STATEMENT RESPECTING RIGHTS
                                     OF
                          SERIES C PREFERRED STOCK
                                     OF
                         PEGASUS TECHNOLOGIES, INC.

                     DESIGNATION OF SERIES C PREFERRED



         Two Million Seven Hundred Ninety-Eight Thousand One Hundred
Sixty-One (2,798,161) of authorized shares of Preferred Stock are hereby
designated "Series C Preferred Stock" (the "SERIES C PREFERRED"). The
rights, preferences, privileges, restrictions and other matters relating to
the Series C Preferred are as follows:

1.       DIVIDEND RIGHTS.

         (a) DECLARED DIVIDENDS. Holders of Series C Preferred, in
preference to the holders of Common Stock and any other stock of the
Corporation that is not by its terms expressly senior in right of payment
to the Series C Preferred (collectively, "JUNIOR STOCK," which term shall
not include the Series B Preferred), shall be entitled to receive cash
dividends that accrue cumulatively during each fiscal year of the
Corporation at the rate of 6% of the Original Issue Price (as defined
herein) per annum on each outstanding share of Series C Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares). Dividends on the Series C
Preferred shall be cumulative and shall begin to accumulate (whether or not
declared) on the date of issuance of the Series C Preferred. Such dividends
shall be payable if, when and as declared by the Board of Directors, but
only out of funds that are legally available therefor. In the event that
the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) other than
dividends or portions thereof payable in shares of Common Stock, the
Corporation shall also declare and pay to the holders of the Series C
Preferred at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends that would have been declared
and paid with respect to the Common Stock issuable upon conversion of the
Series C Preferred had all of the outstanding Series C 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; provided, however,
that such dividends shall accrue and be paid to the holders of the Series C
Preferred only in an amount equal to the amount by which the dividends
payable on the Common Stock exceed the other dividends payable with respect
to the Series C Preferred for the same period.

         (b) PREFERENCE.

                  (i) So long as any Series C Preferred remains
outstanding, without the prior written unanimous consent of the holders of
the outstanding shares of Series C Preferred, the Corporation shall not,
nor shall it permit any Subsidiary to, redeem, purchase or otherwise
acquire directly or indirectly any Junior Stock, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any distribution
upon any Junior Stock. The provisions of this Section 1(b) shall not,
however, apply to (A) the acquisition of shares of any Junior Stock in
exchange for shares of any other Junior Stock, or (B) the payment of cash
dividends on the Common Stock to the extent that (x) there are no accrued
but unpaid Series C Preferred dividends and (y) equivalent dividends are
paid on the Series C Preferred as provided above, or (C) any repurchase of
the capital stock of the Corporation in accordance with the terms of any
stock incentive plan of the Corporation that has been approved by the
Corporation's Board of Directors.

                  (ii) The Series B Preferred and the Series C Preferred
shall have pari passu dividend rights and neither series shall have
dividend preferences over the other. Dividends shall not be declared on the
Series B Preferred unless also declared on the Series C Preferred, and
dividends shall not be declared on the Series C Preferred unless also
declared on the Series B Preferred; provided, however that partial
dividends may be declared for each series so long as dividends are
proportionately declared for both the Series B Preferred and the Series C
Preferred (relative to the accrued, but unpaid dividends for each Series).

         (c) PARTIAL DIVIDENDS. In the event the Board of Directors of the
Corporation declares dividends in a fiscal year in an amount less than the
aggregate amount of the dividend preference on the Series C Preferred set
forth in Section 1(a) above, then the entire amount of the dividends
declared by the Board of Directors shall be distributed ratably among the
holders of the Series C Preferred.

2.       VOTING RIGHTS.

         (a) GENERALLY. Except as otherwise provided herein or as required
by law, the Series C Preferred shall vote with the shares of the Common
Stock of the Corporation (and not as a separate class) at any annual or
special meeting of stockholders of the Corporation, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series C Preferred shall be
entitled to such number of votes as shall be equal to the whole number of
shares of Common Stock into which such holder's aggregate number of shares
of Series C Preferred are convertible (pursuant to Section 4 below)
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent.

         (b) SEPARATE VOTE OF SERIES C PREFERRED. For so long as Kennecott
Energy Company owns at least four percent (4%) of the Common Stock Deemed
Outstanding (as defined below) or 375,000 shares of Series B Preferred, the
Corporation shall not, without first obtaining the affirmative vote or
written consent of a majority in interest of the holders of the then
outstanding shares of Series C Preferred, voting together as a single class
(the "REQUIRED HOLDERS"), (i) amend or repeal any provision of, or add any
provision to, the Articles of Incorporation or Bylaws of the Corporation if
such action would alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, or create a
class of stock senior in rights and preferences to, the Series B Preferred
or Series C Preferred, (ii) effect any Liquidation (as defined in Section
3(c)), (iii) issue equity securities other than Junior Stock (or any
securities convertible into or exchangeable for such equity securities
including, without limitation, debt securities containing equity features),
(iv) increase the number of the Corporation's fully diluted equity
authorized for issuance to employees pursuant to any incentive stock or
other plan, whether currently in effect or subsequently created, (v) effect
the buyback or repurchase of Common Stock to the Corporation (except for
buybacks from directors or employees under the equity incentive plan), (vi)
increase the authorized size of the Board of Directors to more than five
(5) members, (vii) pay a dividend on the Series B Preferred or Series C
Preferred in other than cash, or (viii) increase the Corporation's debt
financing beyond the amounts permitted in the Stockholders and Voting
Agreement currently in effect. In addition, prior to taking any of the
foregoing actions, the Corporation shall obtain the consent of the holders
of the Series B Preferred in the manner and to the extent required by the
Statement Respecting Rights for the Series B Preferred.

3.       LIQUIDATION RIGHTS.

         (a) LIQUIDATION AMOUNT. Upon any Liquidation (as defined below),
whether voluntary or involuntary, before any distribution or payment shall
be made to the holders of any Junior Stock, the holders of Series C
Preferred shall be entitled to be paid out of the assets of the Corporation
an amount with respect to each share of Series C Preferred equal to the sum
of (i) the Liquidation Value subject to appropriate adjustment to reflect
any stock dividend, stock split, combination or any other similar
reclassification, reorganization or recapitalization affecting the shares
of Series C Preferred plus (ii) all accumulated but unpaid dividends
thereon (the "SERIES C LIQUIDATION PREFERENCE"). Notwithstanding the
foregoing, upon any Liquidation, the holders of the Series C Preferred can
convert the Series C Preferred to Common Stock.

         (b) PARTICIPATION. Once the holders of Series C Preferred have
received payment of the Series C Liquidation Preference, the holders of the
Series C Preferred shall participate in any additional distributions
proportionately with the Common Stock as if such Series C Preferred was
converted into Common Stock on or prior to the Liquidation.

         (c) LIQUIDATION EVENTS. At the option of the Required Holders, the
following events shall be considered a "LIQUIDATION" for purposes of
Section 3(a):

                  (i) the dissolution, liquidation or winding up of the
Corporation;

                  (ii) any merger, acquisition, sale of voting control,
consolidation, business combination, reorganization or recapitalization of
the Corporation (whether accomplished in a single transaction or a series
of related transactions) in which the stockholders of the Corporation
immediately prior to such transaction own capital stock representing less
than 50% of the Corporation's voting power immediately after such
transaction (an "ACQUISITION"); or

                  (iii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation (an "ASSET TRANSFER").

         (d) VALUATION. In any of the events deemed to be a Liquidation, if
the consideration received by the Corporation is other than cash, its value
will be deemed to be its fair market value as determined in good faith by
the Board of Directors. Any securities shall be valued as follows:

                  (i) securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:

                                    (A) if traded on a securities exchange
                  or through the Nasdaq National Market, the value shall be
                  deemed to be the average of the closing prices of the
                  securities on such quotation system over the thirty (30)
                  day period ending three (3) days prior to the closing;

                                    (B) if actively traded
                  over-the-counter, the value shall be deemed to be the
                  average of the closing bid or sale prices (whichever is
                  applicable) over the thirty (30) day period ending three
                  (3) days prior to the closing; and,

                                    (C) if there is no active public
                  market, the value shall be the fair market value thereof,
                  as determined by the Board of Directors.

                  (ii) the method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) may be to make an appropriate discount from
the market value determined as above in (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as determined by the Board of
Directors.

         (e) PROPORTIONATE PAYMENTS. The Series B Preferred and the Series
C Preferred shall have pari passu liquidation rights and neither series
shall have liquidation preferences over the other. If, upon any
Liquidation, the assets of the Corporation shall be insufficient to make
payment in full to all holders of Series C Preferred and the Series B
Preferred, then such assets shall be distributed among the holders of
Series C Preferred and the Series B Preferred at the time outstanding
ratably in proportion to the full amounts to which they would otherwise
respectively be entitled.

4.       CONVERSION RIGHTS.

         The holders of the Series C Preferred shall have the following
rights with respect to the conversion of the Series C Preferred into shares
of Common Stock:

         (a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series C Preferred may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock
to which a holder of Series C Preferred shall be entitled upon conversion
shall be the product obtained by multiplying the "Series C Conversion Rate"
then in effect (determined as provided in Section 4(c)) by the number of
shares of Series C Preferred being converted.

         (b) AUTOMATIC CONVERSION. Each share of Series C Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series C Conversion Price, at any time upon the earliest of
(i) the conversion by Kennecott Energy Company of all of the outstanding
Series B Preferred owned by it, and (ii) immediately prior to a Qualified
IPO. Upon such automatic conversion, all accrued but unpaid dividends, if
any, shall be paid in accordance with Section 4(e)(ii).

         (c) SERIES C PREFERRED CONVERSION RATE. The conversion rate in
effect at any time for conversion of the Series C Preferred (the "SERIES C
CONVERSION RATE") shall be the quotient obtained by dividing the Original
Issue Price by the "Series C Conversion Price" calculated as provided in
Section 4(d).

         (d) CONVERSION PRICE. The conversion price for the Series C
Preferred (the "SERIES C CONVERSION PRICE") shall initially be the Average
Series B Issue Price, as such amount may vary from time to time. Such
initial Series C Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series C Conversion
Price herein shall mean the Series C Conversion Price as so adjusted.

         (e) MECHANICS OF CONVERSION.

                  (i) OPTIONAL CONVERSION. Each holder of Series C
Preferred who desires to convert the same into shares of Common Stock
pursuant to this Section 4 shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer
agent for the Series C Preferred, and shall give written notice to the
Corporation at such office that such holder elects to convert the same.
Such notice shall state the number of shares of Series C Preferred being
converted. Thereupon, the Corporation shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled and shall promptly
pay (A) in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such
conversion), the Accrued Series A Preference and any accrued but unpaid
dividends and any declared but unpaid dividends on the shares of Series C
Preferred being converted, and (B) in cash (at the Common Stock's fair
market value determined by the Board of Directors as of the date of
conversion) the value of any fractional share of Common Stock otherwise
issuable to any holder of Series C Preferred. Such conversion shall be
deemed to have been made at the close of business on the date of such
surrender of the certificates representing the shares of Series C Preferred
to be converted, and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.

                  (ii) AUTOMATIC CONVERSION. Upon the occurrence of an
event specified in Section 4(b) above, the outstanding shares of Series C
Preferred shall be converted into Common Stock 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 conversion unless the certificates evidencing such
shares of Series C Preferred are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the Corporation or
its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series C Preferred at the
office of the Corporation or any transfer agent for the Series C Preferred,
there shall be issued and delivered to such holder promptly at such office
and in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which the shares of Series C Preferred surrendered were convertible on the
date on which such automatic conversion occurred, and the Corporation shall
promptly pay in cash (unless otherwise agreed by the holders of the Series
C Preferred), all accrued but unpaid dividends on the shares of Series C
Preferred converted. Until surrendered as provided above, each certificate
formerly representing shares of Series C Preferred shall be deemed for all
corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.

         (f) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date that the
first share of Series C Preferred is issued (the "ORIGINAL ISSUE DATE")
effect a subdivision of the outstanding Common Stock without a
corresponding subdivision of the Series C Preferred, the Series C
Conversion Price in effect immediately before that subdivision shall be
proportionately decreased. Conversely, if the Corporation shall at any time
or from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares without a
corresponding combination of the Series C Preferred, the Series C
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection (f) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

         (g) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Corporation at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable
in additional shares of Common Stock, in each such event the Series C
Conversion Price that is then in effect shall be decreased as of the time
of such issuance or, in the event such record date is fixed, as of the
close of business on such record date, by multiplying the Series C
Conversion Price then in effect by a fraction (1) the numerator of which is
the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date, and (2) the denominator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Series C Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter
the Series C Conversion Price shall be adjusted pursuant to this subsection
(g) to reflect the actual payment of such dividend or distribution;
provided, further, however, that no such adjustment shall be made if, with
the consent of the holders of the Series C Preferred the holders of Series
C Preferred simultaneously receive (i) a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common
Stock they would have received if all outstanding shares of Series C
Preferred had been converted into Common Stock on the date of such event or
(ii) a dividend or other distribution of shares of Series C Preferred, as
of the date of such event, convertible into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.

         (h) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, in each
such event provision shall be made so that the holders of the Series C
Preferred shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of other
securities of the Corporation which they would have received had their
Series C Preferred been converted into Common Stock on the date of such
event and had they thereafter during the period from the date of such event
to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, subject to all other adjustments
called for during such period under this Section 4 with respect to the
rights of the holders of the Series C Preferred or with respect to such
other securities by their terms; provided, further, however, that no such
adjustment shall be made if the holders of Series C Preferred
simultaneously receive a dividend or other distribution of such securities
in an amount equal to the amount of such securities as they would have
received if all outstanding shares of Series C Preferred had been converted
into Common Stock on the date of such event.

         (i) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series C Preferred is changed
into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other
than a Liquidation or a subdivision or combination of shares or stock
dividend provided for elsewhere in this Section 4), each holder of Series C
Preferred shall have the right thereafter to convert the Series C Preferred
into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such
shares of Series C Preferred could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.

         (j) REORGANIZATIONS, ACQUISITIONS OR ASSET TRANSFERS. If at any
time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock, an Acquisition or Asset Transfer (other
than a recapitalization, subdivision, combination, reclassification, or
stock dividend of shares provided for elsewhere in this Section 4),
provision shall be made so that the holders of the Series C Preferred shall
thereafter be entitled to receive upon conversion of the Series C Preferred
the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, Acquisition or Asset Transfer subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 4 with respect to the rights of the holders of Series C
Preferred after the capital reorganization, Acquisition or Asset Transfer
to the end that the provisions of this Section 4 (including adjustment of
the Series C Conversion Price then in effect and the number of shares
issuable upon conversion of the Series C Preferred) shall be applicable
after that event and be as nearly equivalent as practicable.

         (k) SALE OF SHARES BELOW SERIES C CONVERSION PRICE.

                  (i) If at any time or from time to time after the
Original Issue Date, the Corporation issues or sells, or is deemed by the
express provisions of this subsection (k) to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), other than as a
dividend or other distribution on any class of stock as provided in Section
4(g) above, and other than a subdivision or combination of shares of Common
Stock as provided in Section 4(f) above, for an Effective Price (as
hereinafter defined) that is less than the then-effective Series C
Conversion Price, then and in each such case the then-existing Series C
Conversion Price shall be reduced, as of the opening of business on the
date of such issue or sale, to a price determined by multiplying the Series
C Conversion Price by a fraction (A) the numerator of which shall be (x)
the number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, plus (y) the number of shares of
Common Stock which the aggregate consideration received (as determined by
paragraph (ii) of this subsection (k)) by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at
such Series C Conversion Price, and (B) the denominator of which shall be
the number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued.

                  (ii) For purposes of making any adjustment required under
this subsection (k), the consideration received by the Corporation for any
issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Corporation in connection with such
issue or sale but without deduction of any expenses payable by the
Corporation, (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by
the Board of Directors, and (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities or other assets
of the Corporation for a consideration which covers both, be computed as
the portion of the consideration so received that may be reasonably
determined in good faith by the Board of Directors to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or
options.

                  (iii) For purposes of the adjustment required under this
subsection (k), if the Corporation issues or sells any rights or options
for the purchase of, stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "CONVERTIBLE SECURITIES") and if the Effective Price of such
Additional Shares of Common Stock is less than the Series C Conversion
Price, in each case the Corporation shall be deemed to have issued at the
time of the issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Corporation for the issuance of such
rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any, payable to
the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) upon the
conversion thereof; provided, that if in the case of Convertible Securities
the minimum amounts of such consideration cannot be ascertained, but are a
function of anti-dilution or similar protective clauses, the Corporation
shall be deemed to have received the minimum amounts of consideration
without reference to such clauses; provided further that if the minimum
amount of consideration payable to the Corporation upon the exercise or
conversion of rights, options or Convertible Securities is reduced over
time or on the occurrence or nonoccurrence of specified events other than
by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such minimum amount of consideration
is reduced; provided further that if the minimum amount of consideration
payable to the Corporation upon the exercise or conversion of such rights,
options or Convertible Securities is subsequently increased, the Effective
Price shall be again recalculated using the increased minimum amount of
consideration payable to the Corporation upon the exercise or conversion of
such rights, options or Convertible Securities. No further adjustment of
the Series C Conversion Price, as adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a result of the
actual issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having
been exercised, the Series C Conversion Price as adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted to
the Series C Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights
of conversion of such Convertible Securities, and such Additional Shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Corporation upon the exercise, plus the consideration, if
any, actually received by the Corporation for the granting of all such
rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually
converted, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to
prior conversions of Series C Preferred.

                  (iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued by the Corporation or deemed to be issued
pursuant to this subsection (k), other than (A) shares of Common Stock
issued or issuable upon conversion of the Series C Preferred or the Series
B Preferred; (B) the Reserved Employee Stock; (C) shares of Common Stock
issued in any merger, Acquisition, strategic transaction, or equipment
leasing or debt financing, any of which must have been unanimously approved
by the members of the Board; (D) shares of Common Stock issued or issuable
by reason of a dividend, stock split or other distribution on shares of
Common Stock that is covered by Section 4(f), or Section 4(g); or (E)
shares of Common Stock issued or issuable as a dividend or distribution on
the Series C Preferred or the Series B Preferred. The "EFFECTIVE PRICE" of
Additional Shares of Common Stock shall mean the quotient determined by
dividing the total number of Additional Shares of Common Stock issued or
sold, or deemed to have been issued or sold by the Corporation under this
subsection (k), into the aggregate consideration received, or deemed to
have been received by the Corporation for such issue under this subsection
(k), for such Additional Shares of Common Stock.

         (l) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series C Conversion Price, the Corporation, at its
expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series C Preferred at the holder's
address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of
(A) the Series C Conversion Price at the time in effect, and (B) the type
and amount, if any, of other property which at the time would be received
upon conversion of the Series C Preferred.

         (m) NOTICES OF RECORD DATE. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Liquidation or other capital reorganization
of the Corporation, any reclassification or recapitalization of the capital
stock of the Corporation, or any merger or consolidation of the Corporation
with or into any other corporation, the Corporation shall mail to each
holder of Series C Preferred at least ten (10) days prior to the record
date specified therein a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (B) the date on which any
such Liquidation, reorganization, reclassification, transfer,
consolidation, merger, is expected to become effective, and (C) the date,
if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property
deliverable upon such Liquidation, reorganization, reclassification,
transfer, consolidation, or merger.

         (n) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Series C Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
share of Series C Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of any fractional share, the
Corporation shall, in lieu of issuing any fractional share, pay cash equal
to the product of such fraction multiplied by the Common Stock's fair
market value (as determined by the Board) on the date of conversion.

         (o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series C Preferred, such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series C Preferred. If at
any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares
of the Series C Preferred, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

         (p) ADJUSTMENTS AFFECTING ADVERSE SERIES B ISSUE PRICE. The
Average Series B Issue Price shall be recomputed at the time of each
issuance of shares of Series B Preferred. Any adjustments contemplated by
this Section 4 which have been made since the Original Issue Date shall be
applied to such recomputed Average Series B Issue Price as if such amount
was the initial Series C Conversion Price contemplated by Section 4(d).

5.       CERTAIN DEFINITIONS.

         "ACCRUED SERIES A PREFERENCE" shall mean $0.0712 per share.

         "ACQUISITION" has the meaning set forth in Section 3(c)(ii).

         "ASSET TRANSFER" has the meaning set forth in Section 3(c)(iii).

         "AVERAGE SERIES B ISSUE PRICE" means, as of any given date, the
price determined by dividing the aggregate proceeds received by the
Corporation from the issuance of shares of Series B Preferred (regardless
of class) by the number of then issued and outstanding shares of Series B
Preferred.

         "COMMON STOCK DEEMED OUTSTANDING" means, as of a given date, the
sum of the number of shares of Common Stock actually outstanding, plus the
number of shares of Common Stock into which the then-outstanding shares of
Series B Preferred and Series C Preferred could be converted if fully
converted on the day immediately preceding the given date plus the number
of shares of Common Stock issuable upon conversion or exercise of all other
rights, options and convertible securities which were convertible or
exercisable on the day immediately preceding the given date.

         "CONVERTIBLE SECURITIES" has the meaning set forth in Section
4(k)(iii).

         "JUNIOR STOCK" has the meaning set forth in Section 1(a).

         "LIQUIDATION" has the meaning set forth in Section 3(c).

         "LIQUIDATION VALUE" of the Series C Preferred shall be an amount
equal to the sum of (i) the Accrued Series A Preference and (ii) the
Original Issue Price.

         "ORIGINAL ISSUE DATE" has the meaning set forth in Section 4(f).

         "ORIGINAL ISSUE PRICE" of the Series C Preferred shall be $1.2972
per share.

         "QUALIFIED IPO" shall mean the closing of a firm commitment
underwritten public offering of Common Stock with aggregate gross proceeds
of at least $20 million and a per share price of at least $10.00.

         "REQUIRED HOLDERS" has the meaning set forth in Section 2(b).

         "RESERVED EMPLOYEE STOCK" means up to 1,211,605 of the
Corporation's outstanding shares of Common Stock on a fully diluted basis
issuable to employees, officers, directors or consultants of the
Corporation pursuant to the Corporation's 1999 Stock Incentive Plan.

         "SERIES B PREFERRED" means the shares of Series B Preferred issued
pursuant to that Statement Respecting Rights of Series B Preferred Stock of
the Corporation.

         "SERIES C CONVERSION PRICE" has the meaning set forth in Section
4(d).

         "SERIES C CONVERSION RATE" has the meaning set forth in Section
4(c).

         "SERIES C LIQUIDATION PREFERENCE" has the meaning set forth in
Section 3(a).

         "SERIES C PREFERRED" has the meaning set forth in the introductory
paragraph hereof.

         "SUBSIDIARY" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of
which any determination is being made, owned by the Corporation either
directly or indirectly through Subsidiaries.

6.       AMENDMENT AND WAIVER.

         No amendment, modification or waiver of any of the terms or
provisions of the Series C Preferred shall be binding or effective without
the prior written consent of the Required Holders and 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 Required Holders.

7.       GENERAL PROVISIONS.

         (a) REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office a register for the registration of the Series C Preferred.
Upon the surrender of any certificate representing Series C 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.

         (b) REPLACEMENT. 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 C Preferred, and
in the case of any such loss, theft 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.

         (c) NOTICES. Any notice required by the provisions of this
Certificate of Designation shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified,
(ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day,
(iii) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one day after deposit
with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All notices to stockholders
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.

         (d) PAYMENT OF TAXES. The Corporation shall pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series C Preferred, excluding any tax or other
charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the
shares of Series C Preferred so converted were registered.

         (e) NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, for the purpose of avoiding or seeking to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation.

         (f) NO REISSUANCE OF SERIES C PREFERRED. No share or shares of
Series C Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued.