If the Company at any time combines (by  combination,
reverse stock split or otherwise) one or more classes of its outstanding  shares
of Common Stock into a smaller number of shares,  the Fixed  Conversion Price in
effect immediately prior to such combination will be proportionately increased.


               (iii)  Holder's Right of Alternative  Floating  Conversion  Price
Following  Issuance  of  Convertible  Securities.  If the  Company in any manner
issues or sells any  Options  or  Convertible  Securities  after the  applicable
Issuance Date that are  convertible  into or  exchangeable  or  exercisable  for
Common  Stock at a price  which may vary  with the  market  price of the  Common
Stock,  including  by way of one or more resets to the  conversion,  exchange or
exercise price of such Convertible  Security or Option (the formulation for such
variable price being herein referred to as, the "Variable  Price"),  the Company
shall provide written notice thereof via facsimile and overnight courier to each
holder of the Preferred  Shares  ("Variable  Notice") on the date of issuance of
such Convertible Securities. From and after the date the Company issues any such
Convertible Securities with a Variable Price, a holder of Preferred Shares shall
have the right, but not the obligation, in its sole discretion to substitute the
Variable  Price  for  the  Floating  Conversion  Price  upon  conversion  of any
Preferred  Shares  by  designating  in  the  Conversion  Notice  delivered  upon
conversion of such Preferred  Shares that solely for purposes of such conversion
the holder is relying on the Variable Price rather than the Floating  Conversion
Price then in  effect.  A holder's  election  to rely on a Variable  Price for a
particular  conversion of Preferred Shares shall not obligate the holder to rely
on a Variable Price for any future conversions of Preferred Shares.

               (iv) Notices.

                    (A) Immediately upon any adjustment of the Conversion Price,
the Company will give written notice thereof to each holder of Preferred Shares,
setting forth in reasonable  detail,  and  certifying,  the  calculation of such
adjustment.

                    (B) The Company will give  written  notice to each holder of
Preferred  Shares at least ten (10) Business Days prior to the date on which the
Company  closes its books or takes a record (I) with  respect to any dividend or

<PAGE>


distribution  upon  the  Common  Stock,  (II)  with  respect  to  any  pro  rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change,  dissolution or  liquidation,  provided
that  such  information  shall  be  made  known  to the  public  prior  to or in
conjunction with such notice being provided to such holder.

                    (C) The Company will also give written notice to each holder
of Preferred  Shares at least ten (10)  Business Days prior to the date on which
any Organic Change,  dissolution or liquidation  will take place,  provided that
such  information  shall be made known to the public prior to or in  conjunction
with such notice being provided to such holder.

     (3) Redemption at Option of Holders.

          (a) Redemption  Option Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained  herein,  after a Triggering
Event (as defined below),  each holder of Preferred Shares shall have the right,
at such  holder's  option,  to require the Company to redeem all or a portion of
such  holder's  Preferred  Shares at a price per  Preferred  Share  equal to the
greater of (i) 133% of the  Liquidation  Preference  and (ii) the product of (A)
the Conversion  Rate in effect at such time as such holder  delivers a Notice of
Redemption  at Option of Buyer (as defined  below) and (B) the Closing Bid Price
of the Common Stock on the date  immediately  preceding such Triggering Event on
which the Principal  Market, or the market or exchange where the Common Stock is
then traded, is open for trading ("Redemption Price").

          (b) "Triggering  Event". A "Triggering  Event" shall be deemed to have
occurred at such time as any of the following events:

               (i) the  failure of the  applicable  Registration  Statement  (as
defined in the Registration  Rights  Agreement) to be declared  effective by the
SEC on or prior to the date that is 30 days after the  applicable  Effectiveness
Deadline (as defined in the Registration Rights Agreement) ;

                    (ii) while the  Registration  Statement  is  required  to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the   effectiveness  of  the  Registration   Statement  lapses  for  any  reason
(including,  without limitation, the issuance of a stop order) or is unavailable
to the  holder  of the  Preferred  Shares  for  sale  of all of the  Registrable
Securities (as defined in the Registration  Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues  for a period  of five  consecutive  trading  days or for more than an
aggregate of 10 trading  days in any 365-day  period,  excluding  days during an
Allowable Grace Period (as defined in the Registration Rights Agreement);


<PAGE>


                    (iii) the  suspension  from trading or failure of the Common
Stock to be  listed on the  Principal  Market  for a period of five  consecutive
trading  days or for more than an  aggregate  of 10 trading  days in any 365-day
period;

                    (iv) the Company's notice or the Transfer Agent's notice, at
the Company's  direction to any holder of Preferred Shares,  including by way of
public announcement,  at any time, of its intention not to comply with a request
for  conversion  of any  Preferred  Shares into  shares of Common  Stock that is
tendered in accordance with the provisions of this  Certificate of Designations,
excluding,  however,  notices that relate solely to a dispute  under  resolution
pursuant to Section 2(d)(iii),  provided that such dispute has not been publicly
disclosed;

                    (v) a Conversion Failure (as defined in Section 2(d)(v)(C));
or

                    (vi) the  Company  breaches  any  representation,  warranty,
covenant or other term or condition of the Securities  Purchase  Agreement,  the
Registration Rights Agreement,  the Warrants this Certificate of Designations or
any other  agreement,  document,  certificate or other  instrument  delivered in
connection with the transactions  contemplated thereby and hereby, except to the
extent that such breach would not have a Material  Adverse Effect (as defined in
Section 3(a) of the Securities  Purchase Agreement) and except, in the case of a
breach of a covenant  which is  curable,  only if such  breach  continues  for a
period of at least 10 days.

(c)  Mechanics  of  Redemption  at Option of Buyer.  Within one (1) Business Day
after the occurrence of a Triggering  Event,  the Company shall deliver  written
notice  thereof via  facsimile  and  overnight  courier  ("Notice of  Triggering
Event") to each holder of Preferred  Shares.  At any time after the earlier of a
holder's  receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering  Event,  any holder of  Preferred  Shares then  outstanding  may
require the  Company to redeem up to all of such  holder's  Preferred  Shares by
delivering  written notice thereof via facsimile and overnight  courier ("Notice
of Redemption at Option of Buyer") to the Company,  provided that such Notice of
Redemption at Option of Buyer upon Triggering  Event may only be sent during the
period  beginning on and including the date of the  occurrence of the Triggering
Event and  ending on and  including  the later of the date  which is (a) 30 days
after the date on which such holder of the Preferred Shares receives a Notice of
Triggering  Event from the Company with respect to such Triggering Event and (b)
the date on which  such  Triggering  Event is  cured  and such  holder  receives
written notice from the Company confirming such Triggering Event has been cured,
which Notice of Redemption  at Option of Buyer shall  indicate (i) the number of
Preferred  Shares that such holder is electing to redeem and (ii) the applicable
Redemption Price, as calculated pursuant to Section 3(a) above.

<PAGE>

               (d) Payment of Redemption  Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer from any holder of Preferred  Shares,
the Company shall  immediately  notify each other holder of Preferred  Shares by
facsimile of the Company's  receipt of such notices.  Each holder which has sent
such a notice shall, if required pursuant to Section 2(d)(viii), promptly submit
to the Transfer  Agent such holder's  Preferred  Stock  Certificates  which such
holder has elected to have  redeemed.  The Company shall deliver the  applicable
Redemption  Price to such holder  within five  Business Days after the Company's
receipt of a Notice of Redemption  at Option of Buyer;  provided that a holder's
Preferred Stock Certificates shall have been so delivered to the Transfer Agent.
If the Company is unable to redeem all of the  Preferred  Shares  submitted  for
redemption,  the Company  shall (i) redeem a pro rata amount from each holder of
Preferred  Shares  based  on  the  number  of  Preferred  Shares  submitted  for
redemption  by such holder  relative  to the total  number of  Preferred  Shares
submitted for redemption by all holders of Preferred Shares and (ii) in addition
to any remedy such holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement,  pay to each holder interest
at the rate of 2.0% per month  (prorated for partial  months) in respect of each
unredeemed Preferred Share until paid in full.

               (e) Void  Redemption.  In the event that the Company does not pay
the  Redemption  Price within the time period set forth in Section  3(d), at any
time  thereafter  and until the Company pays such unpaid  applicable  Redemption
Price in full, a holder of Preferred Shares shall have the option (the "Voidable
Redemption  Option") to, in lieu of redemption,  require the Company to promptly
return to such holder any or all of the Preferred Shares that were submitted for
redemption  by such  holder  under this  Section 3 and for which the  applicable
Redemption  Price  (together  with any interest  thereon) has not been paid,  by
sending  written  notice  thereof to the Company via  facsimile  (the  "Voidable
Redemption  Notice").  Upon the Company's  receipt of such  Voidable  Redemption
Notice,  (i) the Notice of  Redemption at Option of Buyer shall be null and void
with  respect  to those  Preferred  Shares  subject to the  Voidable  Redemption
Notice,  and (ii) the Company  shall  immediately  return any  Preferred  Shares
subject to the Voidable  Redemption Notice, and (iii) the Fixed Conversion Price
of such  returned  Preferred  Shares  shall be adjusted to the lesser of (A) the
Fixed Conversion Price as in effect on the date on which the Voidable Redemption
Notice is delivered  to the Company and (B) the lowest  Closing Bid Price during
the period  beginning on the date on which the Notice of Redemption at Option of
Buyer is  delivered  to the Company and ending on the date on which the Voidable
Redemption Notice is delivered to the Company.

               (f) Disputes;  Miscellaneous. In the event of a dispute as to the
determination  of the Closing  Bid Price or the  arithmetic  calculation  of the
Redemption  Price,  such dispute shall be resolved pursuant to Section 2(d)(iii)
above. A holder's  delivery of a Voidable  Redemption Notice and exercise of its

<PAGE>


rights following such notice shall not effect the Company's  obligations to make
any payments which have accrued prior to the date of such notice.

     (4) Other Rights of Holders.

          (a) Reorganization,  Reclassification,  Consolidation, Merger or Sale.
Any recapitalization,  reorganization, reclassification,  consolidation, merger,
sale of all or  substantially  all of the Company's  assets to another Person or
other  transaction  which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent  liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic  Change." Prior to the consummation of any (i) sale of all
or  substantially  all of the  Company's  assets to an acquiring  Person or (ii)
other Organic Change following which the Company is not a surviving entity,  the
Company  will secure  from the Person  purchasing  such assets or the  successor
resulting  from such Organic  Change (in each case,  the  "Acquiring  Entity") a
written  agreement  (in form and substance  satisfactory  to the holders of a at
least two-thirds  (2/3) of the Preferred Shares then  outstanding) to deliver to
each holder of Preferred  Shares in exchange for such shares,  a security of the
Acquiring Entity evidenced by a written instrument substantially similar in form
and substance to the Preferred Shares, including,  without limitation,  having a
stated  value  and  liquidation  preference  equal to the  Stated  Value and the
Liquidation  Preference  of the  Preferred  Shares  held  by  such  holder,  and
satisfactory  to the  holders of a at least  two-thirds  (2/3) of the  Preferred
Shares then outstanding.  Prior to the consummation of any other Organic Change,
the Company shall make appropriate provision (in form and substance satisfactory
to the  holders  of at least  two-thirds  (2/3)  of the  Preferred  Shares  then
outstanding)  to insure  that each of the holders of the  Preferred  Shares will
thereafter  have the right to acquire  and  receive in lieu of or in addition to
(as  the  case  may be) the  shares  of  Common  Stock  immediately  theretofore
acquirable and receivable upon the conversion of such holder's  Preferred Shares
such  shares of stock,  securities  or assets  that  would  have been  issued or
payable in such Organic  Change with respect to or in exchange for the number of
shares of Common Stock which would have been  acquirable and receivable upon the
conversion  of such  holder's  Preferred  Shares as of the date of such  Organic
Change  (without  taking into account any  limitations  or  restrictions  on the
convertibility of the Preferred Shares).

          (b)  Optional  Redemption  Upon Change of Control.  In addition to the
rights of the holders of Preferred  Shares under Section 4(a),  upon a Change of
Control (as defined below) of the Company each holder of Preferred  Shares shall
have the right, as such holder's option, to require the Company to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (A) 133% of the Liquidation  Preference and (B) the Product of
(I) the  Conversion  Rate on the date the  holder of  Preferred  Shares  gives a
Notice of Redemption  upon Change of Control and (II) the arithmetic  average of
the  Closing  Bid  Prices of the  Common  Stock  during  the five  trading  days

<PAGE>


immediately  preceding  such date  ("Change of Control  Redemption  Price").  No
sooner than 15 days nor later than 10 days prior to the consummation of a Change
of Control,  but not prior to the public announcement of such Change of Control,
the Company shall  deliver  written  notice  thereof via facsimile and overnight
courier (a "Notice of Change of Control") to each holder of Preferred Shares. At
any time  during the  period  beginning  after  receipt of a Notice of Change of
Control  (or,  in the event a Notice of Change of  Control is not  delivered  at
least 10 days  prior to a Change  of  Control,  at any time on or after the date
which is 10 days  prior to a Change of  Control)  and ending on the date of such
Change of  Control,  any holder of the  Preferred  Shares then  outstanding  may
require the Company to redeem all or a portion of the holder's  Preferred Shares
then  outstanding  by  delivering  written  notice  thereof  via  facsimile  and
overnight  courier (a "Notice of  Redemption  Upon  Change of  Control")  to the
Company,  which Notice of Redemption  Upon Change of Control shall  indicate (i)
the number of Preferred  Shares that such holder is submitting  for  redemption,
and (ii) the  applicable  Change of  Control  Redemption  Price,  as  calculated
pursuant to this  Section  4(b).  Upon the  Company's  receipt of a Notice(s) of
Redemption  Upon  Change of Control  from any holder of  Preferred  Shares,  the
Company  shall  promptly,  but in no  event  later  than  one (1)  Business  Day
following such receipt,  notify each holder of Preferred  Shares by facsimile of
the Company's  receipt of such  Notice(s) of Redemption  Upon Change of Control.
The Company  shall deliver the  applicable  Change of Control  Redemption  Price
simultaneous  with the consummation of the Change of Control;  provided that, if
required by Section  2(d)(viii),  a holder's  Preferred Stock Certificates shall
have been so  delivered to the  Company.  Payments  provided for in this Section
4(b) shall have priority to payments to other  stockholders in connection with a
Change of Control.  For purposes of this Section 4(b), "Change of Control" means
(i) the consolidation,  merger or other business combination of the Company with
or into another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power  immediately prior to
the transaction  continue after the transaction to hold, directly or indirectly,
the  voting  power of the  surviving  entity or  entities  necessary  to elect a
majority of the members of the board of directors (or their  equivalent if other
than a corporation)  of such entity or entities,  or (B) pursuant to a migratory
merger  effected  solely  for  the  purpose  of  changing  the  jurisdiction  of
incorporation of the Company), (ii) the sale or transfer of all or substantially
all of the Company's assets, or (iii) a purchase,  tender or exchange offer made
to and accepted by the holders of more than the 50% of the outstanding shares of
Common Stock.

          (c)  Purchase  Rights.  If at any time the Company  grants,  issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities  or other  property  pro rata to the  record  holders of any class of
Common Stock (the "Purchase Rights"),  then the holders of Preferred Shares will
be entitled to acquire,  upon the terms applicable to such Purchase Rights,  the
aggregate  Purchase  Rights which such holder could have acquired if such holder
had held  the  number  of  shares  of  Common  Stock  acquirable  upon  complete
conversion of the Preferred  Shares (without taking into account any limitations
or  restrictions  on the  convertibility  of the Preferred  Shares)  immediately

<PAGE>


before  the date on which a record is taken for the grant,  issuance  or sale of
such Purchase  Rights,  or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

     (5) Limitations on Conversion.

          (a) Limitation on Beneficial  Ownership.  The Company shall not effect
any conversion of Preferred  Shares and no holder of Preferred Shares shall have
the right to  convert  Preferred  Shares in excess of that  number of  Preferred
Shares which,  upon giving effect to such conversion,  would cause the aggregate
number of  shares  of Common  Stock  beneficially  owned by the  holder  and its
affiliates  to exceed  4.99% of the  total  outstanding  shares of Common  Stock
following such conversion.  For purposes of the foregoing proviso, the aggregate
number of  shares  of Common  Stock  beneficially  owned by the  holder  and its
affiliates  shall  include the number of shares of Common  Stock  issuable  upon
conversion of the Preferred  Shares with respect to which the  determination  of
such  proviso is being  made,  but shall  exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred  Shares  beneficially  owned by the holder and its affiliates and (ii)
exercise or conversion of the  unexercised or  unconverted  portion of any other
securities  of the  Company  (including,  without  limitation,  any  warrants or
convertible  preferred  stock) subject to a limitation on conversion or exercise
analogous to the limitation  contained herein  beneficially  owned by the holder
and its affiliates.  Except as set forth in the preceding sentence, for purposes
of this Section  2(a),  beneficial  ownership  shall be calculated in accordance
with  Section  13(d) of the  Securities  Exchange Act of 1934,  as amended.  For
purposes of this Section 2(a), in determining  the number of outstanding  shares
Common  Stock a holder  may rely on the number of  outstanding  shares of Common
Stock as reflected in (1) the  Company's  most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or its transfer  agent  setting  forth the number of
shares of Common Stock outstanding.  Upon the written request of any holder, the
Company  shall  promptly,  but in no  event  later  than  one (1)  Business  Day
following the receipt of such request, confirm in writing to any such holder the
number of shares  Common  Stock  then  outstanding.  In any case,  the number of
outstanding  shares of Common Stock shall be  determined  after giving effect to
conversions of Preferred  Shares and exercise of the Warrants by such holder and
its affiliates  since the date as of which such number of outstanding  shares of
Common Stock was reported.

          (b) Conversion Restrictions. The right of a holder of Preferred Shares
to convert  Preferred  Shares  pursuant to Section  2(b) shall be limited as set
forth below.  In the event that the Closing Bid Price on the Conversion  Date is
less than or equal to 50% of the  Closing  Bid Price on the  Issuance  Date,  no
holder of Preferred Shares,  without the prior consent of the Company,  shall be

<PAGE>


entitled to convert any  Preferred  Shares  during the period  beginning  on the
first  trading  day  after  any  Conversion  Date and  ending  10  trading  days
thereafter.

     (6) Company Redemptions.

          (a) Redemption at the Company's  Election.  The Company shall have the
right,  in its sole  discretion,  to require that some or all of the outstanding
Preferred  Shares  issued on such  Issuance  Date be  redeemed  ("Redemption  at
Company's Election"), for consideration per Preferred Share equal to 120% of the
Liquidation  Preference  for  such  Preferred  Share  (the  "Company's  Election
Redemption Price");  provided that the Conditions to Redemption at the Company's
Election  (as set  forth  below)  are  satisfied  as of the  Company's  Election
Redemption  Date (as  defined  below).  The Company  may  exercise  its right of
Redemption  at Company's  Election  only by  providing  each holder of Preferred
Shares  issued on such Issuance  Date written  notice  ("Notice of Redemption at
Company's  Election") at least 10 but not more than 30 days prior to the date of
consummation of such redemption  ("Company's  Election Redemption Date"). If the
Company  elects to require  redemption  of some,  but not all, of the  Preferred
Shares issued on such Issuance Date then outstanding,  the Company shall require
redemption  of the pro rata  amount from each  holder of such  Preferred  Shares
based on the  number  of  Preferred  Shares  purchased  by such  holder  on such
Issuance Date relative to the total number of Preferred Shares purchased on such
Issuance Date (such amount with respect to each holder being  referred to herein
as its "Pro Rata  Redemption  Amount").  The  Company's  Notice of Redemption at
Company's  Election shall indicate (x) the aggregate  number of Preferred Shares
the Company has elected to redeem from all holders of Preferred Shares,  (y) the
date selected by the Company for the Company's Election Redemption Date, and (z)
each holder's Pro Rata  Redemption  Amount of the Preferred  Shares selected for
redemption.  If the Company has  exercised  its right of Redemption at Company's
Election and the  conditions of this Section 6(a),  including the  Conditions to
Redemption at Company's  Election,  have been satisfied,  then each holder's Pro
Rata Redemption  Amount of the Preferred  Shares  selected for redemption  which
remain outstanding on the Company's  Election  Redemption Date shall be redeemed
as of the Company's  Election  Redemption Date by payment by the Company to each
such holder of Preferred Shares of the Company's  Election  Redemption Price. If
required by Section  2(d)(viii),  all such holders of the Preferred Shares being
redeemed  shall  thereupon  and within two (2) Business Days after the Company's
Election  Redemption  Date,  or such  earlier  date as the Company and each such
holder of Preferred Shares mutually agree,  surrender all Preferred Shares being
redeemed  on such  date to the  Company.  If the  Company  fails to pay the full
Company's Election  Redemption Price on the Company's  Election  Redemption Date
with respect to a Preferred Share selected for  redemption,  then the Redemption
at  Company's  Election  shall be null and void with  respect to such  Preferred
Share  and the  Holder  shall be  entitled  to all the  rights  of a  holder  of
outstanding  Preferred  Shares.  "Conditions  to  Redemption  at  the  Company's
Election" means the following conditions: (i) during the period beginning on the

<PAGE>


applicable  Issuance Date and ending on and  including  the  Company's  Election
Redemption  Date,  the  Company  shall have  delivered  Conversion  Shares  upon
conversion of the Preferred  Shares to the holders of the Preferred  Shares on a
timely  basis as set forth in  Section  2(d)(ii);  (ii) on each day  during  the
period  beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date, the
Common Stock is designated for quotation on the Bulletin Board, Nasdaq or listed
on AMEX or The New York Stock  Exchange,  Inc. and is not suspended from trading
(excluding  suspensions  of not  more  than  one  day  resulting  from  business
announcements by the Company); (iv) during the period beginning on and including
the Issuance Date and ending on and including the Company's Election  Redemption
Date, there shall not have occurred a Triggering Event or an event that with the
passage of time and without being cured would constitute a Triggering Event; (v)
during the period  beginning on the  applicable  Issuance Date and ending on and
including the Company's Election  Redemption Date, there shall not have occurred
the consummation of a Change of Control or the public announcement of a pending,
proposed or intended  Change of Control;  (vi) the Company  otherwise shall have
been  in  compliance  in  all  material   respects  with  this   Certificate  of
Designations,   the  Securities  Purchase   Agreement,   the  Warrants  and  the
Registration  Rights  Agreement  and shall  not have  breached  in any  material
respect any  provision  of this  Certificate  of  Designations,  the  Securities
Purchase   Agreement,   the  Warrants  or  the  Registration  Rights  Agreement.
Notwithstanding  the above,  but  subject to Section 5, any holder of  Preferred
Shares may convert any Preferred Shares (including Preferred Shares selected for
redemption)  into  Common  Stock  pursuant  to Section 2 on or prior to the date
immediately  preceding the Company's  Election  Redemption  Date. If the Company
fails to timely pay any Company's  Election  Redemption Price in accordance with
this Section  6(a),  then the Company  shall not be permitted to submit  another
Notice of Redemption at Company's  Election without the prior written consent of
the holders of at least two-thirds (b) of the Preferred Shares then outstanding.

     (7) Reservation of Shares.

          (a)  Reservation.  The Company shall,  so long as any of the Preferred
Shares are outstanding,  take all action necessary to reserve and keep available
out of its  authorized  and  unissued  Common  Stock,  solely for the purpose of
effecting  the  conversion  of the  Preferred  Shares,  such number of shares of
Common Stock as shall from time to time be sufficient  to effect the  conversion
of all of the  Preferred  Shares then  outstanding;  provided that the number of
shares of  Common  Stock so  reserved  shall at no time be less than 200% of the
number of shares of Common Stock for which the Preferred  Shares are at any time
convertible  (without regard to any  limitations on conversions)  (the "Required
Reserve  Amount").  The initial  number of shares of Common  Stock reserved  for
conversions of the Preferred Shares and each increase in the number of shares so
reserved  shall be allocated pro rata among the holders of the Preferred  Shares

<PAGE>


based on the  number  of  Preferred  Shares  held by each  holder at the time of
issuance of the Preferred  Shares or increase in the number of reserved  shares,
as the case may be. In the event a holder shall sell or  otherwise  transfer any
of such holder's Preferred Shares, each transferee shall be allocated a pro rata
portion of the  number of  reserved  shares of Common  Stock  reserved  for such
transferor.  Any shares of Common  Stock  reserved  and  allocated to any Person
which ceases to hold any  Preferred  Shares shall be allocated to the  remaining
holders of Preferred  Shares,  pro rata based on the number of Preferred  Shares
then held by such holders.

          (b) Insufficient  Authorized  Shares.  If at any time while any of the
Preferred  Shares  remain  outstanding  the Company  does not have a  sufficient
number of  authorized  and  unreserved  shares of Common  Stock to  satisfy  its
obligation  to reserve for issuance upon  conversion of the Preferred  Shares at
least a number of shares of Common  Stock equal to the Required  Reserve  Amount
(an "Authorized  Share  Failure"),  then the Company shall  immediately take all
action necessary to increase the Company's  authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Preferred  Shares then  outstanding.  Without limiting the generality of
the foregoing sentence,  as soon as practicable after the date of the occurrence
of an  Authorized  Share  Failure,  but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its  stockholders  for  the  authorization  of an  increase  in  the  number  of
authorized shares of Common Stock. In connection with such meeting,  the Company
shall  provide each  stockholder  with a proxy  statement and shall use its best
efforts to solicit its  stockholders'  approval of such  increase in  authorized
shares of Common  Stock and to cause its board of  directors to recommend to the
stockholders that they approve such proposal.

     (8) Voting Rights. Holders of Preferred Shares shall have no voting rights,
except as required by law, including but not limited to the General  Corporation
Law of the State of Delaware,  and as expressly  provided in this Certificate of
Designations.

     (9) Liquidation,  Dissolution, Winding-Up. In the event of any voluntary or
involuntary  liquidation,  dissolution or winding up of the Company, the holders
of the  Preferred  Shares shall be entitled to receive in cash out of the assets
of the Company, whether from capital or from earnings available for distribution
to its stockholders (the "Liquidation  Funds"),  before any amount shall be paid
to the holders of any of the capital stock of the Company of any class junior in
rank  to  the  Preferred  Shares  in  respect  of  the  preferences  as  to  the
distributions and payments on the liquidation, dissolution and winding up of the
Company,  an amount per Preferred Share equal to the sum of (a) the Stated Value
and (b) any  accrued  and unpaid  Dividends  (such sum being  referred to as the
"Liquidation   Preference");   provided  that,  if  the  Liquidation  Funds  are
insufficient  to pay the full amount due to the holders of Preferred  Shares and
holders of shares of other  classes or series of preferred  stock of the Company
that are of equal rank with the Preferred  Shares as to payments of  Liquidation

<PAGE>


Funds (the "Pari Passu Shares"),  then each holder of Preferred  Shares and Pari
Passu Shares shall  receive a percentage of the  Liquidation  Funds equal to the
full  amount of  Liquidation  Funds  payable  to such  holder  as a  liquidation
preference,  in accordance with their  respective  Certificate of  Designations,
Preferences and Rights,  as a percentage of the full amount of Liquidation Funds
payable to all holders of Preferred Shares and Pari Passu Shares. In addition to
the receipt of the  Liquidation  Preference,  in the event of any  voluntary  or
involuntary  liquidation,  dissolution or winding up of the Company, the holders
of  the  Preferred  Shares  shall  be  entitled  to  receive  Liquidation  Funds
distributed  to holders of Common Stock,  after the  Liquidation  Preference has
been  paid,  to the same  extent as if such  holders  of  Preferred  Shares  had
converted  the  Preferred  Shares  into  Common  Stock  (without  regard  to any
limitations  on  conversions  herein or  elsewhere)  and had held such shares of
Common  Stock  on the  record  date  for  such  distribution  of  the  remaining
Liquidation  Funds.  The purchase or  redemption  by the Company of stock of any
class, in any manner  permitted by law, shall not, for the purposes  hereof,  be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation  or merger of the Company with or into any other  Person,  nor the
sale or transfer by the  Company of less than  substantially  all of its assets,
shall,  for the purposes hereof,  be deemed to be a liquidation,  dissolution or
winding up of the Company.  No holder of  Preferred  Shares shall be entitled to
receive any amounts with respect  thereto upon any  liquidation,  dissolution or
winding up of the Company other than the amounts  provided for herein;  provided
that a holder of Preferred  Shares  shall be entitled to all amounts  previously
accrued with respect to amounts owed hereunder.

     (10) Preferred  Rank. All shares of Common Stock shall be of junior rank to
all  Preferred  Shares in respect to the  preferences  as to  distributions  and
payments upon the  liquidation,  dissolution and winding up of the Company.  The
rights of the shares of Common  Stock  shall be subject to the  preferences  and
relative  rights of the  Preferred  Shares.  Without the prior  express  written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter  authorize or issue additional
or other capital  stock that is of senior or equal rank to the Preferred  Shares
in  respect  of the  preferences  as to  distributions  and  payments  upon  the
liquidation,  dissolution  and  winding  up of the  Company.  Without  the prior
express written consent of the holders of not less than two-thirds  (2/3) of the
then outstanding  Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's  Certificate of Incorporation or bylaws,  or
file any  resolution  of the board of directors of the Company with the Delaware
Secretary of State or enter into any agreement containing any provisions,  which
would adversely  affect or otherwise  impair the rights or relative  priority of
the holders of the Preferred  Shares relative to the holders of the Common Stock
or the holders of any other class of capital  stock.  In the event of the merger
or consolidation of the Company with or into another corporation,  the Preferred
Shares shall  maintain  their  relative  powers,  designations  and  preferences

<PAGE>


provided for herein and no merger shall result inconsistent therewith.

     (11)  Participation.  Subject to the rights of the holders,  if any, of the
Pari Passu  Shares,  the holders of the Preferred  Shares  shall,  as holders of
Preferred  Stock, be entitled to such dividends paid and  distributions  made to
the holders of Common  Stock to the same extent as if such  holders of Preferred
Shares had converted the Preferred  Shares into Common Stock (without  regard to
any  limitations on conversion  herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and  distributions.  Payments
under the preceding  sentence  shall be made  concurrently  with the dividend or
distribution to the holders of Common Stock.

     (12)  Restriction  on  Redemption  and  Cash  Dividends.  Until  all of the
Preferred Shares have been converted or redeemed as provided herein, the Company
shall not,  directly or indirectly,  redeem, or declare or pay any cash dividend
or distribution  on, its capital stock (other than the Preferred  Shares) Common
Stock without the prior express  written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.

     (13) Vote to Change the Terms of Preferred Shares.  The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting,
of the  holders  of not less  than  two-thirds  (2/3)  of the  then  outstanding
Preferred  Shares,  shall be required for (a) any change to this  Certificate of
Designations or the Company's  Certificate of  Incorporation  which would amend,
alter, change or repeal any of the powers, designations,  preferences and rights
of the  Preferred  Shares and (b) the  issuance of  Preferred  Shares other than
pursuant to the Securities Purchase Agreement.

     (14) Lost or Stolen  Certificates.  Upon receipt by the Company of evidence
reasonably  satisfactory  to the  Company  of the loss,  theft,  destruction  or
mutilation  of any  Preferred  Stock  Certificates  representing  the  Preferred
Shares,  and, in the case of loss, theft or destruction,  of any indemnification
undertaking  by the holder to the Company in customary  form and, in the case of
mutilation,   upon   surrender  and   cancellation   of  the   Preferred   Stock
Certificate(s),  the Company  shall  execute and  deliver  new  preferred  stock
certificate(s) of like tenor and date; provided,  however, the Company shall not
be  obligated  to  re-issue   preferred   stock   certificates   if  the  holder
contemporaneously  requests  the Company to convert such  Preferred  Shares into
Common Stock.

     (15)  Remedies,   Characterizations,   Other   Obligations,   Breaches  and
Injunctive  Relief.  The remedies  provided in this  Certificate of Designations
shall be cumulative and in addition to all other remedies  available  under this
Certificate of Designations, at law or in equity (including a decree of specific

<PAGE>

performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing  herein shall limit a holder's  right to pursue  actual  damages for any
failure  by the  Company  to  comply  with  the  terms  of this  Certificate  of
Designations.  The Company  covenants  to each holder of  Preferred  Shares that
there shall be no  characterization  concerning  this  instrument  other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments,  conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not,  except as expressly
provided  herein,  be subject to any other  obligation  of the  Company  (or the
performance  thereof).  The  Company  acknowledges  that a  breach  by it of its
obligations  hereunder  will  cause  irreparable  harm  to  the  holders  of the
Preferred  Shares  and  that  the  remedy  at law for  any  such  breach  may be
inadequate.  The Company  therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled,  in
addition to all other  available  remedies,  to an  injunction  restraining  any
breach,  without the necessity of showing  economic loss and without any bond or
other security being required.

     (16) Specific Shall Not Limit General;  Construction. No specific provision
contained in this  Certificate  of  Designations  shall limit or modify any more
general provision  contained herein.  This Certificate of Designations  shall be
deemed to be  jointly  drafted  by the  Company  and all Buyers and shall not be
construed against any person as the drafter hereof.

     (17) Failure or Indulgence Not Waiver. No failure or delay on the part of a
holder of  Preferred  Shares in the  exercise of any power,  right or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise thereof or of any other right, power or privilege.

     (18) Notice.  Whenever  notice is required to be given under these Articles
of Amendment,  unless otherwise  provided herein,  such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.



<PAGE>

         IN  WITNESS  WHEREOF,  the  Company  has  caused  this  Certificate  of
Designations to be signed by its President, as of the 14th day of March, 2000.

                                                              DIGS, INC.

                                                         By:  /s/ PETER B. DUNN
                                                                  --------------
                                                         Name:    Peter B. Dunn
                                                         Its:     President



<PAGE>

                                    EXHIBIT I

                                   DIGS, INC.
                                CONVERSION NOTICE

Reference is made to the Certificate of Designations,  Preferences and Rights of
Digs,  Inc. for its Series A Convertible  Preferred  Stock (the  "Certificate of
Designations").   In  accordance   with  and  pursuant  to  the  Certificate  of
Designations,  the undersigned  hereby elects to convert the number of shares of
Series A Convertible  Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of Digs, Inc., a Delaware corporation (the "Company"), indicated below
into shares of Common Stock, par value $0.01 per share (the "Common Stock"),  of
the Company, as of the date specified below.

         Date of Conversion:

         Number of Preferred Shares to be converted:

         Stock certificate no(s). of Preferred Shares to be converted:

Please confirm the following information:

         Conversion Price:

         Number of shares of Common Stock to be issued:

         Is the alternative  Floating  Conversion Price being relied on pursuant
         to Section  2(f)(iii) of the Certificate of  Designations?  (check one)
         YES ____ No ____

Please  issue the  Common  Stock  into  which  the  Preferred  Shares  are being
converted  and, if  applicable,  any check drawn on an account of the Company in
the following name and to the following address:

         Issue to:


         Facsimile Number:

         Authorization:
                                                     By:
                                                     Title:

         Dated:

         Account Number  (if electronic book entry transfer):

         Transaction Code Number (if electronic book entry transfer):


<PAGE>


                                 ACKNOWLEDGMENT


         The  Company  hereby  acknowledges  this  Conversion  Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent  Instructions dated ___________ ___,
2000 from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                   DIGS, INC.



                                                     By:

                                                     Name:
                                                     Title: