<PAGE>   1


                    CERTIFICATE OF DESIGNATION, PREFERENCES,
                           RIGHTS AND LIMITATIONS OF
                           SERIES B  PREFERRED STOCK
                                       OF
                           SYNAGRO TECHNOLOGIES, INC.


         Pursuant to Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), Synagro Technologies, Inc., a corporation organized and
existing under the DGCL (the "Corporation"),

         DOES HEREBY CERTIFY that pursuant to the authority conferred upon the
Board of Directors by the Certificate of Incorporation, as amended, of the
Corporation, and pursuant to Section 151 of the DGCL, said Board of Directors,
at a meeting duly held on March 20, 1998, duly adopted a resolution providing
for the designation and issuance of a series of 1,458,335 shares of Preferred
Stock, par value $.002 per share, which resolution is and reads as follows:

                 RESOLVED, That pursuant to the authority expressly granted to
         and invested in the Board of Directors of Synagro Technologies, Inc.
         (the "Corporation") by the provisions of the Certificate of
         Incorporation of the Corporation, as amended, a series of the
         Preferred Stock, par value $.002 per share, of the Corporation be, and
         it hereby is, established; and

                 FURTHER RESOLVED, That the said series of Preferred Stock of
         the Corporation be, and it hereby is, given the distinctive
         designation of "Series B Preferred Stock;" and

                 FURTHER RESOLVED, That the Series B Preferred Stock shall
         consist of 1,458,335 shares; and

                 FURTHER RESOLVED, That the Series B Preferred Stock shall have
         the powers and preferences, and the relative, participating, optional
         and other rights, and the qualifications, limitations and restrictions
         thereon set forth below:


                                   SECTION I

                                   DIVIDENDS

         The holders of record of any Series B Preferred Stock outstanding at
the close of business on the first day of January, April, July and October in
each year commencing on the fifth anniversary of the date on which the shares
of Series B Preferred Stock are first issued (each such day being hereinafter
referred to as a "Dividend Record Date") shall be entitled to receive, when and
as 
<PAGE>   2
declared by the Board of Directors of the Corporation out of any funds legally
available for that purpose, dividends at the quarterly rate of $0.108 per
share, which amount shall decrease at the rate of $0.0048 per quarter for each
Dividend Payment Date occurring after the initial Dividend Payment Date, and no
more, payable quarterly on the 10th day of January, April, July and October in
each year (each such day being hereinafter referred to as a "Dividend Payment
Date") and accruing during the quarterly period ending at the close of business
on the day prior to the Dividend Record Date next preceding such Dividend
Payment Date. Such dividends upon the Series B Preferred Stock hereunder shall
be payable by the Corporation's issuance and delivery to such record holder of
a number of shares of Series B Preferred Stock determined by dividing the
dollar amount of such dividend by the "Dividend Conversion Price," which shall
be equal to the product of $2.40 multiplied by the Conversion Ratio (as
hereinafter defined) from time to time in effect.

         No fractional shares of Series B Preferred Stock or scrip will be used
in respect of fractional interests resulting from any dividend hereunder; in
lieu of any fractional shares of Series B Preferred  Stock which may be issued
as aforesaid, the holders thereof instead shall receive a cash payment in an
amount equal to the product of such fraction multiplied by the Dividend
Conversion Price.  Such dividends upon the Series B Preferred Stock (to the
extent contemplated in this Section I) shall be preferential and cumulative
(whether or not in any dividend period or periods there shall be funds of the
Corporation legally available for the payment of such dividends), so that, if
at any time dividends upon the Series B Preferred Stock at the per annum rate
hereinabove specified from the "Cumulation Date," as herein defined, to (but
not including) the next preceding Dividend Record Date shall not have been
paid, the amount of the arrearage shall be fully paid, but without interest,
before (i) any sums shall be paid or set aside for the purchase or redemption
of Series B Preferred Stock, Common Stock, or any class or series of the
Corporation's capital stock which by its terms ranks on a parity with, or
junior to, the Series B Preferred Stock as to dividends and/or distribution of
assets, or (ii) any dividend shall be declared, paid or set apart for payment
on Common Stock or any class or series of the Corporation's capital stock which
by its terms ranks on a parity with, or junior to, the Series B Preferred Stock
as to dividends and/or distributions of assets.  As used in this Resolution,
the term "Cumulation Date" shall mean (i) the Dividend Record Date next
preceding the most recent Dividend Payment Date through which dividends on the
Series B Preferred Stock at the per annum rate hereinabove specified have been
paid, or (ii) if no dividends have been paid, the date on which shares of
Series B Preferred Stock shall first be issued.

         In addition, for so long as any Series B Preferred Stock is
outstanding, (i) no sums shall be paid or set aside for the purchase or
redemption of Common Stock or any class or series of the Corporation's capital
stock which by its terms ranks on a parity with, or junior to, the Series B
Preferred Stock (except for partial redemptions of the Series B Preferred Stock
as provided for under Section III hereof) as to distributions of assets, and
(ii) no dividend or other distribution (except in stock of the same class or
series) shall be declared, paid or set apart for payment on Common Stock or any
class or series of the Corporation's capital stock which by its terms ranks on
a parity with, or junior to, the Series B Preferred Stock as to dividends or
distributions of assets.



                                      2
<PAGE>   3
                                   SECTION II

                                  DISSOLUTION

         In the event of the dissolution, liquidation, or winding up of the
affairs of the Corporation, whether voluntary or involuntary, or in the event
of its insolvency (a "Dissolution"), the holders of Series B Preferred Stock
shall be paid, or distributed out of assets of the Corporation (whether capital
or surplus) or the proceeds thereof, an amount equal to the product of (i) the
sum of $2.40 per share, plus all accrued but unpaid dividends thereon, but
without interest, multiplied by (ii) the "Special Redemption Premium"
(expressed as the percentage by which the liquidation preference shall be
multiplied) set forth below:


<TABLE>
<CAPTION>
              If the Dissolution               The Special Redemption
                     is in                           Premium is
           -------------------------                 ----------
              <S>                                       <C>
                     1998                               112%
                     1999                               124%
                     2000                               136%
                     2001                               148%
                     2002                               160%
              2003 or thereafter                        172%
</TABLE>

         Any payments made under this Section II shall be made before any
distribution of assets or any payment shall be made to the holders of the
Common Stock or any other class or series of the Corporation's capital stock
which by its terms is junior to the Series B Preferred Stock as to dividends
and distributions of assets.  In the event the assets of the Corporation
available for such distributions shall be insufficient to permit (i) payment to
the holders of the Series B Preferred Stock of the full preferential amount
aforesaid, and (ii) payment to the holders of any other class or series of the
Corporation's capital stock which by its terms ranks on a parity with the
Series B Preferred Stock as to dividends and distributions of assets, of the
preferential amount to which they may be entitled, then all such assets shall
first be apportioned as between the Series B Preferred Stock and all other
classes or series of capital stock ranking on a parity with the Series B
Preferred Stock, utilizing the following formula:

                              [    A x N   ]
                 P = Z     ---------------------
                           [    (A x N) + Y   ]





                                       3
<PAGE>   4
         For purposes of the formula the symbols shall have the following
meaning:

                 (i)      the symbol "P," the unknown in the equation, means
         the amount of the assets available for distribution to the Series B
         Preferred Stock and all other classes and series of capital stock
         ranking on a parity with the Series B Preferred Stock which shall be
         apportioned to the Series B Preferred Stock;

                 (ii)     the symbol "A" means the product of (i) the sum of
         $2.40, plus the accrued but unpaid dividends on a share of Series B
         Preferred Stock to the proposed distribution date, multiplied by (ii)
         the applicable Special Redemption Premium as set forth above, and the
         symbol "N" means the number of shares of Series B Preferred Stock
         outstanding at the time of such proposed distribution;

                 (iii)    the symbol "Y" means the sum of the products obtained
         by multiplying the per share liquidation preference of each other
         specific class or series of capital stock ranking on a parity with the
         Series B Preferred Stock plus the accrued but unpaid dividends on a
         share of that specific class or series to the proposed distribution
         date, times the number of shares of that class or series outstanding
         at the time of such proposed liquidation; and

                 (iv)     the symbol "Z" represents the aggregate amount of all
         assets available for distribution to the Series B Preferred Stock and
         all other classes or series or classes of capital stock ranking on a
         parity with Series B Preferred Stock.

         After apportionment of the available assets, that portion which is
attributable to the Series B Preferred Stock shall then be distributed ratably
among the holders thereof in proportion to the number of shares held by each.

                                  SECTION III

                                   REDEMPTION

         Terminal Redemption.  Unless restricted from doing so by (i) law or
(ii) a covenant contained in any loan agreement or other financing arrangement
entered into by the Corporation to enable it to refinance, replace, or increase
a loan agreement or other financing arrangement of the Corporation in existence
as of the date of this Resolution; provided, however, that the restriction
contained in clause (ii) shall not apply unless the holders of Series B
Preferred Stock have not, after reasonable request to do so by the Corporation,
entered into a subordination agreement in favor of the lenders or other parties
to such loan agreements or financing arrangements, if any, the Corporation
shall redeem, out of funds legally available therefor, the Series B Preferred
Stock on April 1, 2003 and, if so restricted, on the earliest date thereafter
upon which the Corporation shall not be so restricted (the "Terminal Redemption
Date"), at a price (the "Terminal Redemption Price"), of the greater of (i) the
sum of $2.40 per share, plus all accrued but unpaid dividends thereon to the
Terminal Redemption Date and (ii) the "Fair Market Value".





                                       4
<PAGE>   5
         If on the Terminal Redemption Date the Corporation shall not have
funds which are legally sufficient to permit the Corporation to redeem all of
the Series B Preferred Stock, the Corporation shall (i) then purchase such
shares of Series B Preferred Stock which it legally can purchase on a ratable
basis among all holders in proportion to the respective amounts that would be
payable per share if such funds were sufficient to permit payment in full, and
thereafter (ii) shall purchase and pay for any remaining shares of Series B
Preferred Stock held by the holders thereof on the same ratable basis on the
first date of each quarter of each calendar year in which the Corporation has
no less than $250,000 of legally available funds therefor, until the
Corporation has purchased and fully paid for all shares of Series B Preferred
Stock.  The rights of each holder of shares of Series B Preferred Stock,
including without limitation, the right to receive dividends and convert such
shares into Common Stock, shall continue after the Terminal Redemption Date
until such shares are actually redeemed in accordance with this subsection.
Upon redemption of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock, the Corporation
shall issue and deliver to the holder of the certificate, at the expense of the
Corporation, a new certificate covering the unredeemed shares of Series B
Preferred Stock.

         The proceeds, if any, of any refinancing or replacement of or any
increase in any loan agreements or other financing arrangements of the
Corporation as exist as of the date of this Resolution shall be applied to
redemptions made under this subsection; provided, however, that the Corporation
shall not be required to redeem shares out of such funds to the extent the same
are necessary for working capital requirements, provided further, that in no
case shall the funds excepted for such working capital requirements exceed
$1,000,000.

         Holder Redemption.  The holders of shares Series B Preferred Stock
issued and outstanding on April 1, 2001 shall have the one time right, for a
period of 120 days from and after April 1, 2001 (the "Holder Redemption
Period"), to require the Corporation to redeem, out of funds legally available
therefor, all shares of Series B Preferred Stock held by such requesting
holders at a price (the "Holder Redemption Price") of $2.40 per share.   Unless
restricted from doing so by (i) law or (ii) a covenant contained in any loan
agreement or other financing arrangement entered into by the Corporation to
enable it to refinance, replace, or increase a loan agreement or other
financing arrangement of the Corporation in existence as of the date of this
Resolution; provided, however, that the restriction contained in clause (ii)
shall not apply unless the holders of Series B Preferred Stock have not, after
reasonable request to do so by the Corporation, entered into a subordination
agreement in favor of the lenders or other parties to such loan agreements or
financing arrangements, if any, such redemption shall be made by the
Corporation on the first date that (x) is the first day of a month and (y) is
not less than 30 days following written request (a "Redemption Request") by the
holders of a majority in interest of the Series B Preferred Stock and, if so
restricted, on the earliest date thereafter upon which the Corporation shall
not be so restricted (the "Holder Redemption Date").  The Corporation shall
send prompt written notice to all holders of any Redemption Request received
hereunder and each such holder shall have the right to include its shares of
Series B Preferred Stock in such Redemption Request by giving written notice to
the Corporation of its election to do so within 10 days after receipt of such
notice by the Corporation.  Any holder not





                                       5
<PAGE>   6
participating in such Redemption Request shall no longer have the right to
require the corporation to redeem its shares under this subsection.

         If at the time of such Redemption Request the Corporation shall not
have funds which are legally sufficient to permit the Corporation to redeem all
or any portion of Series B Preferred shares in respect of which a Redemption
Request has been made, the Corporation shall (i) then purchase such shares of
Series B Preferred Stock which it legally can purchase on a ratable basis among
all requesting holders in proportion to the respective amounts that would be
payable per share if such funds were sufficient to permit payment in full, and
thereafter (ii) shall purchase and pay for any remaining shares of Series B
Preferred Stock held by such requesting holders on the same ratable basis on
the first date of each quarter in which the Corporation has no less than
$250,000 of legally available funds therefor, until the Corporation has
purchased and fully paid for all shares of Series B Preferred Stock in respect
of which a Redemption Request has been made.  The rights of each holder
electing to include its shares of Series B Preferred Stock in any Redemption
Request, including without limitation the right to receive dividends and to
convert such shares into Common Stock, shall terminate on the date on which any
such Redemption Request is made.  The rights of any holder not electing to
include its shares of Series B Preferred Stock in such Redemption Request,
including without limitation the right to receive dividends and to convert such
shares into Common Stock, shall continue and remain in effect pursuant to the
terms and conditions of this Resolution.  Upon redemption of only a portion of
the number of shares covered by a certificate representing shares of Series B
Preferred Stock, the Corporation shall issue and deliver to the holder of the
certificate, at the expense of the Corporation, a new certificate covering the
unredeemed shares of Series B Preferred Stock.

         Special Redemption on Change of Control.  If a "Change of Control" of
the Corporation shall occur, unless restricted from doing so by (i) law or (ii)
a covenant contained in any loan agreement or other financing arrangement
entered into by the Corporation to enable it to refinance, replace, or increase
a loan agreement or other financing arrangement of the Corporation in existence
as of the date of this Resolution; provided, however, that the restriction
contained in clause (ii) shall not apply unless the holders of Series B
Preferred Stock have not, after reasonable request to do so by the Corporation,
entered into a subordination agreement in favor of the lenders or other parties
to such loan agreements or financing arrangements, if any, the Corporation
shall, upon written request ("Special Redemption Request") by a majority in
interest of the holders of record of the Series B Preferred Stock outstanding
on such date, redeem, out of funds legally available therefor, or for property
or rights (including securities) offered to stockholders of the Corporation
generally in connection with any such Change of Control transaction, the Series
B Preferred Stock on the first date that (x) is the first day of a month and
(y) is not less than 30 days following the Change of Control and, if so
restricted, on the earliest date thereafter upon which the Corporation
(including for this purpose, any successor to the Corporation) shall not be so
restricted (the "Special Redemption Date") at a price (the "Special Redemption
Price") of the product of (i) the sum of $2.40 per share, plus all accrued but
unpaid dividends thereon to the Special Redemption Date multiplied by (ii) the
applicable Special Redemption Premium set forth below:





                                       6
<PAGE>   7
<TABLE>
<CAPTION>
               If the Special
               Redemption Date                The Special Redemption
                    is in                           Premium is
          -------------------------                 ----------
             <S>                                       <C>
                    1998                               112%

                    1999                               124%
                    2000                               136%

                    2001                               148%

                    2002                               160%

             2003 or thereafter                        172%
</TABLE>


         If on the Special Redemption Date the Corporation shall not have funds
or other property which are legally sufficient to permit the Corporation to
redeem all of the Series B Preferred Stock, the Corporation shall (i) then
purchase such shares of Series B Preferred Stock which it legally can purchase
on a ratable basis among all holders in proportion to the respective amounts
that would be payable per share if such funds or other property were sufficient
to permit payment in full, and thereafter (ii) shall purchase and pay for any
remaining shares of Series B Preferred Stock held by the holders thereof on the
same ratable basis on the first date of each quarter of each calendar year in
which the Corporation has no less than $250,000 of legally available funds or
other property therefor, until the Corporation has purchased and fully paid for
all shares of Series B Preferred Stock.  If the Corporation elects to
distribute, in payment of the Special Redemption Price upon any Change of
Control, property, rights, or securities in lieu of cash the value of such
property, rights, or securities, distributed shall be determined in good faith
by the Board of Directors of the Corporation.

         The rights of each holder of shares of Series B Preferred Stock,
including without limitation, the right to receive dividends and convert such
shares into Common Stock, shall continue after the Special Redemption Date
until such shares are actually redeemed in accordance with this subsection.
Upon redemption of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock, the Corporation
shall issue and deliver to the holder of the certificate, at the expense of the
Corporation, a new certificate covering the unredeemed shares of Series B
Preferred Stock.

         As used in this Section, the following terms have the following
meanings:

                 "Change of Control" means (i) the first date on which any of
         the following events occurs, with or without the approval of the Board
         of Directors of the Corporation incumbent prior to the occurrence, (a)
         any Person shall become the Beneficial Owner of more than 50%





                                       7
<PAGE>   8
         of the Corporation's outstanding securities entitled to vote in        
         elections of directors, or (b) as the result of a tender offer, merger,
         consolidation, sale of assets, or contested election, or any
         combination of such transactions, the persons who were directors of the
         Corporation immediately before the transaction shall cease to
         constitute a majority of the Board of Directors of the Corporation or
         of any successor to the Corporation; provided, that any such
         transaction or combination of transactions which required the
         affirmative vote of a majority of the stockholders entitled to vote
         thereon would have been approved without giving affect to either (x)
         the votes of the holders of the Series B Preferred Stock or (y) the
         number of shares of Series B Preferred Stock outstanding on such date
         or (ii) the effective date of any consolidation or merger of the
         Corporation with or into any other Person in which the Corporation is
         not the surviving entity, or any sale or conveyance to another Person
         of all, substantially all, of the assets or property of the
         Corporation.

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

                 "Fair Market Value" means the value of the shares of the
         Series B Preferred Stock on the Terminal Redemption Date, as
         determined by a third party appraiser mutually agreeable to the
         Corporation and the holders of the Series B Preferred Stock, and if
         the parties are unable to agree to an appraiser, by a third party
         chosen to perform the valuation by valuation advisors chosen by each
         the Corporation and the holders of the Series B Preferred Stock.

                 "Affiliate" and "Associate" shall have the respective meanings
         ascribed to such terms in Rule 12b-2 of the General Rules and
         Regulations under the Exchange Act as in effect on the date of this
         Resolution.

                 A Person shall be deemed the "Beneficial Owner" of, and shall
         be deemed to "beneficially own," and shall be deemed to have
         Beneficial Ownership of, any securities:

                          (i)     which such Person or any of such Person's
                 Affiliates or Associates, directly or indirectly, beneficially
                 owns (as determined pursuant to Rule 13d-3 under the Exchange
                 Act as in effect on the date of this Resolution);

                          (ii)    which such Person or any of such Person's
                 Affiliates or Associates, directly or indirectly, has

                                  (A)      the right to acquire (whether such
                          right is exercisable immediately or only after the
                          passage of time or the satisfaction of a condition,
                          or both) pursuant to any agreement, arrangement or
                          understanding (whether written or oral) or upon the
                          exercise of conversion rights, exchange rights,
                          rights, warrants or options, or otherwise; provided,
                          however, that a Person shall not be deemed the
                          "Beneficial Owner" of or to "beneficially own"
                          securities tendered pursuant to a tender or exchange
                          offer made by or





                                       8
<PAGE>   9
                          on behalf of such Person or any of its Affiliates or 
                          Associates until such tendered securities are 
                          accepted for purchase or exchange; or

                                  (B)      the right to vote, alone or in
                          concert with others, pursuant to any agreement,
                          arrangement or understanding (whether written or
                          oral) or otherwise; provided, however, that a Person
                          shall not be deemed the "Beneficial Owner" of or to
                          "beneficially own" any security as a result of an
                          agreement, arrangement or understanding to vote such
                          security if such agreement, arrangement or
                          understanding (1) arises solely from a revocably
                          proxy or consent given in response to a public proxy
                          or consent solicitation made pursuant to, and in
                          accordance with, the applicable rules and regulations
                          under the Exchange Act and (2) is not also then
                          reportable by such Person on Schedule 13D under the
                          Exchange Act (or any comparable or successor report);
                          or

                          (iii)   which are beneficially owned, directly or
                 indirectly, by any other Person (or any Affiliate or Associate
                 thereof) with which such Person or any of its Affiliates or
                 Associates has any agreement, arrangement or understanding
                 (whether written or oral) for the purpose of acquiring,
                 holding, voting (except pursuant to a revocable proxy as
                 described in subparagraph (ii)(B) immediately above) or
                 disposing of any such securities.  Despite the foregoing, for
                 purposes of determining Beneficial Ownership of securities
                 under this Resolution, officers and directors of the
                 Corporation solely by reason of their status as such shall not
                 constitute a group (notwithstanding that they may be
                 Associates of one another or may be deemed to constitute a
                 group for purposes of Section 13(d) of the Exchange Act) and
                 shall not be deemed to own shares owned by another officer or
                 director of the Corporation.  Further, nothing contained in
                 this definition shall cause a Person ordinarily engaged in
                 business as an underwriter of securities to be the "Beneficial
                 Owner" of, or to "beneficially own," any securities acquired
                 in a bona fide firm commitment underwriting pursuant to an
                 underwriting agreement with the Corporation.

                          "Person" means any individual, firm, corporation, 
         partnership or other entity.

         General.  In the case of a Terminal Redemption, notice of redemption
shall be given not less than thirty and no more than sixty days prior to any
Terminal Redemption Date to each holder of record of shares of Series B
Preferred Stock and shall be sufficiently given if the Corporation shall cause
a copy thereof to be mailed to each holder of record at his address as the same
shall appear on the books of the Corporation, by first class mail, postage
prepaid; provided, however, that the failure by the Corporation to mail such
notice to one or more of such holders shall not affect the validity of such
redemption as to the other holders.  Any such notice shall include the Terminal
Redemption Price at which such shares are being redeemed, including the results
of the appraisal performed to obtain the Fair Market Value.  In the case of a
Special Redemption or Holder Redemption, any holder of Series B Preferred Stock
electing to redeem his shares in accordance with this Section III





                                       9
<PAGE>   10
shall surrender the certificate or certificates for shares of the Series B
Preferred Stock, duly endorsed to the Corporation or in blank, at the office of
any transfer agent for the Series B Preferred Stock (or such other place as may
be designated by the Corporation), at the same time the written notice required
in this Section III is given to the Corporation at said office.

         No holder of shares of Series B Preferred Stock redeemed in accordance
with this Section III (the "Redeemed Shares") shall be entitled to receive
payment of the redemption price for such shares until such holder causes to be
delivered, the stock certificate representing the Redeemed Shares and transfer
instructions satisfactory to the Corporation.  If notice of redemption shall
have been duly given or if the Corporation shall have granted to a bank or
trust company irrevocable written authorization to promptly give or complete
such notice, and if, on or after the date on which such notice of redemption is
given and on or before such Terminal Redemption Date, Special Redemption Date
or Holder Redemption Date, all funds necessary for redemption (including an
amount equal to any applicable redemption premium and unpaid dividends accrued
and to be accrued thereon to such redemption date) shall have been deposited by
the Corporation with a bank or trust company designated in such notice, in
trust for the pro rata benefit of the holders of Redeemed Shares, then from and
after any such Terminal Redemption Date, Special Redemption Date or Holder
Redemption Date, notwithstanding that any certificate for Redeemed Shares shall
not have been surrendered for cancellation, the Redeemed Shares shall be deemed
no longer outstanding from and after the Terminal Redemption Date, the Special
Redemption Date or Holder Redemption Date, as the case may be, and all rights
with respect to the Redeemed Shares shall thereupon cease and terminate, except
only the right of the record holders of the certificates therefor, upon
surrender thereof, to receive the applicable redemption price thereof out of
the funds so deposited, without interest.  Any interest accrued on such
deposited funds shall be paid to the Corporation from time to time.

         All funds so deposited and unclaimed at the end of one year from the
applicable redemption date shall be released or repaid to the Corporation,
after which the holders of the shares so called for redemption shall look only
to the Corporation for the payment thereof.

         Any shares of the Series B Preferred Stock redeemed, purchased, or
otherwise acquired by the Corporation, or converted into Common Stock shall be
deemed retired and shall be canceled and may not thereafter be reissued or
otherwise disposed of by the Corporation, and the Corporation shall from time
to time and at least once each year cause all such shares to be retired in the
manner provided by law.


                                   SECTION IV

                                 VOTING RIGHTS

         For so long as any shares of Series B Preferred Stock shall be
outstanding, and except as otherwise provided herein, the outstanding shares of
Series B Preferred Stock shall be entitled to





                                       10
<PAGE>   11
vote with the outstanding shares of Common Stock, with one vote per share of
Series B Preferred Stock (subject to such adjustments as would entitle each
share of Series B Preferred Stock to that number of votes as the holder thereof
would be entitled to cast if such shares of Series B Preferred Stock were
converted into shares of Common Stock in accordance with Section V hereof on
the record date of the vote on the corporate action), at any annual or special
meeting called for the purpose, or in any action proposed to be taken by the
consent of stockholders, with respect to which the holders of shares of the
Series B Preferred Stock and the Common Stock shall vote together as one class,
except as set forth in the second paragraph of this Section IV or as otherwise
specifically required by the DGCL.

         The vote of at least a majority of the shares of the Series B
Preferred Stock at the time outstanding, given in person or by proxy, at any
special or annual meeting called for the purpose, or in any action proposed to
be taken by the consent of stockholders, with respect to which the holders of
shares of the Series B Preferred Stock shall vote separately as a class (and
not with the Common Stock), shall be necessary to permit, effect or validate
any one or more of the following:

                 (i)      the authorization of, or any increase in, the
         authorized amount of any class of stock ranking prior to, or on a
         parity with, or of any security convertible into or exchangeable for
         or carrying rights to purchase any stock ranking prior to, or on a
         parity with, the Series B Preferred Stock as to dividends or
         distribution of assets; or

                 (ii)     the amendment, alteration or repeal of any of the
         designations, rights, preferences, powers, or privileges of the Series
         B Preferred Stock so as to affect adversely the holders of the Series
         B Preferred Stock as a class; or

                 (iii)    the sale, lease, or conveyance of all or
         substantially all of the assets, property, or business of the
         Corporation, or the merger or consolidation of the Corporation with or
         into any such other corporation unless the surviving or resulting
         corporation will have after such merger or consolidation no stock
         either authorized or outstanding which ranks prior to or on a parity
         with (as to dividends and/or distributions of assets) the class of
         stock of the surviving or resulting corporation issued in exchange for
         the Series B Preferred Stock.


                                   SECTION V

                                   CONVERSION

         Optional Conversion.  The shares of Series B Preferred Stock shall be
convertible at the option of the holder, at any time, in whole or in part,
prior to the actual redemption thereof, into full shares of Common Stock of the
Corporation at the initial ratio of one share of Common Stock for each share of
Series B Preferred Stock, subject to such adjustments, if any, of the
conversion ratio and the securities or other property issuable upon such
conversion pursuant to the provisions set 





                                       11
<PAGE>   12
forth below in this Section V under the caption "Adjustments of the Conversion
Ratio" (the conversion ratio from time to time in effect being hereinafter
referred to as the "Conversion Ratio").

         Automatic Conversion.  All shares of Series B Preferred Stock shall
automatically and without any action on the part of any holder of outstanding
shares of Series B Preferred Stock be converted into full shares of Common
Stock of the Corporation at the Conversion Ratio at the close of business on
the 30th day following written notice to each holder of record of Series B
Preferred Stock stating the date upon which the outstanding Series B Preferred
Stock is to be so automatically converted (the "Automatic Conversion Date") and
advising the holder of either (i) the consummation not more than 90 days prior
to the Automatic Conversion Date by the Corporation of an underwritten primary
public offering of its Common Stock at a minimum per share price to public of
not less than $6.00 per share and yielding net proceeds to the Corporation of
at least $10 million (a "Qualified Offering") or (ii) the attainment at any
time prior to April 1, 2002 of fully diluted consolidated earnings per share of
at least $.30 (the "Required Income") for any trailing twelve month period (the
"Measurement Period") ended not more than 120 days prior to the Automatic
Conversion Date and determined in accordance with generally accepted accounting
principles ("GAAP"), except that (i) an assumed combined effective federal and
state income tax rate of 40% (rather than the actual combined tax rate
experienced) shall be applied to the Corporation's GAAP-based pre-tax income
for the Measurement Period (after giving effect to the following adjustments);
and (ii) if the Corporation shall have acquired during the Measurement Period
any entity or component thereof which constitutes a "business" within the
meaning of Rule 11-01(d) of Regulation S-X promulgated under the Exchange Act
for which it accounts using the purchase method, then for that portion of the
Measurement Period during which such "business" was not owned, pro forma effect
shall be given to the following (in each case determined on a basis consistent
with GAAP): (A) the pre-tax income of the acquired "business," plus (I) the
savings which would have resulted from contractually determined and immediately
available reductions in cash compensation to the owners or managers of the
"business" had it been acquired on the first day of the Measurement Period and
minus (II) any additional depreciation, amortization or interest expense which
would have been incurred by the Corporation had the "business" been acquired on
the first day of the Measurement Period and (B) any Common Stock or equivalents
issued in the acquisition of the "business" shall be deemed to have been issued
on the first day of the Measurement Period; and (iii) if the Corporation shall
have acquired during the Measurement Period any entity for which it accounts
using the pooling of interests method, then any out-of-pocket fees and expenses
(including without limitation legal, accounting, printing, investigatory,
investment banking and other fees and expenses) incurred in connection with the
acquisition and required to be currently expensed under GAAP, as well as all
amounts paid or payable to any directors, officers or employees of the acquired
entity under employment or similar contracts, non-competition agreements,
employee benefit plans or severance agreements, which costs would not have been
incurred but for the acquisition, shall be recalculated on a purchase
accounting basis and amortized as if such entity had been acquired on the first
day of the Measurement Period; and (iv) any gains realized during the
Measurement Period by the Corporation and any acquired entity or business upon
the disposition of fixed assets or from other non-recurring events during the
Measurement Period shall be excluded for all purposes; provided, however, that
any gains or losses attributable to operations shall not be so excluded.





                                       12
<PAGE>   13
         If any Measurement Period ends between October 1 and December 31 of
any year, the Automatic Conversion Date shall be delayed until the earlier to
occur of (i) the Corporation shall have advised the holders of Series B
Preferred Stock in writing that the Required Income was achieved and shall have
furnished such holders with documentation of the determination of the Required
Income and a majority of the holders of Series B Preferred Stock shall not have
advised the Corporation in writing within 30 days following their receipt of
written notice from the Corporation that they do not agree that the Required
Income was achieved during the Measurement Period or (ii) the Corporation
receives an audit by independent certified accountants for its financial
statements covering the calendar year in which the Measurement Periods ends and
such audit reflects results for all of part of the Measurement Period which are
consistent with the Corporation's calculation of Required Income; provided,
however, that in any case in which an Automatic Conversion Date is delayed in
accordance with this paragraph, the Conversion Ratio for such Automatic
Conversion Date shall continue to be determined as of the close of business on
the 30th day following written notice to the holders in accordance with the
first sentence of the preceding paragraph.

         Notice of Automatic Conversion shall be sufficiently given if the
Corporation shall cause a copy thereof to be mailed to each holder of record of
Series B Preferred Stock at his address as the same shall appear on the books
of the Corporation, by first class mail postage prepaid and accompanied by (x)
in the case of a Qualified Offering, a final prospectus, press release or
"tombstone" advertisement reflecting that transaction as it was consummated and
(y) in the case of attainment of the Required Income, a calculation reflecting
the same in reasonable detail, together with a certificate of the Corporation's
chief financial officer or principal accounting officer attesting that such
calculation was made in accordance with the provisions of Article V of this
Resolution; provided, however, that in the absence of bad faith the failure to
mail such notice of Automatic Conversion to one or more of such holders shall
not affect the validity of such Automatic Conversion as to any holder.

         Adjustments of the Conversion Ratio.  The Conversion Ratio shall be
subject to the following adjustments:

                 (i)      While any shares of Series B Preferred Stock are
         outstanding, in case the Corporation shall, at any time, pay to the
         holders of Common Stock dividends in Common Stock or in securities
         convertible into Common Stock, the Conversion Ratio in effect
         immediately prior to the record date fixed for the determination of
         stockholders entitled to such dividend shall be increased
         proportionately to reflect the full amount of all such dividends
         (adjusted to the nearest, or if there shall be no nearest, then to the
         next lower, ten- thousandth of a share of Common Stock), such increase
         in the Conversion Ratio to become effective immediately at the opening
         of business on the day following such record date.  Anything in this
         subparagraph (i) to the contrary notwithstanding, the Corporation
         shall not be required to make any adjustment in the Conversion Ratio
         in any case in which the Conversion Ratio immediately prior to such
         adjustment would be changed in an amount less than 3% of such
         Conversion Ratio, but in any such case any adjustment that would
         otherwise





                                       13
<PAGE>   14
         be required then to be made shall be carried forward and shall be made
         at the time of and together with the next subsequent adjustment which,
         together with any adjustments so carried forward, would amount to 3%
         of the Conversion Ratio in effect prior to such adjustments.

                 (ii)     While any shares of Series B Preferred Stock are
         outstanding, in case the Corporation shall subdivide the outstanding
         shares of Common Stock into a greater number of shares of Common Stock
         or combine the outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, the Conversion Ratio in effect
         immediately prior to such subdivision or combination, as the case may
         be, shall be proportionately increased or decreased (adjusted to the
         nearest, or if there shall be no nearest, then to the next lower, ten-
         thousandth of a share of Common Stock), as the case may require, such
         increase or decrease, as the case may be, to become effective at the
         opening of business on the day following the day upon which such
         subdivision or combination becomes effective.

                 (iii)    In case of any reclassification or change of
         outstanding shares of Common Stock of the class issuable upon
         conversion of the Series B Preferred Stock, or in case of any
         consolidation or merger of the Corporation with or into another
         corporation, or in case of any sale or conveyance to another Person of
         all or substantially all of the property of the Corporation, or in the
         case of any distribution of any securities, cash or other assets or
         any indebtedness of the Corporation to the holders of Common Stock,
         each holder of shares of the Series B Preferred Stock then outstanding
         shall have the right thereafter, so long as his conversion right
         hereunder shall exist, to convert such shares into the kind and number
         or amount of shares of stock and other securities and property
         receivable upon such reclassification, change, consolidation, merger,
         sale, conveyance or distribution by a holder of the number of shares
         of Common Stock of the Corporation into which such shares of the
         Series B Preferred Stock might have been converted immediately prior
         to such reclassification, change, consolidation, merger, sale,
         conveyance or distribution, and shall have no other conversion rights
         under these provisions; provided, that effective provision shall be
         made, in the articles or certificate of incorporation of the resulting
         or surviving corporation or otherwise, so that the provisions set
         forth herein for the protection of the conversion rights of the Series
         B Preferred Stock shall thereafter be applicable, as nearly as
         reasonably may be, to any such other shares of stock and other
         securities and property deliverable upon conversion of the Series B
         Preferred Stock remaining outstanding or other convertible preferred
         stock received by the holders in place thereof; and provided, further,
         that any such resulting or surviving corporation shall expressly
         assume the obligation to deliver, upon the exercise of the conversion
         privilege, such shares, securities or property as the holders of the
         Series B Preferred Stock remaining outstanding, or other convertible
         preferred stock received by the holders in place thereof, shall be
         entitled to receive pursuant to the provisions hereof, and to make
         provisions for the protection of the conversion right as above
         provided.  In case securities or property other than shares of Common
         Stock shall be issuable or deliverable upon conversion as aforesaid,
         then all provisions of this Section V of this Resolution shall be
         deemed to apply, so far as appropriate and as nearly as may be, 





                                       14
<PAGE>   15
         to such other securities or property.  The subdivision or combination 
         of shares of Common Stock at any time outstanding into a greater or 
         lesser number of shares of Common Stock (whether with or without par 
         value) shall not be deemed to be a reclassification of the shares of 
         Common Stock of the Corporation for the purposes of this subparagraph 
         (iii).

                 In case of any distribution of any security other than Common
         Stock (including rights or warrants to subscribe for any such
         securities) of the Corporation to the holders of its Common Stock
         where the nature of the security is such that the adjustment
         provisions in this clause (iii) would not properly grant to the
         holders of Series B Preferred Stock the rights intended to be granted
         hereby, then in each such case the Conversion Ratio in effect
         immediately prior to such distribution shall be adjusted (to the
         nearest, of if there be no nearest, then to the next lower,
         ten-thousandth of a share of Common Stock) to a number obtained by
         dividing the Conversion Ratio in effect immediately prior thereto by a
         fraction, the numerator of which shall be the total number of
         outstanding shares of Common Stock immediately prior to any such
         distribution multiplied by the Current Market Price on such  date,
         less the fair market value (as determined in good faith by the Board
         of Directors) of the securities distributed by the Corporation and the
         denominator of which shall be the total number of outstanding shares
         of Common Stock multiplied by the Current Market Price; such
         adjustment shall become effective as of the record date for the
         determination of shareholders entitled to receive such distribution.

                 The "Current Market Price" shall mean, as of any date, the
         average, for each of the 20 consecutive trading days immediately prior
         to such date, of the last recorded sale price of such share on the
         Nasdaq Stock Market (or if the Common Stock is not then traded in such
         market, then on the principal exchange or in the principal market on
         which the Common Stock is then listed or traded), or if there be no
         such recorded sale price on any trading day, the last quoted bid price
         per share of Common Stock in such market or on such stock exchange at
         the close of trading on such date.  If the Current Market Price cannot
         be determined pursuant to the foregoing, Current Market Price shall
         mean the fair value per share of Common Stock on such date determined
         by the Board of Directors in good faith, irrespective of any
         accounting treatment.

                 (iv)  (A) If at any time prior to and including April 1, 1999,
         while any shares of Series B Preferred Stock are outstanding, the
         Corporation shall issue or sell any shares of Common Stock (other than
         "Excepted Shares," as defined herein) without consideration or for a
         consideration per share less than the "Conversion Price" (i.e., $2.40
         divided by the Conversion Ratio) in effect immediately prior to such
         issue or sale, then such Conversion Price shall immediately be
         adjusted (but not increased, except in the case of readjustments
         provided for in clauses (B), (C) and (D) below) to a price equal to
         the price at which such Common Stock is issued or sold.  If at any
         time after April 1, 1999, while any shares of Series B Preferred Stock
         are outstanding, the Corporation shall issue or sell any shares of
         Common Stock (other than Excepted Shares) without consideration or for
         a consideration per share less than the Conversion Price in effect
         immediately prior to such issue or sale, 




                                       15
<PAGE>   16
         then such Conversion Price shall immediately be adjusted (but not 
         increased, except in the case of readjustments provided for in clauses
         (B), (C) and (D) below) to a price (calculated to the nearest cent)
         equal to the amount obtained by dividing (x) a sum equal to (i) the
         number of shares of Common Stock outstanding on April 1, 1998,
         multiplied by $2.40, plus (ii) the aggregate amount of consideration,
         if any, received by the Corporation (or without duplication, deemed to
         be received upon the exercise or conversion of rights, options, stock
         or obligations referred to in clauses (B), (C) or (D) below) upon the
         issue or sale of shares of Common Stock (other than Excepted Shares)
         subsequent to April 1, 1998 (including the aggregate amount of
         consideration, if any, received or deemed to be received upon the
         issue or sale of the shares for which such adjustment is made) by (y)
         the total number of shares of Common Stock outstanding immediately
         after such issue or sale, whereupon the Conversion Ratio in effect
         immediately prior to such issuance or sale shall be adjusted (to the
         nearest, or if there be no nearest, then to the next lower,
         ten-thousandth of a share of Common Stock) to a number obtained by
         dividing (x) $2.40 by (y) the Conversion Price as so adjusted for such 
         issuance or sale.
        
                 "Excepted Shares" shall include (I) shares of Common Stock
         issued or sold (or deemed to be issued or sold) to a director, officer
         or employee of the Corporation or any Subsidiary pursuant to a stock
         option or other employee benefit agreement, arrangement or plan
         heretofore or hereafter adopted or approved by the stockholders of the
         Corporation, provided that the aggregate of all shares covered by such
         employee arrangements shall not at any time exceed 1,000,000 shares of
         Common Stock, (II) shares of Common Stock issued or sold and for which
         adjustment in the Conversion Ratio is required to be and is made
         pursuant to paragraphs (i), (ii) or (iii) above, and (III) shares of
         Common Stock issued or sold upon conversion of or in payment of any
         dividends on Series B Preferred Stock.

                 (B)      For the purposes of Clause (A) above, in case the
         Corporation shall hereafter issue any rights to subscribe for or to
         purchase Common Stock or grant any options for the purchase of Common
         Stock (other than rights or options constituting Excepted Shares or
         rights or options to purchase Excepted Shares) at a price less than
         the Conversion Price in effect at the time such rights are issued or
         such options are granted, all shares of Common Stock which the holders
         of such rights or options shall be entitled to subscribe for or
         purchase pursuant to such rights or options shall be deemed to have
         been issued or sold as of the date of the offering of such rights or
         the granting of such options, as the case may be, and the minimum
         aggregate consideration named in such rights or options for the shares
         of Common Stock covered thereby, plus any consideration received by
         the Corporation for such rights or options, shall be deemed to be the
         consideration actually received by the Corporation (as of the date on
         which such rights or options are issued or granted) for the issue or
         sale of such shares; provided, however, that, upon the expiration or
         other termination of any such rights or options, if any thereof shall
         not have been exercised, the number of shares of Common Stock deemed
         to be issued and outstanding by reason of the fact that they were
         issuable upon the exercise of such rights or options shall no longer
         be deemed to be issued and outstanding, and the Conversion Price then
         in effect shall forthwith be readjusted 




                                       16
<PAGE>   17
         and thereafter be the price which it would have been had adjustment
         been made on the basis of the issue only of the shares of Common Stock
         actually issued upon the exercise of any such rights or options.
        
                 (C)      For the purposes of clause (A) above, in case the
         Corporation shall hereafter issue or sell any stock or obligations
         directly or indirectly convertible into or exchangeable for Common
         Stock (other than Excepted Shares or stock or obligations directly or
         indirectly convertible into or exchangeable for Excepted Shares) or
         rights to subscribe for or options to purchase such stock or
         obligations (other than rights or options constituting Excepted Shares
         or rights or options to purchase Excepted Shares) and the price per
         share for which Common Stock is deliverable upon such conversion or
         exchange (which price shall be determined by dividing (i) the sum of
         the aggregate amount received or receivable by the Corporation as
         consideration for the issue or sale of such stock or obligations or of
         such rights or options, plus the minimum aggregate amount of
         additional consideration, if any, payable to the Corporation upon
         exercise of such rights or options and conversion or exchange of such
         stock or obligations, by (ii) the total maximum number of shares of
         Common Stock necessary to effect the conversion or exchange of all
         such stock or obligations) shall be less than the Conversion Price in
         effect at the time of such issue or sale, then such issue or sale
         shall be deemed to be an issue or sale (as of the date on which such
         stock or obligations or such rights or options are issued or sold) of
         the total maximum number of shares of Common Stock necessary to effect
         the conversion or exchange of all such stock or obligations on the
         basis, if applicable, of such minimum aggregate additional
         consideration, and the sum of the aggregate amount received or
         receivable by the Corporation as consideration for the issue or sale
         of such stock or obligations or of such rights or options and
         conversion or exchange of such stock or obligations, shall be deemed
         to be the consideration actually received (as of the date on which
         such stock or obligations or such rights or options are issued or
         sold) for the issue or sale of such Common Stock; provided, however,
         that upon the termination of the right to convert or exchange such
         stock or obligations and upon the expiration of any such rights or
         options, if any thereof shall not have been exercised, the number of
         shares of Common Stock deemed to be issued and outstanding by reason
         of the fact that such shares were issuable upon conversion or exchange
         of any such stock or obligations which were not so converted or
         exchanged or as to which such rights or options were not exercised
         shall no longer be deemed to be issued and outstanding, and the
         Conversion Price shall forthwith be readjusted and thereafter be the
         price which it would have been had the adjustment been made on the
         basis of the issue or sale only of the number of shares of Common
         Stock issued or sold upon the actual conversion or exchange of such
         stock or obligations or upon the actual exercise of such rights or
         options.

                 (D)      For the purposes of clause (A) above, if the purchase
         price provided for in any right or options referred to in clauses (B)
         or (C) above or the rate at which the stock or obligations referred to
         in clause (C) above are convertible into or exchangeable for Common
         Stock, shall change at any time or from time to time (other than under
         or by reason of 





                                       17
<PAGE>   18
         provisions designed to protect against dilution) then, upon such change
         becoming effective, the Conversion Price then in effect hereunder shall
         forthwith be increased or decreased to such Conversion Price as would
         have obtained had the adjustments made upon the issuance of such rights
         or options or such stock or obligations then outstanding been made upon
         the basis of (and the total consideration received or receivable for)
         such change.  If the purchase price provided for in any right or option
         referred to in clauses (B) or (C) above, or the rate at which any stock
         or obligations referred to in clause (C) above are convertible into or
         exchangeable for Common Stock, shall decrease at any time under or by
         reason of provisions with respect thereto designed to protect against
         dilution, then in the case of the delivery of shares of Common Stock
         upon the exercise of any such rights or options, or upon conversion or
         exchange of any stock or obligations convertible into or exchangeable
         for Common Stock, the Conversion Price then in effect hereunder shall
         forthwith be decreased to such Conversion Price as would have obtained
         had the adjustments made upon issuance of such rights or options or
         such stock or obligations been made upon the basis of the issuance of
         (and the total consideration received for) the shares of Common Stock
         delivered as aforesaid.

                 (E)      For the purposes of clause (A) above, in case of an
         issue or sale of shares of Common Stock or of rights or options to
         purchase Common Stock or of any stock or obligations convertible into
         or exchangeable for Common Stock or of any rights or options to
         purchase such stock or obligations for a consideration other than cash
         or a consideration part of which shall be other than cash, the amount
         of the consideration other than cash received by the Corporation shall
         be deemed to be the value of such consideration as determined in good
         faith by the Board of Directors; provided, however, that if the issue
         or sale of shares of Common Stock or of rights or options to purchase
         Common Stock or of any stock or obligations convertible or
         exchangeable for Common Stock or of rights or obligations to purchase
         such stock or obligations involves a number of shares of Common Stock
         greater than 20% of the then issued and outstanding shares of Common
         Stock (excluding the issuance of shares in connection with the
         agreement among the Corporation, GroWest, Inc., and John A. Bremer),
         the determination of the Board of Directors will be based on an
         appraisal or valuation opinion issued by an investment banking firm or
         appraiser of recognized standing with expertise in providing such a
         valuation opinion or appraisal.

                 (F)      For the purposes of clause (A) above, the number of
         shares of Common Stock at any time outstanding shall include any
         shares acquired by the Corporation and held in its treasury, and the
         aggregate number of shares deliverable in respect of rights, options
         and convertible and exchangeable stock and obligations, referred to in
         clauses (B) and (C) above, at all times while such rights, options or
         securities remain outstanding and unexercised, unconverted or
         unexchanged, as the case may be.  The sale by the Corporation of
         shares of Common Stock held in its treasury shall be treated as an
         issuance or sale for purposes of this paragraph (iv).

         Fractional Interests.  No fraction of a share of Common Stock shall be
issued upon any conversion, but, in lieu thereof, there shall be paid, to the
holder of shares of Series B Preferred 




                                       18
<PAGE>   19
Stock surrendered for conversion as soon as practicable after the date such
shares of Series B Preferred Stock are surrendered for conversion, an amount in
cash equal to the same fraction of the market value of a share of Common Stock,
which shall be the last recorded sale price of such share on the NASDAQ Small
Cap Market (or if the Common Stock is not then traded in such market, then on
the principal exchange or in the principal market on which the Common Stock is
then listed or traded) on the day immediately preceding the date upon which
such shares are surrendered for conversion, or if there be no such recorded
sale price on such day, the last quoted bid price per share of Common Stock in
such market or on such stock exchange at the close of trading on such date.

         Notice of Adjustments.  Any adjustment of the Conversion Ratio as
herein provided shall remain in effect until further adjustment of the
Conversion Ratio as required hereunder.  Upon each such adjustment (i) a
written instrument, signed by an officer of the Corporation, setting forth such
adjustment and a computation and a summary of the facts upon which it is based,
and (ii) the resolutions, if any, of the Board of Directors passed in
connection therewith, shall forthwith be filed with the transfer agent or
agents for the Series B Preferred Stock and made available for inspection by
the stockholders, and any adjustment so evidenced, made in good faith, shall be
binding upon all stockholders and upon the Corporation.

         Conversion Procedures.  In order to convert shares of the Series B
Preferred Stock into shares of Common Stock, the holder thereof shall surrender
the certificate or certificates for shares of the Series B Preferred Stock,
duly endorsed to the Corporation or in blank, at the office of any transfer
agent for the Series B Preferred Stock (or such other place as may be
designated by the Corporation), and shall give written notice to the
Corporation at said office that he elects to convert the same and shall state
in writing therein the name or names in which he wishes the certificate or
certificates for shares of Common Stock to be issued.  The Corporation will, as
soon as practicable thereafter, deliver at said office to such holder of the
Series B Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which he shall be
entitled as aforesaid and make payment for any fractional shares.  All shares
of Series B Preferred Stock shall be deemed to have been converted as of the
date of the surrender of such shares for conversion as provided above, and the
person or persons entitled to receive shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.

         Status of Converted Series B Preferred Stock.  All shares of Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with
respect to such shares shall forthwith cease and determine except only the
right of the holders thereof to receive full shares of Common Stock in exchange
therefor and payment for any fractional share interest that would otherwise
result on such conversion.  Any shares of Series B Preferred Stock so converted
shall be permanently retired, shall no longer be deemed outstanding and shall
not be reissued and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the number of authorized shares
of Series B Preferred Stock accordingly.





                                       19
<PAGE>   20
         Reservation of Common Stock.  A number of authorized shares of Common
Stock sufficient to provide for the conversion, at the Conversion Ratio, of all
shares of Series B Preferred Stock outstanding shall at all time be reserved
for such conversion.

         Notice of Certain Events.  In case at any time

                 (i)      The Corporation shall declare any dividend in stock,
         cash, or property;

                 (ii)     the Corporation shall propose a subdivision of its
         outstanding shares of Common Stock into a greater number of shares of
         Common Stock or propose a combination of the Corporation's outstanding
         shares of Common Stock into a lesser number of shares of Common Stock;
         or

                 (iii)    any capital reorganization or any reclassification of
         capital stock of the Corporation or any consolidation, merger, sale of
         properties and assets or distribution is proposed by the Corporation
         which would require an adjustment of the Conversion Ratio:

then, and in each of said cases, the Corporation shall cause notice thereof to
be mailed to the transfer agent or agents for the Series B Preferred Stock and
to each holder of record of the outstanding shares of the Series B Preferred
Stock at the last address, if any, appearing on the books of the Corporation or
given by him to the Corporation for the purpose of notice.  Such notices shall
be mailed at least twenty days prior to the date on which the record date shall
be taken for such dividend, stock split, or combination, or to vote upon such
capital reorganization, reclassification, consolidation, merger, sale of
properties and assets or distribution, as the case may be.  Such notice shall
specify such record date or date for the closing of the transfer books.  Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Ratio and the
number, kind or class of shares or other securities or property which shall be
deliverable upon conversion of shares of Series B Preferred Stock.  In the case
of any action which would require the fixing of a record date, such notice
shall be given at least 10 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 15 days prior to the taking
of such proposed action.  Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.

         Valid Issuance.  All shares of Common Stock or other securities which
may be issued upon conversion of the shares of Series B Preferred Stock will
upon issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof and the Corporation shall take no action which will cause a
contrary result (including, without limitation, any action which would cause
the Conversion Ratio to be less than the par value, if any, the Common Stock).





                                       20
<PAGE>   21
                                   ARTICLE VI

                             RIGHT OF FIRST REFUSAL

         Notwithstanding anything contained herein to the contrary, while any
shares of Series B Preferred Stock are outstanding, if the Corporation shall at
any time issue or sell any shares of Common Stock (other than Excepted Shares)
for a cash consideration per share less than the Conversion Price in effect
immediately prior to such issue or sale (other than in a firm commitment
underwritten offering), the Corporation shall, prior to making any such issue
or sale, first offer such shares of Common Stock (for purposes of this Article
VI, the "Option Shares") for sale to the holders of the Series B Preferred
Stock, in accordance with the following provisions of this Article VI.

         Option Price, Terms; Offering Notices.  The price per Option Share at
which the Corporation shall be required to offer the Option Shares (for
purposes of this Article VI, the "Option Price") and the terms of such offer,
shall be the price at which and the terms upon which any proposed third party
purchaser shall have offered to purchase the Option Shares from the Corporation
and which the Corporation is prepared to accept.  Each offer required to be
made by the Corporation pursuant to this Article VI shall be made by a written
notice (for purposes of this Article VI, the "Offering Notice") which shall
state that the offer is being made pursuant to this Article VI and which shall
set forth the number of Option Shares, the name or names of the proposed
purchaser or purchasers of the Option Shares, the price per share offered by
such proposed purchaser or purchasers for the Option Shares, the method of
payment of the purchase price and the scheduled date of consummation of such
proposed sale.  A copy of the written offer from any proposed third-party
purchaser shall be attached to each Offering Notice.

         Offer to the Holders.  The Corporation shall offer the option Shares
to the record holders of the Series B Preferred Stock by delivering an offering
Notice to each such holder at his address as the same shall appear on the books
of the Corporation, by first class mail, postage prepaid.  The holders of the
Series B Preferred Stock shall deliver to the Corporation a reply notice within
thirty days following the receipt of such notice accepting the offer of the
Corporation with respect to all (but not less than all) of the Option Shares or
rejecting such offer.  If by such reply notice the holders of the Series B
Preferred Stock accept the offer made by the Corporation, the reply notice
shall constitute an agreement binding on the holders of the Series B Preferred
Stock and the Corporation purchase and sell the Option Shares at a price per
share equal to the Option Price.  If within such thirty-day period, the holders
of the Series B Preferred Stock shall have failed to deliver a reply notice
accepting the offer of the Corporation as to all of the Option Shares, the
holders shall be deemed to have rejected such offer.

         Lapse of Option.  If the foregoing offer to sell Option Shares has
been made by the Corporation and has not been accepted by the holders of the
Series B Preferred Stock, then the Corporation may sell not less than all of
the Option Shares at any time within, but not subsequent to, 60 days after the
lapse of the option granted pursuant to this Article VI; provided, however,
that no sale of the Option Shares shall be made at any price lower than the
Option Price or on terms





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<PAGE>   22
materially different from those specified in the Offering Notice or to any
person or persons other than the persons specified in the Offering Notice.

         Consummation of Purchases.  Each transaction of purchase and sale of
Option Shares pursuant to this Article VI shall be completed by delivery of the
stock certificates representing the Option Shares upon payment of the purchase
price to the Corporation.  Any such transaction shall be closed at such time
and place as shall be agreed upon by the parties thereto, or, if no such
agreement is reached, at the principal office of the Corporation on the 30th
day following the date of delivery of the last reply notice given in connection
with such transaction or, if such day shall not be a business day, on the first
business day thereafter during normal business hours.

                                  ARTICLE VII

                           EXCLUSION OF OTHER RIGHTS

         Except as otherwise specifically required by the provisions of the
DGCL, the Series B Preferred Stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth herein.  The shares of Series B Preferred Stock shall have no
preemptive or subscription rights, other than the right of first refusal set
forth in Article VI.





                                       22
<PAGE>   23
         IN WITNESS WHEREOF, the said Synagro Technologies, Inc. has caused
this statement to be duly executed by Donald L. Thone, its Chairman of the
Board and attested by Daniel L. Shook, its Secretary, on this 31st day of March
1998.


                                   SYNAGRO TECHNOLOGIES, INC.


                                   By:                                       
                                      ---------------------------------------
                                      Donald L. Thone, Chairman of the Board

ATTEST:


By:                                                
   -----------------------------
    Daniel L. Shook, Secretary





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