Document:

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                                                                    EXHIBIT 10.4

                        APW LTD. FISCAL 2001 BONUS PLAN

Plan Concept:             Company officers will be paid bonuses based on
                          improvement in specified measurements during each
                          six-month bonus period.

Measurements:             Adjusted EVA at the corporate level and CMM at the
                          operating level. Adjusted EVA is calculated at the
                          corporate level as follows:
                            Net Operating Profit After Tax - Capital Changes.
                          CMM is calculated at the operating level as
                          EBITA - 20% net assets.

                          Base Adjusted EVA for the six-month period ending
                          February 28, 2001 is $5,637,000 and for the six-month
                          period ending August 31, 2001 is $15,936,000

                          Base CMM for North America for the six-month period
                          ending February 28, 2001 is $23,893,000 and for the
                          six-month period ending August 31, 2001 is
                          $28,795,000.

                          Base CMM for outside North America for the six-month
                          period ending February 28, 2001 is $76,000 and for the
                          six-month period ending August 31, 2001 is $135,000.

Applicable Measurements:  For William J. Albrecht and Guus Boel the applicable
                          measurements are 1/3rd regional CMM and 2/3rds
                          Corporate Adjusted EVA.

                          For other corporate officers the applicable measure is
                          100% Corporate Adjusted EVA.

Bonus Awards:             A bonus award is an initial dollar amount each
                          executive receives which is to be multiplied by the
                          bonus multiplier (below) to determine the actual bonus
                          to be paid. The bonus award is made for one year, and
                          one-half of each bonus award is to be used for each
                          six-month bonus period.

Bonus Multiplier:         The bonus paid to each officer for each six-month
                          bonus period is obtained by multiplying the applicable
                          amount of the bonus award by the following bonus
                          multiplier:

                          Improvement in Adjusted
                          EVA or CMM ratio during
                          six month period          0.8  1.0  1.25  1.50  1.75

                          Bonus multiplier            -  0.2   1.1   2.0   2.9

There is no cap on the amount of bonus which can be paid during a bonus period.<PAGE>   1
                                                                    EXHIBIT 4.1

       CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES D
                   CONVERTIBLE PAY IN KIND PREFERRED STOCK

                                      of

                         NET2000 COMMUNICATIONS, INC.

         Pursuant to Section151 of the General Corporation Law of the State of
Delaware.

         We, the undersigned, Donald Clarke, Chief Financial Officer, and Lee
Weiner, Secretary of Net2000 Communications, Inc., a Delaware corporation (the
"Company"), pursuant to the provisions of Sections 103 and 151 of the General
Corporation Law of the State of Delaware, do hereby make this Certificate of
Designations and do hereby state and certify that pursuant to the authority
expressly vested in the Board of Directors of the Company by the Certificate
of Incorporation, the Board of Directors duly adopted the following
resolutions:

         RESOLVED, that pursuant to Section 4 of the Certificate of
Incorporation (which authorizes 60,000,000 shares of undesignated Capital
Stock), the Board of Directors hereby fixes the powers, designations,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions, of a series of preferred Stock
$.01 par value ("Preferred Stock").

         RESOLVED, that each share of such series of Preferred Stock shall
rank equally in all respects and shall be subject to the following provisions:

         1.       Number and Designation.  130,000 shares of the Preferred
Stock of the Corporation shall be designated as 8% Series D Convertible Pay In
Kind Preferred Stock (the "Series D Preferred").

         2.       Dividends. The holders of shares of Series D Preferred (the
"Preferred Shares"), of the Company shall be entitled to receive dividends in
kind ("Dividends") accreting quarterly at a rate of 8.0% per annum, from the
Issuance Date (as defined below). Dividends shall be

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payable on the first day of each of January, April, July and October in shares
of Series D Preferred ("Dividend Shares"), the first such Dividend to be paid
on July 1, 2001.

         3.       Conversion of Preferred Shares.  Preferred Shares shall be
convertible into shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), on the terms and conditions set forth in this
Section 3.

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

                           (i)      "Additional Amount" means, on a per share
         basis, the result of the following formula: (0.08)(N/365)($1,000);
         provided, however, that if N is greater than 365 the Additional
         Amount shall be compounded annually on the anniversary of the last
         Dividend Date for the applicable Preferred Share or the anniversary
         of the Issuance Date if no Dividend Date has occurred.

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

                           (iii)    "Closing Bid Price" means, for any
         security as of any date, the last closing bid price for such security
         on the Principal Market (as defined below) as reported by Bloomberg
         Financial Markets ("Bloomberg"), or if the Principal Market begins to
         operate on an extended hours basis, and does not designate the
         closing bid price, then the last bid price at 4:00 p.m., New York
         City Time, as reported by Bloomberg, or if the foregoing do not
         apply, the last closing bid price of such security in the
         over-the-counter market on the electronic bulletin board for such
         security as reported by Bloomberg, or, if no last closing bid price
         is reported for such security by Bloomberg, the last closing trade
         price of such security as reported by Bloomberg, or, if no last
         closing trade price is reported for such security by Bloomberg, the
         average of the closing bid prices of any market makers for such
         security as reported in the "pink sheets" by the National Quotation
         Bureau, Inc.  If the Closing Bid Price cannot be calculated for such
         security on

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         such date on any of the foregoing bases, the Closing Bid Price of
         such security on such date shall be the fair market value as mutually
         determined by the Company and the holders of at least fifty-five
         percent (55%) of the Preferred Shares then outstanding (consisting of
         at least two unaffiliated persons).  If the Company and the holders
         of Preferred Shares are unable to agree upon the fair market value of
         the Common Stock, then such dispute shall be resolved pursuant to
         Section 3(d)(iii) below.  All such determinations shall be
         appropriately adjusted for any stock dividend, stock split or other
         similar transaction during such period.

                           (iv)     "Closing Sale Price" means, for any
         security as of any date, the last closing trade price for such
         security on the Principal Market as reported by Bloomberg, or if the
         Principal Market begins to operate on an extended hours basis, and
         does not designate the closing trade price, then the last trade price
         at 4:00 p.m., New York City Time, as reported by Bloomberg, or if the
         foregoing do not apply, the last closing trade price of such security
         in the over-the-counter market on the electronic bulletin board for
         such security as reported by Bloomberg, or, if no last closing trade
         price is reported for such security by Bloomberg, the last closing
         ask price of such security as reported by Bloomberg, or, if no last
         closing ask price is reported for such security by Bloomberg, the
         average of the highest bid price and the lowest ask price of any
         market makers for such security as reported in the "pink sheets" by
         the National Quotation Bureau, Inc.  If the Closing Sale Price cannot
         be calculated for such security on such date on any of the foregoing
         basis, the Closing Sale Price of such security on such date shall be
         the fair market value as mutually determined by the Company and the
         holders of at least fifty-five percent (55%) of the Preferred Shares
         then outstanding (consisting of at least two unaffiliated persons).
         If the Company and the holders of Preferred Shares are unable to
         agree upon the fair market value of the Common Stock, then such
         dispute shall be resolved pursuant to Section 3(d)(iii) below.  All
         such determinations to be appropriately adjusted for any stock
         dividend, stock split or other similar transaction during such
         period.

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                           (v)      "Conversion Amount" means the sum of (1)
         the Additional Amount (as defined above), and (2) $1,000.

                           (vi)     "Conversion Price" means, with respect to
         any Preferred Share, as of any Conversion Date or other date of
         determination, $2.955, subject to adjustment as provided herein.

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

                           (viii)   "Dividend Date" means, the date with
         respect to which dividends (in the form of Dividend Shares) have been
         paid by the Company to the holders of Preferred Shares.

                           (ix)     "Early Redemption Amount" means, on a per
         share basis, one thousand dollars ($1,000) plus an amount equal to a
         40% return thereon compounded annually on the anniversary of  the
         Issuance Date.

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

                           (xi)     "Maturity Date" means the date which is
         ten (10) years after the Issuance Date.

                           (xii)    "N" means the number of days from, but
         excluding, the last Dividend Date for the applicable Preferred Share,
         or the Issuance Date if no Dividend Date has occurred, through and
         including the Conversion Date, the Maturity Date or other date of
         determination for such Preferred Share, as the case may be, for which
         such determination is being made.

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

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

                           (xv)     "Principal Market" means the Nasdaq
         National Market, or if the Common Stock is not traded on the Nasdaq
         National Market, then the principal securities exchange or trading
         market for the Common Stock.

                           (xvi)    "Registration Rights Agreement" means that
         certain registration rights agreement between the Company and the
         initial holders of the Preferred Shares relating to the filing of a
         registration statement covering the resale of the shares of Common
         Stock issuable upon conversion of the Preferred Shares and exercise
         of the Warrants, as such agreement may be amended from time to time
         as provided in such agreement.

                           (xvii)   "Securities Purchase Agreement" means that
         certain securities purchase agreement between the Company and the
         initial holders of the Preferred Shares, as such agreement may be
         amended from time to time as provided in such agreement.

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

                           (xix)    "Warrants" means the warrants to purchase
         shares of Common Stock issued by the Company pursuant to the
         Securities Purchase Agreement, as such warrants may be amended from
         time to time as provided in such warrants.

                  (b)      Holder's Conversion Right; Mandatory Redemption or
Conversion. At any time or times on or after the Issuance Date, any holder of
Preferred Shares shall be entitled to convert any whole or fractional number
of Preferred Shares into fully paid and non-assessable shares of Common Stock
in accordance with Section 3(d) at the Conversion Rate (as defined below). If
any Preferred Shares remain outstanding on the Maturity Date, then, pursuant
to Section 3(d)(vii), all such Preferred Shares shall be converted at the
Conversion Rate as of such date in accordance with Section 3(d) or redeemed by
the Company. The Company shall not issue any fraction of a share of Common
Stock upon any conversion. All shares of Common

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

                  (c)      Conversion. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 3(b)
shall be determined according to the following formula (the "Conversion
Rate"):

                     Conversion Amount/Conversion Price.

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

                           (i)      Holder's Delivery Requirements. To convert
         Preferred Shares into shares of Common Stock on any date (the
         "Conversion Date"), the holder thereof shall (A) transmit by
         facsimile (or otherwise deliver), for receipt on or prior to 11:59
         p.m., New York City Time, on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the
         "Conversion Notice") to the Company and (B) if required by Section
         3(d)(viii), surrender to a common carrier for delivery to the Company
         as soon as practicable following such date the original certificates
         representing the Preferred Shares being converted (the "Preferred
         Stock Certificates") (or an indemnification undertaking with respect
         to such shares in the case of their loss, theft or destruction).

                           (ii)     Company's Response.  Upon receipt by the
         Company of a copy of a Conversion Notice, the Company shall (1) as
         soon as practicable, but in no event later than two Business Days
         after the date of receipt of such notice (not counting the date of
         such receipt), send, via facsimile, a confirmation of receipt of such
         Conversion Notice to such holder and the Company's designated
         transfer agent (the "Transfer Agent"), which

<PAGE>   7

         confirmation shall constitute an instruction to the Transfer Agent to
         process such Conversion Notice in accordance with the terms herein
         and (2) on or before the second Business Day following the date of
         receipt by the Company of such Conversion Notice (the "Share Delivery
         Date"), as instructed in the Conversion Notice, (A) provided the
         Transfer Agent is participating in The Depository Trust Company
         ("DTC") Fast Automated Securities Transfer Program and provided that
         the holder is eligible to receive shares through DTC, credit such
         aggregate number of shares of Common Stock to which the holder shall
         be entitled, to the holder's or its designee's balance account with
         DTC through its Deposit Withdrawal Agent Commission system or (B)
         issue and deliver to the address as specified in the Conversion
         Notice, a certificate, registered in the name of the holder or its
         designee, for the number of shares of Common Stock to which the
         holder shall be entitled.  If the number of Preferred Shares
         represented by the Preferred Stock Certificate(s) submitted for
         conversion, as may be required pursuant to Section 3(d)(viii), is
         greater than the number of Preferred Shares being converted, then the
         Company shall, as soon as practicable and in no event later than
         three Business Days after receipt of the Preferred Stock
         Certificate(s) (the "Preferred Stock Delivery Date") and at its own
         expense, issue and deliver to the holder a new Preferred Stock
         Certificate representing the number of Preferred Shares not
         converted.

                           (iii)    Dispute Resolution.  In the case of a
         dispute as to the determination of the Closing Bid Price, Closing
         Sale Price or the arithmetic calculation of the Conversion Rate, the
         Company shall instruct the Transfer Agent to issue to the holder the
         number of shares of Common Stock that is not disputed and shall
         transmit an explanation of the disputed determinations or arithmetic
         calculations to the holder via facsimile within two Business Days of
         receipt of such holder's Conversion Notice or other date of
         determination.  If such holder and the Company are unable to agree
         upon the determination of the Closing Bid Price, the Closing Sale
         Price or arithmetic calculation of the Conversion Rate within two
         Business Days of such disputed determination or arithmetic
         calculation being transmitted to the holder, then the Company shall
         within one Business Day submit via facsimile (A) the disputed
         determination of the Closing Bid Price or Closing Sale Price to an
         independent, reputable investment bank selected by the

<PAGE>   8

         Company and approved by the holders of at least fifty-five percent
         (55%) of the Preferred Shares then outstanding (consisting of at
         least two unaffiliated persons) or (B) the disputed arithmetic
         calculation of the Conversion Rate to the Company's independent,
         outside accountant.  The Company shall cause the investment bank or
         the accountant, as the case may be, to perform the determinations or
         calculations and notify the Company and the holder of the results no
         later than two Business Days from the time it receives the disputed
         determinations or calculations.  Such investment bank's or
         accountant's determination or calculation, as the case may be, shall
         be binding upon all parties absent manifest error.

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

                           (v)      Company's Failure to Timely Convert.

                                    (A)      Cash Damages.  If (I) within
                  three Business Days after the Company's receipt of the
                  facsimile copy of a Conversion Notice, the Company shall
                  fail to issue and deliver a certificate to a holder or
                  credit such holder's balance account with DTC for the number
                  of shares of Common Stock to which such holder is entitled
                  upon such holder's conversion of Preferred Shares or (II)
                  within five Business Days of the Company's receipt of a
                  Preferred Stock Certificate, the Company shall fail to issue
                  and deliver a new Preferred Stock Certificate representing
                  the number of Preferred Shares to which such holder is
                  entitled pursuant to Section 3(d)(ii), then in addition to
                  all other available remedies which such holder may pursue
                  hereunder and under the Securities Purchase Agreement
                  (including indemnification pursuant to Section 8 thereof),
                  the Company shall deposit into an escrow account for the
                  benefit of such holder an amount for each day after the
                  Share Delivery Date such conversion is not timely effected
                  and/or each day after the Preferred Stock Delivery Date such
                  Preferred Stock Certificate is not delivered, equal to 0.5%
                  of the product of (i) the sum of the number of shares of
                  Common Stock not issued to the holder on or prior to the

<PAGE>   9

                  Share Delivery Date and to which such holder is entitled
                  and, in the event the Company has failed to deliver a
                  Preferred Stock Certificate to the holder on or prior to the
                  Preferred Stock Delivery Date, the number of shares of
                  Common Stock issuable upon conversion of the Preferred
                  Shares represented by such Preferred Stock Certificate as of
                  the Preferred Stock Delivery Date and (ii) the Closing Bid
                  Price of the Common Stock on the Share Delivery Date, in the
                  case of the failure to deliver Common Stock, or the
                  Preferred Stock Delivery Date, in the case of failure to
                  deliver a Preferred Stock Certificate (the price described
                  in this clause (ii), hereinafter referred to as the "Demand
                  Price").  At such time as the Company issues and delivers a
                  certificate to such holder or credit's such holder's balance
                  account with DTC for the number of shares of Common Stock to
                  which such holder is entitled upon such holder's conversion
                  of Preferred Shares or issues and delivers a new Preferred
                  Stock Certificate representing the number of Preferred
                  Shares to which such holder is entitled pursuant to Section
                  3(d)(ii), as applicable (the "Actual Delivery Date"), such
                  holder shall be entitled to receive from the escrow account
                  an amount equal to the following formula:

                                    [(1)(2)] - [(x)(y)]

                  Where:

                  (1) is the sum of the number of shares of Common Stock
                  issued to the holder on the Actual Delivery Date or the
                  number of shares of Common Stock issuable upon conversion of
                  the Preferred Shares represented by such Preferred Stock
                  Certificate, as applicable,

                  (2) is the Demand Price,

                  (x) is the sum of the number of shares of Common Stock issued
                  to the holder on the Actual Delivery Date or the number of
                  shares of Common Stock issuable upon conversion of the
                  Preferred Shares represented by such Preferred Stock
                  Certificate, as applicable, and

                  (y) is the Closing Bid Price of the Common Stock on the Actual
                  Delivery Date.

                  If the Company fails to convert, pursuant to this Section
                  3(d)(v)(A), the proceeds deposited into such escrow account
                  shall be available to compensate such holder

<PAGE>   10

                  for its damages arising from such failure. If the Company
                  fails to deposit into the escrow account the amounts set forth
                  in this Section 3(d)(v) within five Business Days of the date
                  incurred, then such holder shall have the right at any time,
                  so long as the Company continues to fail to make such
                  deposits, to require the Company, upon written notice, to
                  immediately issue, in lieu of such deposits, the number of
                  shares of Common Stock equal to the quotient of (X) the
                  aggregate amount of the deposits described herein divided by
                  (Y) the Conversion Price in effect on the Conversion Date as
                  specified by the holder in the applicable Conversion Notice.
                  The foregoing notwithstanding, the provisions set forth in
                  this Section 3(d)(v)(A) shall be stayed with respect to the
                  number of shares of Common Stock and, if applicable, the
                  Preferred Stock Certificate for which there is a good faith
                  dispute being resolved pursuant to, and within the time
                  periods provided for in, Section 3(d)(iii), pending the
                  resolution of such dispute. Notwithstanding anything to the
                  contrary contained in this Section 3(d)(v), the Company shall
                  not be required to pay additional damages pursuant to this
                  Section 3(d)(v) if the event giving rise to such obligation
                  (x) arises through no fault of the Company's due to
                  circumstances outside of the Company's control, provided that
                  the Company has used reasonable best efforts to oversee its
                  agents and to cause such circumstance not to occur or (y)
                  arises as a result of the provisions of Section 3(g). In
                  addition, under no circumstances shall the Company be required
                  to pay additional damages pursuant to Section 3(d)(v) solely
                  for the Company's failure to obtain the Stockholders' approval
                  of the terms of this Certificate of Designations in accordance
                  with the rules of the Principal Market.

                                    (B)      Void Conversion Notice;
                  Adjustment of Conversion Price.  If for any reason a holder
                  has not received all of the shares of Common Stock prior to
                  the tenth Business Day after the Share Delivery Date with
                  respect to a conversion of Preferred Shares, then the
                  holder, upon written notice to the Company, may void its
                  Conversion Notice with respect to, and retain or have
                  returned, as the case may be, any Preferred Shares that have
                  not been converted pursuant to such holder's Conversion
                  Notice; provided that the voiding of a holder's Conversion
                  Notice shall not effect the Company's obligations to make
                  any payments which have accrued prior to the date of such
                  notice pursuant to Section 3(d)(v)(A) or otherwise.
                  Thereafter, the Conversion Price of any Preferred Shares
                  returned or retained by the holder for failure to timely
                  convert shall be

<PAGE>   11

                  adjusted to the lesser of (I) the Conversion Price as in
                  effect on the date on which the holder voided the Conversion
                  Notice and (II) the lowest Closing Bid Price during the
                  period beginning on the Conversion Date and ending on the
                  date such holder voided the Conversion Notice, subject to
                  further adjustment as provided in this Certificate of
                  Designations.

                                    (C)      Conversion Failure. If for any
                  reason a holder has not received all of the shares of Common
                  Stock prior to the tenth Business Day after the Share
                  Delivery Date with respect to a conversion of Preferred
                  Shares (a "Conversion Failure"), then the holder, in
                  addition to any other remedies available to such holder,
                  shall be entitled to the remedies set forth in Section 4.
                  Notwithstanding anything to the contrary contained in this
                  Section 3(d)(v), the Company shall not be required to pay
                  additional damages pursuant to this Section 3(d)(v) if the
                  event giving rise to such obligation arises through no fault
                  of the Company's due to circumstances outside of the
                  Company's control, provided that the Company has used
                  reasonable best efforts to oversee its agents and to cause
                  such circumstance not to occur.

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

                           (vii)    Redemption or Conversion at Maturity.  If
         any Preferred Shares remain outstanding on the Maturity Date, then
         all such Preferred Shares, at the option of the holder of a Preferred
         Share, either (i) shall be converted at the Conversion Rate as of
         such date (a "Maturity Date Conversion"), or (ii) shall be redeemed
         as of such date for an

<PAGE>   12

         amount in cash per Preferred Share (the "Maturity Date Redemption
         Price") equal to the Conversion Amount (a "Maturity Date
         Redemption").  A holder shall be deemed to have elected a Maturity
         Date Redemption unless it delivers a Conversion Notice to the Company
         at least five Business Days prior to the Maturity Date of its
         election to effect a Maturity Date Conversion.  If a holder elects a
         Maturity Date Redemption, then on the Maturity Date the Company shall
         pay to such holder of Preferred Shares, by wire transfer of
         immediately available funds, an amount per Preferred Share equal to
         the Maturity Date Redemption Price.  If a holder elects a Maturity
         Date Redemption and the Company fails to redeem all of such holder's
         Preferred Shares  by payment of the Maturity Date Redemption Price,
         then in addition to any remedy such holder of Preferred Shares may
         have under this Certificate of Designations, the Securities Purchase
         Agreement and the Registration Rights Agreement, the applicable
         Maturity Date Redemption Price payable in respect of such unredeemed
         Preferred Shares shall bear interest at the rate of 1.5% per month
         (or if lower, the maximum amount allowed by applicable law), prorated
         for partial months, until paid in full.

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

<PAGE>   13

         deliver upon the order of the holder a new certificate of like tenor,
         registered as the holder may request, representing in the aggregate
         the remaining number of Preferred Shares represented by such
         certificate.  The holder and any assignee, by acceptance of a
         certificate, acknowledge and agree that, by reason of the provisions
         of this paragraph, following conversion of any Preferred Shares, the
         number of Preferred Shares represented by such certificate may be
         less than the number of Preferred Shares stated on the face thereof.
         Each certificate for Preferred Shares shall bear the following
         legend:

         ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS
         OF THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO THE
         PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION
         3(d)(viii) THEREOF. THE NUMBER OF PREFERRED SHARES PRESENTED BY THIS
         CERTIFICATE MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON
         THE FACE HEREOF PURSUANT TO SECTION 3(d)(viii) OF THE CERTIFICATE OF
         DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED BY THIS
         CERTIFICATE.

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

                  (f)      Adjustments to Conversion Price.  The Conversion
Price will be subject to adjustment from time to time as provided in this
Section 3(f).

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

                           (ii)     Notices.

<PAGE>   14

                                    (A)      Immediately upon any adjustment
                  of the Conversion Price pursuant to this Section 3(f), the
                  Company will give written notice thereof to each holder of
                  Preferred Shares, setting forth in reasonable detail, and
                  certifying, the calculation of such adjustment.

                                    (B)      The Company will give written
                  notice to each holder of Preferred Shares at least ten
                  Business Days prior to the date on which the Company closes
                  its books or takes a record (i) with respect to any dividend
                  or distribution upon the Common Stock, (ii) with respect to
                  any pro rata subscription offer to holders of Common Stock
                  or (iii) for determining rights to vote with respect to any
                  Organic Change (as defined in Section 5(a)), dissolution or
                  liquidation, provided that such information shall be made
                  known to the public prior to or in conjunction with such
                  notice being provided to such holder.

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

                  (g)      Notwithstanding the provisons of this Section 3, no
Preferred Shares of a holder will be converted if as a result of such
conversion, such holder of Preferred Shares together with its affiliates would
hold more than 19.99% of the outstanding Common Stock; provided however that
the provisions of this Section 3(g) will immediately terminate upon approval
of the terms of this Certificate of Designations by the stockholders of the
Company in accordance with the rules of the Principal Market.

         4.       Triggering Events.

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

<PAGE>   15

                           (i)      the Company's notice or the Transfer
         Agent's notice, at the Company's direction, to any holder of
         Preferred Shares, including by way of public announcement, at any
         time, of its intention not to comply with a request for conversion of
         any Preferred Shares into shares of Common Stock that is tendered in
         accordance with the provisions of this Certificate of Designations;

                           (ii)     a Conversion Failure (as defined in
         Section 3(d)(v)(C));

                           (iii)    while the Registration Statement is
         required to be maintained effective pursuant to the terms of the
         Registration Rights Agreement, except for days during an Allowable
         Grace Period (as defined in the Registration Rights Agreement), the
         effectiveness of the Registration Statement lapses for any reason
         (including, without limitation, the issuance of a stop order) or is
         unavailable to the holder of the Preferred Shares for sale of all of
         the Registrable Securities (as defined in the Registration Rights
         Agreement) in accordance with the terms of the Registration Rights
         Agreement, and such lapse or unavailability continues for a period of
         five consecutive trading days or for more than an aggregate of ten
         trading days in any 365-day period (other than days during an
         Allowable Grace Period); provided, however that any lapse or
         unavailability caused solely through the fault of a holder of
         Preferred Shares shall not constitute a Triggering Event under this
         clause 4(a)(iii);

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

                           (v)      unless otherwise provided for under
         Sections 4(a)(i) through 4(a)(iv) above, the Company breaches any
         representation, warranty, covenant or other term or condition of the
         Securities Purchase Agreement (except for a breach of Sections 4(e),
         9(j) or 9(k) or clause (iii) of Schedule 4(j) of the Securities
         Purchase Agreement), the Registration Rights Agreement (except for a
         breach of Sections 3(d), 3(r) or 11(i) of the Registration Rights
         Agreement), the Warrants, this Certificate of Designations or any

<PAGE>   16

         other agreement, document, certificate or other instrument delivered
         in connection with the transactions contemplated thereby and hereby,
         except to the extent that such breach would not have a Material
         Adverse Effect (as defined in Section 3(a) of the Securities Purchase
         Agreement) and except, in the case of a breach of a covenant which is
         curable, only if such breach continues for a period of at least 10
         Business Days after notice thereof.  For the purpose of
         clarification, any provision which requires action to be taken within
         a specific period of time or prior to a given date shall be
         considered a covenant which, solely for purposes of determining the
         applicability of this Section 4(a)(v), is curable and the 10 Business
         Day period referred to in the preceding sentence of this Section
         4(a)(v) shall commence if such action has not taken place at the end
         of such specified period of time or on such date during or by which
         such action was required to be taken.

                  (b)      Notice of Triggering Event. Within one Business Day
after the occurrence of a Triggering Event, the Company shall deliver written
notice thereof via facsimile and overnight courier ("Notice of Triggering
Event") to each holder of Preferred Shares. A holder of Preferred Shares then
outstanding may require the Company to redeem up to all of such holder's
Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer") to the Company,
which Notice of Redemption at Option of Buyer shall indicate the number of
Preferred Shares that such holder is electing to redeem. Any redemption
pursuant to the previous sentence shall be at a price per Preferred Share
equal to 120% of the Conversion Amount (the "Redemption Price").

                  (c)      Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each holder of
Preferred Shares by facsimile of the Company's receipt of such notice(s). The
Company shall deliver the applicable Redemption Price to a holder which
delivers a Notice of Redemption at Option of Buyer within five Business Days
after the Company's receipt of a Notice of Redemption at Option of Buyer;
provided that, if required by Section 3(d)(viii), a holder's Preferred Stock
Certificates shall have been delivered to the Transfer Agent. If the Company
is unable to redeem all of the Preferred Shares submitted for redemption, the
Company shall (i) redeem a pro rata amount from each holder of Preferred

<PAGE>   17

Shares based on the number of Preferred Shares submitted for redemption by
such holder relative to the total number of Preferred Shares submitted for
redemption by all holders of Preferred Shares and (ii) in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, pay to each holder
interest at the rate of 1.5% per month (or if lower, the maximum amount
allowed by applicable law) (prorated for partial months) in respect of each
unredeemed Preferred Share until paid in full.

                  (d)      Void Redemption. In the event that the Company does
not pay the Redemption Price within the time period set forth in Section 4(c),
at any time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption, require the
Company to promptly return to such holder any or all of the Preferred Shares
that were submitted for redemption by such holder under this Section 4 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via facsimile
(the "Void Optional Redemption Notice"). Upon the Company's receipt of such
Void Optional Redemption Notice, (i) the Notice of Redemption at Option of
Buyer shall be null and void with respect to those Preferred Shares subject to
the Void Optional Redemption Notice, (ii) the Company shall immediately return
any Preferred Shares subject to the Void Optional Redemption Notice, and (iii)
the Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Conversion Price as in effect on the date on which the
Void Optional Redemption Notice is delivered to the Company and (B) the lowest
Closing Bid Price of the Common Stock during the period beginning on the date
on which the Notice of Redemption at Option of Buyer is delivered to the
Company and ending on the date on which the Void Optional Redemption Notice is
delivered to the Company.

                  (e)      Disputes; Miscellaneous. In the event of a dispute
as to the determination of the arithmetic calculation of the Redemption Price,
such dispute shall be resolved pursuant to Section 3(d)(iii) above with the
term "Redemption Price" being substituted for the term "Conversion Rate". A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to
make any payments which have accrued prior to the date of such notice. In the
event of a redemption pursuant to this Section 4 of less than all of the
Preferred Shares represented by a particular Preferred Stock

<PAGE>   18

Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Preferred Shares a Preferred Stock Certificate representing
the remaining Preferred Shares which have not been redeemed, if necessary.

         5.       Other Rights of Holders.

                  (a)      Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") a written agreement (in form and substance
reasonably satisfactory to the holders of at least fifty-five percent (55%) of
the Preferred Shares then outstanding (consisting of at least two unaffiliated
persons)) to deliver to each holder of Preferred Shares who elects to receive
such Replacement Security (as defined below) in exchange for such shares, a
security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to the Preferred Shares (the
"Replacement Security") (including, without limitation, having a stated value
and liquidation preference equal to the Conversion Amount of the Preferred
Shares held by such holder) and reasonably satisfactory to the holders of at
least fifty-five percent (55%) of the Preferred Shares then outstanding
(consisting of at least two unaffiliated persons). Prior to the consummation
of any other Organic Change, and in the case of an Organic Change described in
clauses (i) and (ii) of this Section 5(a) where the holder does not elect to
receive a Replacement Security, the Company shall make appropriate provision
(in form and substance reasonably satisfactory to the holders of at least
fifty-five percent (55%) of the Preferred Shares then outstanding (consisting
of at least two unaffiliated persons)) to insure that each of the holders of
the Preferred Shares will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Preferred Shares,

<PAGE>   19

such shares of stock, securities or assets that would have been issued or
payable in such Organic Change with respect to or in exchange for the number
of shares of Common Stock which would have been acquirable and receivable upon
the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).

                  (b)      Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 5(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all of such holder's Preferred Shares at a price per
Preferred Share equal to (i) if the Change of Control occurs after the third
anniversary of the initial Issuance Date, the Conversion Amount and (ii) if
the Change of Control occurs on or before the third anniversary of the initial
Issuance Date, the Early Redemption Amount ("Change of Control Redemption
Price"). No sooner than 60 days nor later than 10 days prior to the
consummation of a Change of Control, but not prior to the public announcement
of such Change of Control, the Company shall deliver written notice thereof
via facsimile and overnight courier (a "Notice of Change of Control") to each
holder of Preferred Shares; provided, however, if such potential Change of
Control is the result of an unsolicited tender offer made to the holders of
more than 50% of the outstanding shares of Common Stock, then such Notice of
Change of Control shall be delivered within two (2) Business Days of such
tender offer being made. At any time during the period beginning after receipt
of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least 10 days prior to a Change of Control, at any
time on or after the date which is 10 days prior to a Change of Control) and
ending on the date of such Change of Control, any holder of the Preferred
Shares then outstanding may require the Company to redeem all of the holder's
Preferred Shares then outstanding by delivering written notice thereof via
facsimile and overnight courier (a "Notice of Redemption Upon Change of
Control") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is
submitting for redemption, and (ii) the applicable Change of Control
Redemption Price, as calculated pursuant to this Section 5(b). Upon the
Company's receipt of a Notice(s) of Redemption Upon Change of Control from any
holder of Preferred Shares, the Company shall promptly, but in no event later
than two Business

<PAGE>   20

Days following such receipt, notify each holder of Preferred Shares by
facsimile of the Company's receipt of such Notice(s) of Redemption Upon Change
of Control. The Company shall deliver the applicable Change of Control
Redemption Price simultaneously with the consummation of the Change of
Control; provided that, if required by Section 3(d)(viii), a holder's
Preferred Stock Certificates shall have been so delivered to the Company.
Payments provided for in this Section 5(b) shall have priority to payments to
other stockholders in connection with a Change of Control. Notwithstanding the
above, holders of Preferred Shares shall be obliged to convert their Preferred
Shares if the cash consideration paid to the holders of Common Stock in
connection with a Change of Control (calculated after giving effect to such
conversion) is greater than the applicable Change of Control Redemption Price.
For purposes of this Section 5(b), "Change of Control" means any of the
following events: (i) the consolidation, merger or other business combination
of the Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company), (ii)
the sale or transfer of all or substantially all of the Company's assets,
(iii) consummation of a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock, or (iv) any other similarly defined event in the Credit Agreement (as
defined in the Securities Purchase Agreement) which gives the lender under
such agreement the right to accelerate payment of the obligations under such
agreement.

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

<PAGE>   21

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

         6.       Redemption at the Company's Election. On or after (i) the
date which is the five year anniversary of the initial Issuance Date, (ii) the
date on which the Closing Bid Price for the Common Stock has been greater than
or equal to the product of three multiplied by the Conversion Price for any
six consecutive month period ending two or more years after the initial
Issuance Date or (iii) upon a Change of Control, the Company shall have the
right, in its sole discretion, to require that some or all of the outstanding
Preferred Shares be redeemed ("Redemption at Company's Election"), for cash
consideration equal to (A) 105% of the Conversion Amount, if the redemption is
pursuant to clause (i) of this sentence, (B) the Conversion Amount, if such
redemption is pursuant to clause (ii) of this sentence, (C) the Conversion
Amount, if such redemption is pursuant to clause (iii) of this sentence and
such Change of Control occurs after the third anniversary of the initial
Issuance Date, or (D) the Early Redemption Amount, if such redemption is
pursuant to clause (iii) of this sentence and such Change of Control occurs on
or before the third anniversary of the initial Issuance Date (the "Company's
Election Redemption Price"); provided that the Conditions to Redemption at the
Company's Election (as set forth below) are satisfied as of the Company's
Election Redemption Date (as defined below) or waived by all the holders of
the Preferred Shares then outstanding. The Company may exercise its right to
Redemption at Company's Election only by providing each holder of Preferred
Shares written notice ("Notice of Redemption at Company's Election") at least
30 days prior to the date of consummation of such redemption ("Company's
Election Redemption Date"). The date on which each of such holders of the
Preferred Shares actually receives the Notice of Redemption at the Company's
Election is referred to herein as the "Redemption at Company's Election Notice
Date". If the Company elects to require redemption of some, but not all, of
the Preferred Shares then outstanding, the Company shall require redemption of
an amount from each holder of such Preferred Shares equal to the product of
(I) the total number of Preferred Shares which the Company has elected to
redeem multiplied by (II) a fraction, the numerator of which is the number of
Preferred Shares initially purchased by such

<PAGE>   22

holder and the denominator of which is the total number of Preferred Shares
purchased on the Issuance Date (such fraction with respect to each holder
being referred to as its "Allocation Percentage", and such amount with respect
to each holder being referred to herein as its "Pro Rata Redemption Amount").
In the event that any initial holder of the Preferred Shares shall sell or
otherwise transfer any of such holder's Preferred Shares, the transferee shall
be allocated a pro rata portion of such holder's Allocation Percentage. The
Company's Notice of Redemption at Company's Election shall indicate (x) the
aggregate number of Preferred Shares the Company has elected to redeem from
all holders of Preferred Shares, (y) the date selected by the Company for the
Company's Election Redemption Date, and (z) each holder's Pro Rata Redemption
Amount of the Preferred Shares selected for redemption. If the Company has
exercised its right of Redemption at Company's Election and the conditions of
this Section 6, including the Conditions to Redemption at Company's Election,
have been satisfied, then each holder's Pro Rata Redemption Amount of the
Preferred Shares selected for redemption which remain outstanding on the
Company's Election Redemption Date shall be redeemed as of the Company's
Election Redemption Date by payment by the Company to each such holder of
Preferred Shares of the Company's Election Redemption Price for each Preferred
Share. If required by Section 3(d)(viii), all such holders of the Preferred
Shares being redeemed shall thereupon and within two Business Days after the
Company's Election Redemption Date, or such earlier date as the Company and
each such holder of Preferred Shares mutually agree, surrender all Preferred
Shares being redeemed on such date to the Company. If the Company fails to pay
the full Company's Election Redemption Price on the Company's Election
Redemption Date with respect to a Preferred Share selected for redemption,
then the Redemption at Company's Election shall be null and void with respect
to such Preferred Share and the Holder shall be entitled to all the rights of
a holder of outstanding Preferred Shares. "Conditions to Redemption at the
Company's Election" means the following conditions: (i) on each day during the
period beginning on the Issuance Date and ending on and including the
Company's Election Redemption Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares and Warrant Shares
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(d)(ii) hereof and Sections 2(a) and 2(b) of the Warrants,
respectively; (ii) on each day during the period beginning 20 days prior to
the Redemption at Company's Election Notice Date and ending on and including
the Company's Election

<PAGE>   23

Redemption Date, the Common Stock is designated for quotation on the Nasdaq
National Market or listed on The New York Stock Exchange, Inc. and shall not
have been suspended from trading on such market or exchange (other than
suspensions of not more than one day and occurring prior to the date on which
the Company gives its Notice of Redemption at Company's Election due to
business announcements by the Company) nor shall delisting or suspension by
such market or exchange been threatened or pending either (A) in writing by
such market or exchange or (B) by falling below the minimum listing
maintenance requirements of such market or exchange; (iii) during the period
beginning on and including the Issuance Date and ending on and including the
Company's Election Redemption Date, there shall not have occurred a Triggering
Event or an event that with the passage of time and without being cured would
constitute a Triggering Event; (iv) at all times during the period beginning
on and including the date beginning on the Redemption at Company's Election
Notice Date and ending on and including the Company's Election Redemption
Date, the redemption by the Company of the Preferred Shares is permitted under
the terms of the Credit Agreement; (v) the Company shall have complied in all
respects with Section 4(m) of the Securities Purchase Agreement; and (vi) the
Company otherwise shall have been in compliance in all material respects with
all provisions, and shall not have breached in any material respect any
provisions of, this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. Notwithstanding
the above, (I) any holder of Preferred Shares may convert any Preferred Shares
(including Preferred Shares selected for redemption) into Common Stock
pursuant to Section 3 on or prior to the date immediately preceding the
Company's Election Redemption Date and (II) with regards to a redemption
pursuant to clause (iii) of the first sentence of this Section 6, holders of
Preferred Shares shall be obliged to convert their Preferred Shares if the
cash consideration paid to the holders of Common Stock in connection with a
Change of Control (calculated on an as converted basis) is greater than the
applicable Company's Election Redemption Price. Further, nothing in this
Section 6 shall limit any holder's rights pursuant to Section 5. If the
Company fails to timely pay any Company's Election Redemption Price in
accordance with this Section 6, then the Company shall not be permitted to
submit another Notice of Redemption at Company's Election without the prior
written consent of the holders of at least fifty-five percent (55%) of the
Preferred Shares then outstanding (consisting of at least two unaffiliated
persons).

<PAGE>   24

         7.       Reservation of Shares. The Company shall initially reserve
200% of the number of shares of Common Stock for which the Preferred Shares are
convertible on the Issuance Date (without regard to any limitations on
conversion), provided that, so long as any of the Preferred Shares are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 150%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the number
of Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.

         8.       Voting Rights; Board Representation. Holders of Preferred
Shares shall have identical voting rights as the holders of the Company's Common
Stock and shall vote together with the Common Stock on all matters, to the same
extent as if such holders of Preferred Shares had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
vote. Boston Ventures LP VI ("BV") shall be entitled to appoint or nominate one
member and one observer to the Company's board of directors until such time as
BV owns a number of shares of capital stock of the Company less than 25% of the
number of Preferred Shares (on an as converted basis) as issued to BV on the
initial Issuance Date (BV shall be deemed to continue to own any shares
transferred in connection with a syndication or issued upon conversion of
Preferred Shares) pursuant to the Securities Purchase Agreement. Carlyle

<PAGE>   25

Venture Partners L.P. ("Carlyle") shall be entitled to appoint or nominate one
member to the Company's board of directors until such time as Carlyle owns a
number of Preferred Shares (or shares of Common Stock issuable upon conversion
thereof) less than 40% of the number of Preferred Shares (on an as converted
basis) as issued to Carlyle on the initial Issuance Date pursuant to the
Securities Purchase Agreement. Nortel Networks Inc. shall be entitled to
appoint or nominate one observer to the Company's board of directors until
such time as Nortel Networks Inc. owns a number of Preferred Shares (or shares
of Common Stock issuable upon conversion thereof), less than 50% of the number
of Preferred Shares (on an as converted basis) as issued to Nortel Networks
Inc. on the initial Issuance Date pursuant to the Securities Purchase
Agreement.

         9.       Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "Liquidation Funds"),
before any amount shall be paid to the holders of any of the capital stock of
the Company, an amount per Preferred Share equal to (i) the sum of the Stated
Value and the Additional Amount or (ii) if such event occurs on or before the
third anniversary of the initial Issuance Date, the Early Redemption Amount,
for such Preferred Share; provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the holders of Preferred Shares,
then each holder of Preferred Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to
such holder as a liquidation preference, in accordance with this Certificate
of Designations, as a percentage of the full amount of Liquidation Funds
payable to all holders of Preferred Shares. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Neither the consolidation or merger of the Company with or
into any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed to
be a liquidation, dissolution or winding up of the Company.

<PAGE>   26

         10.      Preferred Rank. All shares of Common Stock and Preferred
Stock (other than the Series D Preferred) shall be of junior rank to all
Preferred Shares with respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock and Preferred Stock shall be subject to the
preferences and relative rights of the Preferred Shares. The Company shall not
hereafter authorize or issue additional or other capital stock that is of senior
or equal rank to the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. Without the prior express written consent of the holders of not
less than fifty-five percent of the then outstanding Preferred Shares
(consisting of at least two unaffiliated persons), the Company shall not
hereafter authorize or make any amendment to the Company's Charter or bylaws, or
file any resolution of the board of directors of the Company with the Secretary
of State of the State of Delaware or enter into any agreement containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another Person,
the Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall have a result inconsistent
therewith.

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

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

<PAGE>   27

than fifty-five percent (55%) of the Preferred Shares then outstanding
(consisting of at least two unaffiliated persons).

         13.      Vote to Change the Terms of or Issue Additional Preferred
Shares. The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than fifty-five
percent (55%) of the Preferred Shares then outstanding (consisting of at least
two unaffiliated persons), shall be required for (a) any change to this
Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (b) the issuance of
Preferred Shares other than pursuant to the Securities Purchase Agreement.

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

         15.      Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief). No remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy. Nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Designations. The Company covenants to each holder of Preferred
Shares that there shall be no characterization concerning this instrument
other than as expressly provided herein. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to

<PAGE>   28

any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of the Preferred Shares and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that,
in the event of any such breach or threatened breach, the holders of the
Preferred Shares shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

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

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

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

         19.      Transfer of Preferred Shares.  A holder of Preferred Shares
may assign or transfer some or all of the Preferred Shares held by such holder
without the consent of the Company.

         20.      Number of Preferred Shares.  Other than the Dividend Shares
issued pursuant to this Certificate of Designations, the Company shall not
issue more than 65,000 Preferred Shares.

<PAGE>   29

         IN WITNESS WHEREOF, Net2000 Communications, Inc. has caused this
Certificate of Designations to be signed and attested by the undersigned this
12 day of April, 2001.

                                      NET2000 COMMUNICATIONS, INC.

                                      By:  /s/ DONALD CLARKE
                                         --------------------------------------
                                      Name: Donald Clarke
                                      Title: Chief Financial Officer

                                      By:  /s/ LEE WEINER
                                         --------------------------------------
                                      Name: Lee Weiner
                                      Title: Secretary

<PAGE>   30

                                  EXHIBIT I
                NET2000 COMMUNICATIONS, INC. CONVERSION NOTICE

         Reference is made to the Certificate of Designations for Series D
Convertible Pay In Kind Preferred Stock of Net2000 Communications, Inc. (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the
number of shares of Series D Convertible Pay In Kind Preferred Stock, par
value $_____ per share (the "Preferred Shares"), of Net2000 Communications,
Inc., a Delaware corporation (the "Company"), indicated below into shares of
Common Stock, par value $______ per share (the "Common Stock"), of the
Company, as of the date specified below.

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

Please confirm the following information:

         Conversion Price:
         Number of shares of Common Stock to be issued:
         Holders Taxpayer ID#:

Please issue the Common Stock into which the Preferred Shares are being
converted in (circle one) certificate form/ book-entry form and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
         Taxpayer ID#:
         Facsimile Number:
         Authorization:
                           By:
                           Title:
                           Dated:

         Account Number (if electronic book entry transfer):
         Transaction Code Number (if electronic book entry transfer):

<PAGE>   31

                                ACKNOWLEDGMENT

         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated March
__, 2001 from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                        NET2000 COMMUNICATIONS, INC.

                                        By:  /s/
                                           ------------------------------------
                                        Name:
                                        Title:

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