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Quarterly report filed by small businesses

10QSB






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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB



     [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

           For the quarterly period ended March 31, 2000


     [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

                For the transition period from _______ to ______


                        Commission file number 000-24223


                      FRONTLINE COMMUNICATIONS CORPORATION
        (Exact name of Small Business issuer as specified in its Charter)


         Delaware                                           13-3950283
  (State or other jurisdiction                           (I.R.S Employer
Of incorporation or organization)                     Identification number)


One Blue Hill Plaza, P.O. Box 1548, Pearl River, New York           10965
      (Address of principal executive offices)                    (Zip Code)

                                 (914) 623-8553
                (Issuer's Telephone Number, including Area Code)

Indicate by a check mark whether the issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.

Yes X             No___



As of May 8, 2000 there were outstanding 5,645,302 shares of the issuer's Common
Stock, $ .01 par value.

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                                      INDEX

                                                                        Page



Part I       Financial Information


Item 1       Financial Statements (Unaudited)

             Condensed Consolidated Balance Sheets                         1

             Condensed Consolidated Statements of Operations               2

             Condensed Consolidated Statements of Cash Flows               3

             Notes to Condensed Consolidated Financial Statements          4


Item 2       Management's Discussion and Analysis or Plan
             Of Operations                                                 6


Part II      Other information                                             9

             Signatures                                                    10




Frontline Communications Corporation
Condensed Consolidated Balance Sheets




                                                                                    March 31,         December 31,
                                                                                      2000              1999 (1)
                                                                                  --------------   ----------------
                                                                                   (Unaudited)
                                                                                             
ASSETS
Current:
   Cash and cash equivalents                                                        $13,350,865           $615,190
   Accounts receivable, net of allowance for doubtful accounts                          272,946            288,337
   Prepaid expenses and other                                                           134,635            122,308
                                                                                  --------------   ----------------
                              Total current assets                                   13,758,446          1,025,835

Property and equipment, net                                                           2,820,401          2,944,948
Intangibles, net                                                                      3,665,756          4,146,107
Other                                                                                   101,595            297,742

                                                                                  --------------   ----------------
                                                                                    $20,346,198         $8,414,632
                                                                                  ==============   ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                             $1,344,691         $1,548,043
   Deferred revenue                                                                     717,110            684,219
   Current portion of capitalized lease obligation                                      441,784            433,917
                                                                                  --------------   ----------------
                            Total current liabilities                                 2,503,585          2,666,179

Capitalized lease obligations and notes payable- net of current portion               1,008,631          1,458,583

                                                                                  --------------   ----------------
                                Total liabilities                                     3,512,216          4,124,762
                                                                                  --------------   ----------------

Stockholders' equity:
   Preferred stock, $.01 par value, 2,000,000 authorized, issued and
      outstanding 878,400 and none, respectively.
      Aggregate liquidation preference $13,176,000.                                       8,784
   Common Stock, $.01 par value, 25,000,000 authorized,  5,436,111 and
      4,484,060 issued, respectively, 5,204,591 and 4,252,540 outstanding,
      respectively                                                                       54,362             44,841
   Additional paid-in capital                                                        35,411,169         15,147,547
   Accumulated deficit                                                              (18,338,720)       (10,600,905)
   Note receivable                                                                      (37,500)           (37,500)
   Treasury stock, at cost, 231,520 shares                                             (264,113)          (264,113)
                                                                                  --------------   ----------------
                           Total stockholders' equity                                16,833,982          4,289,870

                                                                                  --------------   ----------------
                                                                                    $20,346,198         $8,414,632
                                                                                  ==============   ================



(1)   The balance sheet at December 31, 1999 is derived from audited financial
      statements at that date. See notes to condensed consolidated financial
      statements.

                                      -1-




FRONTLINE COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)




                                                                 For the three months ended
                                                            March 31,                   March 31,
                                                              2000                        1999
                                                        ------------------           ---------------
                                                                               
Revenues                                                         $934,654                  $656,857

Costs and expenses:
      Cost of revenues                                            592,527                   398,734
      Selling, general and administrative                       1,553,918                   940,356
      Depreciation and amortization                               661,463                   339,436
                                                        ------------------           ---------------
                                                                2,807,908                 1,678,526
                                                        ------------------           ---------------
Loss from operations                                           (1,873,254)               (1,021,669)

Other income (expense):
   Interest income                                                 93,299                    19,778
   Interest expense                                               (38,616)                  (10,004)

                                                        ------------------           ---------------
Net loss                                                       (1,818,571)               (1,011,895)
                                                        ------------------           ---------------

Dividends related to beneficial conversion
  feature of preferred stock                                    5,856,497

Preferred dividends                                                62,747

                                                        ------------------           ---------------
Net loss applicable to common shares                          ($7,737,815)              ($1,011,895)
                                                        ==================           ===============

Loss per common share-basic and diluted                            ($1.73)                   ($0.31)
                                                        ==================           ===============

Weighted average number of common shares
   outstanding- basic and diluted                               4,462,909                 3,220,990
                                                        ==================           ===============




See notes to condensed consolidated financial statements.

                                       -2-




FRONTLINE COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)




                                                                             For the three months ended
                                                                           March 31,           March 31,
                                                                             2000                1999
                                                                         --------------      --------------
                                                                                       
Cash flow from operating activities:
   Net loss                                                                ($1,818,571)        ($1,011,895)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                            661,463             339,436
      Noncash compensation charge                                               21,845
      Changes in assets and liabilities
         Accounts receivable                                                    15,391              (4,010)
         Prepaid expenses and other                                            (12,327)             14,656
         Other assets                                                           (4,505)            (25,698)
         Accounts payable and accrued expenses                                (266,099)            207,500
         Deferred revenue                                                       32,891              30,724
                                                                         --------------      --------------
                              Net cash (used) by operating activities       (1,369,912)           (449,287)
                                                                         --------------      --------------


Cash flows from investing activities:
   Acquisition of property and equipment                                       (49,891)           (129,684)
   Acquisition of businesses                                                                      (311,495)
                                                                         --------------      --------------
                                Net cash used in investing activities          (49,891)           (441,179)
                                                                         --------------      --------------


Cash flows from financing activities:
   Proceeds from sale of common stock, net                                                       1,770,000
   Proceeds from exercise of stock options                                                         210,000
   Principal payments on capitalized lease obligations and debt               (442,085)            (24,310)
   Proceeds from sale of preferred stock, net                               14,597,563

                                                                         --------------      --------------
                            Net cash provided by financing activities       14,155,478           1,955,690
                                                                         --------------      --------------

Net increase (decrease) in cash and cash equivalents                        12,735,675           1,065,224

Cash and cash equivalents, beginning of period                                 615,190           1,994,711

Cash and cash equivalents, end of period                                   $13,350,865          $3,059,935
                                                                         ==============      ==============

Supplemental information:
Approximate interest paid during the period                                    $10,000             $14,000
                                                                         ==============      ==============



The Company entered into capital lease obligations in the aggregate amount of
  approximately $180,000 during the three months ended March 31, 1999.


See notes to condensed consolidated financial statements.

                                      -3-




FRONTLINE COMMUNICATIONS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000

NOTE A- BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The results for the interim periods are not
necessarily indicative of the results that may be attained for an entire year or
any future periods. For further information, refer to the Financial Statements
and footnotes thereto in the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1999.

         The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

NOTE B- LOSS PER SHARE

         The Company follows SFAS No. 128, "Earning per Share", which provides
for calculation of "basic" and "diluted" earning per share. Basic earnings per
share includes no dilution and is computed by weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect, in
periods in which they have dilutive effect, the effect of common shares issuable
upon exercise of stock options and warrants. Diluted earnings per share amounts
have not been reported because the Company has a net loss and the impact of the
assumed conversion of preferred stock and exercise of stock options and warrants
would be anti-dilutive.

NOTE C-CAPITAL STOCK

         In January 2000, the Company's shareholders approved an amendment to
the Certificate of Incorporation of the Company increasing the number of
authorized shares of preferred stock to 2,000,000.

         In February and March 2000, the Company sold in a public offering
1,137,300 shares of Series B Convertible Redeemable preferred stock at $15 per
share and realized net proceeds of approximately $14,404,000. Approximately
$194,000 of the offering costs were incurred in 1999. The preferred stock can be
converted into common stock at the rate of 3.4 shares of common stock for each
share of preferred stock. Preferred stockholders are entitled to receive
cumulative annual dividends of $.60 per share payable semi-annually either in
cash or shares of the Company's common stock at the sole discretion of the
Company. Further, preferred stockholders are entitled to receive a liquidation
preference of $15 per share, plus accrued dividends. The Company has the option
to redeem the preferred stock under certain circumstances.


                                       -4-




FRONTLINE COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000

         In connection with the offering, the Company sold to the underwriter,
for nominal consideration, warrants to purchase an aggregate of 100,000 shares
of Series B convertible redeemable preferred stock. The warrants will be
exercisable for a four-year period commencing one year after the date of the
consummation of the offering at an exercise price of $24.75 per share.

         During the three months ended March 31, 2000, additional dividends
(noncash) related to beneficial conversion feature of the preferred stock of
approximately $5,856,000 were recorded as a result of the conversion price of
the preferred stock being less than the market price of the common stock at the
time of the offering.

         During the three months ended March 31, 2000 the Company issued: (i)
880,260 shares of common upon conversion of 258,900 shares of Series B
Convertible Redeemable preferred stock, (ii) issued 5,830 shares of common stock
for services rendered and upon exercise of stock options and (iii) issued 65,961
shares of common stock pursuant to repricing rights.

NOTE D- SUBSEQUENT EVENTS

         In 1999, the Company sold through private placements 499,889 shares of
its common to two investors for an aggregate price of $4,250,000. The Company
had granted the investors repricing and redemption rights based on the future
market price of its common shares. The Company may have to issue up to 141,110
additional shares of its common stock pursuant to the repricing rights. If the
Company were required to satisfy the redemption rights, the estimated costs to
satisfy the redemption rights is between $601,000 (based on the Company's common
stock price on May 12, 2000) and $1,284,000.

         In April 2000, the Company's board of directors authorized the Company
to purchase upto $1,000,000 worth of its common stock from time to time, as the
Company deems appropriate, through open market purchases or in privately
negotiated transactions.

         In accordance with the foregoing, as of May 8, 2000 the Company had
acquired 105,526 shares of common stock including 16,312 shares related to 1999
private placement for an aggregate consideration of $ 431,000.

         In April 2000, the Company acquired substantially all of the assets of
The PressRoom Online Services, a provider of dial-up, DSL, Webhosting and
leased-line access to businesses and individuals in Virginia. The purchase price
consisted of $456,000 in cash, $60,000 in non-interest bearing promissory note
and 21,227 shares of the Company's common stock valued at $100,000.


                                       -5-




M
ANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995:

         The statements contained herein which are not historical facts are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934.
These "forward looking statements" are subject to risks and uncertainties,
including but not limited to, risks associated with the Company's future growth
and operating results, the ability of the Company to successfully integrate
newly acquired subscribers, business entities and personnel into its operations,
changes in consumer preference and demographics, technological change,
competitive factors, unfavorable general economic conditions, and other factors
described herein. The Company assumes no obligation to update the
forward-looking information. Actual results may vary significantly from the
results expressed or implied by such forward-looking statements.

Overview

         During 1999 and 2000 significant part of the Company's revenues were
derived from providing Internet access services to individual and businesses.
These revenues are comprised principally of recurring revenues from the
Company's customer base, leased line connections and from various ancillary
services. The Company charges subscription fees, which are billed monthly or
quarterly, in advance, typically pursuant to pre-authorized credit card
accounts. The balance of the Company's revenues were derived from Web
development and hosting services. The Company's business strategy is to increase
the percentage of revenues it derives from Web development and hosting services.

         Monthly subscription service revenue for Internet access is recognized
over the period in which services are provided. Fee revenue for website
development and Internet website presence services are recognized as services
are performed. Deferred revenue represents prepaid access fees by customers,

Acquisitions

         Acquisitions have historically been and will continue to be an
important aspect of the Company's growth strategy. In 1999, the Company
completed the following acquisitions; Webprime, Inc. website design, web
development and software development firm; Channel iShop.com (now
iShopNetworks.com) a company with marketing concept targeting retail businesses;
assets relating to the dial-up internet access customer base and web design and
hosting capabilities of United Computer Specialist, Inc; a customer base of DSL
customers of Lingua Systems, inc. d/b/a Fullwave Networks; a customer base of
additional dial-up customers of Skyhigh information Technologies and Fronthost
LLC, a company in the business of providing web hosting and design services. All
of the acquisitions were accounted for using the purchase method of accounting
with the results of each acquisition included in the consolidated financial
statements from the respective acquisition date. No acquisitions were completed
in the three months ended March 31, 2000 or 1999.


                                       -6-




RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2000 and 1999

Revenues: Revenues increased for the three months ended March 31, 2000 by
$277,797 or 42.3% over the same period of prior. The increase was attributable
to an expanded customer base and increased activities in Web development and
hosting services. The increase in customer base was principally due to 1999
acquisitions.

Cost of Revenues: For the three months ended March 31, 2000 cost of revenues
increased by $193,793 to $592,527. Cost of revenues as a percentage of revenues
for 2000 was 63.4% compared to 60.7% for 1999. The increase in cost of revenues
was due to increased communication and technical personnel expenses incurred to
support the increased customer base and in anticipation of future growth. The
Company expects these costs to increase in absolute dollars as additional
customers and services are added.

Selling, General and Administrative: For the three months ended March 31, 2000,
selling general and administrative expenses increased by $613,562. As a
percentage of revenues, selling, general and administrative expenses increased
from 143.2% in 1999 to 166.3% in 2000. The increase in selling, general and
administrative expenses was attributable to higher payroll and related costs in
2000 to support the increased revenue base and in anticipation of future growth.
In March 2000, the Company had 70 employees compared to 46 in March 1999.
Management anticipates future increases in operating expenses related to
advertising, promotion, payroll, and professional fees.

Depreciation and Amortization: For the three months ended March 31, 2000,
depreciation and amortization increased by $322,027 to $661,463. The increase
was due to amortization arising from 1999 acquisitions and depreciation arising
from additional equipment acquired in the later part of 1999.

Interest Income: Interest income net of interest expense for 2000 was $54,683
compared to net interest income of $9,774 for 1999. The increase in interest
income was due to investment of unutilized proceeds of the Company's public
offering of Series B Convertible Redeemable preferred stock.

Net Loss and net loss applicable to common shares: The Company has incurred
significant losses and anticipates that it will continue to incur losses until
sufficient revenues are generated to offset the substantial up-front
expenditures and operating costs associated with attracting and retaining
additional customers. For the three months ended March 31, 2000 and 1999, the
Company incurred net losses of $1,818,571 and $1,011,895, respectively. There
can be no assurance that the Company will be able to attract and retain a
sufficient number of customers to significantly increase its revenues or ever
achieve profitable operations.

         During the three months ended March 31, 2000, additional dividends
(noncash) related to beneficial conversion feature of the preferred stock of
approximately $5,856,000 were recorded as a result of the conversion price of
the preferred stock being less than the market price of the common stock at the
time of the offering. Net loss after adjusting the additional dividends and
normal dividends for preferred stock resulted in a loss of $7,737,815 applicable
to common shares.


                                       -7-




Liquidity and Capital Resources

         The Company's working capital at March 31, 2000 was $11,254,861
compared to a deficiency of $1,640,344 at December 31, 1999. The increase in
working capital was due to receipt of the proceeds from the public sale of the
Company's Series B Convertible Redeemable preferred stock in February and March
2000.

                  In February and March 2000, the Company sold in a public
offering 1,137,300 shares of Series B Convertible Redeemable preferred stock at
$15 per share and realized net proceeds of approximately $14,404,000. The
preferred stock can be converted into common stock at the rate of 3.4 shares of
common stock for each share of preferred stock. Preferred stockholders are
entitled to receive cumulative annual dividends of $.60 per share payable
semi-annually either in cash or shares of the Company's common stock at the sole
discretion of the Company. Further, preferred stockholders are entitled to
receive a liquidation preference of $15 per share, plus accrued dividends. The
Company has the option to redeem the preferred stock under certain
circumstances.

         The Company's primary capital requirements are to fund acquisition of
customer bases and related Internet businesses, install network equipment, and
working capital. To date, the Company has financed its capital requirements
primarily through issuance of debt and equity securities. The Company currently
does not have any lines of credit. The availability of capital resources is
dependent upon prevailing market conditions, interest rates, and financial
condition of the Company.

         The Company's capital expenditures for 2000 are expected to range
between $240,000 to $300,000. Based on the Company's current plans and
assumptions relating to its strategy, the management anticipates that the cash
on hand, and expected revenues will satisfy the company's capital requirements
through at least the end of 2000.


                                       -8-




 
                                    PART II
                                OTHER INFORMATION



Item 2.           Changes in Securities and Use of Proceeds

                  Recent Sales of Unregistered Securities

                   During the three months ended March 31, 2000, the Company
                  issued (i) 2,500 shares of its common stock upon exercise of
                  options granted under the Company's 1997 Stock Option Plan
                  (ii) 3,330 shares of common stock for services rendered and
                  (iii) 65,961 shares of common stock pursuant to repricing
                  rights. The foregoing securities were issued in private
                  offerings pursuant to an exemption from registration offered
                  by section 4(2) of the Securities Act of 1933.


Item 4.           Submission of Matters to Vote of Security holders.

                  The Company held a special meeting of Stockholders on January
                  6, 2000 at which an Amendment to the Company's Certificate of
                  Incorporation to increase the number of authorized shares of
                  Preferred Stock of the Company from 1,000,000 to 2,000,000 was
                  voted with the following result.

                  FOR                       AGAINST          ABSTAIN
                  2,082,286                 46,400           56,675


Item 6.           Exhibits and Reports on Form 8-K

                  (a)      Exhibits-- Exhibit 27 Financial Data Schedule

                                    Exhibit 3.1 Certificate of Designation with
                                    respect to Series B Convertible Redeemable
                                    preferred stock.

                  (b)      Reports on Form 8-K--None


                                       -9-





                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


May 15, 2000


                        By:  /s/ Stephen J. Cole-Hatchard
                           --------------------------------

                                 Stephen J. Cole-Hatchard
                                 Chief Executive Officer and President



                        By:  /s/ Vasan Thatham
                           --------------------------------
                                 Vasan Thatham
                                 Principal Financial Officer and Vice President


                                      -10-








                                                                     Exhibit 3.1

                      FRONTLINE COMMUNICATIONS CORPORATION

                            -------------------------

                           CERTIFICATE OF DESIGNATION
                                       OF
                         SERIES B CUMULATIVE CONVERTIBLE
                           REDEEMABLE PREFERRED STOCK


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

                            -------------------------

                  The undersigned, the authorized officer of Frontline
Communications Corporation, a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the Delaware General
Corporation Law (the "DGCL") does hereby certify that, in accordance with
Section 141 of the DGCL, the following resolution was duly adopted by the Board
of Directors of the Corporation on February 7, 2000:

                  RESOLVED, that a series of Preferred Stock of the Corporation
is hereby created and the designation, number of shares, powers, preferences,
rights, qualifications, limitations and restrictions thereof (in addition to any
provisions set forth in the Certificate of Incorporation of the Corporation
which are applicable to the preferred stock of all classes and series) are as
follows:

                         SERIES B CUMULATIVE CONVERTIBLE
                           REDEEMABLE PREFERRED STOCK

                  Section 1. Designation and Amount; Stated Capital. The shares
of such series shall be designated as "Series B Cumulative Convertible
Redeemable Preferred
 Stock" (the "Series B Convertible Preferred Stock"), the
par value thereof shall be $.01 per share and the number of shares constituting
the Series B Convertible Preferred Stock shall be 1,250,000. The amount to be
represented in stated capital at all times for each share of Series B
Convertible Preferred Stock shall be $.01.




                  Section 2. Rank. With respect to dividend rights and rights on
liquidation, winding-up and dissolution, the Series B Convertible Preferred
Stock will rank: (i) senior to: (A) the common stock, par value $.01 per share
(the "Common Stock"); (B) all other classes of common stock and (C) each other
class or series of preferred stock of the Corporation now or hereafter
established by the Board of Directors (the "Board of Directors" or the "Board")
of the Corporation, the terms of which do not expressly provide that it ranks
senior to, or on a parity with, the Series B Convertible Preferred Stock as to
dividend and redemption rights and rights on liquidation, winding-up and
dissolution of the Corporation (collectively referred to as "Junior Stock");
(ii) on a parity with each other class or series of preferred stock of the
Corporation established hereafter by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Series B Convertible Preferred Stock as to dividend and redemption rights and
rights on liquidation, winding-up and dissolution (collectively referred to as
"Parity Stock"); and (iii) junior to each class or series of preferred stock of
the Corporation established hereafter by the Board, the terms of which class or
series expressly provide that such class or series will rank senior to the
Series B Convertible Preferred Stock as to dividend and redemption rights or
rights on liquidation, winding-up and dissolution of the Corporation
(collectively referred to as "Senior Stock").

                  Section 3.  Dividends and Distributions.
                              ---------------------------

                  (a) The holders of shares of Series B Convertible Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for such purpose, cumulative dividends
at the rate of $.60 per share of the Series B Convertible Preferred Stock per
annum, and no more. The dividend on each share of Series B Convertible Preferred
Stock shall accrue from the date of its original issuance. The dividend shall be
payable on the last business day of June and December of each year, commencing
on June 30, 2000, to the holders of record as they appear on the stock books of
the Corporation on such record dates, not more than 60 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
The amount of dividends payable per share of Series B Convertible Preferred
Stock for each semi-annual dividend period shall be computed by dividing the
annual dividend amount by two. The amount of dividends payable for the initial
dividend period and any period shorter than a full semi-annual dividend period
shall be computed on the basis of a 365-day year and the actual days elapsed.

                  (b) Any dividends on the Series B Convertible Preferred Stock
payable pursuant to this Section 3 may be paid, at the Corporation's option,
either in cash or by the issuance of shares of Common Stock having an average
daily Closing Price (as hereinafter defined), on the five consecutive trading
days immediately preceding the day prior to the record date for the
determination of


                                     - 2 -



stockholders entitled to receive such dividend, equal to the amount of such
dividends; provided, however, that cash will be paid in lieu of the issuance of
fractional shares of Common Stock; and provided, further, that accrued and
unpaid dividends payable pursuant to Section 4 or 5 will be paid in cash.

                  (c) As used herein, the "Closing Price" for each day for any
security shall be the last reported sales price regular way or, in case no sale
takes place on such day, the average of the closing bid and asked prices regular
way on such day, in either case as reported on the principal national securities
exchange on which such security is listed or quoted (including, for this
purpose, the Nasdaq Stock Market), or, if not so listed or quoted, the average
of the high bid and low asked prices on such day as recorded by the Nasdaq Stock
Market, or, if the Nasdaq Stock Market shall not have reported any bid and asked
prices for such security on such day, the average of the bid and asked prices
for such day as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for such purpose, or, if no such bid and
asked prices can be obtained from any such firm, the fair market value of such
security on such day as determined in good faith by the Board of Directors. Such
determination by the Board of Directors shall be conclusive.

                  (d) No dividends or other distributions, other than dividends
payable solely in shares of Junior Stock, shall be paid or set apart for payment
on, and no purchase, redemption or other acquisition shall be made by the
Corporation of, any shares of Junior Stock unless and until all accrued and
unpaid dividends due on the Series B Convertible Preferred Stock (whether or not
declared) shall have been paid or declared and set apart for payment; provided,
however, that the conversion, exercise or exchange of a security for Junior
Stock shall not be deemed a purchase, redemption or acquisition of the security
so converted or exercised for purposes of this Section 3(d).

                  (e) If at any time any dividend on any Senior Stock shall be
in default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series B Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Stock shall have
been paid or declared and set apart for payment, without interest.


                                     - 3 -



                  (f) No full dividends shall be paid or declared and set apart
for payment on any Parity Stock for any period unless all accrued but unpaid
dividends (whether or not declared) have been, or contemporaneously are, paid or
declared and set apart for such payment on the Series B Convertible Preferred
Stock. No full dividends shall be paid or declared and set apart for payment on
the Series B Convertible Preferred Stock for any period unless all accrued but
unpaid dividends (whether or not declared) have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Stock for all dividend
periods terminating on or prior to the date of payment of such full dividends.
When dividends are not paid in full upon the Series B Convertible Preferred
Stock and the Parity Stock, all dividends paid or declared and set apart for
payment upon shares of Series B Convertible Preferred Stock and the Parity Stock
shall be paid or declared and set apart for payment pro rata, so that the amount
of dividends paid or declared and set apart for payment per share on the Series
B Convertible Preferred Stock and the Parity Stock shall in all cases bear to
each other the same ratio that accrued and unpaid dividends per share on the
shares of Series B Convertible Preferred Stock and the Parity Stock bear to each
other. Any reference to "distribution" contained in this Section 3 shall not be
deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.

                  Section 4. Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series B Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, a sum in cash equal to
$15.00 per share (the "Liquidation Preference"), together with an amount equal
to the dividends accrued and unpaid thereon (whether or not declared) to the
date of final distribution to such holders, without interest, and no more,
before any payment shall be made or any assets distributed to the holders of any
Junior Stock; provided, however, that such rights shall accrue to the holders of
Series B Convertible Preferred Stock only if the Corporation's payments with
respect to the liquidation preference of the holders of Senior Stock are fully
met. After the liquidation preferences of the Senior Stock are fully met, the
entire assets of the Corporation available for distribution shall be distributed
ratably among the holders of the Series B Convertible Preferred Stock and any
Parity Stock in proportion to the respective preferential amounts to which each
is entitled (but only to the extent of such preferential amounts). After payment
in full of the accrued and unpaid dividends and the Liquidation Preference of
the shares of the Series B Convertible Preferred Stock as provided in this
Section 4, the holders of such shares shall not be entitled to any further
participation in any distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with another corporation nor a sale
or transfer of all or part of the Corporation's assets for cash, securities or
other


                                     - 4 -



property will be considered a liquidation, dissolution or winding up of the
Corporation.

                  Section 5.  Optional Redemption.
                              -------------------

                  (a) If at any time after February 11, 2000 (the "Issue Date"),
the Closing Price of the Common Stock shall be $8.80 or more per share for any
15 consecutive trading days, the Corporation, at its option, may at any time
(until the date that is five days after the last trading day used in determining
the Closing Price for such 15 consecutive trading day period) give notice in
accordance with Section 5(c) that it will redeem all, but not less than all, of
the Series B Convertible Preferred Stock (an "Optional Price-Based Redemption")
at a sum in cash equal to the Liquidation Preference per share, together with an
amount equal to the dividends accrued and unpaid thereon (whether or not
declared), pro rata to the date fixed for redemption.

                  (b) At any time after the date that is 180 days after the
Issue Date, the Corporation, at its option, may redeem (an "Optional Time-Based
Redemption") all, but not less than all, of the Series B Convertible Preferred
Stock on any date set by the Board of Directors, at the price per share set
forth below (the "Principal Price"), plus, in each case, an amount in cash per
share equal to the dividends accrued and unpaid thereon (whether or not
declared), pro rata to the date fixed for redemption. The Principal Price for an
Optional Time-Based Redemption shall be as follows:

If the date of the Optional Time-Based
Redemption is:                                The Principal Price Shall Be:

more than 180 days after the Issue
Date and less than 12 months after
the Issue Date................................150% of the Liquidation Preference

12 months or more after the Issue
Date and less than 24 months after
the Issue Date................................125% of the Liquidation Preference

24 months or more after the Issue
Date and less than 36 months after
the Issue Date................................115% of the Liquidation Preference

36 months or more after the Issue
Date and at any time thereafter...............110% of the Liquidation Preference


                                     - 5 -



                  (c) Not more than 60 nor less than 15 days prior to any
redemption date, notice by first class mail, postage prepaid, shall be given to
the holders of record of the Series B Convertible Preferred Stock, addressed to
such stockholders at their last addresses as shown on the books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption, the redemption price, the place or places of payment, the then
effective Conversion Rate (as hereinafter defined), that the right of holders of
shares of Series B Convertible Preferred Stock being redeemed to exercise their
conversion right shall terminate as to such shares at the close of business on
the day that immediately precedes the date that is fixed for redemption
(provided that no default by the Corporation in the payment of the applicable
redemption price shall have occurred and be continuing), that payment will be
made upon presentation and surrender of the shares of Series B Convertible
Preferred Stock, that accrued but unpaid dividends to the date fixed for
redemption (whether or not declared) will be paid on the date fixed for
redemption, and that on and after the redemption date, dividends will cease to
accrue on such shares.

                  (d) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of the
Series B Convertible Preferred Stock receives such notice; and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series B Convertible Preferred Stock. On
or after the date fixed for redemption as stated in such notice, each holder of
the shares shall surrender the certificate (or certificates) evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the applicable redemption price. If,
on the date fixed for redemption, funds necessary for the redemption shall be
available therefor and shall have been irrevocably deposited or set aside, then,
notwithstanding that the certificates evidencing any shares so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called shall cease to accrue after the date fixed for redemption, the
shares shall no longer be deemed outstanding, the holders thereof shall cease to
be stockholders, and all rights whatsoever with respect to the shares so called
for redemption (except the right of the holders to receive the applicable
redemption price, without interest, upon surrender of their certificates
therefor) shall terminate. Any monies deposited by the Corporation pursuant to
the foregoing provision and unclaimed at the end of one year from the date fixed
for redemption shall, to the extent permitted by law, be returned to the
Corporation, after which the holders of shares of Series B Convertible Preferred
Stock so called for redemption shall look only to the Corporation for the
payment thereof.


                                     - 6 -



                  Section 6.  No Sinking Fund.
                              ---------------

                  The shares of Series B Convertible Preferred Stock shall not
be subject to the operation of a purchase, retirement or sinking fund.

                  Section 7.  Conversion.
                              ----------

                  (a) At any time after the Issue Date but not later than the
close of business on the day preceding the date fixed for the redemption of the
Series B Convertible Preferred Stock in any notice of redemption given pursuant
to the provisions of Section 5 hereof if there is no default in payment of the
applicable redemption price, the holders of the Series B Convertible Preferred
Stock may, upon surrender of the certificates therefor, convert any or all of
their shares of Series B Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Each share of Series B Convertible Preferred Stock shall
be convertible at the office of any transfer agent for the Series B Convertible
Preferred Stock, and at such other office or offices, if any, as the Board of
Directors may designate, into that number of fully paid and nonassessable shares
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) as shall be equal to the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Shares of Series B Convertible
Preferred Stock may initially be converted into full shares of Common Stock at
the rate of 3.4 shares of Common Stock for each share of Series B Convertible
Preferred Stock subject to adjustment as hereinafter provided (the "Conversion
Rate"). Notwithstanding anything in this Section 7 to the contrary, no change in
the Conversion Rate shall actually be made until the cumulative effect of the
adjustments called for by this Section 7 since the date of the last change in
the Conversion Rate would change the Conversion Rate by more than 1%. However,
once the cumulative effect would result in such a change, the Conversion Rate
shall actually be changed to reflect all adjustments called for by this Section
7 and not previously made.

                  (b) The right of the holders of Series B Convertible Preferred
Stock to convert their shares shall be exercised by surrendering for such
purpose to the Corporation or its agent, as provided above, certificates
representing shares to be converted, duly endorsed in blank or accompanied by
proper instruments of transfer and a notice of conversion. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery upon conversion of shares of Common
Stock or other securities or property in a name other than that of the holder of
the shares of the Series B Convertible Preferred Stock being converted, and the
Corporation shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons requesting the
issuance thereof shall have paid to the Corporation the


                                     - 7 -



amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.

                  (c) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of Section 7(d). If the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Convertible Preferred Stock on the new
basis.

                  (d) In case of any consolidation or merger of the Corporation
with any other corporation or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, or in the case of any share
exchange, in each case pursuant to which all of the outstanding shares of Common
Stock are converted into other securities, cash or other property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series B Convertible Preferred Stock
then outstanding shall have the right thereafter (in lieu of the right to
convert into Common Stock, which right shall cease) to convert such shares of
Series B Convertible Preferred Stock into the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of Common Stock
into which such shares of Series B Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer or share exchange. If, in connection with any such consolidation,
merger, sale, transfer or share exchange, each holder of shares of Common Stock
is entitled to elect to receive either securities, cash or other property upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Series B Convertible Preferred Stock the right to
elect the securities, cash (other than by the exercise of appraisal rights) or
other property into which the Series B Convertible Preferred Stock held by such
holder shall be convertible after completion of any such transaction on the same
terms and subject to the same conditions applicable to holders of the Common
Stock (including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this Section 7(d) have been complied with. The above
provisions shall


                                     - 8 -



similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

                  (e) Upon the surrender of certificates representing shares of
Series B Convertible Preferred Stock, the person converting shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, and
all rights with respect to the shares surrendered shall forthwith terminate
except the right to receive the Common Stock or other securities, cash or other
property as herein provided.

                  (f) No fractional shares of Common Stock shall be issued upon
conversion of Series B Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash an amount equal to the product of
(i) the Closing Price of a share of Common Stock on the last trading day before
the conversion date and (ii) such fraction of a share.

                  (g) The Conversion Rate shall be adjusted from time to time
under certain circumstances, subject to the provisions of the last two sentences
of Section 7(a), as follows:

                  (i) In case the Corporation shall (A) pay a dividend or make a
         distribution on its Common Stock in shares of its capital stock, (B)
         subdivide its outstanding Common Stock into a greater number of shares,
         (C) combine the shares of its outstanding Common Stock into a smaller
         number of shares, or (D) issue by reclassification of its Common Stock
         any shares of its capital stock, then in each such case the Conversion
         Rate in effect immediately prior thereto shall be proportionately
         adjusted so that the holder of any Series B Convertible Preferred Stock
         thereafter surrendered for conversion shall be entitled to receive, to
         the extent permitted by applicable law, the number and kind of shares
         of capital stock of the Corporation which it would have owned or have
         been entitled to receive after the happening of such event had such
         Series B Convertible Preferred Stock been converted immediately prior
         to the record date for such event (or if no record date has been
         established in connection with such event, the effective date for such
         action). An adjustment pursuant to this Section 7(g)(i) shall become
         effective immediately after the record date in the case of a stock
         dividend or distribution and shall become effective immediately after
         the effective date in the case of a subdivision, combination, or
         reclassification.

                  (ii) In case the Corporation shall issue rights or warrants to
         all holders of the Common Stock entitling such holders to subscribe for
         or purchase Common Stock on the record date referred to below at a
         price per


                                     - 9 -



         share less than the average daily Closing Prices of the Common Stock on
         the 30 consecutive trading days commencing 45 business days before such
         record date (the "Current Market Price"), then in each such case the
         Conversion Rate in effect on such record date shall be adjusted in
         accordance with the formula


                  c1 = C x     O + N
                             ----------
                             O  + N x P
                                  -----
                                    M

where

         c1 = the adjusted Conversion Rate.

         C = the current Conversion Rate (immediately preceding the issuance of
             such rights or warrrants).

         O = the number of shares of Common Stock outstanding on the record
             date.

         N = the number of additional shares of Common Stock issuable pursuant
             to the exercise of such rights or warrants.

         P = the exercise price per share of such rights or warrants.

         M = the Current Market Price per share of Common Stock on such record
             date.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all of such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Rate then in effect shall be readjusted
appropriately.

                  (iii) In case the Corporation shall, by dividend or otherwise,
         distribute to all holders of its Junior Stock or Parity Stock evidences
         of its indebtedness or assets (including cash or securities, but
         excluding any warrants or subscription rights referred to in Section
         7(g)(ii) above, any ordinary dividend paid in cash out of the retained
         earnings of the Corporation and any dividend


                                     - 10 -



or distribution referred to in Section 7(g)(i) above), then in each such case
the Conversion Rate then in affect shall be adjusted in accordance with the
formula

                  c1 = C x     M

                               M-F

where

         c1 = the adjusted Conversion Rate.

         C = the current Conversion Rate (immediately preceding such
             distribution).

         M = the Current Market Price per share of Common Stock with respect to
             the record date mentioned below.

         F = the aggregate amount of such cash dividend and/or the fair market
             value on such record date of the assets or securities to be
             distributed, divided by the number of shares of Common Stock
             outstanding on the record date. In the case of securities, the fair
             market value shall be the average of the daily Closing Price for
             the 30 trading days preceding such record date (or such fewer
             number of days for which there shall be a recognized trading
             market); provided, however, that if there shall not be any
             recognized trading market for such securities until after such
             record date, the fair market value shall be the average of the
             daily Closing Price for the 10 trading days following such record
             date. In all other cases, the Board of Directors shall determine
             such fair market value, which determination shall be conclusive.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.

                  (iv) All calculations hereunder shall be made to the nearest
         cent or to the nearest 1/100 of a share, as the case may be.

                  (v) If at any time as a result of an adjustment made pursuant
         to Section 7(g)(i), the holder of any Series B Convertible Preferred
         Stock thereafter surrendered for conversion shall become entitled to
         receive securities, cash, or assets other than Common Stock, the number
         or amount of such securities or property so receivable upon conversion
         shall be subject to adjustment from time to time in a manner and on
         terms as nearly equivalent as practicable to the provisions with
         respect to the Common Stock contained in Section 7(g)(i) to (iv),
         inclusive, above.


                                     - 11 -



                  (h) Except as otherwise provided above in this Section 7, no
adjustment in the Conversion Rate shall be made in respect of any conversion for
share distributions or dividends theretofore declared and paid or payable on the
Common Stock.

                  (i) Whenever the Conversion Rate is adjusted as herein
provided, the Corporation shall send to each transfer agent for the Series B
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series B Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq Stock Market if the Series B
Convertible Preferred Stock or Common Stock is admitted for quotation thereon, a
statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or Assistant
Secretary stating the adjusted Conversion Rate determined as provided in this
Section 7, and any adjustment so evidenced, given in good faith, shall be
binding upon all stockholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation will give notice by mail to the holders of
record of Series B Convertible Preferred Stock, which notice shall be made
within 45 days after the effective date of such adjustment and shall state the
adjustment and the Conversion Rate. Notwithstanding the foregoing notice
provisions, failure by the Corporation to give such notice or a defect in such
notice shall not affect the binding nature of such corporate action of the
Corporation.

                  (j) Whenever the Corporation shall propose to take any of the
actions specified in Section 7(d) or in Section 7(g)(i), (ii) or (iii) which
would result in any adjustment in the Conversion Rate under this Section 7, the
Corporation shall use its best efforts to cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series B Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.

                  (k) Notwithstanding any other provision of this Section 7, no
adjustment in the Conversion Rate need be made (i) for a transaction referred to
in Section 7(g)(i), (ii) or (iii) if holders of Series B Convertible Preferred
Stock are to participate in the transaction or distribution on a basis and with
notice that the Board of Directors reasonably determines such transaction to be
fair to the holders of the Series B Convertible Preferred Stock and appropriate
in light of the basis on which holders of Common Stock or, in the case of a
transaction referred to in Section 7(g)(iii), holders of Junior Stock
participate in the transaction; (ii) for sales


                                     - 12 -



of Common Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to 90% of
the fair market value of the Common Stock at the time of such purchase, or
pursuant to any plan adopted by the Corporation for the benefit of its
employees, directors or consultants; (iii) for a change in par value of the
Common Stock not involving a subdivision or combination described in Section
7(g)(i)(B) or 7(g)(i)(C); or (iv) after the Series B Convertible Preferred Stock
becomes convertible solely into cash by reason of an adjustment pursuant to
Section 7(d) hereof.

                  Section 8.  Voting Rights.
                              -------------

                  (a) The holders of Series B Convertible Preferred Stock will
not have any voting rights except as set forth in this Section 8 or as otherwise
from time to time required by law.

                  (b) The affirmative vote or consent of the holders of at least
a majority of the outstanding shares of the Series B Convertible Preferred
Stock, voting separately as a class, will be required for (i) the issuance of
any Senior Stock or Parity Stock or (ii) any amendment, alteration or repeal of
this Certificate of Designation if such amendment, alteration or repeal
materially and adversely affects the powers, preferences or special rights of
the Series B Convertible Preferred Stock. The creation, authorization or
issuance of any shares of any Junior Stock or the increase or decrease in the
amount of authorized capital stock of any class, including preferred stock,
shall not require the consent of holders of the Series B Convertible Preferred
Stock and shall not be deemed to affect adversely the rights, preferences,
privileges or voting rights of shares of Series B Convertible Preferred Stock.
Such right of the holders of Series B Convertible Preferred Stock to vote as
hereinabove provided may be exercised at any annual meeting or at any special
meeting called for such purpose as hereinafter provided or at any adjournment
thereof.

                  (c) If dividends on the Series B Convertible Preferred Stock
are in arrears and unpaid for six or more dividend periods (whether or not
consecutive) (a "Dividend Default"), then the number of directors constituting
the Board of Directors of the Corporation will be increased by two and the
holders of the then outstanding shares of Series B Convertible Preferred Stock
(together with the holders of Parity Stock upon which like rights have been
conferred and are exercisable), voting separately and as a class, shall have the
right and power to elect such two additional directors. The occurrence of a
Dividend Default is a "Voting Rights Triggering Event." A Voting Rights
Triggering Event shall not be deemed to have occurred if at the time of such
event there are less than 25,000 shares of Series B Convertible Preferred Stock
then outstanding.

                  (d) The voting rights set forth in Section 8(c) will continue
until such time as (x) in the case of a default in the payment of dividends, all
dividends


                                     - 13 -



in arrears on the Series B Convertible Preferred Stock are paid in full or (y)
there are fewer than 25,000 shares of Series B Convertible Preferred Stock
outstanding, at which time the term of any directors elected pursuant to the
provisions of Section 8(c) shall terminate and the number of directors
constituting the Board of Directors shall be decreased by two (until the
occurrence of any subsequent Voting Rights Triggering Event). At any time after
voting power to elect directors shall have become vested and be continuing in
the holders of Series B Convertible Preferred Stock pursuant to Section 8(c), or
if vacancies shall exist in the offices of directors elected by such holders, a
proper officer of the Corporation may, and upon the written request of the
holders of record of at least 25% of the shares of Series B Convertible
Preferred Stock then outstanding addressed to the Secretary of the Corporation
shall, call a special meeting of the holders of Series B Convertible Preferred
Stock; provided, however, that no such special meeting shall be called if the
next annual meeting of stockholders of the Corporation is to be held within 60
days after the voting power to elect directors shall have become vested, in
which case such meeting shall be deemed to have been called for such next annual
meeting. If such meeting shall not be called by a proper officer of the
Corporation within 20 days after personal service to the Secretary of the
Corporation at its principal executive offices, then the holders of record of at
least 25% of the outstanding shares of Series B Convertible Preferred Stock may
designate in writing one of their members to call such meeting at the expense of
the Corporation, and such meeting may be called by the person so designated upon
the notice required for the annual meetings of stockholders of the Corporation
and shall be held at the place for holding the annual meetings of stockholders.
Any holder of Series B Convertible Preferred Stock so designated shall have, and
the Corporation shall provide, access to the lists of holders of Series B
Convertible Preferred Stock to be called pursuant to the provisions hereof. If
no special meeting of the holders of Series B Convertible Preferred Stock is
called as provided in this Section 8(d), then such meeting shall be deemed to
have been called for the next annual meeting of stockholders of the Corporation
or special meeting of the holders of any other capital stock of the Corporation.

                  (e) At any meeting held for the purposes of electing directors
at which the holders of Series B Convertible Preferred Stock (together with the
holders of Parity Stock upon which like rights have been conferred and are
exercisable) shall have the right, voting together as a separate class, to elect
directors as aforesaid, the presence in person or by proxy of the holders of at
least a majority in voting power of the outstanding shares of Series B
Convertible Preferred Stock (and such Parity stock) shall be required to
constitute a quorum thereof.

                  (f) Any vacancy occurring in the office of a director elected
by the holders of Series B Convertible Preferred Stock (and such Parity Stock)
may be filled by the remaining director elected by the holders of Series B
Convertible Preferred Stock (and such Parity Stock) unless and until such
vacancy shall be filled by the holders of Series B Convertible Preferred Stock
(and such Parity Stock).


                                     - 14 -



                  (g) In any case in which the holders of Series B Convertible
Preferred Stock shall be entitled to vote pursuant to this Section 8 or pursuant
to Delaware law, each holder of Series B Convertible Preferred Stock entitled to
vote with respect to such matters shall be entitled to one vote for each share
of Series B Convertible Preferred Stock held.

                  Section 9. Outstanding Shares. All shares of Series B
Convertible Preferred Stock shall be deemed outstanding except: (i) from the
date fixed for redemption pursuant to Section 5 hereof, all shares of Series B
Convertible Preferred Stock which have been so called for redemption under
Section 5, if funds necessary for such redemption of such shares are available;
(ii) from the date of surrender of certificates representing shares of Series B
Convertible Preferred Stock for conversion into Common Stock, all shares of
Series B Convertible Preferred Stock converted into Common Stock; and (iii) from
the date of registration of transfer, all shares of Series B Convertible
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.

         IN WITNESS WHEREOF, Frontline Communications Corporation has caused
this certificate to be signed by Stephen J. Cole-Hatchard, its Chief Executive
Officer this 10th day of February, 2000.

                                            FRONTLINE COMMUNICATIONS CORPORATION


                                             By /s/ Stephen J. Cole-Hatchard
                                                ----------------------------
                                                Stephen J. Cole-Hatchard
                                                Chief Executive Officer


                  (a) Any vacancy occurring in the office of a director elected
by the holders of Series B Convertible Preferred Stock (and such Parity Stock)
may be filled by the remaining director elected by the holders of Series B
Convertible Preferred Stock (and such Parity Stock) unless and until such
vacancy shall be filled by the holders of Series B Convertible Preferred Stock
(and such Parity Stock).

                  (b) In any case in which the holders of Series B Convertible
Preferred Stock shall be entitled to vote pursuant to this Section 8 or pursuant
to Delaware law, each holder of Series B Convertible Preferred Stock entitled to
vote with respect to such matters shall be entitled to one vote for each share
of Series B Convertible Preferred Stock held.

                  Section 10. Outstanding Shares. All shares of Series B
Convertible Preferred Stock shall be deemed outstanding except: (i) from the
date fixed for redemption pursuant to Section 5 hereof, all shares of Series B
Convertible Preferred Stock which have been so called for redemption under
Section 5, if funds necessary for such redemption of such shares are available;
(ii) from the date of surrender of certificates representing shares of Series B
Convertible Preferred Stock for conversion into Common Stock, all shares of
Series B Convertible Preferred Stock converted into Common Stock; and (iii) from
the date of registration of transfer, all shares of Series B Convertible
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.

         IN WITNESS WHEREOF, Frontline Communications Corporation has caused
this certificate to be signed by Stephen J. Cole-Hatchard, its Chief Executive
Officer this 10th day of February, 2000.

                                            FRONTLINE COMMUNICATIONS CORPORATION


                                             By /s Stephen J. Cole-Hatchard
                                                ---------------------------
                                                Stephen J. Cole-Hatchard
                                                Chief Executive Officer



                                     - 15 -



  


5 The schedule contains summary financial information extracted from the Company's financial statements included in Form 10-QSB and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 13,350,865 0 362,946 90,000 0 13,758,445 3,522,705 702,304 20,346,198 2,503,585 1,008,631 0 8,784 54,362 16,770,836 16,833,982 0 934,654 592,527 2,215,381 0 0 (38,616) (1,815,571) 0 (1,815,571) 0 0 0 (7,737,815) (1.73) (1.73)