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                                                                      Exhibit 2

                CERTIFICATE OF DESIGNATION ESTABLISHING SERIES A
                  CONVERTIBLE PARTICIPATING PREFERRED STOCK OF
                             HA-LO INDUSTRIES, INC.

         HA-LO Industries, Inc., an Illinois corporation (the "CORPORATION"),
acting pursuant to Section 6.10 of the Illinois Business Corporation Act, does
hereby submit this Certificate of Designation Establishing Series A Convertible
Participating Preferred Stock.

         WHEREAS, Article Fourth of the Articles of Incorporation of the
Corporation authorizes Preferred Stock consisting of 20,000,000 shares, without
par value, issuable from time to time in one or more series;

         WHEREAS, the Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and by the provisions of Article Fourth
of the Corporation's Articles of Incorporation, as amended, to establish and fix
the number of shares to be included in any series of Preferred Stock and the
designations, rights, preferences, privileges, powers, restrictions, limitations
and qualifications of the shares of such series; and

         WHEREAS, it is the desire of the Board of Directors to establish and
fix the number of shares to be included in a new series of Preferred Stock
entitled "Series A Convertible Participating Preferred Stock," and with the
designations, rights, preferences, privileges, powers, restrictions, limitations
and qualifications as set forth herein.

         NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article Four of the
Corporation's Articles of Incorporation, there is hereby established Series A
Convertible Participating Preferred Stock, of which the Corporation is
authorized to issue 5,100,000 shares (the "SERIES A PREFERRED"), which shares
shall have the designations, rights, preferences, privileges, powers,
restrictions, limitations and qualifications set forth in a supplement to
Article Fourth of the Articles of Incorporation of the Corporation as follows:

                  SECTION 1. DIVIDENDS.

                  1A. GENERAL OBLIGATION. Except as otherwise provided herein,
no preferential dividends shall accrue on any share of the Series A Preferred (a
"SHARE").

                  1B. PARTICIPATING DIVIDENDS. If the Corporation declares or
pays any dividends upon the Common Stock (whether payable in cash, securities or
other property), other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series A
Preferred at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock


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issuable upon conversion of the Series A Preferred had all of the outstanding
Series A Preferred been converted immediately prior to the record date for
such dividend, or if no record date is fixed, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
Dividends payable to the holders of the Shares pursuant to this Section 1B
are referred to as "PARTICIPATING DIVIDENDS."

                  SECTION 2. LIQUIDATION PREFERENCE. Upon any liquidation,
dissolution or winding up of the Corporation (whether voluntary or involuntary),
each holder of Series A Preferred shall be entitled to be paid (i) before any
distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Liquidation Value of all Shares held by such holder (plus
all accrued but unpaid Participating Dividends), and (ii) in addition to the
payment under foregoing clause (i), an amount equal to such holder's pro rata
portion (based upon the aggregate number of Shares then outstanding) of the
Participating Liquidation Amount (such amounts, collectively the "SERIES A
PREFERENCE AMOUNT"). If, upon any such liquidation, dissolution or winding up of
the Corporation, the Corporation's assets to be distributed among the holders of
the Series A Preferred hereunder are insufficient to permit payment to such
holders of the aggregate Liquidation Value to which they are entitled, then the
entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among the holders of Series A Preferred. Not less
than 30 days prior to any payments under this Section 2A, the Corporation shall
mail written notice of the liquidation, dissolution or winding up to each record
holder of Series A Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Share and each share of Common Stock in
connection with such liquidation, dissolution or winding up.

                  SECTION 3. REDEMPTIONS.

                  3A. REDEMPTIONS UPON REQUEST.

                             (i) Each holder of Shares may require the
Corporation to redeem all or any part of such holder's Shares of Series A
Preferred by delivering a written request for redemption, together with a
certificate or certificates representing the Series A Preferred to be
redeemed (collectively, a "REDEMPTION NOTICE"), to the principal office of
the Corporation at any time during the 30-day period commencing on the one
year anniversary of the Date of Issuance (such 30-day period, the "REDEMPTION
PERIOD"); the redemption right provided by this Section 3A shall terminate
and cease to be exercisable with respect to any Shares for which the
Corporation has not received a Redemption Notice within the Redemption
Period. The Corporation shall redeem all Shares of Series A Preferred
properly surrendered for redemption at a price per Share equal to the
Liquidation Value plus all accrued and unpaid Participating Dividends, if
any. As soon as practicable following the Corporation's receipt of a
Redemption Notice timely delivered in accordance with this Section 3A, but in
any event within 60 days thereafter, the Corporation shall deliver to the
holder of the Shares surrendered for redemption cash in an amount equal to
the product of the Liquidation Value multiplied by the number of Shares being
redeemed, plus all accrued but unpaid Participating Dividends (the
"REDEMPTION PAYMENT AMOUNT"). If the funds of the Corporation legally


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available for redemption of Shares are insufficient to pay the Redemption
Payment Amount in full, then those funds that are legally available will be
used to redeem the maximum possible number of such Shares ratably among the
holders of Shares required to be redeemed.

                            (ii) Upon the occurrence of an Event of
Noncompliance, any Shares properly tendered for redemption for which the
Redemption Payment Amount has not been paid ("DEFAULT SHARES") shall remain
outstanding and entitled to all the rights and preferences of Series A Preferred
provided herein. If and for so long as an Event of Noncompliance continues, the
Default Shares shall accrue dividends, at a rate of 8% per annum on the Issuance
Price (the "INTEREST RATE"), for the period commencing on the date such Event of
Noncompliance first occurs with respect to such Default Shares until the date
the Corporation pays in full the Redemption Payment Amount plus interest payable
pursuant to this Section 3A for such Default Shares. If an Event of
Noncompliance continues for six months or longer, the Interest Rate with respect
to the Default Shares that are the subject of such Event of Noncompliance shall
increase by 4% per annum on each six month anniversary of the date the Event of
Noncompliance first occurred.

                           (iii) At any time prior to a redemption pursuant to
this Section 3A, the holder of such Shares shall be entitled instead to convert
all or any portion of the Shares pursuant to Section 5 hereof.

                  3B. REDEMPTION UPON SIGNIFICANT SALE. If the Corporation sells
all of the capital stock, or all or substantially all of the assets, of any
Subsidiary or significant business division of the Corporation for consideration
consisting, in whole or in part, of cash (each such sale, a "SIGNIFICANT SALE")
while any Shares of Series A Preferred remain outstanding, then the Corporation
shall use all of the cash proceeds of such Significant Sale to fund the working
capital and general corporate needs of the Corporation (including repayment of
outstanding indebtedness under the Corporation's line of credit or other
commercial bank loan) and/or to redeem the maximum possible number of Shares of
Series A Preferred that can be redeemed with such cash proceeds. The Corporation
shall deliver written notice of each Significant Sale to each holder of Series A
Preferred no later than 15 days after the Significant Sale has been consummated.
To the extent that the Corporation does not use all of the cash proceeds of any
Significant Sale for working capital and general corporate purposes within 90
days of such Significant Sale, the Corporation, within 15 days after the
expiration of such 90-day period, shall deliver a written purchase offer to all
holders of Series A Preferred then outstanding and promptly shall purchase
Shares of Series A Preferred from the holders who accept such offer, pro rata
among all such accepting holders based on the number of Shares then held by
each. The purchase price per Share shall equal the Liquidation Value plus all
accrued and unpaid Participating Dividends, if any.

                  3C. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be
entitled to any dividends accruing after the date on which the Redemption
Payment Amount (plus accrued interest pursuant to Section 3A) in respect of all
Shares tendered for redemption pursuant hereto has been paid to the holder of
such Share in full in cash. On such date,


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all rights of the holder of such Shares shall cease, and such Shares shall no
longer be deemed to be issued and outstanding.

                  3D. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which
are redeemed or otherwise acquired by the Corporation shall, at the
Corporation's election, be held in treasury, canceled and retired to authorized
but unissued shares and shall not be reissued, sold or transferred.

                  3E. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall
not be entitled to redeem or otherwise acquire any Shares of Series A Preferred,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of Series A Preferred on the basis of the number of Shares
owned by each such holder and, in such event, such offer shall be subject to the
acceptance of the applicable holder (in each case in such holder's sole
discretion).

                  3F. PROHIBITIONS ON REDEMPTIONS. In the event of any
prohibition on the redemption (whether pursuant to this Section 3 or otherwise)
of the Shares pursuant to any agreement, instrument or other arrangement to
which the Corporation is a party or its assets are bound, the Corporation will
use best efforts to obtain waivers or other appropriate relief from such
restrictions in order to permit any redemptions required pursuant to these
Articles of Incorporation and use commercially reasonable efforts to obtain
replacement financing for the Shares in order to permit any such required
redemption. This Section 3F shall not be interpreted as authorizing or otherwise
empowering the Corporation to enter into any such agreement, instrument or other
arrangement.

                  3G. OPTIONAL REDEMPTION UPON A CHANGE OF CONTROL. Upon the
consummation of a Change of Control, each holder of Series A Preferred shall be
entitled, at such holder's option and in such holder's sole discretion, to
require the Corporation to redeem all but not less than all Shares of Series A
Preferred owned by such holder for a redemption price equal to the greater of
(i) the aggregate Liquidation Value of such Shares (plus all accrued but unpaid
Participating Dividends), or (ii) the amount of consideration that would be
payable to such holder if such holder had converted all Shares owned by such
holder into Common Stock immediately prior to the effective time of the Change
of Control. Each holder of Series A Preferred shall have the right to elect the
benefits of either this Section 3G, Section 5A or Section 5G hereof in
connection with any such transaction.

                  SECTION 4. VOTING RIGHTS. The holders of the Series A
Preferred shall be entitled to notice of all stockholder meetings in accordance
with the Corporation's bylaws, and shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock and any other classes of capital stock voting with the Common Stock all
voting together as a single class. Each Share of Series A Preferred (including
any Default Shares not yet redeemed pursuant to Section 3) shall be entitled to
one vote for each share of Common Stock issuable upon conversion of


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such Share of Series A Preferred as of the record date for such vote or, if
no record date is specified, as of the date of such vote.

                  SECTION 5. CONVERSION.

                           5A. OPTIONAL CONVERSIONS. At any time and from time
to time, any holder of Series A Preferred may convert all or any portion of the
Series A Preferred held by such holder into a number of shares of Conversion
Stock computed by multiplying the number of Shares to be converted by a fraction
("CONVERSION RATIO"), the numerator of which is the Issuance Price and the
denominator of which is the Conversion Price then in effect.

                           5B. AUTOMATIC CONVERSIONS. Each Share of Series A
Preferred automatically, without action on the part of the Corporation or the
holder thereof, shall be converted into shares of Common Stock, at the then
effective Conversion Ratio, in the event that the average of the closing prices
of the Common Stock on the New York Stock Exchange (or, if the Common Stock at
any time is not listed on the New York Stock Exchange, on the primary securities
exchange on which the Common Stock may at the time be listed) equals or exceeds
$24.00 per share for any 10 consecutive trading days that occur on or after the
Date of Issuance. Any such automatic conversion shall be deemed to have occurred
as of the close of trading on the 10th such consecutive trading day.

                           5C. CONVERSION PROCEDURE.

                            (ii) Except as otherwise provided herein, each
conversion of Series A Preferred shall be deemed to have been effected as of the
close of business on the date on which the certificate or certificates
representing the Series A Preferred to be converted have been surrendered for
conversion at the principal office of the Corporation. In the event of an
automatic conversion pursuant to Section 5B, all Shares of Series A Preferred
then outstanding shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; PROVIDED,
HOWEVER, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such Shares of Series A Preferred are
delivered to the Corporation or its transfer agent as provided above. On the
date any such conversion has been effected, the rights of the holder of the
Shares converted, as a holder of Series A Preferred, shall cease and the Person
or Persons in whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Conversion Stock
represented thereby.

                           (iii) The conversion rights with respect to any Share
surrendered to the Corporation for redemption shall terminate on the date such
Share has been redeemed, unless the Corporation has failed to pay to the holder
thereof the full Redemption Payment Amount payable with respect to such Share.


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<PAGE>


                            (iv) Notwithstanding any other provision hereof,
if a conversion of Series A Preferred is to be made in connection with a
Change of Control or other transaction affecting the Corporation, the
conversion of any Shares may, at the election of the holder thereof, be
conditioned upon the consummation of such transaction, in which case such
conversion shall not be deemed to be effective until such transaction has
been consummated.

                             (v) As soon as possible after a conversion has been
effected (but in any event within three business days), the Corporation shall
deliver to the converting holder:

                                    (a) a certificate or certificates
         representing the number of shares of Conversion Stock issuable by
         reason of such conversion in such name or names and such denomination
         or denominations as the converting holder has specified;

                                    (b) the amount of all Participating
         Dividends declared and remaining unpaid with respect to the Shares
         converted, plus the amount payable under subsection (viii) below with
         respect to such conversion; and

                                    (c) a certificate representing any Shares
         which were represented by the certificate or certificates delivered to
         the Corporation in connection with such conversion but which were not
         converted.

                            (vi) The Corporation shall not close its books
against the transfer of Series A Preferred or of Conversion Stock issued or
issuable upon conversion of Series A Preferred in any manner which significantly
interferes with the timely conversion of Series A Preferred. The Corporation
shall assist and cooperate with any holder of Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).

                           (vii) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Conversion Stock,
solely for the purpose of issuance upon the conversion of the Series A
Preferred, such number of shares of Conversion Stock issuable upon the
conversion of all outstanding Series A Preferred. All shares of Conversion Stock
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Corporation
shall take all such actions as may be necessary to assure that all such shares
of Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of the New York Stock Exchange
and/or any other domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuances which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Conversion Stock to be less


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than the number of such shares required to be reserved hereunder for issuance
upon conversion of the Series A Preferred.

                          (viii) In lieu of any fractional shares to which the
holder of Series A Preferred Stock otherwise would be entitled, the Corporation
shall pay to such holder cash equal to such fraction multiplied by the closing
price of the Common Stock on the New York Stock Exchange, or any other domestic
securities exchange on which the Common Stock is listed or admitted to unlisted
trading privileges, on the trading date immediately prior to the conversion
date.

                  5D. CONVERSION PRICE.

                             (i) In order to prevent dilution of the conversion
rights granted under this Section 5, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 5D.

                            (ii) If and whenever the Corporation issues or sells
or, in accordance with paragraph 5E is deemed to have issued or sold, any shares
of its Common Stock for a consideration per share less than the Conversion Price
in effect immediately prior to the time of such issuance or sale, then
immediately upon such issue or sale (or deemed issue or sale) the Conversion
Price shall, except with respect to the Shares then held by any holder of Shares
who actually purchases any such securities from the Corporation in such issuance
or sale (or deemed issuance or sale), be reduced to the Conversion Price
determined by dividing (a) the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale (or deemed
issue or sale) by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (y) the consideration, if any,
received by the Corporation upon such issue or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale.

                           (iii) Notwithstanding the foregoing, there shall be
no adjustment in the Conversion Price as a result of any issue or sale (or
deemed issue or sale) of shares of Common Stock (a) issued to, or issued upon
exercise of options granted to, employees, directors or consultants of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors, (b) issuable
upon the conversion of the Series A Preferred, or (c) issued by the Corporation
in connection with acquisitions, bank financing, the formation of strategic
partnership and similar transactions approved by the Corporation's Board of
Directors.

                  5E. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under paragraph 5D, the following
shall be applicable:

                             (i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Corporation in any manner grants or sells any Options and the price per share
for which Common Stock is issuable upon the exercise of such Options, or upon
conversion or exchange of any


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Convertible Securities issuable upon exercise of such Options, is less than
the Conversion Price in effect immediately prior to the time of the granting
or sale of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the granting or
sale of such Options for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (a) the total amount, if any, received or receivable
by the Corporation as consideration for the granting or sale of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such
Options. No further adjustment of the Conversion Price shall be made when
Convertible Securities are actually issued upon the exercise of such Options
or when Common Stock is actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.

                            (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Corporation in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon conversion or exchange
thereof is less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the Corporation at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (a) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the 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 adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 5, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.

                           (iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any


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Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time, the Conversion Price in effect at the time of such
change shall be immediately adjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 5E, if the terms of any
Option or Convertible Security which was outstanding as of the date of the
initial issuance of the Series A Preferred 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; PROVIDED THAT no such change shall at any time cause the
Conversion Price hereunder to be increased.

                            (iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. Upon the expiration of any Option or the termination of
any right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Price then in effect hereunder shall
be adjusted immediately to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued. For purposes of paragraph 5E, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of the initial issuance of the Series A Preferred shall not cause the
Conversion Price hereunder to be adjusted unless, and only to the extent that, a
change in the terms of such Option or Convertible Security caused it to be
deemed to have been issued after the date of issuance of the Series A Preferred.

                             (v) CALCULATION OF CONSIDERATION RECEIVED. If any
Common Stock, Option or Convertible Security is issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor (net of
non-customary discounts, commissions and related expenses). If any Common Stock,
Option or Convertible Security is issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the
Corporation or any Subsidiary of the Corporation is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair value of
such portion of the assets and business of the non-surviving entity as is
attributable to such Common Stock, Option or Convertible Security, as the case
may be. The fair value of any consideration other than cash and securities shall
be determined by the Board of Directors of the Corporation, in good faith, and
reported to the holders of Series A Preferred in writing. If any holders of
Shares object to such determination of fair value within 20 days after receipt
of such written notice, the Board of Directors and such holder shall negotiate
in good faith to reach agreement regarding such fair market value; provided
that, if such parties are unable to reach


                                   9
<PAGE>


agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration selected by the Corporation and approved
by the holders of at least a majority of the then outstanding Shares (such
approval not to be unreasonably withheld). The determination of such
appraiser shall be final and binding upon the parties, and the fees and
expenses of such appraiser shall be borne by the Corporation.

                            (vi) INTEGRATED TRANSACTIONS. In case any Option is
issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for the Market Price of the shares of Common
Stock issuable thereunder (taking into account the securities issued in such
integrated transaction).

                           (vii) TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.

                          (viii) RECORD DATE. If the Corporation takes a record
of the holders of Common Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (b) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall 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 upon the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

                            (ix) MINIMAL ADJUSTMENTS. All calculations under
this Section 5 shall be made to the nearest cent or to the nearest one
hundredth (1/100) of a share, as the case may be. No adjustment in the
Conversion Price shall be made if such adjustment would result in a change in
the Conversion Price of less than $0.01; however, any adjustment of less than
$0.01 that is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of $0.01 or more in the Conversion Price.

                  5F. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation 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 Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.


                                     10
<PAGE>


                  5G. CONVERSION UPON A RECAPITALIZATION. Prior to the
consummation of any recapitalization, reorganization, reclassification,
consolidation or merger involving the Corporation which is effected in such a
manner that the holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities, cash or assets with respect
to or in exchange for Common Stock (any such event, a "RECAPITALIZATION"), the
Corporation shall make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the then outstanding Shares of
Series A Preferred Stock) to insure that each of the holders of Series A
Preferred shall thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series A Preferred, such shares of stock, securities, cash or assets as such
holder would have received in connection with such Recapitalization if such
holder had converted its Series A Preferred immediately prior to such
Recapitalization. In each such case, the Corporation also shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the then outstanding Shares of Series A Preferred Stock) to insure that the
provisions of this Section 5 thereafter shall be applicable to the Series A
Preferred (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such Recapitalization, and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of Series A Preferred, if the value so reflected is less than
the Conversion Price in effect immediately prior to such Recapitalization).

                  5H. CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series A
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 5 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share of Series A
Preferred.

                  5I. NOTICES.

                           (i) Promptly upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all holders of
Series A Preferred, setting forth in reasonable detail and certifying the
calculation of such adjustment.

                          (ii) The Corporation shall give written notice to all
holders of Series A Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offers to holders of Common Stock or (c) for determining rights to vote with
respect to any Change of Control, dissolution or liquidation.


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<PAGE>


                         (iii) The Corporation shall also give written notice
to all holders of Series A Preferred at least 20 days prior to the date on which
any Recapitalization shall take place.

                  SECTION 6. PROTECTIVE PROVISIONS. In addition to any other
class vote that may be required by law or as provided herein, so long as any
Shares of Series A Preferred are outstanding, the Corporation shall not, without
first obtaining the affirmative vote of the holders of at least a majority of
the Shares of Series A Preferred then outstanding, voting as a class:

                  (i) increase the number of authorized Series A Preferred or
         issue any additional shares of Series A Preferred, except as
         contemplated by the terms of the Series A Preferred;

                 (ii) amend or modify the powers, preferences or rights of the
         Series A Preferred or amend, alter or repeal any of the provisions of
         the Corporation's Articles of Incorporation or By-laws (including by
         merger or similar transaction or otherwise) so as to eliminate the
         Series A Preferred or otherwise affect adversely the powers,
         preferences or rights of the holders of Series A Preferred; or

                (iii) other than the Series A Preferred, create, authorize,
         issue or permit to exist any class of capital stock or series of
         preferred shares that ranks senior to the Series A Preferred with
         respect to dividend rights or rights on liquidation, winding up or
         dissolution, or reclassify any class or series of any junior stock
         into, or authorize any securities exchangeable for, convertible into or
         evidencing the right to purchase, any such class or series.

                  SECTION 7. TRANSFERS; REGISTRATION OF TRANSFER. The Shares of
Series A Preferred shall be freely transferable, subject to compliance with
applicable securities laws. The Corporation shall keep at its principal office a
register for the registration of Series A Preferred. Upon the surrender of any
certificate representing Series A Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Series A
Preferred represented by such new certificate from the date to which dividends
have been fully paid on such Series A Preferred represented by the surrendered
certificate.

                  SECTION 8. REPLACEMENT OF CERTIFICATES. Upon receipt of
evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder shall be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of any certificate evidencing Shares of
Series A Preferred, and in the case of any such loss, theft


                                   12
<PAGE>


or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of Shares
of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series A Preferred represented
by such new certificate from the date to which dividends have been fully paid
on such lost, stolen, destroyed or mutilated certificate.

                  SECTION 9. DEFINITIONS.

                  "CHANGE OF CONTROL" means any (i) reorganization or merger of
the Corporation with or into any other corporation or entity (other than a
consolidation or merger in which the Corporation is the continuing entity and
which does not result in any adverse change in the rights, preferences or
privileges of the Common Stock), (ii) a sale, lease, exchange or transfer of all
or substantially all of the assets of the Corporation in one transaction or
series of related transactions, (iii) a change in the majority of the Board of
Directors, occurring during any 13-month period commencing on January 17, 2000
that was not approved by a majority of the directors serving on January 17, 2000
or by a majority of those subsequently elected directors whose election or
nomination for election was approved by a majority of the directors then serving
on the Board of Directors, (iv) merger, consolidation, reorganization or similar
transaction involving the Corporation, or the issuance, sale or transfer of
voting capital stock of the Corporation, by the Corporation or otherwise, in one
transaction or series of related transactions, such that, after the consummation
of any such transaction(s), the stockholders of the Corporation prior to the
transaction(s) own less than 50% of the voting securities of the surviving
corporation or entity or the Corporation, as the case may be, or (v) the
acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), or two
or more persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of the
outstanding shares of voting stock of the Corporation; PROVIDED, HOWEVER, that
the foregoing shall exclude any such acquisition (A) made by the Corporation or
any Subsidiary, or (B) made by an employee benefit plan (or related trust)
sponsored or maintained by the Corporation.

                  "COMMON STOCK" means, collectively, the Corporation's no par
value common stock and any capital stock of any class of the Corporation
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.

                  "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
without duplication, 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 subparagraphs 5D(i) and 5D(ii) hereof whether or not the Options or
Convertible


                                       13
<PAGE>


Securities are actually exercisable at such time, plus the number of shares
of Common Stock issuable upon conversion of the outstanding Series A
Preferred, plus the number of shares of Common Stock issuable upon exercise
of outstanding options and warrants to purchase Common Stock as such number
of shares is proportionately adjusted for stock splits, stock dividends,
stock combinations and other recapitalizations.

                  "CONVERSION PRICE" initially shall be equal to $10.00, but is
subject to adjustment in accordance with Section 5.

                  "CONVERSION STOCK" means shares of the Corporation's Common
Stock; provided that if there is a change such that the securities issuable upon
conversion of the Series A Preferred are issued by an entity other than the
Corporation or there is a change in the type or class of securities so issuable,
then the term "Conversion Stock" shall mean the security issuable upon
conversion of each share of the Series A Preferred if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.

                  "CONVERTIBLE SECURITIES" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock.

                  "DATE OF ISSUANCE" means the date on which the Corporation
initially issues any Shares, regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Share.

                  "EVENT OF NONCOMPLIANCE" means, with respect to any Shares for
which a redemption notice and the certificates representing such Shares have
been timely received by the Corporation, the failure by the Corporation to have
paid, within the 60-day period described in Section 3A, the Redemption Payment
Amount (including any accrued and unpaid Participating Dividends).

                   "ISSUANCE PRICE" shall be equal to $10.00 (as proportionately
adjusted for stock splits, stock dividends, stock combinations and other
recapitalizations).

                  "JUNIOR SECURITIES" means the Common Stock and any capital
stock or other equity securities of the Corporation with rights and preferences
(including with respect to liquidation) subordinate to the Series A Preferred.

                  "LIQUIDATION VALUE" of any Share as of any particular date
shall be equal to $10.00 (as proportionately adjusted for stock splits, stock
dividends, stock combinations and other recapitalizations).

                  "MARKET PRICE" of any security means the average of the
closing prices of such security's sales on the primary securities exchange on
which such security may at the time be listed, or, if there has been no sales on
such exchange on any day, the average of the highest bid and lowest asked prices
on such exchange at the end of such day, or, if


                                      14
<PAGE>


on any day such security is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New York
time, or, if on any day such security is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such
case averaged over a period of 21 trading days consisting of the days as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any
securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the "Market Price" shall be the fair value thereof determined jointly
by the Corporation and the designee of holders of at least a majority of the
then outstanding Shares. If such parties are unable to reach agreement within
a reasonable period of time, such fair value shall be determined by an
independent appraiser experienced in valuing securities selected by the
Corporation and approved by the designee of holders of at least a majority of
the then outstanding Shares (such approval not to be unreasonably withheld).
The determination of such appraiser shall be final and binding upon the
parties, and the Corporation shall pay the fees and expenses of such
appraiser.

                  "OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.

                  "PARTICIPATING LIQUIDATION AMOUNT" means that portion of all
remaining assets and funds of the Corporation available for distribution to the
stockholders of the Corporation after payment in full of the aggregate
Liquidation Value with respect to the Shares of Series A Preferred then
outstanding, expressed as a fraction the numerator of which is the number of
shares of Common Stock issuable upon the conversion under Section 6 of all
Series A Preferred outstanding immediately prior to such event and the
denominator of which is the sum of the number of shares of Common Stock
outstanding immediately prior to such event plus the number of all shares of
Common Stock issuable upon conversion under Section 6 of all Series A Preferred
outstanding immediately prior to such event.

                  "PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.

                  "SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more


                                    15
<PAGE>


Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity
if such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.

                  SECTION 10. AMENDMENTS AND WAIVERS. No amendment, modification
or waiver shall be binding or effective with respect to any provision of this
Statement of Resolution without the prior written consent of the holders of at
least 60% of the then outstanding Shares; provided that no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series A
Preferred then outstanding.

                  SECTION 11. NOTICES. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be
delivered by reputable overnight courier service, charges prepaid, and shall be
deemed to have been given when so sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).


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