Document:

[Translation]

Deutsche Telekom                                                          [logo]

                     POST-CONTRACTUAL NON-COMPETE AGREEMENT

                                 by and between

                               Deutsche Telekom AG

                  - hereinafter referred to as the "Company" -

                      represented by its Supervisory Board,

                                       and

                                     [Name]

the following post employment non-compete agreement is concluded, supplementing
               the service agreement in effect from time to time:

Standard form as in
effect as of the filing date.

<PAGE>

1.       Mr. [Name] is prohibited from acting for or on behalf of or advising an
         enterprise which is in competition with the Company or any of its
         affiliates ________ in the segment of ______________ or is affiliated
         with such enterprise, for the period of ______________ after the
         termination of his service agreement, in a freelance, employment or any
         other relationship. Mr. [Name] is also prohibited from establishing,
         acquiring or directly or indirectly participating in such an
         enterprise.

2.       For the term of the post-contractual non-compete agreement, Mr. [Name]
         shall receive compensation in the amount of
         ____________________________. The compensation shall be paid in pro
         rata installments at the end of each month. Payments
         ____________________shall be deducted from such compensation.

3.       The Company may submit a written notification to Mr. [Name] at any
         time, both during the term of the [Management Board] Service Agreement
         or after its termination, waiving compliance with the post-contractual
         non-compete agreement. In that case, the Company's obligation to pay
         compensation shall cease six months after such notification.

4.       Should the [Management Board] Service Agreement end due to a permanent
         disability or after reaching the age of 62 or due to Mr. [Name]`s
         dismissal by the Company or resignation from the Board of Management
         for good cause (aus wichtigem Grund), the Company's obligation to pay
         compensation shall cease immediately, if the Company waived compliance
         with the post-contractual non-compete agreement as set forth above.

5.       In the event of a breach of this non-compete agreement, the Company
         shall be entitled to a contractual penalty for each breach in the
         amount of _______________. In the event of a permanent breach, the
         contractual penalty shall be imposed for each month in which a breach
         occurs. In addition, the Company may claim damages, or request an order
         enjoining any future violations.

6.       In the event that one or more provisions contained in this Agreement
         should be or become invalid in full or in part, this shall not affect
         the validity of the remaining provisions. An invalid provision shall be
         replaced by a valid provision reflecting the commercial objectives of
         the parties as closely as possible. This shall also apply if the
         invalidity of a provision is based on a measurement of performance or
         time, in which case the legally applicable measurement shall apply.

Dr. Klaus Zumwinkel                     [Name]Confidential Treatment Requested

<TABLE>
<CAPTION>

                                              SCHEDULE 1 TO _____
        INDIVIDUAL DEVIATIONS FROM STANDARD NON-COMPETE AGREEMENT BY CURRENT MEMBERS OF MANAGEMENT BOARD(1)
        ---------------------------------------------------------------------------------------------------

                                                                                                    Deducted
                           For reporting      Geographic       Industry     Term;   Compensation;   payments;      Penalty;
                           period             scope;ss.1       scope;ss.1   ss.1    ss.2            ss.2           ss.5
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
<S>                        <C>                 <C>             <C>         <C>      <C>           <C>              <C>
Kai-Uwe Ricke              1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
Dr. Karl-Gerhard Eick      1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
Thomas Holtrop(2)          1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
Dr. Heinz Klinkhammer(3)   1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
Rene Oberman               1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
Konrad F. Reiss            1.1. to
                           31.12.2003         ---Confidential Material Redacted and Filed Separately with the Commission---
-------------------------- ------------------ ---------------- ----------- -------- ------------- ---------------- --------
</TABLE>

--------

1 Josef Brauner's agreement was cancelled by mutual consent and he resigned
effective April 30, 2004.

2 Thomas Holtrop has resigned effective September 30, 2004.

3 Since Dr. Klinkhammer joined our Company on April 1, 1996 and is the most
senior member of our Management Board, the wording of his agreement deviates
from the standard agreement in language, but not in substance, and certain
details, which the Company believes are insignificant, differ from the standard
agreement.CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS

                                       OF

                   SERIES A SENIOR CONVERTIBLE PREFERRED STOCK

                                      OF

                     POWERHOUSE TECHNOLOGIES GROUP, INC.

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

            PowerHouse Technologies Group, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), hereby
certifies that, pursuant to authority vested in the Board of Directors of the
Company by Article 4 of the Amended Certificate of Incorporation of the
Corporation, the following resolution was adopted as of May 21, 2004 by the
Board of Directors of the Company pursuant to Section 141 of the Delaware
General Corporation Law:

            "Pursuant to authority vested in the Board or Directors of the
Company by Article Four of the Company's Articles of Association, out of the
total authorized number of 25,000,000 shares of Company preferred stock (the
"Preferred Stock"), par value $0.0001 per share, there shall be designated a
series of 10,000,000 shares which shall be issued hereunder and constitute a
single series to be known as "Series A Senior Convertible Preferred Stock"
(hereinafter called the "Series A Senior Preferred Stock"). The shares of Series
A Senior Preferred Stock have the voting powers, designations, preferences and
other special rights, and qualifications, limitations and restrictions thereof
set forth below:

            1.    Certain Definitions.

            "Average Price" shall mean, with respect to any shares of stock or
securities, including the Common Stock (as defined below), on any date of
determination, the average for the ten (10) consecutive Trading Days (as defined
below) preceding and including such date of determination of the reported last
sale prices per share on the principal national securities exchange or
inter-dealer quotation system on which such stock or security is listed or
admitted to trading, or if not listed or admitted to trading on any national
securities exchange or inter-dealer quotation system or if last sale prices are
not available, the average for the ten (10) consecutive Trading Days preceding
and including the date of determination of the average of the closing bid and
asked prices per share or security in the over-the-counter market as published
by the National Quotation Service or the OTC Bulletin Board or, if no such
quotations are published or

<PAGE>

furnished, by any New York Stock Exchange member firm selected from time to time
by the Company for that purpose.

            "Common Stock" shall mean the common stock, $0.0001 par value, of
the Company, including the stock into which the Series A Senior Preferred Stock
is convertible, and any capital stock of any class of the Company thereafter
authorized that shall not be limited to a fixed sum in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company.

            "Current Market Price" shall mean, with respect to any shares of
capital stock or other securities, (i) if such stock or securities are listed or
admitted to trading on a national securities exchange or an inter-dealer
quotation system or traded in the over-the-counter market, the Average Price per
share or security, as the case may be, at the close of trading on the Trading
Day on which the relevant determination is to be made or, if such day is not a
Trading Day, the Trading Day immediately preceding such day and (ii) if such
stock or security is not so listed, admitted or traded, the fair market value of
such stock or security as determined by the Managing Directors of the Company
or, if such parties cannot agree, as determined by an Independent Appraiser (as
defined below).

            "Excluded Stock" shall mean Common Stock issued or to be issued (i)
pursuant to the conversion, exercise or exchange of securities outstanding on
the Closing Date, including the Series A Senior Preferred Stock and the Series A
Junior Preferred Stock, (ii) pursuant to the exercise of any equity securities
at an exercise or conversion price greater than the Conversion Price, issued in
accordance with the Company's stock option plan or stock purchase plan, or
otherwise issued to the Company's employees, consultants or directors in
transactions not primarily for equity financing purposes and approved by a
majority of the members of the Compensation Committee (which shall include at
least one member who is a Director designated by the holders of the Series A
Senior Preferred Stock) and the Board of Directors, (iii) in an underwritten
public offering through an internationally recognized underwriter at a price not
less than three (3) times the original Liquidation Preference, (iv) except as
otherwise provided herein, and following any applicable adjustment in the
Conversion Price provided for in Subsection 4D, upon the actual issue of Common
Stock or securities convertible into Common Stock at the time of exercise of any
rights, options or warrants to purchase Common Stock or any securities
convertible into Common Stock, as appropriate, or upon conversion or exchange of
securities convertible into Common Stock, or (v) to the extent provided for in
the Stock Purchase Agreement, any shares of Senior Preferred issued after the
closing date.

            "Independent Appraiser" shall mean an investment banking firm,
appraisal firm or any other financial expert of recognized national standing in
the United States, selected by the holders of a majority of the Series A Senior
Preferred Stock and reasonably acceptable to the Company, that does not (or
whose directors, officers, employees, affiliates or stockholders do not) have a
direct or indirect material financial interest in the Company or a 5% or greater
holder of Series A Senior Preferred Stock, who has not been, and, at the time
called upon to give independent financial advice to the Company or a holder of
Series A Senior Preferred Stock, is

                                        2
<PAGE>

not (and none of its directors, officers, affiliates or stockholders are) a
promoter, director or officer of the Company.

            "Original Purchase Price" shall mean $3.06 per share based upon a
fully-diluted pre-money valuation of $12,500,000, excluding an unissued reserved
employee pool of 1,125,000 shares of Common Stock (appropriately adjusted to
reflect the occurrence of any stock split, stock dividend, stock combination,
stock subdivision or like occurrences) and following any applicable adjustment
in the Conversion Price provided for in Subsection 4D.

            "Senior Preferred Ownership Percentage" shall mean the percentage of
equity ownership of the Company owned as of the Closing Date (disregarding any
equity deemed owned by members of the Proctor Group) by the holders of Series A
Preferred Stock, in the aggregate (determined in terms of shares of Common Stock
on a fully-diluted basis as of such date).

            "Trading Day" shall mean (i) if the relevant stock or security is
listed or admitted for trading on the New York Stock Exchange or any other
national securities exchange, a day on which such exchange is open for business;
(ii) if the relevant stock or security is quoted on the Nasdaq National Market
or any other system of automated dissemination of quotations of securities
prices, a day on which trades may be effected through such system; or (iii) if
the relevant stock or security is not listed or admitted for trading on any
national securities exchange or quoted on the Nasdaq National Market or any
other system of automated dissemination of quotation of securities prices, a day
on which the relevant stock or security is traded in a regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for such stock or security are available.

            "Triggering Event" shall mean the Company's litigation filed on
September 15, 2003 in the Superior Court of the State of California in and for
the Country of Los Angeles, South West District captioned PowerHouse
Technologies Group, Inc. v. Proctor , et. al., (Case No. YC047491) in which
Joseph Ford Proctor, BrickHouse Captial Venture Limited, Julie Hollfinger and
others are named as defendants (the "Proctor Litigation") proving to be
unsuccessful and the shares of Common Stock that are held by any defendant, or
any affiliate of any defendant, in the Proctor Litigation (the "Proctor Group")
being reinstated into the Company's capitalization.

            2.    Dividends.

            2A. The Company shall pay to the holders of the Series A Senior
      Preferred Stock dividends from net profits or net assets of the Company
      legally available for the payment of such dividends, which shall begin to
      accrue on and be non-cumulative from the date of issuance of the Series A
      Senior Preferred Stock (whether or not such dividends have been declared)
      in an annual amount equal to the Original Purchase Price of such Series A
      Senior Preferred Stock plus any accrued but unpaid dividends (the
      "Liquidation Preference") times eight per cent (8%) per annum (the
      "Dividend Amount"). The Dividend Amount shall be payable on June 1 and
      December 1 of each year (the "Dividend Payment Dates") either in cash or
      in kind by issuance by the

                                       3
<PAGE>

       Company of additional shares of Series A Senior Preferred Stock (the
      "PIK Shares") at the option of the Company. Beginning on the second
      anniversary of the issuance date of the Series A Senior Preferred Stock,
      if at any time during the accrual period of a semi-annual dividend the
      closing price (determined on the basis of the average weighted daily
      trading price) of Common Stock for five Trading Days is less than three
      times the Liquidation Preference of the Series A Senior Preferred Stock on
      its original issuance date, the dividend rate for that semi-annual period
      shall increase to 12% per annum. In the event that the applicable Dividend
      Amount is not paid in cash within thirty (30) days of the relevant
      Dividend Payment Date, the Company shall be deemed for all purposes to
      have elected to pay the Relevant Dividend Amount in PIK Shares. If the
      Company elects or is deemed to have elected to pay any Dividend Amount in
      PIK Shares, each holder of Series A Senior Preferred Stock shall be deemed
      to be the holder of record of such holder's pro rata share of the PIK
      Shares issuable with respect to the relevant Dividend Amount
      notwithstanding that the stock transfer books of the Company shall then be
      closed or that certificates evidencing such PIK Shares shall not have been
      actually delivered to such holder of Series A Senior Preferred Stock. In
      the event that dividends on the Series A Senior Preferred Stock are paid
      with PIK Shares, each such PIK Share (i) shall be valued at the then
      applicable Liquidation Preference per share and (ii) shall have the same
      Liquidation Preference as each share of Series A Senior Preferred Stock
      with respect to which the PIK Share constituted a dividend. No dividends
      shall be paid on any Common Stock of the Company or any capital stock of
      the Company that ranks junior to or on parity with the Series A Senior
      Preferred Stock during any fiscal year of the Company until dividends in
      the aggregate Dividend Amount per share (as adjusted for any stock
      dividends, combinations or splits with respect to such shares) of Series A
      Senior Preferred Stock for the current and each prior Dividend Payment
      Date shall have been paid or declared and set apart for payment to the
      Series A Senior Preferred Stock holders.

            2B. The amount of dividends payable for any period shorter than a
      full year shall be determined on the basis of twelve 30-day months and a
      360-day year. Dividends paid on the shares of Series A Senior Preferred
      Stock in an amount less than the total amount of such dividends at the
      time accrued and payable on such shares shall be allocated pro rata on a
      share-by-share basis among all such shares at the time outstanding.

            2C. In the event that the Company shall at any time pay a dividend
      on the Common Stock or Series A Junior Preferred Stock, it shall, at the
      same time, pay to each holder of Series A Senior Preferred Stock a
      dividend equal to the dividend that would have been payable to such holder
      if the shares of Series A Senior Preferred Stock held by such holder had
      been converted into Common Stock on the date of determination of holders
      of Common Stock entitled to receive such dividends; and provided, further,
      that so long as any shares of the Series A Senior Preferred Stock are
      outstanding, no dividends shall be declared or paid or set apart for
      payment on any other preferred stock of the Company of any series ranking,
      as to dividends, junior to or on a parity with the Series A Senior
      Preferred Stock, unless a dividend shall be paid at the same time to each
      holder of Series A Senior Preferred Stock, in an amount such that the
      holders of such other

                                       4
<PAGE>

      series of preferred stock, on the one hand, and the holders of
      Series A Senior Preferred Stock, on the other, receive dividends in the
      same relative proportions that each would have received had all such
      shares of preferred stock been converted into Common Stock immediately
      prior to the declaration of a dividend on such preferred stock.

            3.    Liquidation; Security.

            3A. Upon any liquidation, dissolution or winding up of the Company,
      whether voluntary or involuntary, the holders of the shares of Series A
      Senior Preferred Stock shall be entitled, before any distributions shall
      be made to the holders of the Common Stock, or any other class of capital
      stock of the Company ranking junior to the Series A Senior Preferred
      Stock, to be paid an amount (the "Series A Senior Liquidation Amount")
      equal to (i) 150% of the Liquidation Preference per share (appropriately
      adjusted to reflect the occurrence of any stock split, stock dividend,
      stock combination, stock subdivision or like occurrences) and (ii) with
      respect to the assets remaining after distribution of 150% of the
      Liquidation Preference and the distribution of the Junior Liquidation
      Preference, the aggregate pro rata liquidating distribution per share
      payable to holders of Series A Senior Preferred Stock on an as-converted
      basis payable ratably to the holders of the Series A Senior Preferred
      Stock and Common Stock. If upon such liquidation, dissolution or winding
      up of the Company, whether voluntary or involuntary, the assets to be
      distributed among the holders of Series A Senior Preferred Stock of the
      Company shall be insufficient to permit payment to the holders of Series A
      Senior Preferred Stock of the full Series A Senior Liquidation Amount,
      then the entire assets of the Company to be distributed shall be
      distributed ratably to the holders of Series A Senior Preferred Stock in
      proportion to the Series A Senior Liquidation Amount each such holder
      would otherwise be entitled to receive. Written notice of such
      liquidation, dissolution or winding up, stating a payment date, the Series
      A Senior Liquidation Amount and the place where said sums shall be payable
      shall be given by mail, postage prepaid, not less than 30 or more than 60
      days prior to the payment date stated therein, to the holders of record of
      the Series A Senior Preferred Stock, such notice to be addressed to each
      shareholder at his post office address as shown by the records of the
      Company. Unless waived in writing by the holders of a majority of the
      Series A Senior Preferred Stock then outstanding, voting together as one
      class, a consolidation or merger of the Company into or with any other
      entity or entities, or the sale or transfer by the Company of all or
      substantially all of its assets, in each case under circumstances in which
      the holders of a majority in voting power of the outstanding capital stock
      of the Company, immediately prior to such a merger, consolidation or sale,
      own less than a majority in voting power of the outstanding capital stock
      of the corporation or the surviving or resulting corporation or acquirer,
      as the case may be, immediately following such a merger, consolidation or
      sale (each such transaction being hereinafter referred to as a "Corporate
      Transaction") shall be treated as a liquidation within the meaning of this
      Section 3 for the purpose of determining the consideration to be received
      by holders of the Series A Senior Preferred Stock upon redemption of such
      shares as well as the timing of such deemed redemption.

            3B. The Company's obligations to holders of Series A Senior
      Preferred Stock set forth in this Certificate of Designations, Preferences
      and Rights shall be secured by a

                                       5
<PAGE>

      security agreement executed by the Company and the original holders
      of Series A Senior Preferred Stock as of the Original Issuance Date (the
      "Security Agreement"). Each Series A Senior Preferred Stock holder shall
      be entitled to all rights of the "Secured Party" as defined in the
      Security Agreement.

            4.    Conversion.

            4A. Right to Convert. Subject to the terms and conditions of this
      paragraph 4A, the holder of any share or shares of Series A Senior
      Preferred Stock shall have the right, at its option at any time, to
      convert any such shares of Series A Senior Preferred Stock into such
      number of fully paid and nonassessable whole shares of Common Stock as is
      obtained by multiplying the number of shares of Series A Preferred Stock
      so to be converted by the Liquidation Preference per share and dividing
      the result by the conversion price of $3.06 per share or, if there has
      been an adjustment of the conversion price, by the conversion price as
      last adjusted and in effect at the date any share or shares of Series A
      Senior Preferred Stock are surrendered for conversion (such price, or such
      price as last adjusted, being referred to herein as the "Conversion
      Price"). Such rights of conversion shall be exercised by the holder
      thereof by surrender of a certificate or certificates for the shares to be
      converted to the Company at its principal office (or such other office or
      agency of the Company as the Company may designate by notice in writing to
      the holder or holders of the Series A Senior Preferred Stock) at any time
      during its usual business hours on the date set forth in such notice,
      together with a properly completed notice of conversion in the form
      attached to the Series A Senior Preferred Stock certificate with a
      statement of the name or names (with address), subject to compliance with
      applicable laws to the extent such designation shall involve a transfer,
      in which the certificate or certificates for shares of Common Stock, shall
      be issued. Accrued and unpaid dividends on the Series A Senior Preferred
      Stock shall be taken into account in determining the number of shares of
      Common Stock to be received by holders upon conversion, provided, however,
      no dividends will be paid on the Series A Senior Preferred Stock at the
      time of conversion. All rights incident to a share of Series A Senior
      Preferred Stock will terminate automatically upon any conversion of such
      share into Common Stock.

            4B. Issuance of Certificates; Time Conversion Effected. Promptly
      after the receipt by the Company of the written notice referred to in
      subparagraph 4A and surrender of the certificate or certificates for the
      share or shares of the Series A Senior Preferred Stock to be converted,
      the Company shall issue and deliver, or cause to be issued and delivered,
      to the holder, registered in such name or names as such holder may direct,
      subject to compliance with applicable laws to the extent such designation
      shall involve a transfer, a certificate or certificates for the number of
      whole shares of Common Stock issuable upon the conversion of such share or
      shares of Series A Senior Preferred Stock. To the extent permitted by law,
      such conversion shall be deemed to have been effected and the Conversion
      Price shall be determined as of the close of business on the date on which
      such written notice shall have been received by the Company and the
      certificate or certificates for such shares shall have been surrendered as
      aforesaid, and at such time the Series A Senior Preferred Stock rights of
      the holder of such share or shares

                                       6
<PAGE>

      shall cease, and the person or persons in whose name or names any
      certificate or certificates for shares of Common Stock shall be issuable
      upon such conversion shall be deemed to have become the holder or holders
      of record of the shares represented thereby.

            4C. Fractional Shares; Dividends; Partial Conversion. No fractional
      shares shall be issued upon conversion of the Series A Senior Preferred
      Stock into Common Stock, and the number of shares of Common Stock to be
      issued shall be rounded to the nearest whole share, and no payment or
      adjustment shall be made upon any conversion on account of any cash
      dividends paid on the Series A Senior Preferred Stock so converted or the
      Common Stock issued upon such conversion. In case the number of shares of
      Series A Senior Preferred Stock represented by the certificate or
      certificates surrendered pursuant to subparagraph 4A exceeds the number of
      shares converted, the Company shall upon such conversion, execute and
      deliver to the holder thereof at the expense of the Company, a new
      certificate for the number of shares of Series A Senior Preferred Stock
      represented by the certificate or certificates surrendered which are not
      to be converted.

            4D. Adjustment of Conversion Price Upon Issuance. If and at any time
      or from time to time, after the date of first issuance of shares of Series
      A Senior Preferred Stock (the "Original Issuance Date"), the Corporation
      shall issue or sell, or is, in accordance with subparagraphs 4D(1) through
      4D(9), deemed to have issued or sold, any shares ("Additional Common
      Shares") of its Common Stock other than Excluded Stock without
      consideration or for a consideration per share less than the Conversion
      Price in effect immediately prior to the time of such issue or sale, then
      the Conversion Price shall be reduced, concurrently with issue or sale, to
      a price equal to the price paid (or deemed to have been paid) per share
      for such Additional Common Shares.

      Notwithstanding the above, if and at any time or from time to time,
      after the Original Issuance Date, a Triggering Event occurs, then the
      Conversion Price shall be proportionately reduced to a price such that
      after adjustment of the Conversion Price the holders of the Series A
      Senior Preferred Stock, in the aggregate, shall hold the greater of (i)
      the Senior Preferred Ownership Percentage or (ii) 51% of all outstanding
      securities of the Company that are entitled to vote, or capable of voting,
      including shares of Common Stock, shares of Preferred Stock, and any other
      securities exercisable for, convertible into, or exchangeable for, voting
      stock of the Company.

      No  adjustment of the  Conversion  Price,  however,  shall be made in an
      amount less than $0.01 per share,  and any such lesser  adjustment shall
      be carried  forward and shall be made at the time and together  with the
      next  subsequent  adjustment  which  together  with any  adjustments  so
      carried forward shall amount to $0.01 per share or more.

      For purposes of this subparagraph 4D, the following  paragraphs 4D(1) to
      4D(8) shall also be applicable:

            4D(1). Issuance of Rights or Options. In case at any time the
      Corporation shall in any manner grant (whether directly or by assumption
      in a merger or otherwise) any rights

                                       7
<PAGE>

      to subscribe for or to purchase, or any option or warrant for the
      purchase of, Common Stock or any stock or securities convertible into or
      exchangeable for Common Stock (such rights or options being herein called
      "Options" and such convertible or exchangeable stock or securities being
      herein called "Convertible Securities" and, together with Options, the
      "Common Stock Equivalents"), whether or not such Options or the right to
      convert or exchange any such Convertible Securities are immediately
      exercisable, and the price per share for which Common Stock is issuable
      upon the exercise of such Options or upon conversion or exchange of such
      Convertible Securities (determined by dividing (i) the total amount, if
      any, received or receivable by the Corporation as consideration for the
      granting of such Options, plus the minimum aggregate amount of additional
      consideration payable to the Corporation upon the exercise of all such
      Options, plus, in the case of such Options which relate to Convertible
      Securities, the minimum aggregate amount of additional consideration, if
      any, payable upon the issue or sale of such Convertible Securities and
      upon the conversion or exchange thereof by (ii) the total maximum number
      of shares of Common Stock issuable upon the exercise of such Options or
      upon the conversion or exchange of all such Convertible Securities
      issuable upon the exercise of such Options) shall be less than the
      Conversion Price in effect immediately prior to the time of the granting
      of such Options, then the total maximum number of shares of Common Stock
      issuable upon the exercise of such Options or upon conversion or exchange
      of the total maximum amount of such Convertible Securities issued upon the
      exercise of such Options shall be deemed to have been issued for such
      price per share as of the date of granting of such Options and thereafter
      shall be deemed to be outstanding. Except as otherwise provided in
      subparagraph 4D(3), no adjustment of the Conversion Price shall be made
      upon the actual issue of such Common Stock or of such Convertible
      Securities upon exercise of such Options or upon the actual issue of such
      Common Stock upon conversion or exchange of such Convertible Securities.

            4D(2). Issuance of Convertible Securities. In case the Corporation
      shall in any manner issue (whether directly or by assumption in a merger
      or otherwise) or sell any Convertible Securities, whether or not the
      rights to exchange or convert thereunder are immediately exercisable, and
      the price per share for which Common Stock is issuable upon such
      conversion or exchange (determined by dividing (i) the total amount
      received or receivable by the Corporation as consideration for the issue
      or sale of such Convertible Securities, plus the minimum aggregate amount
      of additional consideration, if any, payable to the Corporation upon the
      conversion or exchange thereof by (ii) the total maximum number of shares
      of Common Stock issuable upon the conversion or exchange of all such
      Convertible Securities) shall be less than the Conversion Price in effect
      immediately prior to the time of such issue or sale, then the total
      maximum number of shares of Common Stock issuable upon conversion or
      exchange of all such Convertible Securities shall be deemed to have been
      issued for such price per share as of the date of the issue or sale of
      such Convertible Securities and thereafter shall be deemed to be
      outstanding, provided that (a) except as otherwise provided in
      subparagraph 4D(3) below, no adjustment of the Conversion Price shall be
      made upon the actual issue of such Common Stock upon conversion or
      exchange of such Convertible Securities, and (b) if any such issue or sale
      of such Convertible Securities is made upon exercise of any Option

                                       8
<PAGE>

      to purchase any such Convertible Securities for which adjustments of
      the  Conversion  Price  have  been or are to be  made  pursuant  to  other
      provisions  of  this  subparagraph  4D,  no  further   adjustment  of  the
      Conversion Price shall be made by reason of such issue or sale.

            4D(3). Change in Option Price or Conversion Rate. If (1) the
      purchase price provided for in any Option referred to in subparagraph
      4D(1); (2) the additional consideration, if any, payable upon the
      conversion or exchange of any Convertible Securities referred to in
      subparagraph 4D(1) or 4D(2); or (3) the rate at which any Convertible
      Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into
      or exchangeable for Common Stock shall change at any time (in each case
      other than under or by reason of provisions providing solely for
      protections of the holders of such Option or Convertible Securities
      against dilution), then the Conversion Price in effect at the time of such
      event shall forthwith be readjusted to the Conversion Price which would
      have been in effect at such time had such Options or Convertible
      Securities still outstanding provided for such changed purchase price,
      additional consideration or conversion rate, as the case may be, at the
      time initially granted, issued or sold; and on the expiration of any such
      Option or the termination of any such right to convert or exchange such
      Convertible Securities, the Conversion Price then in effect hereunder
      shall forthwith be increased to the Conversion Price which would have been
      in effect at the time of such expiration or termination had such Option or
      Convertible Securities, to the extent outstanding immediately prior to
      such expiration or termination never been issued, and the Common Stock
      issuable thereunder shall no longer be deemed to be outstanding. If the
      purchase price provided for in any such Option referred to in subparagraph
      4D(1) or the rate at which any Convertible Securities referred to in
      subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for
      Common Stock shall be reduced at any time under or by reason of provisions
      with respect thereto providing solely for protection of the holders of
      such Option or Convertible Securities against dilution, then, in case of
      the delivery of Common Stock upon the exercise of any such Option or upon
      conversion or exchange of any such Convertible Securities, the Conversion
      Price then in effect hereunder shall forthwith be adjusted to such
      respective amount as would have been obtained had such Option or
      Convertible Securities never been issued as to such Common Stock and had
      adjustments been made upon the issuance of the shares of Common Stock
      delivered as aforesaid, but only if as a result of such adjustment the
      Conversion Price then in effect hereunder is thereby reduced.

            4D(4). Stock Dividends. In case the Corporation shall declare a
      dividend or make any other distribution upon any stock of the Corporation
      payable in Common Stock, Options or Convertible Securities, any Common
      Stock, Options or Convertible Securities, as the case may be, issuable in
      payment of such dividend or distribution shall be deemed to have been
      issued or sold without consideration and the Conversion Price then in
      effect immediately prior to such dividend declaration or distribution
      shall be reduced as if the Corporation had subdivided its outstanding
      shares of Common Stock into a greater number of shares as provided in
      subparagraph 4D(5).

                                       9
<PAGE>

            4D(5). Subdivision or Combination of Stock. In case the Corporation
      shall at any time subdivide its outstanding shares of Common Stock or
      Convertible Securities into a greater number of shares or shall declare or
      pay a dividend on its outstanding shares of Common Stock payable in shares
      of Common Stock, the Conversion Price in effect immediately prior to such
      subdivision shall be proportionately reduced, and conversely, in case the
      outstanding shares of Common Stock of the Corporation shall be combined
      into a smaller number of shares, the Conversion Price in effect
      immediately prior to such combination shall be proportionately increased.

            4D(6). Consideration for Stock. In case any shares of Common Stock,
      Options or Convertible Securities shall be issued or sold for cash, the
      consideration received shall be deemed to be the amount received by the
      Corporation therefor, without deduction therefrom of any expenses incurred
      or any underwriting commissions or concessions paid or allowed by the
      Corporation in connection therewith. In case any shares of Common Stock,
      Options or Convertible Securities shall be issued or sold for a
      consideration other than cash, the amount of the consideration other than
      cash received by the Corporation shall be deemed to be the fair value of
      such consideration as determined in good faith by the Board of Directors
      of the Corporation, without deduction of any expenses incurred or any
      underwriting commissions or concessions paid or allowed by the Corporation
      in connection therewith. The amount of consideration deemed to be received
      by the Corporation pursuant to the foregoing provisions of this
      subparagraph 4D(6) upon any issuance and/or sale of shares of Common
      Stock, Options or Convertible Securities, pursuant to an established
      compensation plan of the Corporation, to directors, officers or employees
      of the Corporation in connection with their employment shall be increased
      by the amount of any tax benefit realized by the Corporation as a result
      of such issuance and/or sale, the amount of any tax benefit being the
      amount by which the Federal and/or state income or other tax liability of
      the Corporation shall be reduced by reason of any deduction or credit in
      respect of such issuance and/or sale. In case any Options shall be issued
      in connection with the issue and sale of other securities of the
      Corporation, together comprising one integral transaction in which no
      specific consideration is allocated to such Options by the parties
      thereto, such Options shall be deemed to have been issued without
      consideration.

            4D(7). Record Date. In case the Corporation shall take a record of
      the holders of its Common Stock for the purpose of entitling them (i) to
      receive a dividend or other distribution payable in Common Stock, Options
      or Convertible Securities, or (ii) to subscribe for or purchase Common
      Stock, Options or Convertible Securities, then such record date shall be
      deemed to be the date of the issue or sale of the shares of Common Stock
      deemed to have been issued or sold upon the declaration of such dividend
      or the making of such other distribution or the date of the granting of
      such right of subscription or purchase, as the case may be.

            4D(8). If, at any time or from time to time after the Original
      Issuance Date, the Company shall issue or distribute to the holders of
      shares other than Preferred Shares (the "Dividend Stock") evidences of its
      indebtedness, any other securities of the Company or any cash, property or
      other assets (excluding a subdivision, combination or

                                       10
<PAGE>

      reclassification, or dividend or distribution payable in shares of
      Common Stock, referred to in Section 4D(4) or 4D(5), or dividends on
      Common Stock described in Section 2C, and also excluding cash dividends or
      cash distributions paid out of net profits legally available therefor in
      the full amount thereof) (any such non-excluded event being herein called
      a "Special Dividend"), the Conversion Price shall be adjusted by
      multiplying the Conversion Price then in effect by a fraction, the
      numerator of which shall be the then Current Market Price per share of the
      Dividend Stock in effect on the record date of such issuance or
      distribution less the fair market value (as determined in good faith by
      the Company's Board of Directors) of the Special Dividend applicable to
      one share of Dividend Stock and the denominator of which shall be the then
      Current Market Price Per Share of the Dividend Stock in effect on the
      record date of such issuance or distribution. An adjustment made pursuant
      to this Subsection 4D(8) shall become effective immediately after the
      record date of any such Special Dividend.

            4E. Reorganization or Reclassification. If any capital
      reorganization or reclassification of the capital stock of the Corporation
      shall be effected in such a way (including, without limitation, by way of
      consolidation or merger, but excluding a consolidation, merger or sale
      which is treated as a Liquidation with respect to holders of Series A
      Senior Preferred Stock for purposes of Section 3) that holders of Common
      Stock shall be entitled to receive stock, securities or assets with
      respect to or in exchange for Common Stock then, as a condition of such
      reorganization or reclassification, lawful and adequate provision (in form
      satisfactory to the holders of at least a majority of the outstanding
      shares of Series A Senior Preferred Stock, voting together as one class)
      shall be made whereby each holder of a share or shares of Series A Senior
      Preferred Stock shall thereafter have the right to receive, upon the basis
      and upon the terms and conditions specified herein and in lieu of the
      shares of Common Stock of the Corporation immediately theretofore
      receivable upon the conversion of such share or shares of the Series A
      Senior Preferred Stock, such shares of stock, securities or assets as may
      be issued or payable with respect to or in exchange for a number of
      outstanding shares of Common Stock equal to the number of shares of such
      stock immediately theretofore so receivable had such reorganization or
      reclassification not taken place and in any such case appropriate
      provision shall be made with respect to the rights and interests of such
      holder to the end that the provisions hereof (including without limitation
      provisions for adjustments of the Conversion Price) shall thereafter be
      applicable, as nearly as may be, in relation to any shares of stock,
      securities or assets thereafter deliverable upon the exercise of such
      conversion rights (including an immediate adjustment, by reason of such
      reorganization or reclassification, of the Conversion Price to the value
      for the Common Stock reflected by the terms of such reorganization or
      reclassification if the value so reflected is less than the Conversion
      Price in effect immediately prior to such reorganization or
      reclassification). In the event of a merger or consolidation of the
      Corporation as a result of which a greater or lesser number of shares of
      common stock of the surviving corporation are issuable to holders of the
      Common Stock of the Corporation outstanding immediately prior to such
      merger or consolidation, the Conversion Price in effect immediately prior
      to such merger or consolidation shall be adjusted in the same manner as
      though there were a subdivision or combination of the outstanding shares
      of Common Stock of the Corporation. The Corporation will not effect any
      such

                                       11
<PAGE>

      consolidation or merger, or any sale of all or substantially all its
      assets and properties, unless prior to the consummation thereof the
      successor corporation (if other than the Corporation) resulting from such
      consolidation or merger or the corporation purchasing such assets shall
      assume by written instrument (in form satisfactory to the holders of at
      least a majority of the outstanding shares of Series A Senior Preferred
      Stock voting together as one class) executed and mailed or delivered to
      each holder of shares of Series A Senior Preferred Stock at the last
      address of such holder appearing on the books of the Corporation, the
      obligation to deliver to such holder such shares of stock, securities or
      assets as, in accordance with the foregoing provisions, such holder may be
      entitled to receive.

            4F. Notice of Adjustment. Upon any adjustment of the Conversion
      Price, then, and in each such case the Company shall give written notice
      thereof by first class mail, postage prepaid, addressed to each holder of
      shares of Series A Senior Preferred Stock at the address of such holder as
      shown on the books of the Company, which notice shall state the Conversion
      Price resulting from such adjustment, setting forth in reasonable detail
      the method of calculation and the facts upon which such calculation is
      based.

            4G.   Other Notices.  In case at any time:

                  (1)   the  Company  shall  declare  any  dividend  upon  its
            Common  Stock   payable  in  cash  or  stock  or  make  any  other
            distribution to the holders of its Common Stock;

                  (2)   the Company shall offer for  subscription  pro rata to
            the  holders of its  Common  Stock any  additional  shares of such
            stock of any class or other rights;

                  (3)   there   shall  be  any   capital   reorganization   or
            reclassification  of  the  capital  stock  of  the  Company,  or a
            consolidation  or merger of the Company  with, or a sale of all or
            substantially all its assets to, another corporation; or

                  (4)   there   shall   be   a   voluntary   or    involuntary
            dissolution, liquidation or winding up of the Company;

      then, in any one or more of said cases, the Company shall give, by
      first class mail, postage prepaid, addressed to each holder of any shares
      of Series A Senior Preferred Stock at the address of such holder as shown
      on the books of the Company, (a) at least 15 days prior written notice of
      the date on which the books of the Company shall close or a record shall
      be taken for such dividend, distribution or subscription rights or for
      determining rights to vote in respect of any such reorganization,
      reclassification, consolidation, merger, sale, dissolution, liquidation or
      winding up, and (b) in the case of any such reorganization,
      reclassification, consolidation, merger, sale, dissolution, liquidation or
      winding up, at least 15 days prior written notice of the date when the
      same shall take place. Such notice in accordance with the foregoing clause
      (a) shall also specify, in the case of any such dividend, distribution or
      subscription rights, the date on

                                       12
<PAGE>

      which the holders of Common Stock shall be entitled thereto, and
      such notice in accordance with the foregoing clause (b) shall also specify
      the date on which the holders of Common Stock shall be entitled to
      exchange their Common Stock for securities or other property deliverable
      upon such reorganization, reclassification, consolidation, merger, sale,
      dissolution, liquidation or winding up, as the case may be.

            4H. Mandatory Conversion. Each share of Series A Senior Preferred
      Stock shall be converted, automatically and without further action on the
      part of any person or the Company, into that number of shares of Common
      Stock as is equal to the quotient obtained by dividing (i) the Liquidation
      Preference per share of Series A Senior Preferred Stock by (ii) the then
      applicable Conversion Price (A) no less than 30 days after the Company
      provides written notice to holders of Series A Senior Preferred Stock
      certifying that the minimum closing price (determined on the basis of the
      average weighted daily trading price) of the Common Stock for 35
      consecutive trading days has exceeded three times the original Liquidation
      Preference of the Series A Senior Preferred Stock plus accrued and unpaid
      dividends and has traded in volumes of at least 100,000 shares per day
      during such 35-day period; (B) upon receipt of the written notice of
      holders of a majority of the then-outstanding shares of Series A Senior
      Preferred Stock of their election to cause an automatic conversion
      pursuant to this subparagraph 4H; or (C) upon the closing of an
      underwritten public offering of at least 15% of the Common Stock
      outstanding immediately prior to such offering (including a Rule
      144A/Regulation S offering) with proceeds of at least $25,000,000 to the
      Company, at a price per share of at least six times the Original Purchase
      Price (appropriately adjusted to reflect the occurrence of any stock
      split, stock dividend, stock combination, stock subdivision or like
      occurrences) plus any accrued but unpaid dividends the of Series A Senior
      Preferred Stock on an as-converted basis (a "Qualified Financing"). Any
      such conversion shall be effected in accordance with the provisions of
      subparagraphs 4B and 4C hereof.

            4I.   Stock to be Reserved.

                  (1) The Company will at all times reserve and keep available
            out of its authorized but unissued Common Stock solely for the
            purpose of issuance upon the conversion of the Series A Senior
            Preferred Stock as herein provided, such number of shares of Common
            Stock as shall then be issuable upon the conversion of all
            outstanding shares of Series A Senior Preferred Stock. All shares of
            Common Stock which shall be so issued shall be duly and validly
            issued and fully paid and nonassessable and free from all liens,
            duties and charges arising out of or by reason of the issue thereof
            (including, without limitation, in respect of taxes) and, without
            limiting the generality of the foregoing, the Company covenants that
            it will from time to time take all such action as may be requisite
            to assure that the par value per share of the Common Stock is at all
            times equal to or less than the effective Conversion Price. The
            Company will take all such action

                                       13
<PAGE>

            within its control as may be necessary on its part to assure
            that all such shares of Common Stock may be so issued without
            violation of any applicable law or regulation, or of any
            requirements of any national securities exchange upon which the
            Common Stock of the Company may be listed. The Company will not take
            any action which results in any adjustment of the Conversion Price
            if after such action the total number of shares of Common Stock
            issued and outstanding and thereafter issuable upon exercise of all
            options and conversion of Convertible Securities, including upon
            conversion of the Series A Senior Preferred Stock, would exceed the
            total number of shares of such class of Common Stock then authorized
            by the Company's Certificate of Incorporation.

                  (2) The Company will at all times reserve and keep available
            out of its authorized but unissued Series A Senior Preferred Stock,
            shares solely for the purpose of satisfying the Company's
            obligations to issue PIK Shares as herein provided, such number of
            shares of Series A Senior Preferred Stock as is equal to the number
            of shares of Series A Senior Preferred Stock then outstanding. All
            shares of Series A Senior Preferred Stock which shall be so issued
            shall be duly and validly issued and fully paid and nonassessable
            and free from all liens, duties and charges arising out of or by
            reason of the issue thereof (including, without limitation, in
            respect of taxes).

            4J. No Reissuance of Series A Senior Preferred Stock. Shares of
      Series A Senior Preferred Stock that are converted into shares of Common
      Stock as provided herein shall not be reissued.

            4K. Issue Tax. The issuance of certificates for shares of Common
      Stock upon conversion of the Series A Senior Preferred Stock shall be made
      without charge to the holders thereof for any issuance tax, stamp tax,
      transfer tax, duty or charge in respect thereof, provided that the Company
      shall not be required to pay any tax, duty or charge which may be payable
      in respect of any transfer involved in the issuance and delivery of any
      certificate in a name other than that of the holder of the Series A Senior
      Preferred Stock which is being converted.

            4L. Closing of Books. The Company will at no time close its transfer
      books against the transfer of any Series A Senior Preferred Stock or of
      any shares of Common Stock issued or issuable upon the conversion of any
      shares of Series A Senior Preferred Stock in any manner which interferes
      with the timely conversion of such Series A Senior Preferred Stock;
      provided, however, nothing herein shall be construed to prevent the
      Company from setting record dates for the holders of its securities.

            5.    Issuance or Sale of Other Securities

      5A Right to Participate in Future Issuances. In case the Company proposes
at any time to issue or sell any Common Stock or Common Stock Equivalents other
than Excluded Stock (the "Offered Securities"), the Company shall, no later than
fifteen (15) days after to the consummation of such transaction (a "Keep Even
Transaction"), give notice in writing (the "Keep Even Offer Notice") of such
Keep Even Transaction to each Series A Senior Preferred Stock holder (each, a
"Keep Even Rights Holder"). The Keep Even Offer Notice shall describe the Keep
Even Transaction, identify the purchasers, and contain an offer (the "Keep Even

                                       14
<PAGE>

            Offer") to sell to each Keep Even Rights Holder, at the same
consideration paid by the purchasers, that number of Offered Securities required
to maintain such Keep Even Rights Holder's ownership percentage of the
fully-diluted Common Stock in effect as of the date immediately prior to the
consummation of the Keep Even Transaction (the "Maximum Offer Amount"). A Keep
Even Rights Holder may subscribe for all or a portion of its Maximum Offer
Amount on or prior to the 45th day following the date of the Keep Even Offer
Notice. Any of the Offered Securities not subscribed for by a Keep Even Rights
Holder shall be offered to the other Keep Even Rights Holders pursuant to a
written notice from the Company on a pro rata basis for a period of 30 days.
When the Offered Securities are accepted in the manner set forth in this
subparagraph 5A, the Company shall, as promptly as practicable but no later than
twenty (20) days after acceptance by a Keep Even Rights Holder of its
subscription portion of the Maximum Offer Amount, issue certificates
representing the applicable number of Offered Securities (free of all liens and
encumbrances) to such holder against delivery by such holder of the
consideration payable therefor. Any notice required to be given by Company
pursuant to this subparagraph 5A shall (i) specify the name of the purchasers,
the number of shares issued, the amount and type of consideration received
therefor, and the other material terms on which the Company has issued the
shares, and (ii) contain an offer to sell to those holders permitted to
participate in such offer all of such shares at the same price per share and for
consideration consisting of (x) cash equal to the amount of cash paid by the
purchasers and (y) if any of the consideration to be paid by the proposed
purchaser is non-cash consideration, either the same non-cash consideration or,
at the election of the particular holder, cash having an equivalent value to the
non-cash consideration paid by the proposed purchaser. The determination of
equivalent value required by the preceding sentence shall be made by an
Independent Appraiser, it being understood that the fees and expenses of such
Independent Appraiser shall be paid by the Company. The rights associated with a
Keep Even Transaction described herein shall not apply to any underwritten
public offering of Company equity securities by an internationally recognized
underwriter at a price per share of Common Stock no less than three times the
Original Purchase Price (appropriately adjusted to reflect the occurrence of any
stock split, stock dividend, stock combination, stock subdivision or like
occurrences).

            5B Restriction on Employee Shares. All Common Stock held by
employees of the Company shall be nontransferable by such employees until the
effective date of a registration statement filed by the Company with respect to
such shares. In the event that any such employee shares become transferable by
operation of law, the Company shall have the right to repurchase such shares at
book value, based on the Company's then most current financial statements.

            6. Voting - Series A Senior Preferred Stock. Holders of the Series A
Senior Preferred Stock, voting as a separate class, shall have the right to
elect one member of Company's Board of Directors (the "Series A Senior
Director") who shall be appointed by Middlebury Capital, LLC. In addition to any
class voting rights provided by law and this Certificate of Designation, the
holders of Series A Senior Preferred Stock shall have the right to vote together
with the holders of Common Stock as a single class on any matter on which the
holders of Common Stock are entitled to vote (including the election of
directors other than the Series A Directors). With respect to the voting rights
of the holders of the Series A Senior Preferred Stock pursuant to the preceding
sentence, each holder of Series A Senior Preferred

                                       15
<PAGE>

Stock shall be entitled to one vote for each share of Common Stock that would be
issuable to such holder upon the conversion of all the shares of Series A Senior
Preferred Stock held by such holder on the record date for the determination of
shareholders entitled to vote. Beginning on the date of a Triggering Event,
holders of the Series A Senior Preferred Stock, voting as a class, shall have
(i) the right to elect a majority of the members of the Company's Board of
Directors (each of whom shall be appointed by Middlebury Capital, LLC) and (ii)
the right to cast a number of votes, in the aggregate, which equals no less than
51% of all outstanding securities of the Company that are entitled to vote, or
capable of voting, including shares of Common Stock, shares of Preferred Stock,
and any other securities exercisable for, convertible into, or exchangeable for,
voting stock of the Company. The voting rights described in the preceding
sentence shall continue until waived by holders of a majority of the outstanding
shares of Series A Senior Preferred Stock.

            7. Further Restrictions. At any time when shares of Series A Senior
Preferred Stock are outstanding, and in addition to any other vote of the
holders of Series A Senior Preferred Stock required by law or by the Certificate
of Incorporation, the prior consent of the holders of a majority of the
outstanding Series A Senior Preferred Stock, given in person or by proxy, either
in writing or at a special meeting called for that purpose, at which meeting the
holders of the shares of such Series A Senior Preferred Stock shall vote
together as a class, shall be required for the Company to take any action that:
(i) alters or changes the rights, preferences or privileges of the Series A
Senior Preferred Stock, (ii) increases or decreases the authorized number of
shares of Common Stock or Preferred Stock, (iii) constitutes the incurrence of
indebtedness by the Company (other than indebtedness incurred in the ordinary
course of the Company's business, consistent with past practice) which possesses
senior repayment rights to the Series A Senior Preferred Stock, (iv) creates (by
reclassification or otherwise) any new class or series of shares or securities
having rights, preferences or privileges senior to or on a parity with the
Series A Senior Preferred Stock, (v) results in the redemption of any shares of
Common Stock (other than pursuant to equity incentive agreements with service
providers giving the Company the right to repurchase shares upon the termination
of services), (vi) results in any merger, other corporate reorganization, sale
of control, or any transaction in which all or substantially all of the assets
of the Company are sold, (vii) amends or waives any provision of the Company's
Certificate of Incorporation or Bylaws relative to the Series A Senior Preferred
Stock, (viii) increases the authorized size of the Company's Board of Directors,
(ix) results in the payment or declaration of any dividend on any shares of
Common or Preferred Stock other than the Series A Senior Preferred Stock, (x)
results in a confession of judgment against the Company, or settle or compromise
any claim by or against the Company, or file for bankruptcy or receivership,
(xi) results in any material loans to any insider or shareholder or any guaranty
of any debt of a third party, other than in the ordinary course of business;
(xii) results in the removal of one or more of the following officers of the
Company: Chief Executive Officer, President and Chief Financial Officer, or the
modification of the compensation payable by the Company to any such officer,
(xiii) results in the making of any material investment other than in the
ordinary course of business, (xiv) results in the mortgaging, pledging, or
creating a security interest in any material property of the Company, (xv)
results in the Company entering into any new business not related to the
business purpose of the Company as currently conducted or planned, (xvi) effects
the retention or replacement of any investor relations firms by the Company,
(xvii) results in the consummation of any material contracts with any
shareholder,

                                       16
<PAGE>

insider or affiliate, or (xviii) would materially and adversely affect any
right,  preference,  privilege or voting power of the Series A Senior  Preferred
Stock.

            8. Restrictions on Transfer. Transfers of the Series A Senior
Preferred Stock will be unrestricted, except (a) as to legal compliance (e.g.,
that the transaction is not subject to the registration requirements of the
Securities Act of 1933, as amended, and any applicable state securities laws);
(b) as to transfers to persons or entities that are competitors of the Company,
as listed on Schedule A attached hereto; (c) as to transfers to the Proctor
Group or any former director or officer of Agate Technologies Inc. ("Agate"), as
listed on Schedule A attached hereto. All transferees of the Senior Preferred
are required to certify that they are not a member of the Proctor Group by
completing and furnishing to the Company a certificate substantially in the form
of the Transfer Certification Form attached hereto as Schedule B.

            9.    Affirmative  Covenants.  At any time when shares of Series A
Senior Preferred Stock are outstanding, the Company will:

                  (a) maintain adequate property and business insurance;

                  (b) comply with all laws, rules, and regulations applicable to
            the Company, except where the failure to so comply would not be
            reasonably expected to result in a material and adverse change to
            the business and financial condition of the Company;

                  (c) take all reasonable actions necessary to preserve,
            protect, and maintain (i) its corporate existence, (ii) its rights,
            franchises, and privileges, and (iii) all properties necessary or
            useful to the proper conduct of its business;

                  (d) cause all key employees to execute and deliver
            non-competition, non-solicitation, non-hire, nondisclosure, and
            assignment of inventions agreements for a term of their employment
            with the Company plus one year, in a form reasonably acceptable to
            the Board of Directors; and

                  (e) reimburse all reasonable Company-related expenses of its
            Directors, including the Senior Preferred director and observer,
            including travel and telephone expenses.

            10. No Waiver. Except as otherwise modified or provided for herein,
the holders of Series A Senior Preferred Stock shall also be entitled to, and
shall not be deemed to have waived, any other applicable rights granted to such
holders under the applicable provisions of Delaware law.

            11. No Impairment. The Company will not, through any reorganization,
transfer of assets, merger, dissolution, issue or sale of securities on any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company but will
at all time in good faith assist in the carrying

                                       17
<PAGE>

out of all the  provisions  of Article Four and in the taking of all
such  action  as may be  necessary  or  appropriate  in order to  protect  the
conversion  rights  and  liquidation  preferences  granted  hereunder  of  the
holders of the Series A Senior Preferred Stock against impairment.

                                       18
<PAGE>

            IN WITNESS WHEREOF, this Certificate of Designation has been
executed by the Company by its President as of this 21st day of May, 2004.

                                    POWERHOUSE TECHNOLOGIES GROUP, INC.

                                       By:  /s/ Jay Elliot
                                          --------------------------------------
                                          Name:    Jay Elliot
                                          Title:   Chief Executive Officer

                                       19

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