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                                                                     EXHIBIT 4.1
                                                                       EXHIBIT A

                           CERTIFICATE OF DESIGNATION,
                             PREFERENCES AND RIGHTS

                                       of

                      SERIES C CONVERTIBLE PREFERRED STOCK

                                       of

                             PDG ENVIRONMENTAL, INC.

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)

      PDG Environmental, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "CORPORATION"), hereby certifies that the
Board of Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD"),
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law, and in accordance with the provisions of
its Certificate of Incorporation and Bylaws, each as amended and restated
through the date hereof, has and hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $0.01 per share (the "PREFERRED
STOCK"), and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions thereof, as
follows:

                           I. DESIGNATION AND AMOUNT

      The designation of this series, which consists of Six Thousand Eight
Hundred and Seventy-Five (6,875) shares of Preferred Stock, is the Series C
Convertible Preferred Stock (the "SERIES C PREFERRED STOCK") and the face amount
shall be One Thousand Dollars ($1,000.00) per share (the "Face Amount").

                            II. CERTAIN DEFINITIONS

      For purposes of this Certificate of Designation, in addition to the other
terms defined herein, the following terms shall have the following meanings:

      A. "ADDITIONAL WARRANTS" means warrants to purchase additional shares of
the Corporation's Common Stock, par value $0.02 per share (the "COMMON STOCK"),
pursuant to the Securities Purchase Agreement and the Preferred Warrants.

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      B. "BUSINESS DAY" means any day, other than a Saturday or Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close.

      C. "CLOSING BID PRICE" means, for any security as of any date, the last
bid price of such security on the Nasdaq Over-the-Counter Bulletin Board (the
"OTC") or the Bulletin Board Exchange (collectively with the OTC, the "BULLETIN
BOARD") or such other principal trading market where such security is listed or
traded as reported by Bloomberg Financial Markets (or a comparable reporting
service of national reputation selected by the Corporation and reasonably
acceptable to the Majority Holders if Bloomberg Financial Markets is not then
reporting closing bid prices of such security) (collectively, "BLOOMBERG"), or
if the foregoing does not apply, the last reported bid price of such security on
a national exchange for such security as reported by Bloomberg, or, if no such
price is reported for such security by Bloomberg, the average of the bid prices
of all market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc., in each case for such date or, if such date was
not a trading day for such security, on the next preceding date which was a
trading day. If the Closing Bid Price cannot be calculated for such security as
of either of such dates on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to the Majority Holders, with the costs of such appraisal
to be borne by the Corporation.

      D. "CONVERSION DATE" means (1) for any Optional Conversion (as defined in
Article V.A below), the date specified in the notice of conversion in the form
attached hereto (the "NOTICE OF CONVERSION"), so long as a copy of the Notice of
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 11:59 p.m., New York City time, on the Optional Conversion
Date indicated in the Notice of Conversion; provided, however, that if the
Notice of Conversion is not so faxed or otherwise delivered before such time,
then the Optional Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation, and (2) for any
Mandatory Conversion (as defined in Article V.C. below), the date selected by
the Corporation in compliance with the provisions set forth in Article V.C.
below.

      E. "CONVERSION PRICE" means One Dollar ($1.00); provided, however, that
(a) if (i) the Registration Statement is not declared effective within one
hundred and forty-five (145) days from the Issuance Date and the Corporation
has, at any time, breached Sections 2(a) or 3(a) of the Registration Rights
Agreement or otherwise failed to use its good faith best efforts to have such
Registration Statement declared effective by the United States Securities and
Exchange Commission (the "SEC") as soon as practicable after the date of initial
filing thereof, and (ii) the average of the volume-weighted average sales prices
for the Corporation's Common Stock, as reported by Bloomberg using the "AQR"
function, for each of the five (5) trading days immediately following such one
hundred and forty-five (145) day period (the "INITIAL RESET PRICE") is less than
the Conversion Price in effect as of 11:59 p.m., New York City time, on the one
hundred and forty-fifth (145th) day after the Issuance Date, then the Conversion
Price shall be "reset" such that the Conversion Price shall, from and at all
times after such fifth (5th) trading day following such one hundred and
forty-five (145) day period, but subject to any further "reset" pursuant to
clause (b) of this Article II.E. below, mean an amount equal to the product of
(x) the Initial Reset Price and (y) 0.90 (90%); and (b) if (i) the Registration
Statement is not declared effective within one hundred and

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eighty (180) days from the Issuance Date and (ii) the average of the
volume-weighted average sales prices for the Corporation's Common Stock, as
reported by Bloomberg using the "AQR" function, for each of the five (5) trading
days immediately following such one hundred and eighty (180) day period (the
"SECOND RESET PRICE") is less than the Conversion Price in effect as of 11:59
p.m., New York City time, on the one hundred and eightieth (180th) day after the
Issuance Date, then the Conversion Price shall be "reset" such that the
Conversion Price shall, from and at all times after such fifth (5th) trading day
following such one hundred and eighty (180) day period, mean an amount equal to
the product of (x) the Second Reset Price and (y) 0.90 (90%); provided further,
however, that each of the Initial Reset Price and the Second Reset Price shall
be subject to a floor of, and accordingly the Conversion Price shall not be
"reset" to an amount less than, Sixty-Eight Cents ($0.68) per share (the
"FLOOR"), with such Floor subject to adjustment pursuant to Article XI.A;
provided further, however, that the Floor shall not apply to any adjustment to
the Conversion Price effected pursuant to Article XI.

      F. "DEFAULT CURE DATE" means, as applicable, (i) with respect to a
Conversion Default described in clause (i) of Article VII.A, the date the
Corporation effects the conversion of all or any remaining shares of Series C
Preferred Stock that are the subject of the applicable Conversion Default, (ii)
with respect to a Conversion Default described in clause (ii) of Article VII.A,
the date the Corporation issues freely tradable shares of Common Stock in
satisfaction of all conversions of Series C Preferred Stock that are subject to
the applicable Conversion Default in accordance with Article V and the
Registration Rights Agreement, or (iii) with respect to either type of a
Conversion Default, the date on which the Corporation redeems shares of Series C
Preferred Stock held by such holder pursuant to Article VII.A.

      G. "ELIGIBLE LENDER" means a reputable commercial bank, savings and loan
association, savings bank, finance company or other financial institution that
is regularly engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business.

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

      I. "EXCLUDED ISSUANCE" means: (i) the issuance of Common Stock upon the
exercise or conversion of any Convertible Securities or Purchase Rights (as each
such term is defined in Article XI.D.) outstanding on the Issuance Date and
disclosed in Section 3(c) of the Disclosure Schedule to the Securities Purchase
Agreement in accordance with the terms of such Convertible Securities and
Purchase Rights as of such date; (ii) (x) the grant of options to purchase
Common Stock, with exercise prices not less than the market price of the Common
Stock on the date of grant, which are issued to employees, officers, directors
or consultants of the Corporation for the primary purpose of soliciting or
retaining their employment or service pursuant to an equity compensation plan,
so long as such plan and the issuance of Common Stock upon exercise thereof has
been approved by (A) the Corporation's Board of Directors, and (B) if and to the
extent required under the Securities Act, the Exchange Act, the rules and
regulations of the SEC thereunder and/or the listing standards of any national
exchange or quotation service, the requisite vote of the holders of the
Corporation's Common Stock in compliance with applicable law and the
Corporation's organizational documents and (y) the issuance of Common Stock upon
exercise of such options; (iii) the conversion of the Series C Preferred Stock
or exercise of the Warrants; (iv) the issuance of securities in connection with
mergers, acquisitions, strategic business partnerships or joint ventures, in
each case, with non-

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affiliated third parties and otherwise on an arms-length basis, the primary
purpose of which, in the reasonable judgment of the Board of Directors, is not
to raise additional capital; (v) the issuance of (A) one million six hundred and
sixty-six thousand, six hundred and sixty seven (1,666,667) newly-issued shares
of its Common Stock at an issuance price of Ninety Cents ($0.90) per share, (B)
warrants (the "Common Warrants") to purchase (x) four hundred and sixteen
thousand, six hundred and sixty-seven (416,667) shares of its Common Stock at an
exercise price of One Dollar and Eleven Cents ($1.11) per share and (y) four
hundred and sixteen thousand, six hundred and sixty-seven (416,667) shares of
its Common Stock at an exercise price of One Dollar and Thirty-Three Cents
($1.33) per share in connection with the offering contemplated by Section 7(g)
of the Securities Purchase Agreement and (C) the issuance of Common Stock upon
exercise of the Common Warrants; or (vi) the issuance of securities pursuant to
any equipment financing from an Eligible Lender approved by the Board of
Directors.

      J. "ISSUANCE DATE" means the date of the closing under the Securities
Purchase Agreement by and among the Corporation and the purchasers named therein
(the "Securities Purchase Agreement"), pursuant to which the Corporation issues,
and such purchasers purchase, shares of Series C Preferred Stock upon the terms
and conditions stated therein.

      K. "MAJORITY HOLDERS" means the holders of a majority of the
then-outstanding shares of Series C Preferred Stock.

      L. "MATURITY DATE" means July 1, 2009.

      M. "PERMITTED BLACK-OUT PERIOD" means a period of less than or equal to
(1) sixty (60) consecutive days or (2) ninety (90) days in any twelve (12) month
period, in either case, during which the Registration Statement may be suspended
pursuant to the Registration Rights Agreement.

      N. "PREFERRED WARRANTS" means warrants to purchase Additional Preferred
Stock and Additional Warrants, each as defined in and pursuant to the Securities
Purchase Agreement.

      O. "PREMIUM" means an amount equal to (the Rate)x(N/365)x(the Face
Amount), where the "Rate" shall be equal to 0.08 (8%) and "N" means the number
of days from the Issuance Date.

      P. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Issuance Date, by and among the Corporation and the
initial holders of Series C Preferred Stock.

      Q. "REGISTRATION STATEMENT" means the registration statement required to
be filed by the Corporation pursuant to Section 2(a) of the Registration Rights
Agreement.

      R. "SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement, dated as of the Issuance Date, by and among the Corporation and the
initial holders of Series C Preferred Stock.

      S. "SECURITIES ACT" means the Securities Act of 1933, as amended.

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      T. "TRADING DAY" means any day on which the principal United States
securities exchange or trading market where the Common Stock is then listed or
traded, is open for trading.

      U. "WARRANTS" means the warrants issued by the Corporation to the initial
holders of Series C Preferred Stock pursuant to the Securities Purchase
Agreement, including, without limitation, Additional Warrants issued upon
exercise of the Preferred Warrants.

                                 III. DIVIDENDS

      The Series C Preferred Stock will bear no dividends, and the holders of
the Series C Preferred Stock shall not be entitled to receive dividends on the
Series C Preferred Stock. In no event, so long as any Series C Preferred Stock
shall remain outstanding, shall any dividend whatsoever be declared or paid, nor
shall any distribution be made, upon any Junior Securities, nor shall any shares
of Junior Securities be purchased or redeemed by the Corporation nor shall any
money be paid to or made available for a sinking fund for the purchase or
redemption of any Junior Securities (other than a distribution of Junior
Securities), without, in each case, the written consent of the holders of a
majority of the then-outstanding shares of Series C Preferred Stock, voting as a
class.

                             IV. PAYMENT OF PREMIUM

      The Premium shall accrue and be payable with respect to each share of
Series C Preferred Stock outstanding, at the applicable Rate, upon the earlier
of (a) any conversion of such share of Series C Preferred Stock into Common
Stock pursuant to Article V hereof and (b) any redemption of such share of
Series C Preferred Stock pursuant to Articles V.A., VI.B., VII.A., VIII or XV.A.
hereof. Payment of the Premium shall be made (x) in the event of a payment
obligation pursuant to clause (a) of this Article IV, in such number of shares
of Common Stock determined by dividing the accrued Premium thereon by the
Conversion Price in effect immediately prior to such conversion, and (y) in the
event of a payment obligation pursuant to clause (b) of this Article IV, in cash
by wire transfer of immediately available funds.

                                 V. CONVERSION

      A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Article XV, each holder of shares of Series C Preferred
Stock may, at its option, at any time and from time to time, convert (an
"OPTIONAL CONVERSION") each of its shares of Series C Preferred Stock into such
number of validly-issued, fully paid and nonassessable shares of Common Stock
(as such Common Stock exists on the Issuance Date, or any other shares of
capital stock or other securities of the Corporation into which such Common
Stock is thereafter changed or reclassified) as is determined in accordance with
the following formula:

                          FACE AMOUNT + ACCRUED PREMIUM
                          -----------------------------
                                CONVERSION PRICE

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In the event that the Corporation is prohibited from issuing shares of Common
Stock upon an Optional Conversion of Series C Preferred Stock as a result of the
operation of the limitations set forth in Article XV.A, the Corporation shall
immediately notify the holders of Series C Preferred Stock of such occurrence
and each holder of Series C Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time, by delivery
of a Redemption Notice (as defined in Article VIII.A) to the Corporation, to
require the Corporation to redeem for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B), a number of the holder's
shares of Series C Preferred Stock such that, after giving effect to such
redemption, the then unissued portion of such holder's Cap Amount (as defined in
Article XV.A) is at least equal to one hundred percent (100%) of the number of
shares that would then be issuable upon conversion of such holder's
then-remaining shares of Series C Preferred Stock at the Conversion Price then
in effect. If the Corporation fails to redeem any of such shares within five (5)
business days after its receipt of such Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C.

      B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation (Attention: Secretary) in the form attached
hereto as Exhibit A and (y) surrender or cause to be surrendered the original
certificates representing the Series C Preferred Stock being converted (the
"PREFERRED STOCK CERTIFICATES"), duly endorsed, along with a copy of the Notice
of Conversion as soon as practicable thereafter to the Corporation. Upon receipt
by the Corporation of a facsimile copy of a Notice of Conversion from a holder,
the Corporation shall promptly send, via facsimile, a confirmation to such
holder stating that the Notice of Conversion has been received, the date upon
which the Corporation expects to deliver the Common Stock issuable upon such
conversion and the name and telephone number of a contact person at the
Corporation regarding the conversion. The Corporation shall not be obligated to
issue shares of Common Stock upon a conversion unless either the Preferred Stock
Certificates are delivered to the Corporation as provided above, or the holder
notifies the Corporation that such Preferred Stock Certificates have been lost,
stolen or destroyed and delivers the documentation to the Corporation required
by Article XVI.B hereof.

            (i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates accompanied by a Notice of Conversion, the
Corporation (itself, or through its transfer agent) shall, no later than the
later of (a) the third (3rd) business day following the Conversion Date and (b)
the business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XVI.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a
nationally recognized overnight courier service postage prepaid) to the holder
or its nominee (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series C Preferred Stock being converted and (y) a
certificate representing the number of shares of Series C Preferred Stock not
being converted, if any. Notwithstanding the foregoing, if the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the certificates therefor
do not bear a legend (pursuant to the terms of the Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Corporation shall cause its transfer agent
to promptly electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of the holder or its nominee with DTC
through its Deposit Withdrawal

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Agent Commission system ("DTC TRANSFER"). If the aforementioned conditions to a
DTC Transfer are not satisfied, the Corporation shall deliver as provided above
to the holder physical certificates representing the Common Stock issuable upon
conversion. Further, a holder may instruct the Corporation to deliver to the
holder physical certificates representing the Common Stock issuable upon
conversion in lieu of delivering such shares by way of DTC Transfer.

            (ii) Taxes. The Corporation shall pay any and all taxes that may be
imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series C Preferred Stock.

            (iii) No Fractional Shares. If any conversion of Series C Preferred
Stock would result in the issuance of a fractional share of Common Stock to any
holder of Series C Preferred Stock (aggregating all of such holder's shares of
Series C Preferred Stock that are being converted pursuant to a given Notice of
Conversion), such fractional share shall be payable in cash based upon the
Closing Bid Price of the Common Stock on the Conversion Date, and the number of
shares of Common Stock issuable upon conversion of the Series C Preferred Stock
shall be the next lower whole number of shares. If the Corporation elects not
to, or is unable to, make such a cash payment, such holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.

            (iv) Conversion Disputes. In the case of any dispute with respect to
a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, and such dispute
is not promptly resolved by discussion between the relevant holder and the
Corporation, the Corporation shall submit the disputed calculations to an
independent outside nationally-recognized accounting firm to be selected by the
Corporation (the "ACCOUNTING FIRM") via facsimile within three (3) business days
after receipt of the Notice of Conversion. The Accounting Firm, at the
Corporation's sole expense, shall promptly audit the calculations and notify the
Corporation and the holder of the results no later than three business days from
the date it receives the disputed calculations. The Accounting Firm's
calculation shall be deemed conclusive, absent manifest error. The Corporation
shall then issue the appropriate number of shares of Common Stock in accordance
with subparagraph (i) above.

            (v) Payment of Accrued Amounts. Upon conversion of any shares of
Series C Preferred Stock, all amounts then accrued or payable on such shares
under this Certificate of Designation (other than Premium, which shall be
payable in shares of Common Stock in accordance with such Optional Conversion)
or the Registration Rights Agreement through and including the Conversion Date
shall be paid in cash by the Corporation.

      C. Mandatory Conversion by the Corporation. Subject to the limitations on
conversion set forth in Article XV hereof, and so long as all of the Required
Conditions (as defined below) are satisfied, then, at any time after the one
hundred and twentieth (120th) day following the date the Registration Statement
is declared effective by the SEC (subject to extension for each trading day
following effectiveness that sales of all of the Registrable Securities (as
defined in the Registration Rights Agreement) cannot be made pursuant to the
Registration Statement (whether by reason of the Corporation's failure to
properly supplement or amend the prospectus included therein in accordance

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with the terms of the Registration Rights Agreement, during a Permitted
Black-Out Period or otherwise)), if the average Closing Bid Price of the Common
Stock during any twenty (20) consecutive trading day period is greater than one
hundred and fifty percent (150%) of the Conversion Price (a "FORCED CONVERSION
TRIGGER EVENT"), the Corporation shall have the right, exercisable on not less
than fifteen (15) trading days prior written notice (the "MANDATORY CONVERSION
NOTICE") to the holders of the Series C Preferred Stock (which notice may not be
sent to the holders of the Series C Preferred Stock until the Corporation is
permitted to convert the Series C Preferred Stock pursuant to this Article V.C.
but must be sent within five (5) trading days from the first day on which there
is a Forced Conversion Trigger Event), to convert all or a portion of the
outstanding shares of Series C Preferred Stock into shares of Common Stock in
accordance with this Article V (a "MANDATORY CONVERSION"); provided, however,
that a Mandatory Conversion shall not be permitted if at any time during the
period beginning on the date the Mandatory Conversion Notice is delivered to the
holders of the Series C Preferred Stock and ending on the Mandatory Conversion
Date (i) all of the Required Conditions are not then satisfied or (ii) the
average Closing Bid Price of the Common Stock for any five (5) consecutive
trading days during such period is not greater than one hundred and fifty
percent (150%) of the Conversion Price then in effect; provided further,
however, that the Corporation shall have no right to effect a Mandatory
Conversion to the extent that any such Mandatory Conversion would result in a
number of shares of Common Stock issuable upon such Mandatory Conversion to
exceed one hundred percent (100%) of the aggregate trading volume of the Common
Stock for the five (5) trading days immediately preceding the proposed Mandatory
Conversion Date (as defined below) (the "MANDATORY CONVERSION CAP"). For the
sake of clarity, if the Corporation attempts to effect a Mandatory Conversion
that would result in a number of shares of Common Stock issuable thereupon in
excess of the Mandatory Conversion Cap, then the Mandatory Conversion shall be
effected but only with respect to that number of shares that is equal to the
Mandatory Conversion Cap. Any Mandatory Conversion hereunder shall be as of the
date (the "MANDATORY CONVERSION DATE") specified in the Mandatory Conversion
Notice (but in no event prior to the fifteenth (15th) trading day following the
date of such notice). The Mandatory Conversion Notice shall be delivered to the
holders of Series C Preferred Stock at their registered addresses appearing on
the books and records of the Corporation, which notice shall contain
substantially the same information as the Notice of Conversion described in
Article V.B. hereof. The trading day immediately preceding the Mandatory
Conversion Date shall be the "CONVERSION DATE" for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder upon a Mandatory Conversion.

            (i) The "REQUIRED CONDITIONS" shall consist of the following:

                  (a) the Registration Statement shall be effective (it being
understood that the Corporation shall comply with its obligations under Article
3 of the Registration Rights Agreement relating to the effectiveness of such
registration statement);

                  (b) all shares of Common Stock issuable upon (1) the full
conversion of the Series C Preferred Stock (including any and all shares of
Series C Preferred Stock issuable upon exercise of the Preferred Warrants) at
the then-current Conversion Price thereof and (2) the full exercise of the
Warrants (including any and all Warrants issuable upon exercise of the Preferred
Warrants) at the then-current exercise price thereof are then (I) duly
authorized and reserved for issuance, (II) registered under the Securities Act
for resale by the holders (or may otherwise be resold

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publicly without restriction under Rule 144(k) under the Securities Act) and
(III) listed or eligible to be traded, as applicable, on the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange ("NYSE"), the
American Stock Exchange ("AMEX") or the Bulletin Board;

                  (c) no Redemption Event (as defined in Article VII.A below)
shall have occurred without having been fully cured;

                  (d) all amounts, if any, then accrued and payable under this
Certificate of Designation or the Registration Rights Agreement (other than
Premium, which shall accrue and be paid in accordance with Article IV) shall
have been paid; and

                  (e) no Mandatory Conversions shall have been effected during
the preceding thirty (30) trading days.

      If any holder of Series C Preferred Stock is unable to convert all of the
outstanding Series C Preferred Stock that it holds due to the limitations set
forth in this Article V.C. or Article XV, such unconverted Series C Preferred
Stock shall remain outstanding with all of the right and privileges set forth
herein.

                   VI. RESERVATION OF SHARES OF COMMON STOCK

      A. Reserved Amount. On or prior to the Issuance Date, the Corporation
shall reserve nine million, thirty-three thousand, seven hundred and fifty
(9,033,750) shares of its authorized but unissued shares of Common Stock for
issuance upon conversion of the Series C Preferred Stock (including any and all
shares of Series C Preferred Stock issuable upon exercise of the Preferred
Warrants) and exercise of the Warrants (including any and all Warrants issuable
upon exercise of the Preferred Warrants), and, following the earlier of (i) the
date on which the stockholder approval contemplated by Section 4(f) of the
Securities Purchase Agreement has been obtained and (ii) September 30, 2005, the
number of authorized but unissued shares of Common Stock so reserved (the
"RESERVED AMOUNT") shall at all times be sufficient to provide for (1) the full
conversion of all of the Series C Preferred Stock outstanding (including, for
such purposes, any and all shares of Preferred Stock issuable upon the full
exercise of the Preferred Warrants), together with all accrued Premium as of
such date, at the then-current Conversion Price thereof (taking into account any
"reset" of the Conversion Price pursuant to Article II.E. of this Certificate of
Designation), (2) the full exercise of the Warrants outstanding (including, for
such purposes, any and all Warrants issuable upon the full exercise of the
Preferred Warrants) at the then-current exercise price thereof and (3) the
issuance of any additional shares of Common Stock issuable on conversion of the
Series C Preferred Stock or exercise of any Warrants, including on account of
anti-dilution or other adjustments or otherwise, in each case, without giving
effect to the limitations contained in Article XV hereof or in Section 10 of the
Warrants. The Reserved Amount shall be allocated among the holders of Series C
Preferred Stock and the Warrants as provided in Article XVI.C of this
Certificate of Designation and Section 12(h) of the Warrants.

      B. Increases to Reserved Amount. At any time following the date on which
the Registration Statement is first declared effective by the SEC, if the
Reserved Amount shall be less than one hundred percent (100%) of the sum of the
number of shares of Common Stock issuable

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upon (1) the full conversion of all of the Series C Preferred Stock outstanding
(including, for such purposes, any and all shares of Preferred Stock issuable
upon the full exercise of the Preferred Warrants), together with all accrued
Premium as of such date, at the then-current Conversion Price thereof (taking
into account any "reset" of the Conversion Price pursuant to Article II.E. of
this Certificate of Designation) and (2) the full exercise of the Warrants
outstanding (including, for such purposes, any and all Warrants issuable upon
the full exercise of the Preferred Warrants) at the then-current exercise price
thereof, in each case, without giving effect to the limitations contained in
Article XV hereof or in Section 10 of the Warrants, the Corporation shall
immediately notify the holders of Series C Preferred Stock of such occurrence
and each holder of Series C Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time, by delivery
of a Redemption Notice to the Corporation, to require the Corporation to redeem
for cash, at an amount per share equal to the Redemption Amount (as defined in
Article VIII.B), a number of the holder's shares of Series C Preferred Stock
such that, after giving effect to such redemption, the then unissued portion of
such holder's Reserved Amount allocable to the Series C Preferred Stock held by
such holder is at least equal to one hundred percent (100%) of the number of
shares of Common Stock issuable upon conversion of such holder's shares of
Series C Preferred (including, for such purposes, any and all shares of
Preferred Stock issuable upon the full exercise of the Preferred Warrants),
together with all accrued Premium as of such date, at the then-current
Conversion Price thereof (taking into account any "reset" of the Conversion
Price pursuant to Article II.E. of this Certificate of Designation). If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of such Redemption Notice, then such holder shall be entitled
to the remedies provided in Article VIII.C.

                      VII. FAILURE TO SATISFY CONVERSIONS

      A. Conversion Defaults. If, at any time, (i) a holder of shares of Series
C Preferred Stock submits a Notice of Conversion and the Corporation fails for
any reason (other than because such issuance would exceed such holder's
allocated portion of the Cap Amount or Reserved Amount, for which failures the
holders shall have the remedies set forth in Articles V and XV (with respect to
the Cap Amount) and Article VI (with respect to the Reserved Amount)) to
deliver, on or prior to the third (3rd) business day following the expiration of
the Delivery Period for such conversion, such number of freely tradable shares
of Common Stock to which such holder is entitled upon such conversion, or (ii)
the Corporation provides written notice to any holder of Series C Preferred
Stock (or issues a press release or otherwise makes a public announcement) at
any time of its intention not to issue freely tradable shares of Common Stock
upon exercise by any holder of its conversion rights in accordance with the
terms of this Certificate of Designation (other than because such issuance would
exceed such holder's allocated portion of the Cap Amount or Reserved Amount)
(each of (i) and (ii) being a "CONVERSION DEFAULT"), then the holder may elect,
at any time and from time to time prior to the Default Cure Date for such
Conversion Default, by delivery of a Redemption Notice to the Corporation, to
have all or any portion of such holder's outstanding shares of Series C
Preferred Stock redeemed by the Corporation for cash, at an amount per share
equal to the Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem any of such shares within five business days after
its receipt of such Redemption Notice, then such holder shall be entitled to the
remedies provided in Article VIII.C.

                                      -10-
<PAGE>

      B. Buy-In Cure. Unless the Corporation has notified the applicable holder
in writing prior to the delivery by such holder of a Notice of Conversion that
the Corporation is unable to honor conversions (whether as a result of a
Permitted Black-Out Period or for any other reason expressly permitted under
this Certificate of Designation), if (i) (a) the Corporation fails to promptly
deliver during the Delivery Period shares of Common Stock required to be
delivered to a holder upon a conversion of shares of Series C Preferred Stock or
(b) there shall occur a Legend Removal Failure (as defined in Article
VIII.A(iii) below) and (ii) thereafter, such holder purchases (in an open market
transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such holder of the unlegended shares of Common Stock
(the "SOLD SHARES") which such holder anticipated receiving upon such conversion
(a "BUY-IN"), the Corporation shall pay such holder, in addition to any other
remedies available to the holder, the amount by which (x) such holder's total
purchase price (including brokerage commissions, if any) for the unlegended
shares of Common Stock so purchased exceeds (y) the net proceeds received by
such holder from the sale of the Sold Shares. For example, if a holder purchases
unlegended shares of Common Stock having a total purchase price of Eleven
Thousand Dollars ($11,000) to cover a Buy-In with respect to shares of Common
Stock it sold for Ten Thousand Dollars ($10,000), the Corporation will be
required to pay the holder One Thousand Dollars ($1,000). A holder shall provide
the Corporation written notification and supporting documentation indicating any
amounts payable to such holder pursuant to this Article VII.B.

                     VIII. REDEMPTION DUE TO CERTAIN EVENTS

      A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(viii) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):

            (i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series C Preferred Stock and upon exercise of
the Warrants) is suspended from trading on any of, or is not listed (and
authorized) for trading on at least one of, the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market or is not trading on the Bulletin Board for an aggregate of ten (10) or
more trading days in any twelve (12) month period;

            (ii) the Registration Statement (A) has not been declared effective
by the two hundred and tenth (210th) day following the Issuance Date or (B)
after being declared effective, cannot be utilized by the holders of Series C
Preferred Stock for the resale of all of their Registrable Securities (as
defined in the Registration Rights Agreement) other than during a Permitted
Black-Out Period;

            (iii) the Corporation shall have failed to obtain the stockholder
approval contemplated by Section 4(f) of the Securities Purchase Agreement on or
before the two hundred and tenth (210th) day following the Issuance Date;

            (iv) other than during a Permitted Black-Out Period, the Corporation
fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the holders of Series C Preferred Stock upon conversion
of the Series C Preferred Stock as and when required by

                                      -11-
<PAGE>

this Certificate of Designation, the Securities Purchase Agreement or the
Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and any such failure
continues uncured for ten (10) business days after the Corporation has been
notified thereof in writing by the holder;

            (v) the Corporation provides written notice (or otherwise indicates)
to any holder of Series C Preferred Stock, or states by way of press release or
other public announcement, at any time, of its intention not to issue, or
otherwise fails or refuses to issue, shares of Common Stock to any holder of
Series C Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation;

            (vi) the Corporation or any subsidiary of the Corporation shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;

            (vii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Corporation or any subsidiary of the Corporation and if
instituted against the Corporation or any subsidiary of the Corporation by a
third party, shall not be dismissed within 60 days of their initiation;

            (viii) the Corporation (on a consolidated basis with any and all of
its subsidiaries as of such time) shall:

                  (a) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);

                  (b) merge or consolidate with or into, or engage in any other
business combination with, any other person or entity, in any case, which
results in either (i) the holders of the voting securities of the Corporation
immediately prior to such transaction holding or having the right to direct the
voting of fifty percent (50%) or less of the total outstanding voting securities
of the Corporation or such other surviving or acquiring person or entity
immediately following such transaction or (ii) the members of the board of
directors or other governing body of the Corporation comprising fifty percent
(50%) of less of the members of the board of directors or other governing body
of the Corporation or such other surviving or acquiring person or entity
immediately following such transaction;

                  (c) (i) fail to pay, when due, or within any applicable grace
period, any payment with respect to any indebtedness (other than trade payables)
of the Corporation in excess of One Million Dollars ($1,000,000) (including,
without limitation, any related interest payment) due to any third party, other
than payments contested by the Corporation in good faith, or (ii) otherwise be
in breach or violation of any agreement for monies owed or owing in an amount in
excess of One Million Dollars ($1,000,000) which breach or violation permits the
other party thereto to declare a default or otherwise accelerate amounts due
thereunder, or (iii) suffer to exist any other default or event of default under
any agreement binding the Corporation which default or event of default

                                      -12-
<PAGE>

would or is likely to have a material adverse effect on the business,
operations, properties, prospects or financial condition of the Corporation;

                  (d) engage in any transaction or a series of related
transactions resulting in the sale or issuance by the Corporation or any of its
stockholders of any securities to any person or entity, or the acquisition or
right to acquire securities by any person or entity, in either case acting
individually or in concert with others, such that, following the consummation of
such transaction(s), such person(s) or entity(ies) (together with their
respective affiliates, as such term is used under Section 13(d) of the
Securities Exchange Act of 1934, as amended) would own or have the right to
acquire greater than thirty-five percent (35%) of the outstanding shares of
Common Stock (on a fully-diluted basis, assuming the full conversion, exercise
or exchange of all Convertible Securities and Purchase Rights then outstanding);
or

                  (e) from the Issuance Date through the six (6) month
anniversary of the date of effectiveness of the Registration Statement, issue or
agree to issue any Additional Securities (as defined in Article XIV.A), except
for any Excluded Issuance; or

            (ix) except with respect to matters covered by subparagraphs (i) -
(viii) above, as to which such applicable subparagraphs shall apply, the
Corporation otherwise shall breach any of the following provisions and, if such
breach is curable, shall fail to cure such breach within ten (10) business days
after the Corporation has been notified thereof in writing by the holder: (A)
Sections 4(h), (p) or (s) or 8(l) of the Securities Purchase Agreement; and (B)
Sections 3(a), (c) and (q) and 6(a) of the Registration Rights Agreement,

then, upon the occurrence of any such Redemption Event, each holder of shares of
Series C Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a written notice to
such effect (a "REDEMPTION NOTICE") to the Corporation while such Redemption
Event continues, to require the Corporation to purchase for cash any or all of
the then outstanding shares of Series C Preferred Stock held by such holder for
an amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (ii), (iii), (v),
(vi), (vii) and (viii) above shall immediately constitute a Redemption Event and
there shall be no cure period. Upon the Corporation's receipt of any Redemption
Notice hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the holders in response to the Corporation's initial receipt of a Redemption
Notice from a holder of Series C Preferred Stock), the Corporation shall
immediately (and in any event within one business day following such receipt)
deliver a written notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series
C Preferred Stock stating the date upon which the Corporation received such
Redemption Notice and the amount of Series C Preferred Stock covered thereby.
The Corporation shall not redeem any shares of Series C Preferred Stock during
the three (3) trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three (3)
trading day period, each holder of Series C Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of Series C Preferred Stock covered by Redemption Notices received by

                                      -13-
<PAGE>

the Corporation) and the Corporation shall furnish (either orally or in writing)
as soon as practicable such requested information to such requesting holder.

      B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with respect
to a share of Series C Preferred Stock means an amount equal to the greater of:

                  (i)         V/(CP)  x M

         and      (ii)         V  x  R

where:

            "V" means the Face Amount thereof plus all accrued Premium thereon
through the date of payment of the Redemption Amount;

            "CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice;

            "M" means (i) with respect to all redemptions other than redemptions
pursuant to subparagraph (a) or (b) of Article VIII.A(viii) hereof, the highest
Closing Bid Price of the Corporation's Common Stock during the period beginning
on the date on which the Corporation receives the Redemption Notice and ending
on the date immediately preceding the date of payment of the Redemption Amount
and (ii) with respect to redemptions pursuant to subparagraph (a) or (b) of
Article VIII.A(viii) hereof, the greater of (a) the amount determined pursuant
to clause (i) of this definition or (b) the fair market value, as of the date on
which the Corporation receives the Redemption Notice, of the consideration
payable to the holder of a share of Common Stock pursuant to the transaction
which triggers the redemption. For purposes of this definition, "fair market
value" shall be determined by the mutual agreement of the Corporation and the
Majority Holders, or if such agreement cannot be reached within five business
days prior to the date of redemption, by an investment banking firm selected by
the Corporation and reasonably acceptable to the Majority Holders, with the
costs of such appraisal to be borne by the Corporation; and

            "R" means 120%.

      C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series C Preferred Stock within
ten (10) business days after its receipt of a Redemption Notice, then the holder
of Series C Preferred Stock entitled to redemption shall be entitled to interest
on the Redemption Amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by applicable law from the
date on which the Corporation receives the Redemption Notice until the date of
payment of the Redemption Amount hereunder. In the event the Corporation is not
able to redeem all of the shares of Series C Preferred Stock subject to
Redemption Notices delivered prior to the date upon which such redemption is to
be effected, the Corporation shall redeem shares of Series C Preferred Stock
from each holder pro rata, based on the total number of shares of Series C
Preferred Stock outstanding at

                                      -14-
<PAGE>

the time of redemption included by such holder in all Redemption Notices
delivered prior to the date upon which such redemption is to be effected
relative to the total number of shares of Series C Preferred Stock outstanding
at the time of redemption included in all of the Redemption Notices delivered
prior to the date upon which such redemption is to be effected.

      D. Redemption on the Maturity Date. Any and all shares of Series C
Preferred Stock outstanding on the Maturity Date shall be redeemed by the
Corporation in exchange for payment to the holder thereof of cash in an amount
per share of Series C Preferred Stock then held by such holder equal to the sum
of (1) the Face Amount plus (2) accrued Premium thereon (the "MATURITY AMOUNT").
If the Corporation fails to pay any holder the Maturity Amount with respect to
any share of Series C Preferred Stock within ten (10) business days after the
Maturity Date, then such holder of Series C Preferred Stock shall be entitled to
interest on the Maturity Amount at a per annum rate equal to the lower of
twenty-four percent (24%) and the highest interest rate permitted by applicable
law from the Maturity Date until the date of payment of the Maturity Amount
hereunder.

                                    IX. RANK

      All shares of the Series C Preferred Stock shall rank (i) prior to the
Corporation's Common Stock, and any class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the Majority Holders
obtained in accordance with Article XIII hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
C Preferred Stock) (collectively with the Common Stock, "JUNIOR SECURITIES");
(ii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the written consent of the Majority Holders obtained in
accordance with Article XIII hereof) specifically ranking, by its terms, on
parity with the Series C Preferred Stock (the "PARI PASSU SECURITIES"); and
(iii) junior to any class or series of capital stock of the Corporation
hereafter created (with the written consent of the Majority Holders obtained in
accordance with Article XIII hereof) specifically ranking, by its terms, senior
to the Series C Preferred Stock (collectively, the "SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.

                           X. LIQUIDATION PREFERENCE

      A. Priority in Liquidation. If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive

                                      -15-
<PAGE>

days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (each such event being considered a "LIQUIDATION EVENT"), no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities pursuant to the rights, preferences
and privileges thereof) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series C Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series C Preferred Stock and holders of Pari Passu
Securities, if any, shall be insufficient to permit the payment to such holders
of the preferential amounts payable thereon, then the entire assets and funds of
the Corporation legally available for distribution to the Series C Preferred
Stock and the Pari Passu Securities, if any, shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares. If, upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of Senior Securities, if any,
the holders of the Series C Preferred Stock and the holders of Pari Passu
Securities, if any, shall be sufficient to permit the payment to such holders of
the preferential amounts payable thereon, then after such payment shall be made
in full to the holders of Senior Securities, if any, the holders of the Series C
Preferred Stock and the holders of Pari Passu Securities, if any, the remaining
assets and funds available for distribution shall be distributed to the holders
of any Junior Securities entitled to a liquidation preference in payment of the
aggregate liquidation preference of all such holders. After such payment shall
be made in full to the holders of any Junior Securities entitled to a
liquidation preference, the remaining assets and funds available for
distribution shall be distributed ratably among the holders of shares of Series
C Preferred Stock, the holders of any other class or series of Preferred Stock
entitled to participate with the Common Stock in a liquidating distribution and
the holders of the Common Stock, with the holders of shares of Preferred Stock
deemed to hold the number of shares of Common Stock into which such shares of
Preferred Stock are then convertible.

      B. Definition of Liquidation Preference. The "LIQUIDATION PREFERENCE" with
respect to a share of Series C Preferred Stock means an amount equal to the Face
Amount thereof plus all accrued Premium thereon through the date of final
distribution. The Liquidation Preference with respect to any Pari Passu
Securities, if any, shall be as set forth in the Certificate of Designation
filed in respect thereof.

                    XI. ADJUSTMENTS TO THE CONVERSION PRICE

      The Conversion Price shall be subject to adjustment from time to time as
follows:

      A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price and the Floor, as applicable, shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination, reclassification or other
similar event, the Conversion Price and the Floor, as applicable, shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.

                                      -16-
<PAGE>

      B. Merger, Consolidation, Etc. If, at any time after the Issuance Date,
there shall be (i) any reclassification or change of the outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), (ii) any consolidation or merger of the Corporation with any other
entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged), (iii) any sale or
transfer of all or substantially all of the assets of the Corporation or (iv)
any share exchange or other transaction pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series C
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion had such Corporate
Change not taken place (without giving effect to the limitations contained in
Article XV), and in any such case, appropriate provisions (in form and substance
reasonably satisfactory to the Majority Holders) shall be made with respect to
the rights and interests of the holders of the Series C Preferred Stock to the
end that the economic value of the shares of Series C Preferred Stock are in no
way diminished by such Corporate Change and that the provisions hereof
(including, without limitation, 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 so that the Conversion Price
immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Conversion Price and the value of the Corporation's Common Stock
immediately prior to such Corporate Change) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Corporation shall not
effect any Corporate Change unless (i) each holder of Series C Preferred Stock
has received written notice of such transaction at least forty-five (45) days
prior thereto, but in no event later than fifteen (15) days prior to the record
date for the determination of stockholders entitled to vote with respect
thereto, (ii) if required by Section 4(h) of the Securities Purchase Agreement,
the consent of the Purchasers (as such term is defined in the Securities
Purchase Agreement) shall have been obtained in accordance with such Section
4(h), and (iii) either (A) the resulting successor or acquiring entity (if not
the Corporation), and, if an entity other than the successor or acquiring entity
is the entity whose capital stock or assets the holders of the Common Stock are
entitled to receive as a result of such Corporate Change, such other entity,
assumes by written instrument (in form and substance reasonable satisfactory to
the Majority Holders) the obligations of this Certificate of Designation or (B)
all outstanding shares of Series C Preferred Stock have been redeemed pursuant
to Article VIII prior to the consummation of such Corporate Change. The above
provisions shall apply regardless of whether there would have been a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of the shares of Series C Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.

      C. Distributions. Other than in respect of adjustments to the Conversion
Price that have otherwise been effected pursuant to Article XI.A., if, at any
time after the Issuance Date, the Corporation shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise

                                      -17-
<PAGE>

(including any dividend or distribution to the Corporation's stockholders in
cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "DISTRIBUTION"), then the holders of Series C Preferred
Stock shall be entitled, upon any conversion of shares of Series C Preferred
Stock after the date of record for determining stockholders entitled to such
Distribution (or if no such record is taken, the date on which such Distribution
is declared or made), to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock issuable upon
such conversion (without giving effect to the limitations contained in Article
XV) had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such Distribution (or if
no such record is taken, the date on which such Distribution is declared or
made).

      D. Convertible Securities and Purchase Rights. Other than in respect of
adjustments to the Conversion Price that have otherwise been effected pursuant
to Article XI.A., if, at any time after the Issuance Date, the Corporation
issues any securities or other instruments which are convertible into or
exercisable or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or
options, warrants or other rights to purchase or subscribe for Common Stock or
Convertible Securities ("PURCHASE RIGHTS") pro rata to the record holders of the
Common Stock, whether or not such Convertible Securities or Purchase Rights are
immediately convertible into or exercisable or exchangeable for shares of the
Corporation's Common Stock, then the holders of Series C Preferred Stock shall
be entitled, upon any conversion of shares of Series C Preferred Stock after the
date of record for determining stockholders entitled to receive such Convertible
Securities or Purchase Rights (or if no such record is taken, the date on which
such Convertible Securities or Purchase Rights are issued), to receive the
aggregate number of Convertible Securities or Purchase Rights which such holder
would have received with respect to the shares of Common Stock issuable upon
such conversion (without giving effect to the limitations contained in Article
XV) had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to receive such Convertible
Securities or Purchase Rights (or if no such record is taken, the date on which
such Convertible Securities or Purchase Rights were issued). If the right to
exercise or convert any such Convertible Securities or Purchase Rights would
expire in accordance with their terms prior to the conversion of the Series C
Preferred Stock, then the terms of such Convertible Securities or Purchase
Rights shall provide that such exercise or convertibility right shall remain in
effect until thirty (30) days after the date the holder of Series C Preferred
Stock receives such Convertible Securities or Purchase Rights pursuant to the
conversion hereof.

      E. Dilutive Issuances.

            (i) Adjustment Upon Dilutive Issuance. If, at any time after the
Issuance Date, the Corporation issues or sells, or in accordance with
subparagraph (ii) of this Article XI.E is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
less than the Conversion Price in effect on the date of issuance or sale (or
deemed issuance or sale) (a "DILUTIVE ISSUANCE"), then effective immediately
upon the Dilutive Issuance, the Conversion Price shall be reduced to an amount
determined by the following formula, and the Conversion Price from and after
such time shall be the amount represented by "ACP" below, subject to further
adjustments as contemplated elsewhere in this Certificate of Designation:

      ACP =     CP x (CP x O) + P
                     -------------
                       CP x CSDO

                                      -18-
<PAGE>

where:

ACP  =  the adjusted Conversion Price;

CP   =  the Conversion Price on (a) for purposes of any private offering of
        securities under Section 4(2) of the Securities Act, the date that the
        Corporation enters into legally binding definitive agreements for the
        issuance of such Common Stock and (b) for purposes of any other such
        issuance of Common Stock, the date of issuance thereof;

O    =  the number of shares of Common Stock outstanding (on a fully-diluted
        basis, assuming the full conversion, exercise or exchange of all
        Convertible Securities and Purchase Rights then outstanding) immediately
        prior to the Dilutive Issuance;

P    =  the aggregate consideration, calculated as set forth in Article XI.E(ii)
        hereof, received by the Corporation upon such Dilutive Issuance; and

CSDO =  the total number of shares of Common Stock outstanding (on a
        fully-diluted basis, assuming the full conversion, exercise or exchange
        of all Convertible Securities and Purchase Rights then outstanding, and
        after giving effect to the Dilutive Issuance, and not including shares
        of Common Stock held in the treasury of the Corporation), plus (a) in
        the case of any adjustment required by this Article XI.E(i) due to the
        issuance of Purchase Rights, the maximum total number of shares of
        Common Stock issuable upon the exercise of the Purchase Rights for which
        the adjustment is required (including any Common Stock issuable upon the
        conversion of Convertible Securities issuable upon the exercise of such
        Purchase Rights), and (b) in the case of any adjustment required by this
        Article XI.E(i) due to the issuance of Convertible Securities, the
        maximum total number of shares of Common Stock issuable upon the
        exercise, conversion or exchange of the Convertible Securities for which
        the adjustment is required, as of the date of issuance of such
        Convertible Securities, if any.

Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Paragraph E if such adjustment would result in an increase in the Conversion
Price.

      (ii) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under subparagraph (i) of this Article
XI.E, the following will be applicable:

            (a) Issuance of Purchase Rights. If the Corporation issues or sells
any Purchase Rights, whether or not immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such Purchase
Rights ((including any Common Stock issuable upon the conversion of Convertible
Securities issuable upon the exercise of such Purchase Rights) is less than the
Conversion Price in effect on the date of issuance or sale of such Purchase
Rights, then

                                      -19-
<PAGE>

the maximum total number of shares of Common Stock issuable upon the exercise of
all such Purchase Rights (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such Purchase
Rights) shall, as of the date of the issuance or sale of such Purchase Rights,
be deemed to be outstanding and to have been issued and sold by the Corporation
for such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Purchase
Rights" shall be determined by dividing (A) the total amount, if any, received
or receivable by the Corporation as consideration for the issuance or sale of
all such Purchase Rights, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise of all such
Purchase Rights, plus, in the case of Convertible Securities issuable upon the
exercise of such Purchase Rights, the minimum aggregate amount of additional
consideration payable upon the conversion, exercise or exchange thereof
(determined in accordance with the calculation method set forth in subparagraph
(ii)(b) of this Article XI.E) at the time such Convertible Securities first
become convertible, exercisable or exchangeable, by (B) the maximum total number
of shares of Common Stock issuable upon the exercise of all such Purchase Rights
(including any Common Stock issuable upon the conversion of Convertible
Securities issuable upon the exercise of such Purchase Rights). No further
adjustment to the Conversion Price shall be made upon the actual issuance of
such Common Stock upon the exercise of such Purchase Rights or upon the
conversion, exercise or exchange of Convertible Securities issuable upon
exercise of such Purchase Rights.

            (b) Issuance of Convertible Securities. If the Corporation issues or
sells any Convertible Securities, whether or not immediately convertible,
exercisable or exchangeable, and the price per share for which Common Stock is
issuable upon such conversion, exercise or exchange is less than the Conversion
Price in effect on the date of issuance or sale of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
conversion, exercise or exchange of all such Convertible Securities shall, as of
the date of the issuance or sale of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Corporation for such price
per share. If the Convertible Securities so issued or sold do not have a
fluctuating conversion or exercise price or exchange ratio, then for the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion, exercise or exchange" shall be determined by
dividing (A) the total amount, if any, received or receivable by the Corporation
as consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the conversion, exercise or exchange thereof (determined
in accordance with the calculation method set forth in this subparagraph (ii)(b)
of this Article XI.E) at the time such Convertible Securities first become
convertible, exercisable or exchangeable, by (B) the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities. If the Convertible Securities so issued or sold
have a fluctuating conversion or exercise price or exchange ratio (a "VARIABLE
RATE CONVERTIBLE SECURITY"), then for purposes of the next preceding sentence,
the "price per share for which Common Stock is issuable upon such conversion,
exercise or exchange" shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security on
the date of issuance or sale thereof was seventy-five percent (75%) of the
actual conversion price on such date (the "ASSUMED VARIABLE MARKET PRICE"), and,
further, if

                                      -20-
<PAGE>

the conversion price of such Variable Rate Convertible Security at any time or
times thereafter is less than or equal to the Assumed Variable Market Price last
used for making any adjustment under this Article XI.E with respect to any
Variable Rate Convertible Security, the Conversion Price in effect at such time
shall be readjusted to equal the Conversion Price which would have resulted if
the Assumed Variable Market Price at the time of issuance of the Variable Rate
Convertible Security had been seventy-five percent (75%) of the actual
conversion price of such Variable Rate Convertible Security existing at the time
of the adjustment required by this sentence. No further adjustment to the
Conversion Price shall be made upon the actual issuance of such Common Stock
upon conversion, exercise or exchange of such Convertible Securities.

            (c) Change in Option Price or Conversion Rate. If there is a change
at any time in (A) the amount of additional consideration payable to the
Corporation upon the exercise of any Purchase Rights, (B) the amount of
additional consideration, if any, payable to the Corporation upon the
conversion, exercise or exchange of any Convertible Securities or (C) the rate
at which any Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock (in each such case, other than under or by reason
of provisions designed to protect against dilution), the Conversion Price in
effect at the time of such change shall be readjusted to the Conversion Price
which would have been in effect at such time had such Purchase Rights or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion, exercise or exchange rate, as the case may
be, at the time initially issued or sold.

            (d) Calculation of Consideration Received. If any Common Stock,
Purchase Rights or Convertible Securities are issued or sold for cash, the
consideration received therefor will be the amount received by the Corporation
therefor, after deduction of all underwriting discounts, commissions and
allowances in connection with such issuance, grant or sale. In case any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, including in the
case of a strategic or similar arrangement in which the other entity will
provide services to the Corporation, purchase services from the Corporation or
otherwise provide intangible consideration to the Corporation, the amount of the
consideration other than cash received by the Corporation (including the net
present value of the consideration expected by the Corporation for the provided
or purchased services) shall be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation will be the Closing Bid Price
thereof as of the date of receipt. In case any Common Stock, Purchase Rights or
Convertible Securities are issued in connection with any merger or consolidation
in which the Corporation is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Purchase Rights or Convertible Securities, as
the case may be. Notwithstanding anything else herein to the contrary, if Common
Stock, Purchase Rights or Convertible Securities are issued or sold in
conjunction with each other as part of a single transaction or in a series of
related transactions, any holder of Series C Preferred Stock may elect to
determine the amount of consideration deemed to be received by the Corporation
therefor by deducting the fair value of any type of securities (the "DISREGARDED
SECURITIES") issued or sold in such transaction or series of transactions. If
the holder makes an election pursuant to the immediately preceding sentence, no
adjustment to the Conversion Price shall be made pursuant to this Article XI.E
for the issuance of the Disregarded Securities or upon any conversion, exercise
or exchange thereof. For example, if the

                                      -21-
<PAGE>

Corporation were to issue convertible notes having a face value of One Million
Dollars ($1,000,000) and warrants to purchase shares of Common Stock at an
exercise price equal to the market price of the Common Stock on the date of
issuance of such warrants in exchange for One Million Dollars ($1,000,000) of
consideration, and the holder makes an election to treat the Warrants as
Disregarded Securities, then the fair value of the warrants would be subtracted
from the One Million Dollars ($1,000,000) of consideration received by the
Corporation for the purposes of determining whether the shares of Common Stock
issuable upon conversion of the convertible notes shall be deemed to be issued
at a price per share below the Conversion Price then in effect and, if so, for
purposes of determining any adjustment to the Conversion Price hereunder as a
result of the issuance of the convertible notes. The Corporation shall
calculate, using standard commercial valuation methods appropriate for valuing
such assets, the fair market value of any consideration other than cash or
securities; provided, however, that if the Majority Holders do not agree to such
fair market value calculation within three (3) trading days after receipt
thereof from the Corporation, then such fair market value shall be determined in
good faith by an independent investment banker or other appropriate expert of
national reputation selected by the Corporation and reasonably acceptable to the
Majority Holders, with the costs of such appraisal to be borne by the
Corporation.

            (e) Issuances Pursuant to Existing Securities. If the Corporation
issues (or becomes obligated to issue) shares of Common Stock pursuant to any
antidilution or similar adjustments (other than as a result of stock splits,
stock dividends and the like) contained in any Convertible Securities or
Purchase Rights outstanding as of the date hereof but not included in Section
3(c) of the Disclosure Schedule to the Securities Purchase Agreement, then all
shares of Common Stock so issued shall be deemed to have been issued for no
consideration. If the Corporation issues (or becomes obligated to issue) shares
of Common Stock pursuant to any antidilution or similar adjustments contained in
any Convertible Securities or Purchase Rights included in Section 3(c) of the
Disclosure Schedule to the Securities Purchase Agreement as a result of the
issuance of the Series C Preferred Stock or Warrants and the number of shares
that the Corporation issues (or is obligated to issue) as a result of such
initial issuance exceeds the amount specified in Section 3(c) of the Disclosure
Schedule to the Securities Purchase Agreement, such excess shares shall be
deemed to have been issued for no consideration.

            (iii) Exceptions to Adjustment of Conversion Price. Notwithstanding
the foregoing, no adjustment to the Conversion Price shall be made pursuant to
this Article XI.E in connection with any Excluded Issuance.

      F. Other Action Affecting Conversion Price. If, at any time after the
Issuance Date, the Corporation takes any action affecting the Common Stock that
would be covered by Article XI.A through E, but for the manner in which such
action is taken or structured, which would in any way diminish the value of the
Series C Preferred Stock, then the Conversion Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable under the circumstances.

      G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI amounting to a
more than one percent (1%) change in such Conversion Price, or any change in the
number or type of stock, securities and/or other property issuable upon
conversion of the Series C Preferred Stock, the Corporation, at its expense,

                                      -22-
<PAGE>

shall promptly compute such adjustment or readjustment or change and prepare and
furnish to each holder of Series C Preferred Stock a certificate setting forth
such adjustment or readjustment or change and showing in detail the facts upon
which such adjustment or readjustment or change is based. The Corporation shall,
upon the written request at any time of any holder of Series C Preferred Stock,
furnish to such holder a like certificate setting forth (i) such adjustment or
readjustment or change, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series C Preferred Stock.

                               XII. VOTING RIGHTS

      The holders of the Series C Preferred Stock shall have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "DGCL"), in this Article XII and in Article XIII below.

      Notwithstanding the above, the Corporation shall provide each holder of
Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). If the Corporation takes a record of its stockholders for the
purpose of determining stockholders entitled to (i) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (ii) to vote in connection with any proposed
sale, lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder of Series C Preferred Stock, at least fifteen (15) days prior to the
record date specified therein (or 45 days prior to the consummation of the
transaction or event, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which any such record
is to be taken for the purpose of such vote, dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
vote, dividend, distribution, right or other event to the extent known at such
time.

      To the extent that under the DGCL the vote of the holders of the Series C
Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the then outstanding shares of
the Series C Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of the Majority Holders (except as
otherwise may be required under the DGCL) shall constitute the approval of such
action by the class. To the extent that under the DGCL holders of the Series C
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series C Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (subject to the limitations contained in Article
XV.B) using the record date for the taking of such vote of stockholders as the
date as of which the Conversion Price is calculated.

                                      -23-
<PAGE>

                          XIII. PROTECTION PROVISIONS

      So long as (a) any shares of Series C Preferred Stock are outstanding, the
Corporation shall not take any of the corporate actions described in items (i),
(iv), (v), (vi) or, as applicable, (x) of this Article XIII (whether by merger,
consolidation or otherwise), and (b) at least Two Hundred and Fifty (250) shares
of Series C Preferred Stock are outstanding, the Corporation shall not take any
of the corporate actions described in items (ii), (iii), (vii), (viii), (ix) or,
as applicable, (x) of this Article XIII (whether by merger, consolidation or
otherwise), without, in each case, first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the Majority Holders:

            (i) alter or change the rights, preferences or privileges of the
Series C Preferred Stock, or increase the authorized number of shares of Series
C Preferred Stock;

            (ii) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series C
Preferred Stock;

            (iii) create or issue any Senior Securities or Pari Passu
Securities;

            (iv) issue any shares of Series C Preferred Stock, Preferred
Warrants or Warrants, in each case, other than pursuant to the Securities
Purchase Agreement;

            (v) redeem, repurchase or otherwise acquire, or declare or pay any
cash dividend or distribution on, any Junior Securities;

            (vi) increase the par value of the Common Stock;

            (vii) issue any debt securities or incur any indebtedness that would
have any preferences over the Series C Preferred Stock upon liquidation of the
Corporation, or redeem, repurchase, prepay or otherwise acquire any outstanding
debt securities or indebtedness of the Corporation, except as expressly required
by the terms of such securities or indebtedness, unless such debt securities are
issued or such indebtedness is incurred exclusively under the Corporation's
existing credit facility with Sky Bank or any amendment thereof or replacement
facility thereto with an Eligible Lender.

            (viii) except for licenses-in or non-exclusive licenses-out of
intellectual property on an arm's-length basis, sell or otherwise transfer any
asset(s) and/or intellectual property, which asset(s) or intellectual property
represent, individually or in the aggregate, ten percent (10%) or more of the
Corporation's total assets as of the end of the fiscal year immediately
preceding such sale or transfer, to any other person(s) or entity(ies)
(including, without limitation, any subsidiary(ies) of the Corporation);

            (ix) enter into any agreement, commitment, understanding or other
arrangement to take any of the foregoing actions; or

            (x) cause or authorize any subsidiary of the Corporation to engage
in any of the foregoing actions.

                                      -24-
<PAGE>

Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series C Preferred Stock then outstanding.

                          XIV. [INTENTIONALLY OMITTED]

                     XV. LIMITATIONS ON CERTAIN CONVERSIONS

      The conversion of any shares of Series C Preferred Stock shall be subject
to the following limitations (each of which limitations shall be applied
independently):

      A. Cap Amount Applicable to Conversions of Series C Preferred Stock and
Exercises of Warrants. If the Corporation is prohibited by Rule 4350(i) of the
National Association of Securities Dealers, Inc. ("NASD"), or any successor or
similar rule, or the rules or regulations of any other securities exchange on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock upon conversion of Series C Preferred Stock (including payment
of Premium in connection therewith) pursuant to Article V or exercise of any
Warrant (together with any shares of Common Stock issued pursuant to other
securities issued pursuant to the Securities Purchase Agreement or other
agreements entered into in connection therewith) in excess of a prescribed
amount (the "CAP AMOUNT") (without stockholder approval or otherwise), then the
Corporation shall not issue shares upon conversion of Series C Preferred Stock
(including payment of Premium in connection therewith) or exercise of any
Warrant in excess of the Cap Amount. Assuming solely for purposes of this
Paragraph A that such Rule 4350(i) or similar rule is applicable, the Cap Amount
shall be that number of shares equal to 19.99% of the Corporation's outstanding
Common Stock on the Issuance Date, subject to equitable adjustment from time to
time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issuance
Date. The Cap Amount shall be allocated pro rata to the holders of Series C
Preferred Stock (and the holders of such other securities issued pursuant to the
Securities Purchase Agreement or other agreements entered into in connection
therewith) as provided in Article XVI.C. In the event that, at any time from and
after the Issuance Date, the Corporation is prohibited from issuing shares of
Common Stock upon conversion of Series C Preferred Stock (including payment of
Premium in connection therewith) or exercise of any Warrant as a result of the
operation of this Paragraph A, the Corporation shall immediately notify the
holders thereof of such occurrence and each such holder shall thereafter have
the option, exercisable in whole or in part at any time and from time to time,
by delivery of a Redemption Notice to the Corporation, to require the
Corporation to redeem for cash, at an amount per share equal to the Redemption
Amount (as defined in Article VIII.B), a number of the holder's shares of Series
C Preferred Stock such that, after giving effect to such redemption, the then
unissued portion of such holder's Cap Amount allocable to the Series C Preferred
Stock held by such holder is at least equal to one hundred percent (100%) of the
total number of shares of Common Stock issuable upon conversion of such holder's
shares of Series C Preferred Stock. If the Corporation fails to redeem any of
such shares within five (5) business days after its receipt of such Redemption
Notice, then such holder shall be entitled to the remedies provided in Article
VIII.C.

                                      -25-
<PAGE>

      B. Additional Restrictions on Conversion of Series C Preferred Stock and
Exercises of Warrants. In no event shall a holder of shares of Series C
Preferred Stock be entitled, nor shall the Corporation be required or permitted,
to convert any shares of Series C Preferred Stock or exercise any Warrant for
shares of Common Stock in excess of that number of shares upon conversion or
exercise, as applicable, of which the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series C Preferred Stock or the unexercised
or unconverted portion of any Warrant or other securities of the Corporation
subject to a limitation on conversion or exercise analogous to the limitations
contained herein) and (y) the number of shares of Common Stock issuable upon
conversion of the shares of Series C Preferred Stock or exercise of any Warrant
with respect to which the determination of this sentence is being made, would
result in beneficial ownership by a holder and such holder's affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (x) of such sentence.

      C. Amendments, Etc. to Article XV. Notwithstanding anything in this
Certificate of Designation to the contrary, the restriction contained in this
Article XV may not be altered, amended, deleted or changed in any manner
whatsoever unless the holders of a majority of the outstanding shares of Common
Stock and each holder of Series C Preferred Stock shall approve, in writing,
such alteration, amendment, deletion or change.

                               XVI. MISCELLANEOUS

      A. Cancellation of Series C Preferred Stock. If any shares of Series C
Preferred Stock are converted pursuant to Article V or redeemed or repurchased
by the Corporation, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized, but unissued Preferred Stock of no
designated series, and shall not be issuable by the Corporation as Series C
Preferred Stock.

      B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, indemnity
(without any bond or other security) reasonably satisfactory to the Corporation,
or (z) in the case of mutilation, the Preferred Stock Certificate(s)
(surrendered for cancellation), the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, the Corporation
shall not be obligated to reissue such lost, stolen, destroyed or mutilated
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such Series C Preferred Stock.

      C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series C
Preferred Stock and the holders of such other securities issued pursuant to the
Securities Purchase Agreement or other agreements entered into in connection
therewith based on the number of shares of Common Stock issuable upon conversion
of the Series C Preferred Stock and upon exercise or conversion of such other
securities issued to each such holder. Each increase to the Cap Amount and each
increase to

                                      -26-
<PAGE>

the Reserved Amount shall be allocated pro rata among the holders of Series C
Preferred Stock and the holders of such other securities issued pursuant to the
Securities Purchase Agreement or other agreements entered into in connection
therewith based on the number of shares of Common Stock issuable upon conversion
of the Series C Preferred Stock and upon exercise or conversion of such other
securities held by each holder at the time of such increase. In the event a
holder shall sell or otherwise transfer any of such holder's shares of Series C
Preferred Stock or such other securities, each transferee shall be allocated a
pro rata portion of such transferor's Cap Amount and Reserved Amount. Any
portion of the Cap Amount or Reserved Amount which remains allocated to any
person or entity which does not hold any Series C Preferred Stock or such other
securities issued pursuant to the Securities Purchase Agreement or other
agreements entered into in connection therewith shall be allocated to the
remaining holders of shares of Series C Preferred Stock and the holders of such
other securities, pro rata based on the number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock and upon exercise or
conversion of such other securities then held by such holders.

      D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter for so long as any shares of Series C
Preferred Stock are outstanding, the Corporation shall deliver (or cause its
transfer agent to deliver) to each holder a written report notifying the holders
of any occurrence that prohibits the Corporation from issuing Common Stock upon
any conversion. The report shall also specify (i) the total number of shares of
Series C Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series C
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series C Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series C Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall use its best efforts to deliver the report for each quarter to each holder
prior to the tenth (10th) day of the calendar month following the quarter to
which such report relates. In addition, the Corporation (or its transfer agent)
shall provide, as promptly as practicable following delivery to the Corporation
of a written request by any holder, any of the information enumerated in clauses
(i) - (iv) of this Paragraph D as of the date of such request.

      E. Payment of Cash; Defaults. Whenever the Corporation is required to make
any cash payment to a holder under this Certificate of Designation (as payment
of any Premium, upon redemption or otherwise), such cash payment shall be made
to the holder within five (5) business days after delivery by such holder of a
notice specifying that the holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made and
any supporting documentation reasonably requested by the Corporation to
substantiate the holder's claim to such cash payment or the amount thereof. If
such payment is not delivered within such five (5) business day period, such
holder shall thereafter be entitled to interest on the unpaid amount at a per
annum rate equal to the lower of eighteen percent (18%) and the highest interest
rate permitted by applicable law until such amount is paid in full to the
holder.

                                      -27-
<PAGE>

      F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series C Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series C Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of Common
Stock prior to the sixth (6th) business day after the expiration of the Delivery
Period with respect to a conversion of Series C Preferred Stock for any reason,
then (unless the holder otherwise elects to retain its status as a holder of
Common Stock by so notifying the Corporation within five (5) business days after
the expiration of such six (6) business day period after expiration of the
Delivery Period) the holder shall regain the rights of a holder of Series C
Preferred Stock with respect to such unconverted shares of Series C Preferred
Stock and the Corporation shall, as soon as practicable, return such unconverted
shares to the holder. In all cases, the holder shall retain all of its rights
and remedies for the Corporation's failure to convert Series C Preferred Stock.

      G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series C Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series C Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

      H. Waiver. Notwithstanding any provision in this Certificate of
Designation to the contrary, any provision contained herein and any right of the
holders of Series C Preferred Stock granted hereunder may be waived as to all
shares of Series C Preferred Stock (and the holders thereof) upon the written
consent of the Majority Holders, unless a higher percentage is required by
applicable law, in which case the written consent of the holders of not less
than such higher percentage of shares of Series C Preferred Stock shall be
required. No consideration shall be offered or paid to any holder of shares of
Series C Preferred Stock in consideration for amending or consenting to any
waiver or modification of any provision of this Certificate of Designation
unless the same consideration is contemporaneously offered to all holders of
shares of Series C Preferred Stock on a pro rata basis.

                                      -28-
<PAGE>

      I. Notices. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally, by nationally recognized overnight carrier or by
confirmed facsimile transmission, and shall be effective five days after being
placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by nationally recognized overnight carrier or confirmed
facsimile transmission, in each case addressed to a party. The addresses for
such communications are (i) if to the Corporation to PDG Environmental, Inc.,
1386 Beulah Road, Building 801, Pittsburgh, Pennsylvania 15235, Telephone: (412)
243-3200, Facsimile: (412) 243-4900, Attention: Chief Executive Officer, and
(ii) if to any holder to the address set forth under such holder's name on the
execution page to the Securities Purchase Agreement, or such other address as
may be designated in writing hereafter, in the same manner, by such person.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -29-
<PAGE>

      IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 30th day of June, 2005.

                                         PDG ENVIRONMENTAL, INC.

                                         By: /s/ John C. Regan
                                             ----------------------
                                         Name:  John C. Regan
                                         Title: President & CEO

   [SIGNATURE PAGE TO CERTIFICATE OF DESIGNATION FOR SERIES C PREFERRED STOCK]
<PAGE>
                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
                in order to Convert the Series C Preferred Stock)

      The undersigned hereby irrevocably elects to convert ____________ shares
of Series C Preferred Stock (the "CONVERSION"), represented by Stock Certificate
No(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common
stock ("COMMON STOCK") of PDG Environmental, Inc. (the "CORPORATION") according
to the conditions of the Certificate of Designation, Preferences and Rights of
Series C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the holder for any conversion,
except for transfer taxes, if any. Each Preferred Stock Certificate is attached
hereto (or evidence of loss, theft or destruction thereof).

      Except as may be provided below, the Corporation shall electronically
transmit the Common Stock issuable pursuant to this Notice of Conversion to the
account of the undersigned or its nominee (which is _________________) with DTC
through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").

      In the event of partial exercise, please reissue a new stock certificate
for the number of shares of Series C Preferred Stock which shall not have been
converted.

      The undersigned acknowledges and agrees that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series C Preferred Stock have been or will be made only pursuant to an effective
registration of the transfer of the Common Stock under the Securities Act of
1933, as amended (the "ACT"), or pursuant to an exemption from registration
under the Act.

[ ]   In lieu of receiving the shares of Common Stock issuable pursuant to this
      Notice of Conversion by way of DTC Transfer, the undersigned hereby
      requests that the Corporation issue and deliver to the undersigned
      physical certificates representing such shares of Common Stock.

                                         Date of Conversion:____________________

                                         Applicable Conversion Price:___________

                                         Signature:_____________________________

                                         Name:__________________________________

                                         Address:_______________________________

                                                 _______________________________

                                                 _______________________________<PAGE>

                                                                     EXHIBIT 4.2
                                                                       EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT

      This Registration Rights Agreement (this "Agreement") is made and entered
into as of July 1, 2005 among PDG Environmental, Inc., a Delaware corporation
(the "Company"), and the purchasers signatory hereto (each such purchaser is a
"Purchaser" and collectively, the "Purchasers").

      This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").

      The Company and the Purchasers hereby agree as follows:

   1. Definitions

      CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT ARE DEFINED
IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN THE
PURCHASE AGREEMENT. As used in this Agreement, the following terms shall have
the following meanings:

            "Advice" shall have the meaning set forth in Section 6(d).

            "Effectiveness Date" means, with respect to the initial Registration
      Statement required to be filed hereunder, the 145th calendar day following
      the date hereof, with respect to any additional Registration Statements
      which may be required pursuant to Section 3(c), the 145th calendar day
      following the date on which any Holder notifies the Company that such
      additional Registration Statement is required hereunder; provided,
      however, in the event the Company is notified by the Commission that one
      of the above Registration Statements will not be reviewed or is no longer
      subject to further review and comments, the Effectiveness Date as to such
      Registration Statement shall be the fifth Trading Day following the date
      on which the Company is so notified if such date precedes the dates
      required above.

            "Effectiveness Period" shall have the meaning set forth in Section
      2(a).

            "Event" shall have the meaning set forth in Section 2(b).

            "Event Date" shall have the meaning set forth in Section 2(b).

            "Filing Date" means, with respect to the initial Registration
      Statement required hereunder, the 90th calendar day following the date
      hereof and, with respect to any additional Registration Statements which
      may be required pursuant to Section 3(c), the 45th day following the date
      on which any Holder notifies the Company that such additional Registration
      Statement is required hereunder.

                                        1
<PAGE>

            "Holder" or "Holders" means the holder or holders, as the case may
      be, from time to time of Registrable Securities.

            "Indemnified Party" shall have the meaning set forth in Section
      5(c).

            "Indemnifying Party" shall have the meaning set forth in Section
      5(c).

            "Losses" shall have the meaning set forth in Section 5(a).

            "Plan of Distribution" shall have the meaning set forth in Section
      2(a).

            "Proceeding" means an action, claim, suit, investigation or
      proceeding (including, without limitation, an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "Prospectus" means the prospectus included in a Registration
      Statement (including, without limitation, a prospectus that includes any
      information previously omitted from a prospectus filed as part of an
      effective registration statement in reliance upon Rule 430A promulgated
      under the Securities Act), as amended or supplemented by any prospectus
      supplement, with respect to the terms of the offering of any portion of
      the Registrable Securities covered by a Registration Statement, and all
      other amendments and supplements to the Prospectus, including
      post-effective amendments, and all material incorporated by reference or
      deemed to be incorporated by reference in such Prospectus.

            "Registrable Securities" means (i) all of the Shares, (ii) all
      Warrant Shares, (iii) any securities issued or issuable upon any stock
      split, dividend or other distribution recapitalization or similar event
      with respect to the foregoing and (iv) any additional shares issuable in
      connection with any anti-dilution provisions in the Warrants. Any
      securities shall cease to be Registrable Securities when (a) they have
      been effectively registered under the Securities Act and disposed of in
      accordance with the registration statement covering them or (b) they are
      or may be freely traded without registration pursuant to Rule 144(k) under
      the Securities Act (or any similar provisions that are then in effect).

            "Registration Statement" means the registration statements required
      to be filed hereunder and any additional registration statements
      contemplated by Section 3(c), including (in each case) the Prospectus,
      amendments and supplements to such registration statement or Prospectus,
      including pre- and post-effective amendments, all exhibits thereto, and
      all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement.

            "Rule 415" means Rule 415 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

                                        2
<PAGE>

            "Rule 424" means Rule 424 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same purpose and effect as such Rule.

            "Selling Shareholder Questionnaire" shall have the meaning set forth
      in Section 3(a).

   2. Shelf Registration

      (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of 115%
of the Registrable Securities on such Filing Date for an offering to be made on
a continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-2 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-2, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders) substantially the "Plan of Distribution"
attached hereto as Annex A. Subject to the terms of this Agreement, the Company
shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the applicable
Effectiveness Date, and shall use its commercially reasonable efforts to keep
such Registration Statement continuously effective under the Securities Act
until all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period"). The Company shall immediately
notify the Holders via facsimile of the effectiveness of the Registration
Statement on the same day that the Company receives notification of the
effectiveness from the Commission. Failure to so notify the Holder within 1
Trading Day of such notification shall be deemed an Event under Section 2(b).

      (b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a), the Company shall not be deemed to have satisfied this clause (i)), or
(ii) the Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will not
be "reviewed", or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 20 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, or (iv) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission by its Effectiveness Date, or (v) after the
Effectiveness Date, a Registration Statement ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is required
to be effective, or the Holders are

                                        3
<PAGE>

not permitted to utilize the Prospectus therein to resell such Registrable
Securities for 45 consecutive Trading Days but no more than an aggregate of 75
Trading Days during any 12-month period (which need not be consecutive Trading
ays) (any such failure or breach being referred to as an "Event", and for
purposes of clause (i) or (iv) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 20 calendar day
period is exceeded, or for purposes of clause (v) the date on which such 45 or
75 Trading Day period, as applicable, is exceeded being referred to as "Event
Date"), then in addition to any other rights the Holders may have hereunder or
under applicable law, on each such Event Date and on each monthly anniversary of
each such Event Date (if the applicable Event shall not have been cured by such
date) until the applicable Event is cured, the Company shall pay to each Holder
an amount in cash, as partial liquidated damages and not as a penalty, equal to
1.0% of the aggregate purchase price paid by such Holder pursuant to the
Purchase Agreement for any Registrable Securities then held by such Holder. If
the Company fails to pay any partial liquidated damages pursuant to this Section
in full within seven days after the date payable, the Company will pay interest
thereon at a rate of 15% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. The partial liquidated damages pursuant to
the terms hereof shall apply on a daily pro-rata basis for any portion of a
month prior to the cure of an Event.

   3. Registration Procedures

      In connection with the Company's registration obligations hereunder, the
Company shall:

      (a) Not less than five Trading Days prior to the filing of each
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities shall reasonably object in good faith,
provided that, the Company is notified of such objection in writing no later
than 5 Trading Days after the Holders have been so furnished copies of such
documents. Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") not less than two Trading Days prior to the Filing
Date or by the end of the fourth Trading Day following the date on which such
Holder receives draft materials in accordance with this Section.

      (b)(i) Prepare and file with the Commission such amendments, including
post-effective amendments, to a Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep a Registration Statement
continuously effective as to the

                                        4
<PAGE>

applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement (subject to the terms of this Agreement), and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to a Registration Statement or any amendment thereto and as
promptly as reasonably possible provide the Holders true and complete copies of
all correspondence from and to the Commission relating to a Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement during the applicable
period in accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented.

      (c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 90% of the number of shares of Common Stock then
registered in a Registration Statement, then the Company shall file as soon as
reasonably practicable but in any case prior to the applicable Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than 115% of the number of such Registrable Securities.

      (d) Notify the Holders of Registrable Securities to be sold (which notice
shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes
have been made) as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than five Trading Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the case of a
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a

                                        5
<PAGE>

material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and (vi) the occurrence or existence of
any pending corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company, makes it
not in the best interest of the Company to allow continued availability of the
Registration Statement or Prospectus; provided that any and all of such
information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided, further, notwithstanding each Holder's agreement to keep such
information confidential, the Holders make no acknowledgement that any such
information is material, non-public information.

      (e) Use its commercially reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of (i) any order suspending the effectiveness
of a Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

      (f) Furnish to each Holder, without charge, at least one conformed copy of
each such Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

      (g) Promptly deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request in
connection with resales by the Holder of Registrable Securities. Subject to the
terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving on any notice pursuant to Section 3(d).

      (h) If NASDR Rule 2710 requires any broker-dealer to make a filing prior
to executing a sale by a Holder, make an Issuer Filing with the NASDR, Inc.
Corporate Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i) and
respond within five Trading Days to any comments received from NASDR in
connection therewith, and pay the filing fee required in connection therewith.

      (i) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the Registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement; provided,
that

                                        6
<PAGE>

the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified, subject the Company to any
material tax in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

      (j) If requested by the Holders, cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such Holders may
request.

      (k) Upon the occurrence of any event contemplated by this Section 3, as
promptly as reasonably possible under the circumstances taking into account the
Company's good faith assessment of any adverse consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement
or amendment, including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses
(ii) through (v) of Section 3(d) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holders
shall suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under this
Section 3(j) to suspend the availability of a Registration Statement and
Prospectus, subject to the payment of partial liquidated damages pursuant to
Section 2(b), for a period not to exceed 90 days (which need not be consecutive
days) in any 12 month period.

      (1) Comply with all applicable rules and regulations of the Commission.

      (m) The Company may require each selling Holder to furnish to the Company
a certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if required by the Commission, the person thereof that
has voting and dispositive control over the Shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails to
furnish such information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time as to such Holder only shall
be tolled and any Event that may otherwise occur solely because of such delay
shall be suspended as to such Holder only, until such information is delivered
to the Company.

   4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and

                                        7
<PAGE>

filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the Trading Market on which the Common Stock
is then listed for trading, (B) in compliance with applicable state securities
or Blue Sky laws reasonably agreed to by the Company in writing (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as requested by the Holders)
and (C) if not previously paid by the Company in connection with an Issuer
Filing, with respect to any filing that may be required to be made by any broker
through which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

   5. Indemnification

      (a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred,
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in a Registration Statement, any Prospectus or any form
of prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or

                                        8
<PAGE>

such Holders proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
of an event of the type specified in Section 3(d)(ii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior to
the receipt by such Holder of the Advice contemplated in Section 6(d). The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

      (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, to the extent arising out of or based solely upon: (x) such Holder's
failure to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (i) to the extent, but only to the extent, that such untrue statement
or omission is contained in any information so furnished in writing by such
Holder to the Company specifically for inclusion in such Registration Statement
or such Prospectus or (ii) to the extent that (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(d). In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

      (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the

                                        9
<PAGE>

Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have prejudiced the Indemnifying Party.

      An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall reasonably believe that a material conflict of interest is likely to exist
if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of one
separate counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

      Subject to the terms of this Agreement, all reasonable fees and expenses
of the Indemnified Party (including reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such Proceeding
in a manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not entitled to
indemnification hereunder, determined based upon the relative faults of the
parties.

      (d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless for any Losses, then each Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any

                                       10
<PAGE>

Losses shall be deemed to include, subject to the limitations set forth in this
Agreement, any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

      The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

      The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

   6. Miscellaneous

      (a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

      (b) No Piggyback on Registrations. Except as set forth on Schedule 6(b)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities.
Other than any registration statement that may be filed on behalf of those
certain holders of the Company's preferred stock pursuant to that certain
Preferred Stock Purchase Agreement and the registration rights agreement, each
dated as of July 1, 2005, the Company shall not file any other registration
statements until the initial Registration Statement required hereunder is
declared effective by the Commission, provided that this Section 6(b) shall not
prohibit the Company from filing amendments to registration statements already
filed or prospectus supplements thereto.

      (c) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.

                                       11
<PAGE>

      (d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(d), such Holder
will forthwith discontinue disposition of such Registrable Securities under a
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement, or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as promptly as it practicable. The Company agrees and acknowledges
that any periods during which the Holder is required to discontinue the
disposition of the Registrable Securities hereunder shall be subject to the
provisions of Section 2(b).

      (e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within fifteen days after the date of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, that, the Company shall not be
required to register any Registrable Securities pursuant to this Section 6(e)
that are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act or that are the subject of a then effective Registration
Statement. Notwithstanding the foregoing, in the event that, in connection with
any underwritten public offering, the managing underwriter(s) thereof shall
impose a limitation on the number of shares of Common Stock that may be included
in the Registration Statement because, in such underwriter(s)' judgment,
marketing or other factors dictate such limitation is necessary to facilitate
public distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Holder has requested inclusion hereunder as the
underwriter shall permit; provided, however, that (i) the Company shall not
exclude any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not contractually entitled to
inclusion of such securities in such Registration Statement or are not
contractually entitled to pro rata inclusion with the Registrable Securities and
(ii) after giving effect to the immediately preceding proviso, any such
exclusion of Registrable Securities shall be made pro rata among the Holders
seeking to include Registrable Securities and the holders of other securities
having the contractual right to inclusion of their securities in such
Registration Statement by reason of demand registration rights in proportion to
the number of Registrable Securities or other securities, as applicable, sought
to be included by each such Holder or other holder. If an offering in connection
with which a Holder is entitled to registration under this Section 6(e) is an
underwritten offering, then each Holder whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such

                                       12
<PAGE>

Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. With respect to any registration of Registrable Securities pursuant to
this Section 6(e), if at any time after written notice of its intention to
register any securities and prior to the effective date of the Registration
Statement filed in connection with such registration the Company shall determine
for any reason either not to register or delay registration of such securities,
or to withdraw the Registration Statement after filing and after notice thereof,
but prior to the effectiveness of the Registration Statement, the Company may,
at its election, give written notice of such determination to each Holder and
thereupon (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration pursuant to this Section 6(e) and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities pursuant to this Section 6(e), for the same period as the
delay in registering such other securities.

      (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least 66% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of all of the Registrable Securities to which
such waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.

      (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.

      (h) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of all of the
Holders of the then-outstanding Registrable Securities. Each Holder may assign
their respective rights hereunder in the manner and to the Persons as permitted
under the Purchase Agreement.

      (i) No Inconsistent Agreements. Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has entered, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities, that
would have the effect of impairing the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except as set forth
on Schedule 6(i), neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person that have not been satisfied in full.

                                       13
<PAGE>

      (j) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

      (k) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined with the
provisions of the Purchase Agreement.

      (l) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

      (m) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

      (n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

      (o) Independent Nature of Holders' Obligations and Rights. The obligations
of each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.

                              ********************

                                       14
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                 PDG ENVIRONMENTAL, INC.

                                 By: /s/ John C. Regan
                                     -----------------------
                                     Name: John C. Regan
                                     Title: President & CEO

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       15
<PAGE>

                     [SIGNATURE PAGE OF HOLDERS TO PDGE RRA]

Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________

                           [SIGNATURE PAGES CONTINUE]

                                       16
<PAGE>

                              Plan of Distribution

      Each Selling Stockholder (the "Selling Stockholders") of the common stock
("Common Stock") of PDG Environmental, Inc., a Delaware corporation (the
"Company") and any of their pledgees, assignees and successors-in-interest may,
from time to time, sell any or all of their shares of Common Stock on the
Trading Market or any other stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:

        -   ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

        -   block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

        -   purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;

        -   an exchange distribution in accordance with the rules of the
            applicable exchange;

        -   privately negotiated transactions;

        -   settlement of short sales entered into after the date of this
            prospectus;

        -   broker-dealers may agree with the Selling Stockholders to sell a
            specified number of such shares at a stipulated price per share;

        -   a combination of any such methods of sale;

        -   through the writing or settlement of options or other hedging
            transactions, whether through an options exchange or otherwise; or

        -   any other method permitted pursuant to applicable law.

      The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.

      Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.

                                       17
<PAGE>

      In connection with the sale of the Common Stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the Common Stock short and deliver these
securities to close out their short positions, or loan or pledge the Common
Stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

      The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).

      The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

      Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each Selling
Stockholder has advised us that they have not entered into any written or oral
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholders.

      We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

                                       18
<PAGE>

      Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the Common Stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of the Common Stock by the
Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.

                                       19
<PAGE>

                                                                         ANNEX B

                             PDG ENVIRONMENTAL, INC.

                 SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

      The undersigned beneficial owner of common stock, par value $0.02 per
share (the "Common Stock"), of PDG Environmental, Inc., a Delaware corporation
(the "Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of July
1, 2005 (the "Registration Rights Agreement"), among the Company and the
Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

      Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.

                                     NOTICE

      The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.

                                       20
<PAGE>

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

                                  QUESTIONNAIRE

1. NAME.

      (a)   Full Legal Name of Selling Securityholder

            ___________________________________________________________________

      (b)   Full Legal Name of Registered Holder (if not the same as (a) above)
            through which Registrable Securities Listed in Item 3 below are
            held:

            ___________________________________________________________________

      (c)   Full Legal Name of Natural Control Person (which means a natural
            person who directly you indirectly alone or with others has power to
            vote or dispose of the securities covered by the questionnaire):

            ___________________________________________________________________

2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:

_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Telephone: ____________________________________________________________________
Fax: __________________________________________________________________________
Contact Person: _______________________________________________________________

3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:

      (a)   Type and Amount of Registrable Securities beneficially owned:

            ___________________________________________________________________
            ___________________________________________________________________
            ___________________________________________________________________

                                       21
<PAGE>

4. BROKER-DEALER STATUS:

      (a)   Are you a broker-dealer?

                                 Yes  [ ]     No  [  ]

      Note: If yes, the Commission's staff has indicated that you should be
            identified as an underwriter in the Registration Statement.

      (b)   Are you an affiliate of a broker-dealer?

                                 Yes  [ ]     No  [  ]

      (c)   If you are an affiliate of a broker-dealer, do you certify that you
            bought the Registrable Securities in the ordinary course of
            business, and at the time of the purchase of the Registrable
            Securities to be resold, you had no agreements or understandings,
            directly or indirectly, with any person to distribute the
            Registrable Securities?

                                 Yes  [ ]     No  [  ]

      Note: If no, the Commission's staff has indicated that you should be
            identified as an underwriter in the Registration Statement.

5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE
           SELLING SECURITYHOLDER.

       Except as set forth below in this Item 5, the undersigned is not the
       beneficial or registered owner of any securities of the Company
       other than the Registrable Securities listed above in Item 3.

      (a)   Type and Amount of Other Securities beneficially owned by the
            Selling Securityholder:

            ___________________________________________________________________
            ___________________________________________________________________

                                       22
<PAGE>

6. RELATIONSHIPS WITH THE COMPANY:

      Except as set forth below, neither the undersigned nor any of its
      affiliates, officers, directors or principal equity holders (owners of 5%
      of more of the equity securities of the undersigned) has held any position
      or office or has had any other material relationship with the Company (or
      its predecessors or affiliates) during the past three years.

      State any exceptions here:

      _________________________________________________________________________
      _________________________________________________________________________

      The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.

      By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.

      IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.

Dated: _____________________         Beneficial Owner: ________________________

                                     By: ______________________________________
                                         Name:
                                         Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

                                       23

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