Document:

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                                                                    Exhibit 4.11

                            MGC COMMUNICATIONS, INC.

                   [__]% SERIES D CONVERTIBLE PREFERRED STOCK
                           CERTIFICATE OF DESIGNATION

                 Pursuant to Sections 78.195 and 78.1955 of the
                 General Corporation Law of the State of Nevada

         MGC Communications, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Nevada, does hereby
certify that, pursuant to authority conferred upon the board of directors of the
Company (the "Board of Directors") by its Articles of Incorporation, as amended
(the "Articles"), and pursuant to the provisions of Sections 78.195 and 78.1955
of the General Corporation Law of the State of Nevada, said Board of Directors,
by unanimous written consent or at a meeting duly called and held, adopted the
following resolution (the "Resolution") which remains in full force and effect:

         RESOLVED that pursuant to the authority vested in the Board of
Directors by its Articles, the Board of Directors does hereby create, authorize
and provide for the issuance of [___]% Series D Cumulative Convertible Preferred
Stock, par value $0.001 per share, with a liquidation preference of $50.00 per
share, consisting of [3,450,000] shares having the designations, preferences,
relative, participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are set forth in this
Resolution as follows:

         (a) Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Company a series of Preferred Stock
designated as the[ ___]% Series D Cumulative Convertible Preferred Stock (the
"Series D Preferred Stock"). The number of shares constituting the Series D
Preferred Stock shall be [3,450,000]. The liquidation preference of the Series D
Preferred Stock shall be $50.00 per share (the "Liquidation Preference").
Capitalized terms used herein but not defined shall have the meanings assigned
to them in paragraph (l).

         (b) Rank. The Series D Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior to
all classes of Common Stock and to each other class of Capital Stock of the
Company or series of Preferred Stock of the Company established hereafter by the
Board of Directors of the Company, the terms of which do not expressly provide
that such class or series ranks senior to, or on a parity with, the Series D
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the
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Company (collectively referred to, together with all classes of Common Stock of
the Company, as "Junior Stock"); (ii) on a parity with the Company's Series B
Preferred Stock and Series C Preferred Stock and each class of Capital Stock of
the Company or series of Preferred Stock of the Company established hereafter by
the Board of Directors of the Company, the terms of which expressly provide that
such class or series will rank on a parity with the Series D Preferred Stock as
to dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to, together with the Company's Series B Preferred Stock
and Series C Preferred Stock, as "Parity Stock"); and (iii) junior to each class
of Capital Stock of the Company or series of Preferred Stock of the Company
established hereafter by the Board of Directors of the Company, the terms of
which expressly provide that such class or series will rank senior to the Series
D Preferred Stock as to dividend rights or rights on liquidation, winding-up and
dissolution of the Company (collectively referred to as "Senior Stock").

         (c)      Dividends.

                  (i) Subject to the rights of any holders of Senior Stock or
Parity Stock, Holders of the outstanding shares of Series D Preferred Stock will
be entitled to receive, when, as and if declared by the Board of Directors of
the Company, out of funds legally available therefor, dividends on each share of
the Series D Preferred Stock at a rate per annum equal to [____]% of the
Liquidation Preference of such share payable quarterly (each such quarterly
period being herein called a "Dividend Period"). All dividends on the Series D
Preferred Stock, to the extent accrued, shall be cumulative, whether or not
earned or declared, on a daily basis from the last date through which dividends
have been paid or, if no dividends have been paid, from the Issue Date, and
shall be payable quarterly in arrears on [_________, _________, __________ and
_________] of each year (each a "Dividend Payment Date"), commencing on
[__________], 2000 to Holders of record as they appear on the stock register of
the Company at the close of business on the Record Date (as defined hereinafter)
immediately preceding the relevant Dividend Payment Date. No interest or sum of
money or other property or securities in lieu of interest will be payable in
respect of any accumulated and unpaid dividends. "Record Date" means, with
respect to a Dividend Payment Date, the date established by the Board of
Directors as the record date therefor, which date shall, in any event, be a date
that is not more than 60 calendar days nor less than 15 calendar days before
such Dividend Payment Date.

                  Any dividend on the Series D Preferred Stock shall be, at the
option of the Company, payable (A) in cash or (B) through the delivery of a
number of shares of the Company's Common Stock (dividends paid or payable in
Common Stock are hereinafter referred to as "Dividend Common Stock") equal to
the total dividend amount divided by the applicable Discounted Current Market
Value (as defined below) of the Common Stock. No fractional shares of Common
Stock shall be issued as a dividend on the Series D Preferred Stock. Instead,
the Company shall pay to the Transfer Agent for distribution to the Holders as
provided herein cash in lieu of the fractional portion of one share which may
result from the computation of the number of shares of Dividend Common Stock as
set forth in the first sentence of this paragraph

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in an amount equal to the same fraction of the last sales price of a share of
Common Stock on the Nasdaq National Market (or the principal national securities
exchange or other securities market on which the Common Stock is then being
traded) on the fourth Trading Day immediately preceding the Dividend Payment
Date. The Transfer Agent is hereby authorized to aggregate any fractional shares
of Common Stock that would otherwise be distributable as dividends, and to sell
them at the best available price and distribute the proceeds to the Holders
thereof in proportion to their respective interests. The Company shall reimburse
the Transfer Agent for any expenses incurred with respect to such sale,
including brokerage commissions. If the Company is precluded from paying cash
for fractional shares, it shall pay cash to the Holders for the fractional
shares when it becomes legally and contractually able to pay such cash.

                  The "Discounted Current Market Value" of the Common Stock with
respect to a Dividend Payment Date means the product of (x) 95% and (y) the
"Market Average Value" relating to such Dividend Payment Date. The "Market
Average Value" shall equal the average of the daily closing prices of the Common
Stock for the five consecutive Trading Days ending on (and including) the fourth
Trading Day preceding such Dividend Payment Date. The closing price for each
Trading Day will be the last sales price on such date on the Nasdaq National
Market (or the principal securities exchange or other securities market on which
the Common Stock is then being traded). "Trading Day" means any day on which the
Common Stock is traded for any period on the Nasdaq National Market (or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded).

                  (ii) All dividends paid with respect to shares of the Series D
Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the
Holders entitled thereto.

                  (iii) Dividends shall accrue whether or not the Company has
earnings or profits, whether or not there are funds legally available for the
payment of such dividends and whether or not dividends are declared. Dividends
shall accumulate to the extent that such dividends are not paid on the Dividend
Payment Date to which they relate. No dividend whatsoever shall be declared or
paid upon, or any sum set apart for the payment of dividends upon, any
outstanding share of the Series D Preferred Stock with respect to any Dividend
Period unless all dividends for all preceding Dividend Periods have been
declared and paid or declared and a sufficient sum set apart for the payment of
such dividend, upon all outstanding shares of Series D Preferred Stock. No
dividend will be declared or paid on any Parity Stock unless full cumulative
dividends have been paid on the Series D Preferred Stock for all prior Dividend
Periods; provided, however, if accrued dividends on the Series D Preferred Stock
for all prior Dividend Periods have not been paid in full, then any dividend
declared for any dividend period on any Parity Stock will be declared ratably in
proportion to accrued and unpaid dividends on the Series D Preferred Stock and
such Parity Stock and if dividends on any Parity Stock are due and payable and
have not been paid in full, then any dividend declared for any Dividend Period
on the Series D Preferred Stock will be declared ratably in proportion to
accrued and unpaid dividends on the Series D Preferred Stock and such Parity
Stock. The Company shall take all

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actions required or permitted under the General Corporate Law of the State of
Nevada to permit the payment of dividends on the Series D Preferred Stock.

                  (iv) The Company will not (A) declare, pay or set apart funds
for the payment of any dividend or other distribution with respect to any Junior
Stock or (B) redeem, purchase or otherwise acquire for consideration any Junior
Stock through a sinking fund or otherwise, unless (1) all accrued and unpaid
dividends with respect to the Series D Preferred Stock at the time such
dividends are payable have been paid or funds have been set apart for payment of
such dividends and (2) sufficient funds have been paid or set apart for, or a
sufficient number of shares of Common Stock have been reserved for, the payment
of the dividend for the current Dividend Period with respect to the Series D
Preferred Stock. Notwithstanding anything in this Certificate of Designation to
the contrary, the Company may declare and pay dividends on Parity Stock which
are payable solely in additional shares of or by the increase in the liquidation
value of Parity Stock or Junior Stock or on Junior Stock which are payable in
additional shares of or by the increase in the liquidation value of Junior
Stock, as applicable, or repurchase, redeem or otherwise acquire Junior Stock in
exchange for Junior Stock and Parity Stock in exchange for Parity Stock or
Junior Stock.

                  (v) Dividends for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
Holders of record on a date established by the Board of Directors as the record
date therefor, which date shall be no more than 15 Business Days and no less
than one Business Day prior to the date of payment thereof, as such date may be
fixed by the Board of Directors of the Company.

                  (vi) Dividends payable on the Series D Preferred Stock for any
period other than a full Dividend Period shall be computed on the basis of a
360-day year consisting of twelve 30-day months. If a Dividend Payment Date is
not a Business Day, payment of dividends shall be made on the next succeeding
Business Day and dividends accruing for the intervening period shall be paid on
the next succeeding Dividend Payment Date.

         (d)      Liquidation Preference.

                  (i) Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, and subject to the rights of holders of Senior
Stock and Parity Stock, each Holder of Series D Preferred Stock shall be
entitled to be paid, out of the assets of the Company available for distribution
to its stockholders, an amount equal to the Liquidation Preference for each
share of Series D Preferred Stock held by such Holder, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
(whether declared or undeclared) thereon to the date fixed for liquidation,
dissolution or winding-up, before any distribution is made on any Junior Stock.
If, upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, there are not sufficient assets to pay the amounts payable with
respect to the Series D Preferred Stock and all Parity Stock in full, all
accumulated and unpaid dividends on the Series

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D Preferred Stock and all Parity Stock will be paid in full and then the Holders
of Series D Preferred Stock and the holders of Parity Stock will share ratably
(in proportion to the other amounts that would be payable on such shares of
Series D Preferred Stock and the Parity Stock, respectively, if all amounts
payable thereon had been paid in full) in any distribution of assets of the
Company to which each is entitled. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, there are not sufficient
assets to pay all accumulated and unpaid dividends in full, then the Holders of
the Series D Preferred Stock and the holders of Parity Stock will share ratably
(in proportion to the respective accumulated and unpaid dividends) in any
distribution of assets of the Company to which each is entitled. After payment
of the full amount of the Liquidation Preference of the outstanding shares of
Series D Preferred Stock (plus any accumulated and unpaid dividends), the
Holders of shares of Series D Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company.

                  (ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.

         (e)      Redemption.

                  (i) (A) Mandatory Redemption. On [_______], 2012 (the
"Mandatory Redemption Date"), the Company shall be required to redeem, subject
to the legal availability of funds therefor, all outstanding shares of Series D
Preferred Stock at a price in cash equal to the Liquidation Preference thereof,
plus accumulated and unpaid dividends, if any, whether declared or undeclared,
to the Mandatory Redemption Date (the "Mandatory Redemption Price"). The Company
shall not be required to make sinking fund payments with respect to the Series D
Preferred Stock. The Company shall take all actions required or permitted under
the laws of the State of Nevada to permit such redemption.

                           (B)  Provisional Redemption.  The Series D Preferred
Stock may be redeemed, in whole or in part, at the option of the Company at a
redemption price of [_]% of the Liquidation Preference, plus accumulated and
unpaid dividends, if any, whether declared or undeclared, to the date fixed for
such redemption (the "Provisional Redemption Date") (the foregoing amounts,
together with the Additional Payment, as hereinafter defined, being the
"Provisional Redemption Price"), on or after [________], 2002, but prior to
[________], 2003, if the closing price of the Common Stock equals or exceeds
150% of the Conversion Price for at least 20 Trading Days within any 30 Trading
Day period (such redemption, a "Provisional Redemption"). In the event that the
Company undertakes a Provisional Redemption, the Holders of shares of Series D
Preferred Stock that are called for Provisional Redemption will also receive a
payment (the "Additional Payment") in an amount equal to the present value
(calculated using

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the bond equivalent yield on U.S. Treasury notes or bills having a term nearest
in length to that of the Additional Period (as hereinafter defined) as of the
day immediately preceding the date on which a notice of Provisional Redemption
is mailed to the Holders) of the aggregate amount of the dividends that would
thereafter have been payable on the Series D Preferred Stock (whether or not
such dividends have been declared) for the period from the Provisional
Redemption Date to [________ __], 2003 (such period being referred to as the
"Additional Period").

                           The Provisional Redemption Price shall be, at the
option of the Company, payable (v) in cash, (w) through the delivery of a number
of shares of Common Stock equal to the Provisional Redemption Price divided by
the Provisional Redemption Value (as defined below) of the Common Stock or (x)
any combination of (v) and (w). The "Provisional Redemption Value" of the Common
Stock with respect to a Provisional Redemption Date means the product of (y) 95%
and (z) the average of the daily closing prices of the Common Stock for the five
consecutive Trading Days ending on (and including) the fourth Trading Day
preceding such Provisional Redemption Date. The closing price for each Trading
Day will be the last sales price on such date on the Nasdaq National Market (or
the principal securities exchange or other securities market on which the Common
Stock is then being traded). No fractional shares of Common Stock shall be
issued in connection with the payment of the Provisional Redemption Price.
Instead, the Company shall pay to the Transfer Agent for distribution to the
Holders as provided herein cash in lieu of the fractional portion of one share
which may result from the computation of the number of shares of Common Stock to
be paid as set forth in the first two sentences of this paragraph in an amount
equal to the same fraction of the last sales price of a share of Common Stock on
the Nasdaq National Market (or the principal national securities exchange or
other securities market on which the Common Stock is then being traded) on the
fourth Trading Day immediately preceding the Provisional Redemption Date. The
Transfer Agent is hereby authorized to aggregate any fractional shares of Common
Stock that would otherwise be distributed in connection with the payment of the
Provisional Redemption Price, and to sell them at the best available price and
distribute the proceeds to the Holders thereof in proportion to their respective
interests. The Company shall reimburse the Transfer Agent for any expenses
incurred with respect to such sale, including brokerage commissions. If the
Company is precluded from paying cash for fractional shares, it shall pay cash
to the Holders for the fractional shares when it becomes legally and
contractually able to pay such cash.

         The Company may elect to pay the Provisional Redemption Price by
delivering shares of Common Stock only if:

                  (i) The shares of Common Stock of the Company to be issued as
payment of the Provisional Redemption Price (x) shall not require registration
under any federal securities law before such shares may be freely transferable
without being subject to any transfer restrictions under the Securities Act or,
if such registration is required, such registration shall be completed and shall
become effective prior to the Provisional Redemption Date, and (y) shall not
require registration with or approval of any governmental authority under any
state law or any other

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federal law before such shares may be validly issued or delivered or if such
registration is required or such approval must be obtained, such registration
shall be completed or such approval shall be obtained prior to the Provisional
Redemption Date;

                  (ii) The shares of Common Stock of the Company to be issued
are, or shall have been, approved for listing on the Nasdaq National Market or
the New York Stock Exchange or listed on another national securities exchange,
in any case, prior to the Provisional Redemption Date; and

                  (iii) All shares of Common Stock of the Company which may be
issued as payment of the Provisional Redemption Price will be issued out of the
Company's authorized but unissued Common Stock and, will upon issue, be duly and
validly issued and fully paid and non-assessable and free of any preemptive or
similar rights.

                           (C) In the case of any partial Provisional
Redemption, selection of the Series D Preferred Stock for redemption will be
made by the Company in compliance with the requirements of the principal
national securities exchange, if any, on which the Series D Preferred Stock is
listed, or if the Series D Preferred Stock is not listed on a national
securities exchange, on a pro rata basis, by lot or such other method as the
Company, in its sole discretion, shall deem fair and appropriate; provided,
however, that the Company may redeem all the shares held by Holders of fewer
than 100 shares (or all of the shares held by the Holders who would hold less
than 100 shares as a result of such redemption) as may be determined by the
Company.

                           (D) In the case of a Mandatory Redemption Date or
Provisional Redemption Date falling after a Record Date and prior to the related
Dividend Payment Date, the Holders of the Series D Preferred Stock at the close
of business on such Record Date will be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date, notwithstanding the
redemption of such shares following such Record Date. Except as provided for in
the preceding sentence, no payment or allowance will be made for accrued
dividends on any shares of Series D Preferred Stock called for redemption.

                  (ii) Procedure for Redemption. (A) On and after the Mandatory
Redemption Date or Provisional Redemption Date, as the case may be, unless the
Company defaults in the payment of the applicable redemption price, dividends
will cease to accumulate on shares of Series D Preferred Stock called for
redemption and all rights of Holders of such shares will terminate except for
the right to receive the Mandatory Redemption Price or Provisional Redemption
Price, as the case may be, without interest.

                           (B)      With respect to a redemption pursuant to
paragraph (e)(i) (A) or (B), the Company will send a written notice of
redemption by first class mail to each Holder of record of shares of Series D
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the
Mandatory Redemption Date or Provisional Redemption Date, as applicable, at its

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registered address (the "Redemption Notice"); provided, however, that neither
the failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any shares of Series D Preferred
Stock to be redeemed except as to the Holder or Holders to whom the Company has
failed to give said notice or except as to the Holder or Holders whose notice
was defective. The Redemption Notice shall state:

                           (1) that the redemption is pursuant to paragraph
(e)(i) (A) or (B) hereof, as applicable;

                           (2) the Mandatory Redemption Price or Provisional
Redemption Price, as applicable and, in the case of a Provisional Redemption,
whether the Provisional Redemption Price will be paid in cash, through the
delivery of shares of Common Stock, or a combination thereof (and, if a
combination thereof, stating the percentages of the total Provisional Redemption
Price that will be paid in cash and in shares of Common Stock);

                           (3) in the case of a Provisional Redemption as to
which all or a portion of the Provisional Redemption Price is to be paid through
the delivery of shares of Common Stock, that the determination of the number of
shares of Common Stock to be delivered shall be calculated as set forth in
paragraph (e)(i)(B);

                           (4) whether all or less than all the outstanding
shares of the Series D Preferred Stock are to be redeemed and the total number
of shares of the Series D Preferred Stock being redeemed;

                           (5) the Mandatory Redemption Date or Provisional
Redemption Date, as applicable;

                           (6) that the Holder is to surrender to the Company,
in the manner, at the place or places designated, his certificate or
certificates representing the shares of Series D Preferred Stock to be redeemed;
and

                           (7) that dividends on the shares of the Series D
Preferred Stock to be redeemed shall cease to accumulate on such Mandatory
Redemption Date or Provisional Redemption Date, as the case may be, unless the
Company defaults in the payment of the Mandatory Redemption Price or Provisional
Redemption Price, as the case may be.

                           (C) Each Holder of Series D Preferred Stock shall
surrender the certificate or certificates representing such shares of Series D
Preferred Stock to the Company, duly endorsed (or otherwise in proper form for
transfer, as determined by the Company), in the manner and at the place
designated in the Redemption Notice, and the full Mandatory Redemption Price or
Provisional Redemption Price, as applicable, for such shares shall be payable in
cash and/or shares of Common Stock, as the case may be, on the Mandatory

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Redemption Date or Provisional Redemption Date, as applicable, to the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired. In the event that
less than all of the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.

                           (D) The Company shall comply with any securities laws
and regulations, to the extent such laws and regulations are applicable, in
connection with any mandatory or provisional redemption.

         (f)      Voting Rights.

                           (A) The Holders of Series D Preferred Stock shall not
be entitled to vote on any matter required or permitted to be voted upon by the
stockholders of the Company, except as otherwise required under Nevada law or as
hereinafter provided.

                           (B) (1) If (x) dividends on the Series D Preferred
Stock are in arrears and unpaid for six or more Dividend Periods (whether or not
consecutive), (y) the Company has not redeemed in cash all of the outstanding
shares of Series D Preferred Stock on the Mandatory Redemption Date, or (z)
after the occurrence of a Non-Stock Change of Control, the Company fails to
offer to repurchase or convert the Series D Preferred Stock in accordance with
the terms of paragraph (g)(H)(2) or fails to repurchase or convert any shares of
Series D Preferred Stock accepting such offer on the Repurchase Date (each a
"Voting Rights Triggering Event"), then the Holders of the then outstanding
shares of Series D 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 to serve on
the Board of Directors the lesser of (x) two additional members to the Board of
Directors or (y) that number of directors constituting at least 25% of the
members of the Board of Directors, and the number of members of the Board of
Directors shall, subject to paragraph (f)(B)(5), be immediately and
automatically increased by such number.

                           (2) The voting rights set forth in paragraph
(f)(B)(1) above will continue until such time as all dividends in arrears on the
Series D Preferred Stock are paid in full or all Voting Rights Triggering Events
are cured or waived, at which time the term of any directors elected pursuant to
the provisions of paragraph (f)(B)(1) above (subject to the right of holders of
any other Preferred Stock to elect directors pursuant to the terms of the
instruments governing such Preferred Stock) shall terminate forthwith and the
number of directors constituting the Board of Directors shall be decreased by
such number (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 D Preferred Stock
(together with the holders of Parity Stock upon which like rights have been
conferred and are exercisable) pursuant to paragraph (f)(B)(1)

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hereof, or if vacancies shall exist in the offices of directors elected by such
holders, a proper officer of the Company may, and upon the written request of
the Holders of record of at least 25% of the shares of Series D Preferred Stock
then outstanding or the holders of 25% of the shares of Parity Stock then
outstanding upon which like rights have been conferred and are exercisable
addressed to the secretary of the Company shall, call a special meeting of the
Holders of Series D Preferred Stock and the holders of such Parity Stock for the
purpose of electing the directors which such holders are entitled to elect
pursuant to the terms hereof; provided, however, that no such special meeting
shall be called if the next annual meeting of stockholders of the Company is to
be held less than 60 days and more than 30 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 Company within 20 days after personal service
to the secretary of the Company at its principal executive offices, then the
Holders of record of at least 25% of the outstanding shares of Series D
Preferred Stock or the holders of 25% of the shares of Parity Stock upon which
like rights have been conferred and are exercisable may designate in writing one
of their members to call such meeting at the expense of the Company, and such
meeting may be called by the person so designated upon the notice required for
the annual meetings of stockholders of the Company and shall be held at the
place for holding the annual meetings of stockholders. Any holder of Series D
Preferred Stock or such Parity Stock so designated shall have, and the Company
shall provide, access to the lists of Holders of Series D Preferred Stock and
the holders of such Parity Stock to be called pursuant to the provisions hereof.
If no special meeting of the Holders of Series D Preferred Stock and the holders
of such Parity Stock is called as provided in this paragraph (f)(B), then such
meeting shall be deemed to have been called for the next annual meeting of
stockholders of the Company or special meeting of the holders of any other
Capital Stock of the Company.

                           (3) At any meeting held for the purposes of electing
directors at which the Holders of Series D 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 D Preferred
Stock (and such Parity Stock) shall be required to constitute a quorum thereof.

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

                           (5) If an event occurs at any time that results in
the holders of any Parity Stock (other than the holders of the Series B
Preferred Stock or the Series C Preferred Stock) having voting rights to elect
directors to the Board of Directors, then Holders of Series D Preferred Stock
shall, whether or not such event otherwise constitutes a Voting Rights

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Triggering Event pursuant to paragraph (f)(B)(1), have the voting rights set
forth in paragraphs (f)(B)(1) and (f)(B)(2), and such event shall be deemed (for
purposes of this paragraph (f) only) to constitute a Voting Rights Triggering
Event. In addition, in the event that during a time in which directors elected
by the Holders of Series D Preferred Stock pursuant to this paragraph (f)(B) are
serving on the Board of Directors ("Previously-Elected Directors") an event
occurs that results in holders of Parity Stock (other than the holders of the
Series B Preferred Stock or the Series C Preferred Stock) having voting rights
to elect (voting together with the Holders of Series D Preferred Stock) at least
two directors to the Board of Directors, the Holders of Series D Preferred Stock
shall vote together with the holders of such Parity Stock to elect such new
directors, and upon the election of the new directors the Previously-Elected
Directors shall (unless such Previously-Elected Directors are elected as new
directors) cease to serve on the Board of Directors.

                           (C) (1) So long as any shares of the Series D
Preferred Stock are outstanding, the Company will not (i) authorize, create (by
way of reclassification or otherwise), increase the authorized amount of or
issue any class or series of Senior Stock or any obligation or security
convertible into, exchangeable for or evidencing the right to purchase shares of
any class or series of Senior Stock, or (ii) amend the provisions of
paragraph(g)(H) hereof, without the affirmative vote or consent of Holders of at
least two-thirds of the shares of Series D Preferred Stock then outstanding,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting. However, without the consent of any Holder of Series D Preferred Stock,
the Company may increase the authorized number of shares of, issue additional
shares of or create additional classes of Common Stock, increase the authorized
number of shares of Preferred Stock or issue a series of Parity Stock or Junior
Stock.

                           (2) So long as any shares of the Series D Preferred
Stock are outstanding, the Company will not (i) amend this Certificate of
Designation, either directly or indirectly, or through merger or consolidation
with another entity, so as to affect adversely the specified rights,
preferences, privileges or voting rights of Holders of shares of Series D
Preferred Stock or to increase or decrease the aggregate number of authorized
shares of Series D Preferred Stock or (ii) waive any Voting Right Triggering
Event or compliance with any provision hereof without the affirmative vote or
consent of Holders of at least a majority of the issued and outstanding shares
of Series D Preferred Stock, voting or consenting, as the case may be, as one
class, given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting.

                           (3) So long as any shares of the Series D Preferred
Stock are outstanding, without the consent of each Holder affected, an amendment
or waiver of the Articles or of this Certificate of Designation may not (with
respect to any shares of Series D Preferred Stock held by a non-consenting
Holder) (i) alter the voting rights with respect to the Series D Preferred Stock
(other than the waiver of a Voting Rights Triggering Event as provided in

                                       11

<PAGE>   12
paragraph (f)(C)(2)) or reduce the number of shares of Series D Preferred Stock
whose holders must consent to an amendment, supplement or waiver; (ii) reduce
the Liquidation Preference of or alter the provisions with respect to the
redemption of the Series D Preferred Stock; (iii) reduce the rate of or change
the time for payment of dividends on any share of Series D Preferred Stock; (iv)
make any share of Series D Preferred Stock payable in any form other than that
stated in this Certificate of Designation; (v) after the occurrence of a Change
of Control, amend the provisions of paragraph (g)(H) hereof; or (vi) make any
change in the amendment and waiver provisions of this paragraph (f)(C)(3).

                           (4) Notwithstanding the foregoing, the Company when
authorized by resolutions of its Board of Directors may amend or supplement this
Certificate of Designation without the consent of any Holder to (i) cure any
ambiguity, defect or inconsistency or (ii) make any other change provided that
such amendments or supplements shall not adversely affect the interests of the
Holders.

                           (5) Except as set forth in paragraph (f)(C)(1) or (2)
above, (x) the creation, authorization or issuance of any shares of any Junior
Stock or Parity Stock, including the designation of a series of Preferred Stock,
or (y) 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
Series D Preferred Stock and shall not be deemed to affect adversely the
interests, rights, preferences, privileges or voting rights of shares of Series
D Preferred Stock.

                           (D) In any case in which the Holders of Series D
Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Nevada law, each Holder of Series D Preferred Stock entitled to vote
with respect to such matters shall be entitled to one vote for each share of
Series D Preferred Stock held; provided that any shares of Series D Preferred
Stock that are held by the Company or by any Person controlled by the Company
shall not entitle the Holders thereof to any votes with respect thereto. For
purposes of this provision, "controlled by," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting equity securities, by agreement or otherwise.

         (g)      Conversion.

                           (A) (1) Except as set forth in paragraph (g)(A)(2)
below, at any time after the Issue Date, at the option of the Holder thereof,
any share of Series D Preferred Stock may be converted into such number of fully
paid and nonassessable shares of Common Stock (calculated as to each conversion
to the nearest 1/10 of a share), as equals the Liquidation Preference divided by
the Conversion Price, determined as hereinafter provided, in effect at the time
of conversion. In case a share of Series D Preferred Stock is called for
redemption, such conversion right in respect of the share of Series D Preferred
Stock so called shall expire at the

                                       12

<PAGE>   13
close of business on the Mandatory Redemption Date or Provisional Redemption
Date, as applicable, unless the Company defaults in making the payment due upon
redemption.

                           (2) On or after [_________], 2003, if the closing
price of the Common Stock equals or exceeds 140% of the then current Conversion
Price, as hereinafter provided, for at least 20 Trading Days within any 30
consecutive Trading Day period, then the Company shall have the right, at its
option, to cancel the conversion rights of the Holders of the Series D Preferred
Stock described in the paragraph above (the "Conversion Rights"). The closing
price for each Trading Day will be the last sales price on such date on the
Nasdaq National Market (or the principal national securities market or exchange
on which the Common Stock is then being traded). The Company may exercise such
right by issuing a press release for publication on the Dow Jones News Service
(or a comparable news service) prior to the opening of business on the second
Trading Day after any period in which the condition in the preceding sentence
has been met. The press release shall announce that (i) the Company is canceling
the Conversion Rights of the Series D Preferred Stock and (ii) the date such
Conversion Rights will expire (the "Expiration Date"). The press release shall
also provide the Conversion Price and the closing price of the Common Stock,
each as of the close of business of the previous Trading Day. The Company must
notify the Holders of the Series D Convertible Preferred Stock of the expiration
of the Conversion Rights by first-class mail not more than four business days
after the issuance of the press release, provided, however, that neither the
failure to give such notice nor any deficiency therein shall affect the validity
of the procedure for the elimination of conversion rights except with respect to
the Holder or Holders to whom the Company failed to give such notice or whose
notice was defective. The Company will select the date upon which the Conversion
Rights will expire, which date will be not less than 30 nor more that 60 days
after the date of the issuance of the press release. The Conversion Rights of
the Holders of the Series D Convertible Preferred Stock will terminate at the
close of business of the Expiration Date.

                           (3) The price at which Common Stock shall be
delivered upon conversion (herein called the "Conversion Price") shall be
initially $[________] per share of Common Stock. The Conversion Price shall be
adjusted in certain instances as provided in paragraph (g)(D) or paragraph
(g)(H).

                           (B) In order to exercise the conversion privilege
provided for in paragraph (g)(A)(1), the Holder of any share of Series D
Preferred Stock to be converted shall surrender the certificate for such share
of Series D Preferred Stock, duly endorsed or assigned to the Company or in
blank, at the office of the Transfer Agent or at any office or agency of the
Company maintained for that purpose, accompanied by written notice to the
Company in the form of Exhibit B that the Holder elects to convert such share of
Series D Preferred Stock or, if fewer than all the shares of Series D Preferred
Stock represented by a single share certificate are to be converted, the number
of shares represented thereby to be converted. Such notice shall also contain
the office or the address to which the Company should deliver shares of Common
Stock issuable upon conversion (and any other payments or certificates related
thereto).

                                       13

<PAGE>   14
                  Holders of shares of Series D Preferred Stock at the close of
business on a Record Date will be entitled to receive the dividend payable on
such shares on the corresponding Dividend Payment Date notwithstanding the
conversion of such shares following such Record Date and prior to such Dividend
Payment Date. However, shares of Series D Preferred Stock surrendered for
conversion during the period between the close of business on any Record Date
and the opening of business on the corresponding Dividend Payment Date (except
shares converted after the issuance of a notice of redemption with respect to a
redemption date during such period, which will be entitled to such dividend)
must be accompanied by payment of an amount equal to the dividend payable on
such shares on such Dividend Payment Date. A Holder of shares of Series D
Preferred Stock on a Record Date who (or whose transferee) tenders any such
shares for conversion into shares of Common Stock on such Dividend Payment Date
will receive the dividend payable by the Company on such shares of Series D
Preferred Stock on such date, and the converting Holder need not include payment
of the amount of such dividend upon surrender of shares of Series D Preferred
Stock for conversion. Except as provided above, the Company will make no payment
or allowance for unpaid dividends, whether or not in arrears, on converted
shares.

                  Shares of Series D Preferred Stock shall be deemed to have
been converted immediately prior to the close of business on the date such
shares of Series D Preferred Stock are surrendered for conversion in accordance
with the foregoing provisions, and at such time the rights of the Holders of
such shares of Series D Preferred Stock as Holders shall cease, and the person
or persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver to such office or agency as the converting
Holder shall have designated in its written notice to the Company a certificate
or certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in paragraph (g)(C) hereof.

                   In the case of any conversion of fewer than all the shares of
Series D Preferred Stock evidenced by a certificate, upon such conversion the
Company shall execute and the Transfer Agent shall authenticate and deliver to
the Holder thereof (at the address designated by such Holder), at the expense of
the Company, a new certificate or certificates representing the number of
unconverted shares of Series D Preferred Stock.

                           (C) No fractional shares of Common Stock shall be
issued upon the conversion of a share of Series D Preferred Stock. If more than
one share of Series D Preferred Stock shall be surrendered for conversion at one
time by the same Holder, the number of full shares of Common Stock which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate shares of Series D Preferred Stock so surrendered. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any

                                       14

<PAGE>   15
share of Series D Preferred Stock, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the last
sales price of a share of Common Stock on the Nasdaq National Market (or the
principal national securities exchange or other securities market on which the
Common Stock is then being traded) on the last Trading Day immediately preceding
the day of conversion.

                           (D) The Conversion Price shall be adjusted from time
to time by the Company as follows, each a "Conversion Price Adjustment Event"
(the variables have the definitions set forth in paragraph (g)(D)(7) below):

                           (1) If the Company shall make any redemption payment
or payment of a dividend or other distribution payable in shares of Common Stock
to all holders of any class of Capital Stock of the Company, other than the
issuance of shares of Common Stock in connection with the payment (1) in
redemption for, of dividends on, or upon the conversion of, the Series D
Preferred Stock, (2) in redemption for, of dividends on, or upon the conversion
of the Series B Preferred Stock, Series C Preferred Stock or any Parity Stock in
accordance with the Certificates of Designation governing such securities, or
(3) to all Holders of the Series D Preferred Stock based upon the number of
shares of Common Stock into which the Series D Preferred Stock is then
convertible, then the Conversion Price in effect immediately prior to such event
shall be adjusted pursuant to the formula: X/Y multiplied by CP=ACP.

                           (2) If the Company shall issue to all holders of
shares of Common Stock rights, options or warrants entitling them to subscribe
for or purchase shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock at an exercise price that is less than
the closing price of a share of Common Stock on the Nasdaq National Market (or
the principal national securities exchange or other securities market on which
the Common Stock is then being traded) on the last Trading Day immediately
preceding the date of issuance of such rights, options or warrants, then the
Conversion Price in effect immediately prior to such event shall be adjusted
pursuant to the formula: X/X+(U((ClosePrice- EP)/ClosePrice)) multiplied by
CP=ACP; provided, however, that no adjustment will be made with respect to such
a distribution if the Holder of shares of the Series D Preferred Stock would be
entitled to receive such rights, options or warrants at any time on or before
the conversion at any time of shares of the Series D Preferred Stock into Common
Stock and provided, further, that if such rights, options or warrants are only
exercisable upon the occurrence of certain triggering events, then the
Conversion Price will not be adjusted until such triggering events occur. If any
options, warrants or other rights of the nature described in this paragraph
(g)(D)(2) ("Rights") expire without exercise or conversion, the Conversion Price
will be readjusted to the Conversion Price which would otherwise be in effect
had the adjustment made upon the issuance of such Rights been made on the basis
of delivery of only the number of shares of Common Stock actually delivered upon
the exercise or conversion of such Rights.

                                       15

<PAGE>   16
                           (3) In the case of any subdivision, combination or
reclassification of the Common Stock, then the Conversion Price in effect
immediately prior to such event shall be adjusted pursuant to the formula: X/Y
multiplied by CP=ACP.

                           (4) If the Company shall make any distribution
consisting exclusively of cash (excluding any cash distributed in a transaction
for which paragraph (g)(D)(12) below is applicable) to all holders of shares of
Common Stock (which distribution is not also being made to the Holders of Series
D Preferred Stock based on the number of shares of Common Stock into which the
Series D Preferred Stock is then convertible) in an aggregate amount that,
combined together with (1) all other such cash distributions made within the
then-preceding 12 months in respect of which no adjustment has been made and (2)
any cash and the fair market value (as determined by the Board of Directors in
good faith pursuant to a resolution) of other consideration paid or payable in
respect of any tender offer by the Company or any of its subsidiaries for shares
of Common Stock concluded within the then-preceding 12 months in respect of
which no adjustment has been made, exceeds 15% of the Company's Pre-Distribution
Market Capitalization (as defined in paragraph (g)(D)(7) below), then the
Conversion Price in effect immediately prior to such event shall be adjusted
pursuant to the formula: CP- (CP multiplied by ((Cash-15% PDMC)/PDMC))=ACP.
There will be no adjustment to the Conversion Price if (Cash-15% PDMC) is less
than or equal to zero.

                           (5) In the case of the completion of a tender or
exchange offer made by the Company or any of its subsidiaries for shares of
Common Stock (i) that involves an aggregate consideration that, together with
(1) any cash and other consideration payable in a tender or exchange offer by
the Company or any of its subsidiaries for shares of Common Stock expiring
within the then-preceding 12 months in respect of which no adjustment has been
made and (2) the aggregate amount of any such cash distributions referred to in
paragraph (g)(D)(4) above to all holders of shares of Common Stock within the
then-preceding 12 months in respect of which no adjustments have been made,
exceeds 15% of the Company's Post-Tender Market Capitalization (as defined in
paragraph (g)(D)(7) below) and (ii) where the tender offer price or exchange
offer price per share of Common Stock is greater than the closing price of the
Common Stock on the Trading Day immediately succeeding the Expiration Time, then
the Conversion Price in effect immediately prior to such event shall be adjusted
pursuant to the formula: CP multiplied by ((EX multiplied by TotSh)/(TPur +
(NetSh multiplied by EX))) = ACP. There will be no adjustment to the Conversion
Price if the tender offer price or exchange offer price per share of Common
Stock is less than or equal to EX or if TOff is not greater than 15% of PTMC.

                           (6) If the Company shall make a distribution to all
holders of Common Stock (which distribution is not also being made to the
Holders of the Series D Preferred Stock based on the number of shares of Common
Stock into which the Series D Preferred Stock is then convertible) consisting of
(i) evidences of indebtedness, (ii) shares of Capital Stock of the Company other
than Common Stock, or (iii) assets other than cash, including securities, but
excluding those dividends and those issuances of rights, options, warrants and
other

                                       16

<PAGE>   17
distributions for which an adjustment to the Conversion Price as referred to
above is applicable (other than in connection with a merger effected solely to
reflect a change in the jurisdiction of incorporation of the Company), then the
Conversion Price in effect immediately prior to such event shall be adjusted
pursuant to the formula: CP-(Value/#Sh)=ACP.

                           (7) Variables. In the preceding descriptions, the
variables have the following definitions:

                  "U" equals the number of shares of Common Stock underlying all
rights, options or warrants issued to holders of Common Stock pursuant to
paragraph (g)(D)(2) above entitling such holders to subscribe for or purchase
shares of Common Stock or securities convertible into or exchangeable for shares
of Common Stock issued in the Conversion Price Adjustment Event;

                  "X" equals the total number of shares of Common Stock
outstanding immediately prior to the Conversion Price Adjustment Event
(excluding unexercised options, warrants or rights);

                  "Y" equals the total number of shares of Common Stock
outstanding immediately after the Conversion Price Adjustment Event (excluding
unexercised options, warrants or rights);

                  "Cash" equals the sum of (a) any distribution consisting
exclusively of cash (excluding any cash distributed upon a merger or
consolidation to which paragraph (g)(D)(12) below applies) to all holders of
shares of Common Stock (which distribution is not also being made to the Holders
of Series D Preferred Stock based upon the number of shares of Common Stock into
which the Series D Preferred Stock is then convertible) and (b) all other such
all-cash distributions made within the then-preceding 12 months in respect of
which no adjustment has been made and (c) any cash and the fair market value of
other consideration (as determined by the Board of Directors in good faith and
pursuant to a resolution) paid or payable in respect of any tender offer by the
Company or any of its subsidiaries for shares of any class of Common Stock
concluded within the then-preceding 12 months in respect of which no adjustment
has been made pursuant to paragraph (g)(D)(4) or (5);

                  "ClosePrice" means, with respect to any date, the last sales
price of a share of Common Stock on the Nasdaq National Market (or the principal
national securities exchange or other securities market on which the Common
Stock is then being traded) on the last Trading Day immediately preceding such
date;

                  "EP" equals the exercise price or other consideration to be
paid by the holder upon the conversion or exchange of "U";

                                       17

<PAGE>   18
                  "EX" equals the closing price of the Common Stock on the
Trading Day immediately succeeding the Expiration Time;

                  "Expiration Time" means, with respect to a tender or exchange
offer giving rise to a Conversion Price Adjustment Event pursuant to paragraph
(g)(D)(5), the last time that tenders of shares of Common Stock could have been
made pursuant to the terms of such tender or exchange offer (as the same may be
amended);

                  "NetSh" means a number of shares of Common Stock equal to (a)
TotSh minus (b) Purchased Shares;

                  "PDMC" or "Pre-Distribution Market Capitalization" means, with
respect to a Conversion Price Adjustment Event pursuant to paragraph (g)(D)(4),
an amount equal to the product of (a) the ClosePrice of the Common Stock as of
the record date with respect to the distribution constituting such Conversion
Price Adjustment Event multiplied by (b) the number of shares of Common Stock
outstanding at the close of business on the record date for such distribution;

                  "PTMC" or "Post-Tender Market Capitalization" means, with
respect to a Conversion Price Adjustment Event pursuant to paragraph (g)(D)(5),
an amount equal to the product of (a) EX multiplied by (b) TotSh;

                  "Purchased Shares" means, in connection with a tender or
exchange offer giving rise to a Conversion Price Adjustment Event pursuant to
paragraph (g)(D)(5), the number of shares of Common Stock accepted (up to any
maximum number of such shares specified in the terms of such tender or exchange
offer) and validly tendered and not withdrawn as of the Expiration Time;

                  "#Sh" equals the number of shares of Common Stock receiving
the distribution contemplated in paragraph (g)(D)(6);

                  "TOff" equals the sum of (a) the aggregate consideration paid
by the Company or any of its subsidiaries for shares of Common Stock in a tender
or exchange offer made by the Company or any of its subsidiaries for shares of
Common Stock and (b) any cash or other consideration payable in a tender or
exchange offer by the Company or any of its subsidiaries for shares of Common
Stock expiring within the then- preceding 12 months in respect of which no
adjustment has been made and (c) the aggregate amount of any such all-cash
distributions referred to in paragraph (g)(D)(4) to all holders of shares of
Common Stock within the then-preceding 12 months in respect of which no
adjustments have been made;

                  "TotSh" equals the total number of shares of Common Stock
outstanding (including any shares tendered in the tender or exchange offer) at
the Expiration Time;

                                       18
<PAGE>   19

                  "TPur" equals the product of (a) the fair market value (as
determined by the Board of Directors in good faith pursuant to a resolution) of
the consideration payable for one share of Common Stock under the terms of the
tender or exchange offer giving rise to a Conversion Price Adjustment Event
pursuant to paragraph (g)(D)(5) multiplied by (b) the number of Purchased
Shares;

                  "Value" equals the aggregate fair market value of the
distribution described in paragraph (g)(D)(6), as determined in good faith by
the Board of Directors of the Company pursuant to a resolution;

                  "CP" equals the Conversion Price immediately prior to the
Conversion Price Adjustment Event;

                  "ACP" equals the Conversion Price immediately after the
Conversion Price Adjustment Event.

                  An adjustment made pursuant to paragraph (g)(D) shall become
effective: (A) in the case of a Conversion Price Adjustment Event described in
paragraph (g)(D)(1), (2), (4) or (6), immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to participate in such event; or (B) in the case of a Conversion Price
Adjustment Event described in paragraph (g)(D)(3), the close of business on the
day upon which such corporate action becomes effective; or (C) in the case of a
Conversion Price Adjustment Event described in paragraph (g)(D)(5), the close of
business on the Trading Day immediately succeeding the Expiration Time of such
tender offer or exchange offer.

                           (8) De Minimis Adjustments. No adjustment in the
Conversion Price shall be required (a) unless such adjustment would require an
increase or decrease of at least 1% in such price or (b) with respect to rights,
options or warrants issued pursuant to the Company's employee benefit plans;
provided, however, that any adjustments which by reason of paragraph
(g)(D)(8)(a) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
(g)(D)(8) shall be made by the Company and shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be. No adjustment need
be made for a change in the par value or no par value of the Common Stock.

                           (9) Reductions in Conversion Price. The Company shall
be entitled to make such reductions in the Conversion Price, in addition to
those required by this paragraph (g)(D), as the Company in its discretion shall
determine to be advisable in order that any stock dividends, subdivision of
shares, distribution of rights to purchase stock or securities or distribution
of securities convertible into or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable to the recipients. In the event
the Company elects to make such a reduction in the Conversion Price, the Company
will comply with the

                                       19
<PAGE>   20
requirements of Rule 14e-1 under the Exchange Act, and any other securities laws
and regulations thereunder if and to the extent that such laws and regulations
are applicable in connection with the reduction of the Conversion Price.
Whenever the Conversion Price is so decreased, the Company shall mail to Holders
of record of shares of Series D Preferred Stock a notice of the decrease at
least 15 days before the date the decreased Conversion Price takes effect, and
such notice shall state the decreased Conversion Price.

                           (10) Decreases in Conversion Price. The Company from
time to time may decrease the Conversion Price by an amount determined by the
Board of Directors and described in a notice as hereinafter provided for any
period of time if the period is at least 20 days and if the decrease is
irrevocable during such period. Whenever the Conversion Price is so decreased,
the Company shall mail to Holders of record of shares of Series D Preferred
Stock a notice of the decrease at least 15 days before the date the decreased
Conversion Price takes effect, and such notice shall state the decreased
Conversion Price and the period it will be in effect.

                           (11) Distribution of Rights, Options or Warrants. In
the event that, after the issuance of the Series D Preferred Stock, the Company
distributes rights, options or warrants (other than those referred to in
paragraph (g)(D)(2) above and other than a distribution of rights, options or
warrants being made pro rata to the Holders of the Series D Preferred Stock
based upon the number of shares of Common Stock into which the Series D
Preferred Stock is then convertible) pro rata to all holders of shares of Common
Stock, so long as any such rights, options or warrants have not expired or been
redeemed by the Company, the Holder of any shares of Series D Preferred Stock
surrendered for conversion will be entitled to receive upon such conversion, in
addition to the shares of Common Stock then issuable upon such conversion (the
"Conversion Shares"), a number of rights, options or warrants to be determined
as follows:

                              (a) if such conversion occurs on or prior to the
date (a "Distribution Date") for the distribution to the holders of rights,
options or warrants of separate certificates evidencing such rights, options or
warrants, the same number of rights, options or warrants to which a holder of a
number of shares of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions applicable to the rights, options or warrants; and

                              (b) if such conversion occurs after such
Distribution Date, the same number of rights, options or warrants to which a
holder of the number of shares of Common Stock into which such Series D
Preferred Stock was convertible immediately prior to such Distribution Date
would have been entitled on such Distribution Date in accordance with the terms
and provisions of and applicable to the rights, options or warrants.

                           (12) Merger or Consolidation. (a) In case of:

                                       20
<PAGE>   21
                              (i) any merger or consolidation of the Company
with or into another Person; or

                              (ii) any sale, transfer or other disposition to
another Person of all or substantially all of the assets of the Company computed
on a consolidated basis; or

                              (iii) any statutory exchange of securities with
another Person, other than in connection with a merger or acquisition, (any of
the events described in this paragraph (g)(D)(12)(a) being referred to as a
"Transaction"), there will be no adjustment to the Conversion Price except as
required by paragraph (g)(H).

                   Upon the occurrence of a Transaction (other than (x) a
consolidation or merger in which the Company is the resulting or continuing
Person and which does not result in any reclassification or exchange of Common
Stock outstanding immediately prior to the merger or consolidation for cash,
securities or other property of another Person or (y) the sale, transfer,
assignment or distribution of shares of Capital Stock or assets to a subsidiary
of the Company) and subject to any adjustment to the Conversion Price required
by paragraph (g)(H)(1), each share of Series D Preferred Stock then outstanding
shall, without the consent of any Holder of Series D Preferred Stock (except as
expressly required by applicable law), become convertible only into the kind and
amount of shares of stock or other securities (of the Company or another
issuer), cash or other property receivable upon such Transaction by a holder of
the number of shares of Common Stock into which such share of Series D Preferred
Stock could have been converted immediately prior to the effective date of such
Transaction, assuming such holder of Common Stock failed to exercise his rights
of election, if any, as to the kind of amount of securities, cash or other
property receivable upon such Transaction.

                              (b) The provisions of this paragraph (g)(D)(12)
similarly shall apply to successive Transactions. The provisions of this
paragraph (g)(D)(12), and the provisions of paragraph (g)(H) to the extent
applicable, shall be the sole right of Holders of Series D Preferred Stock in
connection with any Transaction and, except as expressly provided by applicable
law and paragraph (f), such Holders shall have no separate vote thereon.

                           (13) Notice of Adjustment. Whenever the Conversion
Price is adjusted as provided in this paragraph (g)(D) or paragraph (g)(H), the
Company shall promptly file with the Transfer Agent an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Promptly after delivery
of such certificate, the Company shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the date on
which such adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to each Holder of Series D Preferred Stock at
such Holder's last address appearing on the register of holders maintained for
that purpose within 20 days of the effective date of such

                                       21
<PAGE>   22
adjustment. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.

                           (14) Deferred Issuance. In any case in which this
paragraph (g)(D) provides that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event issuing to the Holder of any share of Series D Preferred Stock
converted after such record date and before the occurrence of such event the
additional Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment.

                           (15) Treasury Stock. For purposes of this paragraph
(g)(D), the number of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions of Common
Stock. The Company shall not pay any dividend or make any distribution on Common
Stock held in the treasury of the Company.

                           (E) In case:

                           (1) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than in cash out of
its earned surplus; or

                           (2) the Company shall authorize the granting to all
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of Capital Stock of any class or of any other rights; or

                           (3) of any reclassification of the Common Stock of
the Company (other than a subdivision or combination of its outstanding Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or the sale
or transfer of all or substantially all the assets of the Company; or

                           (4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then the Company shall cause to be filed with the Transfer Agent and at each
office or agency maintained for the purpose of conversion of the Series D
Preferred Stock, and shall cause to be mailed to all Holders at their last
addresses as they shall appear in the register of Holders maintained for that
purpose, at least 20 days (or 10 days in any case specified in clause (1) or (2)
above) prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be

                                       22
<PAGE>   23
entitled to such dividend, distribution, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up. Failure to give the
notice required by this paragraph (g)(E) or any defect therein shall not affect
the legality or validity of any dividend, distribution, right, warrant,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up, or the vote upon any such action.

                           (F) The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
shares of Common Stock (or out of its authorized shares of Common Stock held in
the treasury of the Company), for the purpose of effecting the conversion of the
Series D Preferred Stock, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding shares of Series D Preferred
Stock.

                           (G) The Company will pay any and all document, stamp
or similar issue or transfer taxes that may be payable in respect of the issue
or delivery of Common Stock on conversion of the Series D Preferred Stock
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the share of Series D Preferred Stock or the shares of Series D Preferred Stock
to be converted, and no such issue or delivery shall be made unless and until
the Person requesting such issue has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company that such tax has
been paid.

                           (H) (1) Notwithstanding any other provision in the
preceding paragraphs to the contrary, if any Common Stock Change of Control
occurs, then the Conversion Price in effect shall be adjusted immediately after
such Common Stock Change of Control as described below and, each share of the
Series D Preferred Stock shall be convertible solely into common stock of the
kind received by holders of Common Stock as the result of such Common Stock
Change of Control. For purposes of calculating any adjustment to be made
pursuant to this paragraph, immediately after a Common Stock Change of Control,
the Conversion Price in effect immediately prior to such Common Stock Change of
Control, but after giving effect to any prior adjustments, shall be adjusted by
multiplying such Conversion Price by a fraction, of which the numerator shall be
the Purchaser Stock Price (as defined in this paragraph (g)(H)(3)) and the
denominator shall be the Applicable Price (as defined in this paragraph
(g)(H)(3)); provided, however, that in the event of a Common Stock Change of
Control in which (x) 100% of the value of the consideration received by a holder
of Common Stock is common stock of the successor, acquirer, or other third party
(and cash, if any, is paid only with respect to any fractional interest in such
common stock resulting from such Common Stock Change of Control) and (y) all of
the Common Stock will have been exchanged for, converted into, or

                                       23
<PAGE>   24
acquired for, common stock (and cash only with respect to fractional interests)
of the successor, acquirer or other third party, the Conversion Price in effect
immediately prior to such Common Stock Change of Control shall thereupon be
adjusted by multiplying such Conversion Price by a fraction, of which the
numerator shall be one (1) and the denominator shall be the number of shares of
common stock of the successor, acquirer, or other third party received by a
holder of one share of Common Stock as a result of such Common Stock Change of
Control.

                           (2) If a Non-Stock Change of Control occurs, each
Holder of Series D Preferred Stock may require the Company to redeem all such
Holder's shares of Series D Preferred Stock at a price (the "Repurchase Price")
equal to 100% of the Liquidation Preference, plus accumulated and unpaid
dividends, if any, whether declared or undeclared, to the date fixed for such
redemption (the "Repurchase Date"); provided, however, that no Holder of Series
D Preferred Stock shall have the right to require the redemption or repurchase
of Series D Preferred Stock prior to the date on which the Company's Senior
Secured Notes mature or such earlier date on which the Senior Secured Notes have
been paid in full (the "Debt Maturity Date").

                  Following a Non-Stock Change of Control prior to the Debt
Maturity Date, if the Holders of Series D Preferred Stock, but for the proviso
set forth in the immediately preceding paragraph of this paragraph (H)(2), would
have the right to require the Company to redeem all such Holder's shares of
Series D Preferred Stock, then each Holder of Series D Preferred Stock may,
instead of requiring the Company to redeem or repurchase such Holder's shares of
Series D Preferred Stock, require the Company to convert such Holder's shares of
Series D Preferred Stock into Common Stock on the Repurchase Date as provided
below.

                  Subject to the conditions set forth below, the Repurchase
Price shall be, at the option of the Company, payable (v) in cash, (w) through
the delivery of a number of shares of Common Stock equal to the Repurchase Price
divided by the Discounted Stock Value or (x) any combination of (v) and (w). The
"Discounted Stock Value" means the product of (y) 95% and (z) the average of the
daily closing prices of the Common Stock for the five consecutive Trading Days
ending on (and including) the fourth Trading Day preceding such Repurchase Date.
The closing price for each Trading Day will be the last sales price on such date
on the Nasdaq National Market (or the principal securities exchange or other
securities market on which the Common Stock is then being traded). No fractional
shares of Common Stock shall be issued in connection with the payment of the
Repurchase Price. Instead, the Company shall pay to the Transfer Agent for
distribution to the Holders as provided herein cash in lieu of the fractional
portion of one share which may result from the computation of the number of
shares of Common Stock as set forth in the first two sentences of this paragraph
in an amount equal to the same fraction of the last sales price of a share of
Common Stock on the Nasdaq National Market (or the principal national securities
exchange or other securities market on which the Common Stock is then being
traded) on the fourth Trading Day immediately preceding the Repurchase Date. The
Transfer Agent is hereby authorized to aggregate any fractional shares of Common
Stock that would otherwise be distributable in connection with the payment of
the Repurchase

                                       24
<PAGE>   25
Price, and to sell them at the best available price and distribute the proceeds
to the Holders thereof in proportion to their respective interests. The Company
shall reimburse the Transfer Agent for any expenses incurred with respect to
such sale, including brokerage commissions. If the Company is precluded from
paying cash for fractional shares, it shall pay cash to the Holders for the
fractional shares when it becomes legally and contractually able to pay such
cash.

                  The Company may elect to pay the Repurchase Price by
delivering shares of Common Stock only if:

                  (i) The shares of Common Stock of the Company to be issued as
payment of the Repurchase Price (x) shall not require registration under any
federal securities law before such shares may be freely transferable without
being subject to any transfer restrictions under the Securities Act or, if such
registration is required, such registration shall be completed and shall become
effective prior to the Repurchase Date, and (y) shall not require registration
with or approval of any governmental authority under any state law or any other
federal law before such shares may be validly issued or delivered or if such
registration is required or such approval must be obtained, such registration
shall be completed or such approval shall be obtained prior to the Repurchase
Date;

                  (ii) The shares of Common Stock of the Company to be issued
are, or shall have been, approved for listing on the Nasdaq National Market or
the New York Stock Exchange or listed on another national securities exchange,
in any case, prior to the Repurchase Date; and

                  (iii) All shares of Common Stock of the Company which may be
issued as payment of the Repurchase Price will be issued out of the Company's
authorized but unissued Common Stock and, will upon issue, be duly and validly
issued and fully paid and non-assessable and free of any preemptive or similar
rights.

                  In the event the Company is restricted from repurchasing
shares of the Series D Preferred Stock on the Repurchase Date pursuant to the
terms of its outstanding indebtedness, Holders of the Series D Preferred Stock
may convert each share of Series D Preferred Stock into a number of shares of
Common Stock equal to the Repurchase Price divided by the Discounted Stock
Value.

         In connection with the conversion of shares of Series D Preferred Stock
on the Repurchase Date, the Company shall apply and use its best efforts to have
the shares of Common Stock to be issued upon conversion of the Series D
Preferred Stock approved for listing on the Nasdaq National Market or the New
York Stock Exchange or listing on another national securities exchange prior to
the Repurchase Date. All shares of Common Stock of the Company which may be
issued upon conversion of the Series D Preferred Stock as provided in this
paragraph (H)(2) will be issued out of the Company's authorized but unissued
Common Stock

                                       25
<PAGE>   26
and will, upon issue, be duly and validly issued and fully paid and
non-assessable and free of any pre-emptive or similar rights.

                           In the case of a Repurchase Date falling after a
Record Date and prior to the related Dividend Payment Date, the Holders of the
Series D Preferred Stock at the close of business on such Record Date will be
entitled to receive the dividend payable on such shares on the corresponding
Dividend Payment Date, notwithstanding the redemption or conversion of such
shares following such Record Date. Except as provided for in the preceding
sentence, no payment or allowance will be made for accrued dividends on any
shares of Series D Preferred Stock redeemed or converted pursuant to this
paragraph (H) (2).

                   On and after the Repurchase Date, unless the Company defaults
in the payment of the Repurchase Price or the conversion of the Series D
Preferred Stock, dividends will cease to accumulate on shares of Series D
Preferred Stock to be redeemed or converted and all rights of Holders of such
shares will terminate except for the right to receive the Repurchase Price,
without interest, or the number of shares of Common Stock into which the shares
of the Series D Preferred Stock have been converted.

                  Within 30 days after the occurrence of a Non-Stock Change of
Control, the Company will (a) publish a notice of the occurrence of a Non-Stock
Change of Control in the Wall Street Journal or similar daily business
publication of national distribution and (b) send a written notice by first
class mail to each Holder of record of shares of Series D Preferred Stock, at
its registered address, and to the Transfer Agent (the "Company Notice");
provided, however, that neither the failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the redemption
or conversion of any shares of Series D Preferred Stock to be redeemed or
converted except as to the Holder or Holders to whom the Company has failed to
give said notice or except as to the Holder or Holders whose notice was
defective. The Company Notice shall state:

                  (i) that a Non-Stock Change of Control has occurred,

                  (ii) the Repurchase Price, whether shares of the Series D
Preferred Stock will be redeemed or converted, and in the event of a redemption,
whether the Repurchase Price will be paid in cash, through the delivery of
shares of Common Stock, or a combination thereof (and, if a combination thereof,
stating the percentages of the total Repurchase Price that will be paid in cash
and in shares of Common Stock);

                  (iii) in the event of a redemption, if all or a portion of the
Repurchase Price is to be paid through the delivery of shares of Common Stock,
that the determination of the number of shares of Common Stock to be delivered
shall be calculated as set forth above;

                                       26
<PAGE>   27
                  (iv) in the event of a conversion, that the determination of
the number of shares of Common Stock to be delivered shall be calculated as set
forth above;

                  (v) the Repurchase Date, which shall be no earlier than the 30
days and no later than 60 days following the date of the Company Notice;

                  (vi) that to elect to participate in the redemption or
conversion, as the case may be, the Holder must deliver to the Transfer Agent
the certificate or certificates representing the shares of Series D Preferred
Stock to be redeemed or converted along with a written election to participate,
on or before 5:00 p.m., New York City time, on the 30th day after the date of
the Company Notice;

                  (vii) that unless the Company defaults in the payment of the
Repurchase Price or the conversion of the Series D Preferred Stock, dividends on
the shares of the Series D Preferred Stock tendered to the Company shall cease
to accumulate on such Repurchase Date; and

                  (viii) that any shares of Series D Preferred Stock not
tendered to the Company will continue to accumulate dividends in accordance with
the terms hereof.

                  To exercise the repurchase right or conversion right granted
by this paragraph (H)(2), a Holder of Series D Preferred Stock must surrender
the certificate or certificates representing such shares of Series D Preferred
Stock, duly endorsed (or otherwise in proper form for transfer, as determined by
the Company), together with a written notice of election to participate in the
repurchase right or conversion right, as the case may be, to the Transfer Agent
on or before 5:00 p.m., New York City time, on the 30th day after the date of
the Company Notice, and on the Repurchase Date (A) in the event of a redemption,
the Repurchase Price for such shares shall be payable in cash and/or shares of
Common Stock, as the case may be, to the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired, or (B) such shares shall be converted
into shares of Common Stock and each surrendered certificate shall be canceled
and retired.

                  On the Repurchase Date, the Company shall, to the extent
lawful, (A) accept for payment or conversion shares of Series D Preferred Stock
validly tendered and (B) promptly deliver the Repurchase Price or the number of
shares of Common Stock into which such shares of Series D Preferred Stock have
been converted to each holder of shares of Series D Preferred Stock validly
tendered to the Company. The Company shall publicly announce the results of the
Non-Stock Change of Control offer on or as soon as practicable after the
Repurchase Date.

                  The Company shall comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to the
repurchase or conversion of shares of the Series D Preferred Stock, in
connection with a Non-Stock Change of Control.

                                       27
<PAGE>   28
                  Notwithstanding the foregoing, the Company shall not be
required to offer to repurchase or convert, and repurchase or convert,
securities tendered pursuant to this paragraph (H)(2) following a Non-Stock
Change of Control if a third party makes the offer to repurchase securities
tendered pursuant to this paragraph (H)(2) in the manner, at the times and
otherwise in compliance with the requirements set forth in this paragraph (H)(2)
and purchases all of the Series D Preferred Stock validly tendered and not
withdrawn pursuant to such provision.

                           (3) For purposes of this paragraph (H), the following
terms shall have the meanings indicated:

                  "Applicable Price" means the average of the closing bid prices
for the Common Stock during the ten Trading Days prior to and including the
record date for the determination of the holders of Common Stock entitled to
receive cash, securities, property or other assets in connection with such
Common Stock Change of Control or, if there is no such record date, the date
upon which the holders of the Common Stock shall have the right to receive such
cash, securities, property or other assets, in each case, as adjusted in good
faith by the Board of Directors to appropriately reflect any of the events
referred to in paragraph (g)(D)(1) through (6).

                  "Beneficial Owner" means a beneficial owner as defined in
Rules 13d-3 and 13d-5 under the Exchange Act (or any successor rules), including
the provision of such Rules that a Person shall be deemed to have beneficial
ownership of all securities that such Person has a right to acquire within 60
days; provided that a Person will not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership (1) arises solely as a
result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and (2)
is not also then reportable on Schedule 13D or Schedule 13G (or any successor
schedule) under the Exchange Act.

                  "Change of Control" means: (i) the sale, lease, transfer,
conveyance, other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all the assets
of the Company and its subsidiaries taken as a whole to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a
plan relating to the liquidation, dissolution or winding-up of the Company,
(iii) the consummation of any transaction (including any merger or
consolidation) the result of which is that any "person" (as defined above) other
than any Permitted Holder becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the Voting Stock of the Company plus any voting stock not
yet outstanding but deemed to be Beneficially Owned by such "person" (as defined
above); (iv) the first day on which the Permitted Holders collectively become
the Beneficial Owners, directly or indirectly, of more than 70% of the Voting
Stock of the Company plus any voting stock not yet outstanding but deemed to be
Beneficially Owned by the Permitted Holders; or (v) the first day on which a
majority of the members of the Board of Directors are not Continuing Directors.

                                       28
<PAGE>   29
                  "Common Stock Change of Control" means any Change of Control
in which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Common
Stock consists of common stock that for each of the ten consecutive Trading Days
referred to in the definition of "Applicable Price" has been admitted for
listing or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the Nasdaq National Market; provided, however,
that a Change of Control shall not be a Common Stock Change of Control unless
either (i) the Company continues to exist after the occurrence of such Change of
Control and the outstanding shares of Series D Preferred Stock continue to exist
as outstanding shares of Series D Preferred Stock, or (ii) not later than the
occurrence of such Change of Control, the outstanding shares of Series D
Preferred Stock are converted into or exchanged for shares of convertible
preferred stock of a corporation succeeding to the business of the Company,
which convertible preferred stock has powers, preferences and relative,
participating, optional or other rights, and qualifications, limitations and
restrictions, substantially similar to those of the Series D Preferred Stock.

                  "Continuing Directors" means, as of any date of determination,
individuals who on the Issue Date constituted the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination for election by the Company's stockholders was approved by a vote of
a majority of the members of the Board of Directors then in office who either
were members of the Board of Directors on the Issue Date or whose election or
nomination for election was previously so approved).

                  "Non-Stock Change of Control" means any Change of Control
other than a Common Stock Change of Control.

                  "Permitted Holders" means: (i) Providence Equity Partners
Inc., JK&B Capital, L.P., or any of their affiliates, (ii) any of Maurice J.
Gallagher, Jr., Timothy P. Flynn, Rolla P. Huff or their respective spouses or
lineal descendants and their respective spouses (collectively, the "Individual
Family Holders") whether acting in their own name or as a majority of persons
having the power to exercise the voting rights attached to, or having investment
power over, shares held by others, (iii) any affiliate of any member of the
Individual Family Holders, (iv) any trust principally for the benefit of one or
more members of the Individual Family Holders (whether or not any member of the
Individual Family Holders is a trustee of such trust) and (v) any charitable
foundation whose majority of members, trustees or directors, as the case may be,
are persons referred to in (ii) above.

                  "Purchaser Stock Price" means, the product of (i) the number
of shares of common stock received as consideration in such Common Stock Change
of Control for each share of Common Stock, and (ii) the average of the per share
closing bid prices for the common stock received as consideration in such Common
Stock Change of Control for the ten consecutive Trading Days prior to and
including the record date for the determination of the

                                       29
<PAGE>   30
holders of Common Stock entitled to receive such common stock, or if there is no
such record date, the date upon which the holders of the Common Stock shall have
the right to receive such common stock, in each case, as adjusted in good faith
by the Board of Directors to appropriately reflect any of the events referred to
in paragraph (g)(D)(1) through (6); provided, however, that if no such closing
bid prices exist, then the Purchaser Stock Price shall be set at a price
determined in good faith by the Board of Directors of the Company.

                  "Senior Secured Notes" means the Company's 13% Senior Secured
Notes due 2004.

         (h) Reissuance of Series D Preferred Stock. Shares of Series D
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased, redeemed, converted or exchanged, shall not be reissued as
shares of Series D Preferred Stock and shall (upon compliance with any
applicable provisions of the laws of Nevada) have the status of authorized and
unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock; provided,
however, that so long as any shares of Series D Preferred Stock are outstanding,
any issuance of such shares must be in compliance with the terms hereof. Upon
any such reacquisitions, the number of shares of Series D Preferred Stock
authorized pursuant to this Certificate of Designation shall be reduced by the
number of shares so acquired.

         (i) Business Day. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.

         (j) Limitation on Mergers and Asset Sales. Without the vote or consent
of the holders of a majority of the then outstanding shares of Series D
Preferred Stock, the Company may not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets to, any Person unless: (A) (1) the successor, transferee or lessee
(if not the Company) is organized and existing under the laws of the United
States of America or any State thereof or the District of Columbia; (2) the
Series D Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or lessee, having in respect of such
successor, transferee, or lessee substantially the same powers, preference and
relative participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the Series D Preferred Stock had
immediately prior to such transaction ; and (3) the Company delivers to the
Transfer Agent an Officers' Certificate and an Opinion of Counsel stating that
such consolidation, merger or transfer complies with this Certificate of
Designation, or (B) (1) the consideration received by the holders of Common
Stock consists entirely of cash, (2) upon consummation of such transaction, each
share of Series D Preferred Stock shall be converted into or exchanged for cash
in an amount at least equal to the greater of (a) the amount which would be paid
to a holder of the number of shares of Common Stock into which such share of
Series D Preferred Stock could convert immediately prior to the consummation of
such transaction and (b) the liquidation preference of such share of Series D

                                       30
<PAGE>   31
Preferred Stock plus all accumulated and unpaid dividends, if any, whether or
not declared, to the date of the consummation of such transaction and (3) the
Company delivers to the Transfer Agent an Officers' Certificate and an Opinion
of Counsel stating that such consolidation, merger or transfer complies with
this Certificate of Designation, or (C) (1) the consideration to be received by
the holders of Common Stock in respect of each share of Common Stock has a value
which, for any five Business Days during the period commencing on the date that
the Company publicly announces such consolidation, merger or transfer and ending
ten Business Days thereafter, is equal to or greater than 140% of the Conversion
Price in effect on the date of such public announcement by the Company, (2) the
Consolidated Net Worth of the successor, transferee or lessee is equal to or
exceeds an amount equal to the product of two, multiplied by the Consolidated
Net Worth of the Company immediately prior to such consolidation, merger, or
transfer, and (3) the Company delivers to the Transfer Agent an Officers'
Certificate and an Opinion of Counsel stating that such consolidation, merger or
transfer complies with this Certificate of Designation.

                  For purposes of this paragraph (j), "Consolidated Net Worth"
shall mean, in respect of any Person, the total amount shown on the balance
sheet of such Person and its consolidated subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
as of the end of the most recent fiscal quarter of such Person for which
internal financial statements are then available, prior to the taking of any
action for which the determination is made, as (i) the par or stated value of
all of the outstanding capital stock of such Person, plus (ii) paid-in capital
or capital surplus relating to such capital stock, plus (iii) any retained
earnings or earned surplus, less any accumulated deficit.

                   In the event of any consolidation or merger or conveyance,
transfer or lease of all or substantially all of the assets of the Company that
is permitted pursuant to this paragraph (j), the successor resulting from such
consolidation or into which the Company is merged or the transferee or lessee to
which such conveyance, transfer or lease is made, will succeed to, and be
substituted for, and may exercise every right and power of, the Company with
respect to the Series D Preferred Stock, and thereafter, except in the case of a
lease, the predecessor (if still in existence) shall be released from its
obligations and covenants with respect to the Series D Preferred Stock.

         (k) Certificates.

                  (i) Form and Dating. The Series D Preferred Stock and the
Transfer Agent's certificate of authentication shall be substantially in the
form of Exhibit A, which is hereby incorporated in and expressly made a part of
this Certificate of Designation. The Series D Preferred Stock certificate may
have notations, legends or endorsements required by law, stock exchange rules,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).
Each Series D Preferred Stock certificate shall be dated the date of its
authentication. The terms of the Series D

                                       31
<PAGE>   32
Preferred Stock certificate set forth in Exhibit A are part of the terms of this
Certificate of Designation.

                  (ii) Execution and Authentication. Two Officers shall sign the
Series D Preferred Stock certificates for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Series D Preferred Stock certificates and may be in facsimile
form.

                  If an Officer whose signature is on a Series D Preferred Stock
certificate no longer holds that office at the time the Transfer Agent
authenticates the Series D Preferred Stock certificate, the Series D Preferred
Stock certificates shall be valid nevertheless. A Series D Preferred Stock
certificate shall not be valid until an authorized signatory of the Transfer
Agent manually signs the certificate of authentication on the Series D Preferred
Stock certificate. The signature shall be conclusive evidence that the Series D
Preferred Stock certificate has been authenticated under this Certificate of
Designation. The Transfer Agent shall authenticate and deliver certificates for
up to [3,450,000] shares of Series D Preferred Stock for original issue upon a
written order of the Company signed by two Officers of the Company. Such order
shall specify the number of shares of Series D Preferred Stock to be
authenticated and the date on which the original issue of Series D Preferred
Stock is to be authenticated.

                  The Transfer Agent may appoint an authenticating agent
reasonably acceptable to the Company to authenticate the certificates for Series
D Preferred Stock. Unless limited by the terms of such appointment, an
authenticating agent may authenticate certificates for Series D Preferred Stock
whenever the Transfer Agent may do so. Each reference in this Certificate of
Designation to authentication by the Transfer Agent includes authentication by
such agent. An authenticating agent has the same rights as the Transfer Agent or
agent for service of notices and demands.

                  (iii) Transfer and Exchange of Shares of Series D Preferred
Stock. (A) When shares of Series D Preferred Stock are presented to the Transfer
Agent with a request to register the transfer of such shares of Series D
Preferred Stock or to exchange such shares of Series D Preferred Stock for an
equal number of shares of Series D Preferred Stock of other authorized
denominations, the Transfer Agent shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; provided, however, that the certificate representing such shares of Series
D Preferred Stock surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Company and the Transfer Agent, duly executed by the Holder thereof or
its attorney duly authorized in writing.

                           (B) Obligations with Respect to Transfers and
Exchanges of Series D Preferred Stock. (1) To permit registrations of transfers
and exchanges, the Company shall

                                       32
<PAGE>   33
execute and the Transfer Agent shall authenticate certificates representing
shares of Series D Preferred Stock as required pursuant to the provisions of
this paragraph (k)(iii).

                           (2) All shares of Series D Preferred Stock issued
upon any registration of transfer or exchange of shares of Series D Preferred
Stock shall be the valid obligations of the Company, entitled to the same
benefits under this Certificate of Designation as the shares of Series D
Preferred Stock surrendered upon such registration of transfer or exchange.

                           (3) Prior to due presentment for registration of
transfer of any shares of Series D Preferred Stock, the Transfer Agent and the
Company may deem and treat the person in whose name such shares of Series D
Preferred Stock are registered as the absolute owner of such Series D Preferred
Stock and neither the Transfer Agent nor the Company shall be affected by notice
to the contrary.

                           (4) No service charge shall be made to a Holder for
any registration of transfer or exchange upon surrender of any certificate
representing shares of Series D Preferred Stock or shares of Common Stock at the
office of the Transfer Agent maintained for that purpose. However, the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Series D Preferred Stock certificates or Common Stock certificates.

                           (C) No Obligation of the Transfer Agent. The Transfer
Agent shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Certificate of
Designation or under applicable law with respect to any transfer of any interest
in any Series D Preferred Stock other than to require delivery of such
certificates and other documentation or evidence as are expressly required by,
and to do so if and when expressly required by, the terms of this Certificate of
Designation, and to examine the same to determine substantial compliance as to
form with the express requirements hereof.

         (iv) Replacement Certificates. If a modified Series D Preferred Stock
certificate is surrendered to the Transfer Agent or if the Holder of a Series D
Preferred Stock certificate claims that the Series D Preferred Stock certificate
has been lost, destroyed or wrongfully taken, the Company shall issue and the
Transfer Agent shall countersign a replacement Series D Preferred Stock
certificate if the reasonable requirements of the Transfer Agent and of Section
8- 405 of the Uniform Commercial Code as in effect in the State of New York are
met. If required by the Transfer Agent or the Company, such Holder shall furnish
an indemnity bond sufficient in the judgment of the Company and the Transfer
Agent to protect the Company and the Transfer Agent from any loss which either
of them may suffer if a Series D Preferred Stock certificate is replaced. The
Company and the Transfer Agent may charge the Holder for their expenses in
replacing a Series D Preferred Stock certificate.

                                       33
<PAGE>   34
         (v) Temporary Certificates. Until definitive Series D Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Series D Preferred Stock certificates.
Temporary Series D Preferred Stock certificates shall be substantially in the
form of definitive Series D Preferred Stock certificates but may have variations
that the Company considers appropriate for temporary Series D Preferred Stock
certificates. Without unreasonable delay, the Company shall prepare and the
Transfer Agent shall countersign definitive Series D Preferred Stock
certificates and deliver them in exchange for temporary Series D Preferred Stock
certificates.

         (vi) Cancellation. In the event the Company shall purchase or otherwise
acquire shares of Series D Preferred Stock, the certificate(s) representing the
same shall thereupon be delivered to the Transfer Agent for cancellation.

                  The Transfer Agent and no one else shall cancel and destroy
all Series D Preferred Stock certificates surrendered for transfer, exchange,
replacement or cancellation and deliver a certificate of such destruction to the
Company unless the Company directs the Transfer Agent to deliver canceled Series
D Preferred Stock certificates to the Company. The Company may not issue new
Series D Preferred Stock certificates to replace Series D Preferred Stock
certificates to the extent they evidence Series D Preferred Stock which the
Company has purchased or otherwise acquired.

                  (7) Certain Definitions. As used in this Certificate of
Designation, the following terms shall have the following meanings (and (1)
terms defined in the singular have comparable meanings when used in the plural
and vice versa, (2) "including" means including without limitation, (3) "or" is
not exclusive, (4) "to" any date means to and including such date and (5) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with United States generally accepted accounting principles as in
effect on the Issue Date and all accounting calculations will be determined in
accordance with such principles), unless the content otherwise requires:

                  "Business Day" means each day which is not a Legal Holiday.

                  "Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now outstanding
or issued after the Issue Date, including all Common Stock and Preferred Stock.

                  "Common Stock" means the Company's common stock, par value
$0.001 per share.

                  "Dividend Period" means such period between two consecutive
Dividend Payment Dates and the period from the Issue Date to the first Dividend
Payment Date.

                                       34
<PAGE>   35
                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                  "Holders" means the registered holders from time to time of
the Series D Preferred Stock.

                  "Issue Date" means the date on which the Series D Preferred
Stock is initially issued.

                  "Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New York.

                  "Officer" means the Chairman of the Board of Directors, the
President, any Vice President, the Treasurer, the Secretary, any Assistant
Secretary or Assistant Treasurer of the Company.

                  "Officers' Certificate" means a certificate signed by two
Officers.

                  "Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Transfer Agent. The counsel may be an employee
of or counsel to the Company or the Transfer Agent.

                  "person" or "Person" means any individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization, governmental or any agency or
political subdivision thereof or any other entity.

                  "Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the Issue Date, including all series and
classes of such preferred or preference stock.

                  "SEC" or "Commission" means the Securities and Exchange
Commission.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Series B Preferred Stock" means the 5,278,000 shares of the
Company's Preferred Stock which, as of the Issue Date, have been designated as
Series B Convertible Preferred Stock.

                  "Series C Preferred Stock" means the 1,250,000 shares of the
Company's Preferred Stock which, as of the Issue Date, have been designated as
the Series C Convertible Preferred Stock.

                                       35
<PAGE>   36
                  "Subsidiary" means with respect to any Person, any
corporation, association or other business entity of which Voting Stock
representing more than 50% of the voting power of shares of outstanding Voting
Stock is owned, directly or indirectly, by such Person, or one or more other
Subsidiaries of such Person.

                  "Transfer Agent" means the transfer agent for the Series D
Preferred Stock appointed by the Company, which initially shall be Continental
Stock Transfer and Trust Company.

                  "Voting Stock" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors.

         (8) SEC Reports and Reports to Holders. So long as any shares of Series
D Preferred Stock remain outstanding, the Company will file with the SEC
(whether or not the Company is required to do so) all such reports and other
information as the Company would be required to file with the SEC pursuant to
Section 13(a) or 15(d) of the Exchange Act. Upon the written request of a Holder
of Series D Preferred Stock, the Company will supply to such Holder, at no cost
to such Holder, copies of such reports or other information.

                                       36
<PAGE>   37
                  IN WITNESS WHEREOF, said MGC Communications, Inc. has caused
this Certificate of Designation to be signed by its President, and attested to
by its Secretary, on February 2, 2000.

                                            MGC COMMUNICATIONS, INC.

                                            By /s/ Rolla P. Huff
                                               ---------------------------------
                                                 Name:   Rolla P. Huff
                                                 Title:  President

Attest:

/s/ Kent F. Heyman
------------------------------
Name: Kent F. Heyman
Title:   Secretary

STATE OF                   )
         ------------------
ss.:                       )
COUNTY OF                  )
          -----------------

         On the 2nd day of February, 2000, before me personally came Rolla Huff
to me known, who, being by me duly sworn, did depose and say he resides at 14
Moraine Point, Victor, New York 14564, and that he is the President of MGC
Communications, Inc., the corporation described in and which executed the above
instrument; and that he acknowledged said instruments to be the free act and
deed of said corporation.

------------------------------------
Notary Public
My Commission Expires:
                       ---------------
<PAGE>   38
                                    EXHIBIT A

                        FORM OF SERIES D PREFERRED STOCK

                                FACE OF SECURITY

Certificate Number: [   ]
Number of Shares of Series D Preferred Stock:   [   ]
CUSIP NO.: 552763 500

              [__]% Series D Cumulative Convertible Preferred Stock
                          (par value $0.001 per share)
                    (liquidation preference $50.00 per share)

                                       of

                            MGC Communications, Inc.

         MGC Communications, Inc., a Nevada corporation (the "Company"), hereby
certifies that [________________] (the "Holder") is the registered owner of
fully paid and non-assessable preferred securities of the Company designated the
[__]% Series D Cumulative Convertible Preferred Stock (par value $0.001 per
share) (liquidation preference $50.00 per share) (the "Series D Preferred
Stock"). The shares of Series D Preferred Stock are transferable on the books
and records of the Transfer Agent, in person or by a duly authorized attorney,
upon surrender of this certificate duly endorsed and in proper form for
transfer. The Series D Preferred Stock represented hereby are issued and shall
in all respects be subject to the provisions of the Certificate of Designation
of Series D Cumulative Convertible Preferred Stock dated [__________ __,] 2000,
as the same may be amended from time to time (the "Certificate of Designation").
Capitalized terms used herein but not defined shall have the meaning given them
in the Certificate of Designation. The Company will provide a copy of the
Certificate of Designation to a Holder without charge upon written request to
the Company at its principal place of business.

         Reference is hereby made to select provisions of the Series D Preferred
Stock set forth on the reverse hereof, and to the Certificate of Designation,
which select provisions and the Certificate of Designation shall for all
purposes have the same effect as if set forth at this place. Upon receipt of
this certificate, the Holder is bound by the Certificate of Designation and is
entitled to the benefits thereunder.

                                       A-1
<PAGE>   39
         This certificate is not valid unless countersigned and registered by
the Transfer Agent.

                  IN WITNESS WHEREOF, the Company has executed this certificate
this [ ] day of [ ], [ ].

                                             MGC COMMUNICATIONS, INC.

                                             By
                                                --------------------------------
                                                  Name:
                                                   Title:

[Seal]

                                             By
                                                --------------------------------
                                                   Name:
                                                   Title:

                                       A-2
<PAGE>   40
                               REVERSE OF SECURITY

         Dividends on each share of Series D Preferred Stock shall be payable at
a rate per annum set forth in the face hereof or as provided in the Certificate
of Designation. Dividends may be paid in cash or in shares of Common Stock of
the Company, at the option of the Company.

         The shares of Series D Preferred Stock shall be redeemable as provided
in the Certificate of Designation and in the Articles. The shares of Series D
Preferred Stock shall be convertible into the Company's Common Stock in the
manner and according to the terms set forth in the Certificate of Designation.

         As required under Nevada law, the Company shall furnish to any Holder
upon request and without charge, a statement setting forth in full or
summarizing the voting powers, designations, preferences, limitations,
restrictions and relative rights of the various classes of stock of the Company
or series thereof. All such requests should be directed to MGC Communications,
Inc., 171 Sully's Trail, Suite 202, Pittsford, New York 14534, Attention:
General Counsel.

                                       A-3
<PAGE>   41
                                   ASSIGNMENT

                  FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Series D Preferred Stock evidenced hereby to:
                                                       -------------------------

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

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

--------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)

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

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

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

--------------------------------------------------------------------------------
(Insert address and zip code of assignee)

and irrevocably appoints:

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

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

--------------------------------------------------------------------------------
agent to transfer the shares of Series D Preferred Stock evidenced hereby on the
books of the Transfer Agent. The agent may substitute another to act for him or
her.

Date:
     ---------------------------
Signature:
          ----------------------
(Sign exactly as your name appears on the other side of this Series D Preferred
Stock Certificate)

Signature

Guarantee:(1)
          ----------------------------------------------------------------------

--------

(1)      (Signature must be guaranteed by an "eligible guarantor institution"
         that is, a bank, stockbroker, savings and loan association or credit
         union meeting the requirements of the Transfer Agent, which
         requirements include membership or participation in the Securities
         Transfer Agents Medallion Program ("STAMP") or such other "signature
         guarantee program" as may be determined by the Transfer Agent in
         addition to, or in substitution for, STAMP, all in accordance with the
         Securities Exchange Act of 1934, as amended.)

                                       A-4
<PAGE>   42
                                    EXHIBIT B

                              NOTICE OF CONVERSION

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

The undersigned hereby irrevocably elects to convert (the "Conversion") shares
of [__]% Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred Stock"), represented by stock certificate No(s). _____ (the "Series D
Preferred Stock Certificates") into shares of Common Stock ("Common Stock") of
MGC Communications, Inc. (the "Company") according to the conditions of the
Certificate of Designation of the Series D Preferred Stock (the "Certificate of
Designation"), as of the date written below. If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith payment
of all applicable taxes or evidence that such taxes have been paid. No fee will
be charged to the holder for any conversion, except for transfer taxes, if any.
A copy of each Series D Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).*

Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Certificate of Designation.

Date of Conversion:
                   ---------------------------------
Conversion Price:
                 -----------------------------------
Number of shares of Series D Preferred Stock to be Converted:
                                                             -------------------
Number of shares of Common Stock to be Issued:
                                              ----------------------------------
Signature:
          ------------------------------------------
Name:
     -----------------------------------------------
Address:**
          ------------------------------------------
Fax No.:
        --------------------------------------------

 *The Company is not required to issue shares of Common Stock until the original
Series D Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof and indemnity reasonably satisfactory to the Company and the
Transfer Agent) to be converted are received by the Company or its Transfer
Agent. The Company shall issue and deliver shares of Common

                                       B-1
<PAGE>   43
Stock by hand or by delivery to an overnight courier not later than three
business days following receipt of the original Series D Preferred Stock
Certificate(s) to be converted.

**Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.

                                       B-2<PAGE>   1

                                                                   EXHIBIT 10.37

                   AGREEMENT FOR THE SALE AND PURCHASE OF COAL

         This Coal Supply Agreement (hereinafter referred to as the "Agreement")
is entered into as of the ____ day of _______, ____, by Anker Energy
Corporation, a corporation incorporated in Delaware, (hereinafter referred to as
the "Supplier") and its affiliated mining companies, Anker West Virginia Mining
Company, Inc. and Juliana Mining Company, Inc. (collectively hereinafter
referred to as the "Producer") and Potomac Electric Power Company, a District of
Columbia corporation (hereinafter referred to as the "Purchaser"), having its
principal business address in Washington, DC.

         For and in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:

                                    ARTICLE 1

                            PURCHASE AND SALE OF COAL

         1.1 -  Definitions. Wherever the following terms are used in this
Agreement they shall have the meaning stated below:

         (a)    Allowance Tracking System (ATS) shall mean the system by which
the Administrator of EPA issues, records and tracks allowances.

         (b)    Analysis shall mean a test of coal quality characteristics
performed in accordance with ASTM standards.

         (c)    As-Received Basis shall have the meaning ascribed to that phrase
in ASTM Specifications D3180 (1984).

                                       1
<PAGE>   2

         (d)    ASTM shall mean the American Society for Testing and Materials.

         (e)    ASTM Standards shall mean those ASTM written specifications,
standards or instructions governing procedures or tests covered by this
Agreement in the most current version at the time such procedures or tests are
implemented.

         (f)    BTU shall mean a standard British Thermal Unit reflecting the
calorific heating value of coal.

         (g)    Carrier shall mean CSX Transportation.

         (h)    Contract Year shall mean a period beginning on January 1 and
ending on December 31, and each twelve (12) month period thereafter.

         (i)    Emission Allowance shall mean an authorization under Title IV of
the Clean Air Act to emit up to one ton of SO(2) during or after a specified
calendar year.

         (j)    Encumbrance shall mean any right, title, interest, lien,
security interest or claim attached to or binding upon Emission Allowances
(other than a claim or right asserted by EPA pursuant to its authority under
Title IV of the Clean Air Act).

         (k)    EPA shall mean the United States Environmental Protection
Agency.

         (l)    Force Majeure Event shall have the meaning ascribed to it in
Article 7.

                                       2
<PAGE>   3

         (m)    Governing Analysis shall mean the analysis of samples taken in
accordance with Section 2.2.

         (n)    Heating Value shall mean the gross calorific value of coal
expressed in BTU/pound.

         (o)    Producing Facilities shall mean the coal production facilities
specified in Section 1.10 of this Agreement.

         (p)    Seller shall include both the Supplier and the Producer. The
Supplier and the Producer jointly and severally agree to perform those
obligations herein defined as obligations of the Seller. References herein to
the parties shall be to the Purchaser as one party and the Seller as the other
party.

         (q)    Supplier's Agent shall mean African American Coal Company, Inc.,
incorporated in Washington, DC, and Courtney F. Foos Coal Company, Inc., a
corporation incorporated in Pennsylvania.

         (r)    Shipment shall mean a single trainload of coal, loaded at the
Producing Facility having a nominal net weight of not less than 7,800 Tons.

         (s)    Ton shall mean a short ton of 2,000 pounds (avoirdupois).

         (t)    Transfer shall mean, in the context of an Allowance transaction,
the execution by the transferor of the proper documentation to authorize the
transfer of Allowances within the ATS from

                                       3
<PAGE>   4

the transferor's account or accounts to the Purchaser's/transferee's account or
accounts and the delivery of such documentation to the Purchaser/transferee.

         (u)    UMLER file shall mean "The Official Railway Equipment Register -
Freight Connections & Freight Cars Operated By The Railroads And Private Car
Companies Of North America" filed quarterly with the Canadian Transport
Commission, state commissions, and the Surface Transportation Board.

         1.2 -  Commitment and Term. Subject to the terms and conditions of this
Agreement, the Seller shall sell and the Purchaser shall purchase and accept in
rail cars at the Purchaser's Chalk Point, Dickerson and/or Morgantown Generating
Stations coal meeting the quality specifications set forth in Article 2.

         (a)    The term of this Agreement shall be one (1) year, commencing on
January 1, 1999 and ending at midnight December 31, 1999, unless terminated
sooner, as set forth in this Agreement, or otherwise extended at the sole
unilateral option of the Purchaser as set forth in Subsection (b).

         (b)    Purchaser's Option for Additional One Year Terms. The Purchaser
shall have the unilateral option, to be exercised in its sole discretion, to
enter into successive one (1) year terms extending this Agreement with the
Seller. If the Purchaser elects to exercise its option, it shall provide the
Seller with written notice of its election on or before October 1, 1999, for
Contract Year 2000 and, if applicable, on or before October 1, 2000 for Contract
Year 2001. The terms and conditions of this Agreement, including but not limited
to the Price provisions of Article 4, shall apply in any option year of the
Agreement. If the Purchaser fails to exercise the option year(s) in writing
within the time period set forth herein, the Agreement shall terminate at
midnight on December 31 of

                                       4
<PAGE>   5

the current Contract Year. The Seller agrees to hold harmless the Purchaser
and waives any and all claims for damages arising out of the Purchaser's
decision to elect or not to elect to exercise the option year(s) provided
hereunder.

         1.3    Quantities. The Seller shall supply to the Purchaser
approximately 1,500,000 Tons of coal during the first Contract Year (Base
Quantity) and, in the event the Purchaser exercises its unilateral option as
set forth in Section 1.2 (b), 1,750,000 Tons of coal during either of the
optional 2000 or 2001 Contract Years (Base Quantity). Except as provided in (c)
and (d) below, and subject to adjustment as otherwise provided in this
Agreement, coal shall be sold and shipped hereunder, in accordance with the
monthly tonnage requirement for the Contract Year set forth by the Purchaser in
writing. The monthly tonnage requirement shall be provided to the Seller sixty
(60) days prior to the commencement of the Contract Year; however, upon thirty
(30) days advance notice by the Purchaser, the number of Tons of coal to be
delivered in a particular month may be increased or decreased by the Purchaser
by up to 16,000 Tons. The total quantity of coal to be sold and purchased
hereunder shall not be less than 1,350,000 Tons nor more than 1,500,000 Tons in
Contract Year 1999. The total quantity of coal to be sold and purchased
hereunder shall not be less than 1,350,000 Tons nor more than 1,750,000 Tons in
either of the 2000 or 2001 Contract Years, to the extent said option years are
exercised by the Purchaser as defined in Section 1.2 (b), unless otherwise
agreed in writing by the parties.

         (a)    The Seller has the right to ship coal from the Sentinel, Sawmill
and/or Juliana operations in fulfillment of its obligations under Article 1.3 of
the Agreement, provided, however, that the Purchaser shall be advised of the
origin of each Shipment at the time monthly loading schedules are

                                       5
<PAGE>   6

established in accordance with Section 1.5 and price for said coal shall be in
accordance with Section 4.1.

         (b)    Spot Market Coal Option. Purchaser shall advise the Seller of
the amount of spot market coal which Seller has the option to provide during a
specified period. Seller shall have the option to furnish all or a part of the
spot market coal specified by the Purchaser. Seller hereby agrees to furnish all
or part of said specified spot market coal, as offered as available by the
Purchaser, at a [*] (1) price.

         Spot market coal prices and quantity will be determined from
competitive proposals received in response to formal written request for
proposals. The quality of coal upon which the proposals shall be solicited will
be suitable for normal plant operation. Purchaser will apply its normal
competitive bid and evaluation process to all bids received from suppliers from
which the Purchaser would be willing to enter into an agreement, on a delivered
cost ($/mmBTU) basis, for the purchase of spot market coal. The delivered cost
($/mmBTU) for the spot market coal proposals, reflecting evaluated costs
associated with the coal quality parameters guaranteed, will be adjusted to a
BTU equivalent dollar per ton ($/ton) value based on the Seller's BTU guarantee
in Section 2.1, also reflective of evaluated costs associated with the coal
quality parameters guaranteed in Section 2.1. The Seller's spot market coal
price will be computed by calculating the lowest BTU equivalent delivered price
($/ton) and then subtracting the cost of transportation per ton of coal from the
Seller's producing facility to the Chalk Point, Dickerson and/or Morgantown
Generating Station and [*](1). Purchaser shall notify Seller of spot market coal
price option ten (10) days prior to the placement of each month's spot market
coal requirements and Seller shall notify Purchaser of it's intent to

-------------------------
(1)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       6
<PAGE>   7

exercise or not exercise the spot market coal price option for all or any of the
specified quantity within five (5) days of said notification.

         Spot tonnage purchased under this Section 1.3(b) will not be considered
as Tonnage shipped under Section 1.3. All other provisions of this Agreement
shall apply to any spot tonnage purchased under this Section 1.3(b).

         (c)    In the event that the generation of electricity through use of
coal at the Morgantown Generating Station is reduced or suspended for a period
of three (3) days or longer for any reason, the amounts of coal to be purchased
and sold hereunder shall be adjusted at the Purchaser's discretion, in the same
ratio as that which the reduction or suspension bears to the Purchaser's coal
use forecast for the month prior to the conditions giving rise to the reduction
or suspension for the Morgantown Generating Station for the period of time that
the reduction or suspension is in effect.

         (d)    Adjustments pursuant to (c) above shall remain in effect for so
long as the coal-fired generation reduction or suspension is in effect. Coal
shipments excused pursuant to (c) above shall only be made up by mutual consent,
at such times and in such quantities as specified by the Purchaser.

         1.4 -  Continuity of Supply. The Seller recognizes that the Purchaser
requires a continual supply of coal in order to operate the coal-fired units at
its Morgantown Generating Station, and that failure to deliver coal of the
quantity and quality as provided in this Agreement will severely hamper the
Purchaser in fulfilling its obligations to its customers, and that no damages
paid to the Purchaser in lieu of satisfactory coal deliveries can be adequate.
Therefore, if the Seller fails to ship coal of the quality and in the quantity
specified by this Agreement within a scheduled month, subject to Section

                                       7
<PAGE>   8

2.3 - Suspension and Termination for Unsatisfactory Coal, Section 2.4 - Rejected
Shipments of Coal, and Section 7.1 - Force Majeure, the Purchaser shall have the
right, in addition to any other right or remedy available to the Purchaser under
this Agreement, to make commercially reasonable purchases of coal of similar
quality from other sources in sufficient quantity to satisfy the requirements of
the Agreement. If the delivered price (per million BTU) paid by the Purchaser
for such coal, (which price shall include transportation costs and other
associated costs) exceeds the delivered price (per million BTU) that would have
been paid under this Agreement, the Seller shall reimburse the Purchaser the
excess amount paid.

         Except as otherwise provided in the Agreement, Seller shall furnish
coal from the mines and loading points identified in Section 1.10. Seller may
ship from time to time all or any part of the coals to be sold and shipped
hereunder from such other mines as it or its affiliates now have or may develop,
or any sources whatsoever, whether or not such coal is mined from reserves owned
or controlled by Seller provided that (i) Seller shall give notice to, and
receive from, Purchaser prior to scheduling and loading such Shipments on an
individual basis; (ii) Seller shall furnish to Purchaser authorization from the
supplier of the coal for Seller to ship such coal, (iii) such coal shall meet
all quality specifications of Article 2; and, (iv) Purchaser shall have the sole
option and discretion to permit or approve such Shipments on an individual
basis. Nothing herein shall be construed as obligating Purchaser to accept such
coal tendered by the Seller pursuant to this provision, however, such approval
shall not be unreasonably withheld.

         Seller shall be solely responsible for the acquisition of such
substitute coal and shall hold Purchaser harmless from any claim arising in
connection therewith. In the event the delivered cost per ton for coal shipped
from such sources, shall be greater than that which would have applied, had

                                       8
<PAGE>   9

the coal been shipped from the sources identified in Section 1.10, all such
excess costs are to be borne by Seller.

         1.5 -  Monthly Schedules. The Purchaser shall provide Seller with
monthly loading schedules established no later than the twentieth (20th) day of
the month preceding each month in which the Purchaser intends to have the Seller
load Shipments of coal. The Purchaser will use reasonable efforts to schedule
Shipments evenly throughout the week and month. The Purchaser will schedule, as
appropriate, the Seller to load trains of empty cars assuming seven (7) days per
week operations.

         1.6 -  Monthly Schedules - Flexibility. It is understood by the parties
that the monthly schedules are subject to change on a continuing basis and the
parties agree to cooperate with each other in accommodating such changes in the
monthly schedules as may be reasonably practicable and necessary due to the
needs of the parties. The Purchaser may cancel or change a scheduled loading,
and notice of such cancellation or change will be given as far in advance as is
commercially reasonable and practical.

         1.7 -  Failure to Make Shipments of Coal. If the Seller fails in any
month to ship the amount of coal required by Section 1.3, or Purchaser rejects
coal pursuant to Section 2.4, the Purchaser may require the Seller to make up
such deficiency in the following manner: the Seller shall increase the Shipments
within the time period set by the Purchaser following such deficiency until such
deficiency is eliminated, unless otherwise mutually agreed by the Seller and the
Purchaser. If the Seller fails to correct such deficiency in the manner
described above, then the Seller shall be considered in default of this
Agreement. The price for such made up coal shall be the contract price in effect
when the coal should have been shipped or the current contract price, which ever
is less.

                                       9
<PAGE>   10

         1.8 -  Transportation. The Purchaser shall arrange and pay for the
transportation of coal sold hereunder. Shipments of coal shall be made using
open-top railroad cars provided by the Purchaser or the provider of
transportation.

         (a)    The Purchaser will schedule Shipments in advance of desired
delivery, and will provide the Seller with appropriate tariff or contract
information concerning loading procedures. Shipping notices shall be forwarded
to the Purchaser by facsimile transmission within twenty four (24) hours of the
Shipment. The telephone number for this facsimile transmission is (202)
872-3089. Unless otherwise notified by the Purchaser, the Seller shall tender
each Shipment hereunder on a bill of lading or mine card that shows the
Purchaser's rail transportation contract number. The Seller will inform the
Purchaser as far in advance as possible when such Shipments cannot be loaded as
scheduled, which notice shall include the reason(s) therefor.

         (b)    The Seller shall maintain ample railcar siding space and railcar
loading equipment. Shipments shall be standardized with approximately eighty
(80) cars of seven thousand eight hundred (7,800) Tons minimum weight. The
minimum weight for each loaded car in a Shipment will be 95% of the nominal car
capacity as determined by the UMLER file. The Seller shall comply with the
Carrier's reasonable instructions regarding the height and distribution of the
load, weight of coal, and other matters which the Carrier may deem necessary for
safe transportation.

         Coal shipped under the terms of this Agreement shall be loaded in unit
train Shipments as identified above in twenty-four (24) consecutive hours (or
less) at the Producing Facility's tipple specified in Section 1.10 and comply
with all criteria specified by the Carrier for trainload rates.

         (c)    The Seller shall reimburse the Purchaser for any increased
transportation costs, including detention, resulting from the Seller's failure
to comply with railroad criteria for loading individual

                                       10
<PAGE>   11

railcars and unit trains and shall also indemnify and hold the Purchaser
harmless from any damages and costs resulting from its improper loading of
railcars.

         1.9 -  Reserves. The Seller represents and covenants that the Producer
owns or has leased under valid coal leases, sufficient reserves of coal
identified in Section 1.10 necessary to meet the Seller's obligations under this
Agreement and warrants that it has good title to all coal delivered hereunder.
The Seller's current reserves are identified in Section 1.10. Upon reasonable
request, the Seller will provide the Purchaser with detailed information
concerning the operation and quality of the reserves referred to in this
Article.

         The Seller warrants that throughout the term hereof it will not sell
coal to others from the reserves described in Section 1.10 if to do so would
impair or jeopardize its ability to fulfill its obligations to the Purchaser.
The Seller undertakes not to claim or assert, and does hereby waive, any excuse
for nonperformance of its obligations under this Agreement founded on
impracticability of performance or changed market conditions.

         1.10 - Producing and Loading Facilities. Except as otherwise provided
herein, the Seller shall furnish coal from the reserves and loading facilities
identified below:

             Mine Name: Sentinel

             Parent Company: Anker Group, Inc.

             Producer: Philippi Development Division

             Mining/Operating Company: Anker West Virginia Mining Company, Inc.
                                        (MSHA ID # 46-04168)

             Mine(s) Location: Philippi, West Virginia

             Location of Reserves (County and State): Barbour, West Virginia

                                       11
<PAGE>   12

             Estimated Recoverable Reserves: 48 million Tons

             Seams: Lower Kittaning

             Originating Railroad: CSX Transportation

             Loading Point (Railroad Designation, County and State): # 78124,
               Barbour County, West Virginia

             Tipple Name: Sentinel

             Freight Rate District: Grafton

             Loading Capacity: 3,000 Tons per Hour; 7,000 to 10,000 Tons in less
               than four (4) hours; 150 cars per day

             Siding Capacity: 150 car trains

             Sampling Method: 2-stage automatic.  Meets ASTM standards.

             Weighing Capability: Not at this time.

             Mine Name:  Spruce Fork/Sawmill

             Parent Company: Anker Group, Inc.

             Producer: Spruce Fork Division

             Mining/Operating Company: Anker West Virginia Mining Company, Inc.
               (MSHA ID # 46-08622)

             Mine(s) Location: Buckhannon, West Virginia

             Location of Reserves (County and State): Upshur, West Virginia

             Estimated Recoverable Reserves: 30 million Tons

             Seams: Upper Freeport and Middle Kittanning

             Originating Railroad: CSX Transportation

             Loading Point (Railroad Designation, County and State): # 78262,
               Upshur County, West Virginia

             Tipple Name: Sawmill Run

             Freight Rate District: Belington

             Loading Capacity: 7,000 to 9,000 Ton trains in four (4) hours

                                       12
<PAGE>   13

             Siding Capacity: 90 car trains

             Sampling Method: 2-stage automatic. Meets ASTM standards.

             Weighing Capability: Not at this time.

             Mine Name:  Juliana

             Parent Company: Anker Group, Inc.

             Producer: Juliana Mining Company, Inc.

             Mining/Operating Company: Juliana (MSHA ID # 46-08288)

             Mine(s) Location: Cowen, West Virginia

             Location of Reserves (County and State): Webster, West Virginia

             Estimated Recoverable Reserves: 77 million Tons

             Seams: Middle Kittanning

             Originating Railroad: CSX Transportation

             Loading Point (Railroad Designation, County and State):  # 78424,
                            Webster, West Virginia

             Tipple Name: Juliana #1

             Freight Rate District: Northern Gauley

             Loading Capacity: 7,000 Tons in six (6) hours; 90 Cars in eight
               (8) hours

             Siding Capacity: 90 car trains

             Sampling Method: 2-stage automatic.  Meets ASTM standards.

             Weighing Capability: Not at this time.

                                    ARTICLE 2

                     QUALITY, ANALYSIS AND PRICE ADJUSTMENTS

         2.1 -  Specifications. The monthly weighted average of coal sold
hereunder shall meet the following quality parameter guarantees on an ASTM
As-Received Basis:

                                       13
<PAGE>   14

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                THE SEL
           QUALITY PARAMETER                     ASTM STANDARD                                   LER'S
                                                                                               GUARANTEE
-----------------------------------------------------------------------------------------------------------------------------------
                                                                            SENTINEL            SAWMILL             JULIANA
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                       <C>                <C>                 <C>
                                                     D3173
Moisture, Wt %                                       D3302                   [*](2)              [*](2)              [*](2)
                                                     D5142
-----------------------------------------------------------------------------------------------------------------------------------

Ash, Wt %                                            D5142                   [*](2)              [*](2)              [*](2)
                                                     D3174
-----------------------------------------------------------------------------------------------------------------------------------

Volatile, Wt %                                       D5142                   [*](2)              [*](2)              [*](2)
                                                     D3175                   [*](2)              [*](2)              [*](2)
-----------------------------------------------------------------------------------------------------------------------------------

Gross Heating Value                                  D3286                   [*](2)              [*](2)              [*](2)
     BTUs/LB                                         D2015
-----------------------------------------------------------------------------------------------------------------------------------

Sulfur, Wt %                                         D4239
                                                     D3177
-----------------------------------------------------------------------------------------------------------------------------------

Sulfur Dioxide                                                               [*](2)              [*](2)              [*](2)
  (SO2) #/mmBTU
-----------------------------------------------------------------------------------------------------------------------------------

Ash Softening Temperature, H=W, Degrees F,           D1857                   [*](2)              [*](2)              [*](2)
Reducing
-----------------------------------------------------------------------------------------------------------------------------------

Grindability, HGI                                    D409                    [*](2)              [*](2)              [*](2)
-----------------------------------------------------------------------------------------------------------------------------------

Size, Inches                                         D4749                   [*](2)              [*](2)              [*](2)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         All coal delivered hereunder shall be free from foreign matter
including wood, tramp metal, magnetic material and mine debris. No oil or rock
or other adulterant may be added to increase or decrease the natural heat value
of the coal. The Seller shall not load coal for the Purchaser's account into any
railcars containing foreign material including, but not limited to, coke, iron
ore pellets, ballast, etc.

-------------------------
(2)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission

                                       14
<PAGE>   15

         Coal shall be loaded to provide a consistent quality throughout the
Shipment with no layer loading.

         Each Shipment of coal shall have an "as-loaded" analysis, which shall
be provided to the Purchaser by facsimile transmission within twenty four (24)
hours of the loading of the Shipment. The telephone number for this facsimile
transmission is (202) 872-3089. Such analysis shall include, but not be limited
to, a proximate analysis or tests for all of the following coal quality
characteristics: moisture, ash, sulfur, volatile matter, and heating value. In
addition, at the direction of the Purchaser, analysis of fusion temperature of
ash and Hardgrove grindability index may be required. The Seller's sampling and
laboratory analysis must be performed in accordance with ASTM standards.

         2.2 -  Quality Analysis. The Seller shall mechanically sample each
Shipment during the loading process in accordance with the most current ASTM
standards. If mechanical sampling cannot be performed due to equipment
unavailability, the Seller shall collect manual samples in accordance with
current ASTM standards. All sampling costs shall be borne by the Seller. The
Purchaser will have the right to reject any Shipment which the Seller has failed
to sample in its entirety or has sampled in a manner not consistent with the
above procedures. The Purchaser will have the right to have a representative
present to observe the sampling process.

         Any Shipment that has not been sampled, or for which any analytical
data are otherwise unavailable, shall be presumed to be of a quality represented
by the weighted averages of the analytical data for the current month under this
Agreement which were sampled in accordance with this Section 2.2, but only for
such characteristics for which actual analytical data are not available for such
Shipment.

                                       15
<PAGE>   16

         Each sample taken shall be divided into three (3) splits and placed in
suitable airtight containers. Two of the splits shall be made available to the
Purchaser or forwarded to the Purchaser's agent in accordance with the
Purchaser's instructions within twenty four (24) hours on completion of loading.
Any analysis of a split must be conducted in accordance with ASTM standards. One
split will be analyzed by the Purchaser or Purchaser's Agent at its expense and
shall be considered the Governing Analysis. The Purchaser will endeavor to
provide the Seller with a copy of the Governing Analysis within two (2) business
days of receiving a split for analysis. The second split shall be retained by
the Seller and the third split shall be retained by the Purchaser for a period
of thirty (30) days after the sample is taken. If the Seller analyzes the second
split in accordance with ASTM standards and its analysis differs from the
Purchaser's analysis in an amount which is above the then current ASTM
repeatability tolerance, the Seller reserves the right to request an analysis of
the third split, in which case the Purchaser will forward the third split to an
independent commercial testing laboratory not used for analysis of either the
Seller's or the Purchaser's splits. Unless the Seller so requests an analysis of
the third split, the results of the Purchaser's analysis shall be final and
shall govern. If the Seller does request such an analysis, the results obtained
from the analysis of the third party independent laboratory shall be final and
govern, and an appropriate adjustment based on such results shall be made in the
price paid and/or the number of Emission Allowances to be transferred, as
appropriate, for the coal sampled. The cost of such analysis shall be borne by
the Purchaser if the results differ from the Purchaser's original analysis in an
amount which is above the repeatability tolerance designated by the current ASTM
standards; otherwise, such cost shall be borne by the Seller.

         The Seller shall have a critical inspection of the mechanical sampling
systems performed on an annual basis by an independent testing laboratory and
have a copy of the critical inspection

                                       16
<PAGE>   17

results forwarded to the Purchaser. Purchaser shall reserve the right to witness
said critical inspection.

         2.3 -  Suspension and Termination for Unsatisfactory Coal The Purchaser
may, upon written notice to the Seller, immediately suspend further Shipments
should the Governing Analysis of any Shipment of coal indicate a failure to meet
one or more of the quality parameters set forth in Section 2.1 for volatile, ash
softening temperature, grindability and size or the following:

                (1)    Moisture Content: [*](3)
                (2)    Ash Content [*](3)
                (3)    BTU Content: [*](3)
                (4)    Sulfur Dioxide Content: [*](3)

         In the event of such suspension, the Purchaser, at its sole discretion,
shall decide whether to reduce the Base Quantity for the current Contract Year
by the amount of coal so suspended or to require the Seller to make up the
suspended tonnage at a later date.

         The Seller shall, within ten (10) days of the date Shipments are
suspended, provide written assurance to the Purchaser that conditions causing
deviation from such quality characteristics have been corrected and that coal
shipped thereafter shall conform to the quality parameters provided in Section
2.1. If no such written assurance by Seller is received within ten (10) days, or
if coal shipped after such assurance fails to meet one or more of the guaranteed
quality parameters provided for in Section 2.1, then the Purchaser may deem the
Seller in default of this Agreement.

-------------------------
(3)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       17
<PAGE>   18

         2.4 - Rejected Shipments of Coal. Any Shipment of coal which indicates
one or more of the following shall be deemed rejectable under this Agreement:

                     (1)   Moisture Content:   [*](4)

                     (2)   Ash Content:    [*](4)

                     (3)   Volatile Matter Content: [*](4)

                     (4)   BTU Content:   [*](4)

                     (5)   Sulfur Dioxide Content:   [*](4)

                     (6)   Ash Fusion Temperature

                           Softening, H=W,
                           Reducing ATM.:   [*](4)

         (a)    When the Governing Analysis indicates that the coal qualifies
for rejection under this Article, the Purchaser may elect to reject such
Shipment. If the Purchaser so elects, the Purchaser will promptly notify the
Seller and the Seller shall promptly dispose of the rejected coal in such
Shipment at the Seller's expense. Such Shipment of coal shall be deemed not to
have been delivered for any purpose under this Agreement, and the Seller shall
reimburse the Purchaser for any freight charges incurred by the Purchaser with
respect to such Shipment.

         In the event of such rejection, the Purchaser, at its sole discretion,
shall decide whether to reduce the Base Quantity for the current Contract Year
by the amount of coal so rejected or to require the Seller to make up the
rejected tonnage at a later date in accordance with Section 2.3.

-------------------------
(4)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       18
<PAGE>   19

         (b)    When the Governing Analysis indicates that coal has been
received which qualifies for rejection under this Article, the parties recognize
that the Seller's violation of this Article is likely to result in losses to the
Purchaser that may be difficult to quantify or to remedy adequately.
Accordingly, as liquidated damages, the parties agree that the delivered price
(including transportation) to be paid for such coal will be reduced, after
adjustments as set forth in Section 2.5, by [*] (5) % in the event such coal is
rejected due to sulfur dioxide and [*] (5) % in the event such coal is rejected
due to BTU, ash, moisture, volatile matter and/or ash fusion. Premiums will not
be calculated for any quality parameter on any Shipment deemed to be rejectable.

         2.5 -  Price Adjustments. The price as determined in accordance with
Article 4 shall be adjusted, based on the Governing Analysis, as follows:

         (a)    Heating Value (BTU). When the monthly weighted average heating
value of the coal Shipments made during a Calendar Month, as measured in
accordance with Section 2.2 after adjustments provided for in Section 2.5(c) is
greater or less than the BTU/Lb guaranteed in Section 2.1, the price shall be
adjusted by the ratio of the monthly weighted average heating value to the
guaranteed heating value in BTU/Lb. When the monthly weighted average heating
value exceeds the guaranteed heating value, the ratio shall be applied to the
Base Price as adjusted per Article 4. When the monthly weighted average heating
value is lower than the guaranteed heating value, the ratio shall be applied to
the sum of the Base Price as adjusted per Section 4.2 plus the transportation.
See Annex A for examples of BTU adjustments.

-------------------------
(5)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       19
<PAGE>   20

         (b)    Ash. When the monthly weighted average ash content of the coal
Shipments made during a Calendar Month, as measured in accordance with Section
2.2 is more than [*](6) % higher than the ash content guaranteed in Section 2.1,
an adjustment shall be made. This adjustment shall be assessed at $ [*](6) per
ton for each $ [*](6), or pro rata portion thereof, by which the monthly
weighted average ash content of that coal is above the percent ash content
guaranteed in Section 2.1. See Annex A for examples of ash content adjustments.

         (c)    Moisture. When the monthly weighted average moisture content of
the coal Shipments made during a Calendar Month, as measured in accordance with
Section 2.2, is [*](6) % or more greater than the moisture content guaranteed in
Section 2.1, the monthly weighted average heating value of the coal shall be
adjusted. This adjustment will consist of a subtraction of [*](6) equivalent
BTU/Lb. for each [*](6) %, or any fractional portion thereof, by which the
monthly weighted average moisture content of that coal is determined to be above
the moisture content guaranteed in Section 2.1. See Annex A for a moisture
adjustment example.

         (d)    Sulfur Dioxide (SO(2)). When the monthly weighted average of the
sulfur dioxide (SO(2)) content of the coal Shipments made during a Calendar
Month, as measured in accordance with Section 2.2, exceeds the sulfur dioxide
content guaranteed in Section 2.1, an adjustment shall be made. This adjustment
shall be assessed for each ton (SO(2)), by which the monthly weighted average
sulfur dioxide (SO(2)) content of the coal is determined to be above the sulfur
dioxide (SO(2)) content guaranteed in Section 2.1. The Seller shall pay the
sulfur dioxide (SO(2)) adjustment as assessed to the Purchaser in equivalent
corresponding Emission Allowances. See Annex A for examples of sulfur dioxide
(SO(2)) adjustment.

-------------------------
(6)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       20
<PAGE>   21

         When the monthly weighted average of the sulfur dioxide (SO(2)) content
of the coal Shipments made during a Calendar Month, as measured in accordance
with Section 2.2, is below the sulfur dioxide (SO(2)) content guaranteed in
Section 2.1, an adjustment will be made. This adjustment will be assessed for
each ton by which the monthly weighted average sulfur dioxide (SO(2)) content of
the coal is below the sulfur dioxide (SO(2)) content guaranteed in Section 2.1.
This adjustment shall be assessed in accordance with Annex A.

         The price of one (1) Emission Allowance will be determined by the
monthly price of one (1) Emission Allowance as posted by the Cantor Fitzgerald
Market Price Index for the month in which the coal Shipments were made. See
Annex A for examples of sulfur dioxide (SO(2)) adjustment.

         2.6 - Emission Allowance Transactions.

         (a)    During the period [*](7) through [*](7) to the extent said
option years are exercised by the Purchaser pursuant to Section 1.2(b), the
Purchaser shall provide all required Emission Allowances [*](7). When sulfur
dioxide (SO(2)) Emission Allowances remain over [*](7) on average during a
calendar month period, the Seller will share, for that calendar month, the cost
of the Emission Allowance with the Purchaser [*](7). The Seller will provide
[*](7) of all sulfur dioxide (SO(2)) Emission Allowances for monthly averages
over [*](7) and received rejectable Shipments of coal as identified in Section
2.4.

         (b)    Purchaser shall calculate the Emission Allowances associated
with each Shipment separately and advise the Seller of the aggregate amount of
Emission Allowances due the Purchaser within fifteen (15) calendar days after
the end of each month in which the Shipments were made.

         (c)    Seller warrants that all Emission Allowances provided to
Purchaser under this Agreement shall be free and clear of any and all
Encumbrances. Seller shall indemnify and hold Purchaser harmless from any loss
or liability, including reasonable attorneys' fees, resulting from any
Encumbrance upon any Emission Allowances provided pursuant to this Agreement
except to the extent that such Encumbrance arises from the actions of or
obligations assumed by Purchaser.

-------------------------
(7)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       21
<PAGE>   22

         (d)    The Emission Allowances must be current calendar year vintage or
earlier and are due to the Purchaser within thirty (30) calendar days of the
penalty notification, with the exception of those Emission Allowances associated
with December Shipments. Emission Allowances for December Shipments are due
Purchaser within fifteen (15) calendar days of the penalty notification, and, in
no event, no later than January 31 of the following calendar year.

The Seller must include on the EPA Allowance Transfer form 7610-6 the following:

         STEP 1:  Complete Transferor data
         STEP 2:  Complete Transferee data
                  ATS Account #  999900000161
                  Authorized Account Representative (AAR) ID # 000053
                  AAR
                  Phone Number (202)872-2273
                  AAR Fax Number (202)872-2142
         STEP 3:  Sign Transferor block
         STEP 4:  Mark block if applicable
         STEP 5:  Enter Emission Allowance Serial Numbers and Total Number of
                  Allowances

         The Seller must include a cover memo stating: (1) the Seller's name;
(2) the Purchaser's Purchase Order Number; and, (3) the Purchaser's Penalty
Reference Number.

         The Seller shall send the completed cover memo and EPA form to:

                               Potomac Electric Power Company
                               Attention: Environmental Consultant
                               1900 Pennsylvania Avenue, N.W., Room 705
                               Washington, D.C. 200968-0001.

         (e)    If Seller fails to provide the Purchaser with any Emission
Allowances required under this Agreement within thirty (30) days after receipt
from the Purchaser of the results of the Shipment's Governing Analysis pursuant
to Section 2.2 and all data necessary to make the Emission Allowance
calculations, or if EPA notifies Purchaser that some or all of the Emission
Allowances purported to be transferred are unavailable for transfer and that the
transfer therefore cannot be recorded by EPA within the ATS either in whole or
in part, Purchaser shall have the right, in addition to any other remedies
available at law or in equity, to acquire Emission Allowances in the quantity
and having

                                       22
<PAGE>   23

the compliance use dates of the Emission Allowances that Seller failed to have
transferred or with respect to which the transfer could not be recorded.
Purchaser may, at its option, (1) deduct all costs of acquiring such replacement
Allowances (including reasonable brokerage and attorneys' fees) from any amounts
Purchaser would otherwise be obligated to pay to Seller for coal received under
this Agreement or (2) demand and receive immediate reimbursement in cash from
Seller of all costs of acquiring such replacement Allowances (including
reasonable brokerage and attorneys' fees).

             (f) [*](8).

         2.7 -  Freeze Conditioning Treatment of Coal. Seller shall provide, at
no additional cost, freeze conditioning treatment of all coal Shipments under
this Agreement when the temperature at the loading tipple at the time of loading
is fourteen degrees F (14(Degree) F) or less between the following periods:
January 1, 1999 through March 15, 1999; December 15, 1999 through March 15,
2000; December 15, 2000 through March 15, 2001; December 15 through 31, 2001.
Seller shall provide freeze conditioning treatments of coal Shipments under this
Agreement as requested by Purchaser when the temperature at the loading tipple
at the time of loading is fifteen degrees F (15(Degree) F) or greater during the
above specified periods and Purchaser shall be invoiced at the Seller's cost, to
be identified prior to commencement of freeze conditioning treatments.

         The conditioning product shall meet approval requirements of the
Carrier and be acceptable to Purchaser.

-------------------------
(8)      Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       23
<PAGE>   24

         The product shall be applied as a spray at the manufacturer's
recommended concentration as the coal is loaded, with uniform distribution
throughout the Shipment. A minimum of two (2) pints of solution per ton of coal
shall be applied.

                                    ARTICLE 3

                              QUANTITY AND WEIGHING

         3.1 -  Quantity.  The coal shipped hereunder shall be weighed by the
Carrier.

         (a)    All scales and measuring devices are subject to inspection by
either party (at its expense) or its designated agent and shall meet the
standards set by the National Bureau of Standards Handbook 44 (or its successor
publication) and the AAR Scale Handbook. Should either party, at any time,
question the accuracy of the weights thus determined, such party shall so advise
the other party and may request a demonstration of the accuracy of the scales.

         (b)    In the event that the weighing and measuring devices specified
above are found to be in error by 1.00% or more, an equitable adjustment in
price and settlement shall be made promptly. In this event, the governing
weights will be determined by the average of the actual weights per car of the
five (5) most recent accurately weighed trainload Shipments from the origin of
the Shipment in question, which were equal to or greater than the minimum
trainload weight, as identified in Section 1.8 (b), multiplied by the number of
cars comprising the trainload Shipment in question, or as may be otherwise
mutually agreed by the parties. Seller agrees to maintain a complete and
accurate record of weights on all coal loaded at the tipple under consideration
under this Agreement and, upon reasonable notice, to make available to Purchaser
or its Agents during normal business hours all books, documents, and records
sufficient to determine such weights. Unless the Seller and the

                                       24
<PAGE>   25

Purchaser agree as to a proper correction factor and in the absence of definite
information as to when the error began, the adjustment shall be made on the
assumption that the error existed for one-half the time between the test
pursuant to which error was found and the next preceding test.

          (c)   If the Purchaser and the Seller should disagree as to the proper
method of inspection, test, calibration or adjustment of their weighing or
measuring device, the manufacturer of that device shall be consulted and its
recommendation with respect thereto shall be accepted as final.

                                    ARTICLE 4

                                      PRICE

         4.1 -  Base Price. The Base Price pursuant to this Agreement, per net
Ton of coal in rail cars at the Purchaser's generating facility, without
adjustment for quality and exclusive of transportation, shall be as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                PERIOD                                     MINE                                 PRICE PER TON*
                                                                                           (UNADJUSTED FOR QUALITY)
-------------------------------------------------------------------------------------------------------------------------
               <S>                         <C>                                            <C>
                 [*](9)                    Sentinel                                                  [*](9)
                 [*](9)                    Sawmill                                                   [*](9)
                 [*](9)                    Juliana                                                   [*](9)
-------------------------------------------------------------------------------------------------------------------------
                 [*](9)                    Sentinel                                                  [*](9)
                 [*](9)                    Sawmill                                                   [*](9)
                 [*](9)                    Juliana                                                   [*](9)
-------------------------------------------------------------------------------------------------------------------------
                 [*](9)                    Sentinel                                                  [*](9)
                 [*](9)                    Sawmill                                                   [*](9)
                 [*](9)                    Juliana                                                   [*](9)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

-        The cost of compliance with Laws (taxes, etc.) shall be adjusted up or
         down for all necessary costs incurred but the Seller to comply with all
         federal and state statutes or any other governmental imposition enacted
         after March 1, 1998 which apply to the coal industry in general as it
         relates to this Agreement, and are approximately equal in cost to all
         such producers and which cause the Seller's or Producer's costs for
         producing and delivering coal to the Purchaser under this Agreement to
         increase or decrease. If there are changes, the Seller shall compute
         the cost per Ton of complying with such changes and the amount so
         determined shall be reflected in the Purchase Price.

-------------------------
(9)     Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.

                                       25
<PAGE>   26

                                    ARTICLE 5

                              PAYMENTS AND RECORDS

         5.1 -  Payments. The Purchaser shall prepare invoices for delivered
coal. Payment will be made by the Purchaser for coal shipped and unloaded on a
per Shipment basis under this Agreement within thirty (30) days from date of
receipt at the generating station. If disputes arise, the Purchaser will pay the
undisputed portion of any invoice when due and, upon resolution of the dispute,
promptly pay any of the disputed portion mutually agreed by the Seller and the
Purchaser to be due.

         (a)    Except as provided for in Section 1.7, invoices will be prepared
by the Purchaser on the basis of the price in effect on the date when the coal
was shipped using coal weights as determined in accordance with Article 3.

         (b)    The Purchaser may deduct from the amount due Seller hereunder,
any amount owed to Purchaser for excess transportation or other coal procurement
costs incurred by Purchaser pursuant to Section 1.4 or any amount of increased
transportation costs to be reimbursed to Purchaser under Section 1.8(c).

         5.2 -  Records. For recording purposes, determination of quantity,
quality, and price, unless otherwise agreed, shall be based on the coal shipped
within each calendar month to Purchaser's Generating Stations. A calendar month
shall begin at 12:00 midnight Eastern Time on the last day of the preceding
month and end at 12:00 midnight Eastern Time on the last day of the current
month.

         The Seller shall maintain, during the term of this Agreement, for the
length of time required by such regulatory agencies as may have jurisdiction,
books, accounting records, documents, and

                                       26
<PAGE>   27

other evidence pertaining to (i) its obligations under this Agreement, including
without limitation, information relating to the Producing Facilities, and (ii)
all amounts charged under this Agreement. Upon the written request of the
Purchaser, the Seller shall make available such records at its office and/or
other facilities at any reasonable time or times for inspection by the Purchaser
or for inspection or audit by the Purchaser's authorized representatives.

                                    ARTICLE 6

                                 CONFIDENTIALITY

         The parties shall not disclose the terms of this Agreement, including,
but not limited to, the Base Price, or any confidential information of the other
party obtained as a result of this Agreement (collectively, "Confidential
Information") to a third party except: (i) as required by any federal or state
governmental agency; (ii) as required by court order provided that the party
subject to the court order has notified the other party of such order prior to
disclosing the Confidential Information; (iii) to a parent, subsidiary or other
affiliated company; (iv) to an investment or financial advisor or an auditing
firm for proper public financial reporting and/or accounting of a party provided
that such investment or financial advisor or auditing firm agrees to be bound by
these confidentiality provisions; or (v) to a prospective transferee of all or
part of the party's business, properties or assets provided that the prospective
transferee agrees to be bound by these confidentiality provisions. The
obligations of the party receiving the other party's Confidential Information
shall also include, but not be limited to, using the Confidential Information
exclusively in connection with performing its obligations under this Agreement
and not any other purposes, taking all necessary actions and precautions to
prevent the disclosure, use, or copying of Confidential Information in any
manner contrary to the terms of this Agreement, and revealing the Confidential
Information only to those employees, representatives and Agents who need to know
the Confidential Information in order to assist in the performance of the
obligations of this Agreement and who have agreed to comply with the
confidentiality obligations of this Agreement. The receiving party is
responsible for any breach of this Agreement by its representatives.

                                       27
<PAGE>   28

         6.1 -  Right to Equitable Relief. Each party acknowledges the value of
the Confidential Information to the other party and the inadequacy of money or
damages in the event of breach or threatened breach and agrees that, in addition
to any other remedies, rights and relief, the other shall be entitled to obtain
an injunction against a breach of these confidentiality obligations from any
court of competent jurisdiction immediately upon request, without being required
to post a bond or prove that damages are inadequate.

                                    ARTICLE 7

                                   LIMITATIONS

         7.1 -  Audit and Review. The Purchaser may elect at any time during the
term of this Agreement, as defined in Section 1.2, to perform a
financial/management review to ascertain the Seller's continued ability to
fulfill its obligations under this Agreement.

         If the Purchaser elects hereunder to perform said financial/management
review, the financial/management review of the Seller shall be made by a
competent and disinterested third-party, unaffiliated with either the Seller or
the Purchaser. Such party shall be selected by the Purchaser, subject to
Seller's approval, and shall agree in writing to keep confidential all data
supplied by the Seller and to refrain from using said data for any purpose other
than the review hereunder. The cost of the reviewing party or shall be borne by
the Purchaser.

         7.2 -  Force Majeure. "Force Majeure" as used herein shall mean a cause
beyond the control of the Seller or the Purchaser, as the case may be, which
wholly or partially prevents the mining, loading or delivery of the coal from
the Seller's mine, or the receiving, transporting or delivering of the coal by
the railroads, or the acceptance, unloading, storing or burning of the coal by
the

                                       28
<PAGE>   29

Purchaser at its destination. Examples of Force Majeure, but only as beyond the
control of the Seller or the Purchaser, as the case may be, are included but are
not limited to the following: Acts of God; acts of the public enemy;
insurrections; riots; strikes; labor disputes; shortage of supplies; fires;
explosions; floods; breakdowns of or damage to plants, mines, equipment or
facilities; unusual loss of electric load; unanticipated departure from the
Purchaser's forecast of its generation of electricity on a plant or system wide
basis; interruptions to or contingencies of transportation; embargoes; orders or
acts of civil authorities (including, without limitation, a city or county
ordinance or regulation, regulation or order of local, state or Federal
agencies, an act of state legislature, or an act of the United States Congress)
or military authority.

         If because of Force Majeure either the Purchaser or the Seller is
unable to carry out its obligation under this Agreement, and if such party
promptly gives the other party hereto written notice of such Force Majeure, then
the obligations of the party giving such notice and the corresponding
obligations of the other party shall be suspended to the extent made necessary
by and during the continuance of such Force Majeure.

         If during the term of this Agreement, any legal restrictions are
imposed which restrict the Purchaser from bringing into the jurisdiction where
the Purchaser's generating plant is located, or burning the coal supplied by the
Seller under this Agreement, any such restriction shall at the sole option of
the Purchaser be deemed to be an event of Force Majeure under this Agreement.
The Purchaser may elect but shall not be required to mix the coal supplied by
the Seller under this Agreement with other coal or with any other types of fuel
in order to avoid legal restrictions on burning the coal. Also, the Purchaser
may elect at its sole option but shall not be required by this Agreement to
modify or otherwise change the configuration of its generating plant to avoid
such

                                       29
<PAGE>   30

restrictions. The Seller shall cooperate with the Purchaser in any such efforts,
and the provisions of Section 1.2 shall be modified as necessary to accommodate
the results thereof.

         The Purchaser may elect to respond to the aforedescribed restrictions
by physical modification of its Morgantown Generating Station and/or
modification of its specifications for coal to be burned. In the event of
modification of the specifications for coal to be burned, the Purchaser shall
give written notice of the revised specifications, and the total consumption of
coal of the Morgantown Generating Station which is to be of such revised
specifications, to the Seller not less than six (6) months prior to the
implementation of such revised specifications. The Seller shall inform the
Purchaser within sixty (60) days after such notice is given as to whether or not
the Seller is capable of supplying coal having such specifications. In the event
that the Seller informs the Purchaser that the Seller is not capable of
supplying such coal, the annual quantity to be purchased under Section 1.2 shall
be reduced in the same proportion as the average percentage of said total annual
consumption which is to be of such revised specifications bears to the average
total annual consumption prior to the implementation of such revised
specifications. Such reduction in annual quantity shall be deemed to be a
condition of Force Majeure, and shall be effective not later than the end of the
six (6) months period following the Purchaser's written notice of the change in
specifications.

         If the Seller shall inform the Purchaser that the Seller is capable of
supplying coal meeting the revised specifications, the parties hereto agree to
promptly enter into good-faith negotiations to mutually agree upon modifications
to the Agreement to provide for a percentage of the annual quantity of coal to
be supplied hereunder to be of the revised specifications. That percentage shall
be the same as the percentage of the total annual consumption of the Morgantown
Generating Station which is to be of such revised specifications. This Agreement
shall remain in full force and

                                       30
<PAGE>   31

effect as to the remaining annual quantity to be provided hereunder. The parties
further agree that in the event the parties are unable to mutually agree to such
modifications, the annual quantity to be supplied under the Agreement shall be
reduced at the end of the six (6) months period following the Purchaser's
written notice of the change in specifications by this same percentage. Such
reduction shall be deemed to be a condition of Force Majeure.

         A party affected by Force Majeure promptly shall notify the other party
of the cause and expected duration thereof, and shall use due diligence, within
the limitations set forth above, to remove the cause or lessen its effect with
reasonable dispatch; provided, however, that nothing herein shall be construed
to require the Purchaser to enter into a new fuel supply or transportation
agreement, or to waive any rights it otherwise may have under other contracts or
agreements, or to require either party to enter into what it deems to be an
unfavorable labor agreement or settle a labor strike or lockout on terms not
acceptable to it. The Purchaser, if it so elects, shall have the right during
any the Seller's event of Force Majeure to purchase coal from other sources and
the Seller, if it so elects, shall have the right during the Purchaser's event
of Force Majeure to sell coal to others.

         Upon removal of the cause of Force Majeure, the parties shall resume
fulfillment of their obligations as applicable and in accordance with
then-current schedules. At its option, the Purchaser may (but shall not be
required to) purchase, and the Seller agrees to sell, the number of Tons of coal
that the Purchaser did not buy during the Force Majeure period. If the event of
Force Majeure causes only a partial reduction in the total quantity of coal the
Seller is able to deliver, the Seller shall deliver to the Purchaser its pro
rata share of coal produced from the reserves affected during the period of such
partial reduction.

                                       31
<PAGE>   32

         7.3 -  Termination. This Agreement may be terminated in advance of
expiration of the term as provided in Section 7.2 - Force Majeure or Section 8.2
- Default. Notwithstanding any such termination, Seller shall remain obligated
to transfer allowances to Purchaser in accordance with Section 2.6 of this
Agreement for any Contract Year or part thereof in which Purchaser purchases and
accepts coal from Seller under this Agreement.

         7.4 -  Assignment. Neither party may assign its rights, obligations and
interests under this Agreement without the non-assigning party's written consent
(which consent shall not be unreasonably withheld), unless the assignment
involves the transfer of all or part of the business, properties or assets of
the assignor by merger, consolidation, divestiture or sale of assets as long as
the assignee remains liable for the performance of the assignor's
responsibilities or obligations hereunder. The covenants, terms, provisions and
conditions of this Agreement shall apply to, bind and inure to the benefit of
the respective successors and permitted assigns of Seller and Purchaser.

         7.5 -  Interpretation. The paragraph headings included in this
Agreement have been used solely for convenience and shall not be used in
conjunction with the interpretation of this Agreement.

         7.6 -  Severability. Should any provision of this Agreement be
determined by the courts to be illegal or in conflict with any law, the validity
of the remaining provisions shall not be impaired.

                                       32
<PAGE>   33

                                    ARTICLE 8

                                    REMEDIES

         8.1 -  Failure to Perform. In the event of failure to perform by the
Seller, the Purchaser shall have the right to proceed at law or in equity to
seek specific performance and/or injunctive relief where default by the Seller
would deprive the Purchaser of a necessary supply of coal and, because of market
conditions or otherwise, the collection of damages does not afford the Purchaser
an adequate remedy.

         8.2 -  Default. A failure by either party to meet any obligation under
this Agreement shall be considered default. In the event of any default, the
defaulting party shall, within ten (10) days of written notification of said
default, provide written assurances satisfactory to the nondefaulting party that
the conditions causing the default have been corrected. If no such written
assurance is received within ten (10) days or such assurances provided by the
defaulting party are deemed in the sole judgement of the nondefaulting party to
be unsatisfactory, then the nondefaulting party may, upon written notification
to the defaulting party, terminate this Agreement immediately. In the event the
Seller is the defaulting party, upon notification by Purchaser of its intent to
terminate this Agreement, Seller shall immediately transfer any Emission
Allowances due to the Purchaser in accordance with Section 2.6.

         8.3 -  Other Disputes. Except as provided in Section 8.1 and Section
8.2, any controversy or claim arising out of or relating to this Agreement which
cannot be resolved by negotiation shall be resolved by binding arbitration.
Arbitration shall be held in the District of Columbia in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time of the arbitration (the "AAA Rules"); provided, however, that to the
extent that the AAA Rules are

                                       33
<PAGE>   34

inconsistent with the terms of this Agreement or the terms of this Agreement are
more specific than the AAA Rules, the terms of this Agreement will govern, and
provided further, that discovery and motion practice shall be permitted, and
that the Federal Rules of Civil Procedure shall govern all such motion practice
and discovery, the exchange of exhibits, witness lists and workpapers, and the
presentation of evidence by expert witnesses.

         The question or controversy shall be submitted for arbitration to a
single competent, disinterested arbitrator, if the parties are able to agree
upon such single arbitrator within thirty (30) days after the party requesting
arbitration notifies the other party of such request. If a single arbitrator
cannot be agreed upon within such thirty (30) day period, a board of three (3)
arbitrators shall be used. The arbitrators shall be selected as follows: the
party requesting arbitration shall state in writing the question or questions to
be submitted for decision and nominate a person to act as one arbitrator. The
party receiving such request shall appoint a second arbitrator, within fifteen
(15) days from the date of receipt of the requesting party's notice. The first
and second arbitrators shall select a third arbitrator, but if the arbitrators
shall be unable to agree upon such a third arbitrator within a period of thirty
(30) days from the date of appointment of the second arbitrator, the third
arbitrator shall be appointed upon motion or application of any party to the
Chief Judge (or Acting Chief Judge) of the United States District Court for the
District of Columbia.

         Upon selection of the arbitration board of either one or three members,
the board shall proceed with reasonable diligence to inquire into and determine
the questions or controversies at issue, as disclosed in the demanding party's
notice and any responses thereto. The board shall give both the Purchaser and
the Seller reasonable notice of the time and place (of which the board shall be
the judge) at which the board will take such evidence as it may deem reasonable,
requiring witnesses to be sworn, and at which the board may hear arguments of
counsel or others. If any

                                       34
<PAGE>   35

arbitrator shall decline or fail to act, the party (or parties in the case of a
single arbitrator) by whom he was appointed or the judge (in the case of an
arbitrator selected through application to the District Court) shall appoint
another to act in his or her place.

         After hearing the evidence and arguments submitted by the parties, the
board shall state its decision and award, in writing, within thirty (30) days of
the final submission by the parties, which decision and award, when delivered to
both parties, shall be final. Judgment may be entered upon such decision and
award in any court of competent jurisdiction.

         Each party shall bear its own costs incurred in connection with
arbitration under this Article, including costs and expenses associated with its
appointed arbitrator (in the case of arbitration before a three-member panel).
The parties shall share equally the costs and expenses associated with the
services of the single, disinterested arbitrator (in the case of a one-member
panel) and/or the third member of a three-member panel, as the case may be.

         8.4 -  Waiver of Rights. The failure of either party to insist in any
one or more instances upon strict performance of any of the provisions of this
Agreement or to take advantage of any of its rights hereunder shall not be
construed as a waiver of any such provision and such provision shall continue
and remain in full force and effect as to any such future instance.

                                    ARTICLE 9

                               LAW AND REGULATIONS

         9.1 -  Construction.  This Agreement shall be governed by and construed
under the laws of the District of Columbia.

                                       35
<PAGE>   36

         9.2 -  Governmental Authority. This Agreement and the performance of
all provisions thereof is expressly subject to all pertinent legislation,
orders, directives and regulations issued now or in the future by any
governmental authority having jurisdiction or purported authority to do so;
including the review and approval of the Agreement.

         9.3 -  Equal Opportunity. Reference is made to paragraphs (1) through
(7) (The "Equal Opportunity Clause") set forth in Sec. 202 of Executive Order
No. 11246 issued by the President of the United States on September 24, 1965 and
published on September 28, 1965 in Volume 30 of the Federal Register at Page
12319, as may be amended. By such reference such Equal Opportunity Clause is
hereby incorporated in this Agreement as a commitment on the part of the Seller,
effective during the performance of this Agreement and its acceptance. For the
purposes of such incorporation by reference, such necessary changes in language
shall be deemed to have been made in the Equal Opportunity Clause as are
appropriate to identify properly the parties and their undertakings. As a result
of such Equal Opportunity Clause commitment, the Seller may be obligated to file
certain periodic reports required under the above-mentioned Executive Order,
including Equal Employment Opportunity Employer Information Report EEO-1, copies
of the form of which are obtainable from the Office of Federal Contract
Compliance, United States Department of Labor.

         9.4 -  Utilization Clause. Reference is made to the small business
subcontracting plan requirement set forth in Public Law 95-507, as amended 15
USC 637 (d), and to the Utilization Clause as set forth in 48 CFR 52.219-8 and
attached hereto as Annex B. The provisions herein and attached hereto and other
applicable requirements, if any, are incorporated in this agreement by reference
with the same force and effect as though set forth in full.

                                       36
<PAGE>   37

                                   ARTICLE 10

                                     NOTICE

         10.1 - Addresses. Notices to a party or its agent required under this
Agreement shall be sent in writing to that party or agent at the following
address:

         (a)   Supplier:              Anker Energy Corporation
                                      2708 Cranberry Square
                                      Morgantown,  WV   26505
                                      ATTN:  Vice President of Sales

         (b)   Producers:             Anker West Virginia Mining Company, Inc.
                                      2708 Cranberry Square
                                      Morgantown,  WV 26505
                                      ATTN:  President

                                      Juliana Mining Company, Inc.
                                      96 Erbacon Road
                                      Cowen,  WV  26206
                                      ATTN:  President

         (c)   Supplier's Agents:     Courtney F. Foos Coal Company, Inc.
                                      3828 Virginia Beach Blvd. Virginia Beach,
                                      VA 23452
                                      ATTN: Courtney F. Foos, Jr.
                                      By fax: (610) 647-3780
                                      By Internet: cfoosjr@aol.com

                                      African American Coal Company
                                      516 Archibaldwalk,  SE
                                      Washington,  DC  20003
                                      ATTN:  Lawrence C. Smith

         (d)   Purchaser:             Potomac Electric Power Company
                                      1900 Pennsylvania Avenue, NW
                                      Room 708
                                      Washington, DC  20068
                                      ATTN:  Manager, Generation Fuels

                                       37
<PAGE>   38

         10.2 - Change of Address.  The address for either party given in
Section 10.1 shall be sufficient until formally amended.

         10.3 - Time and Method of Notice. Notice under this Agreement shall be
construed as given when sent to the proper address by registered mail; but
written notice actually received by other means shall be fully effective. When
speed of notice is essential, written notice shall be preceded by other
appropriate communication.

                                   ARTICLE 11

                                  MISCELLANEOUS

         11.1   This Agreement represents the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
writings, communications, discussions, representations or understandings,
whether written or oral.

         11.2   This Agreement may only be altered, amended or modified by a
written instrument duly executed by both parties.

                                   ARTICLE 12

                                   ATTACHMENTS

         The following attachments are incorporated into this Agreement by
reference:

         Annex A  -  Examples of Price Adjustment Calculations Based on Quality

         Annex B  -  "Utilization Clause"

         Annex C  -  "Guarantee"

                                       38
<PAGE>   39

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers:

      ATTEST                 SUPPLIER

                             (Anker Energy Corporation)
                             --------------------------
                             By: /s/  Royden L. Loucks
                                 -------------------------
                             Title: Vice President, Transportation
                                    ------------------------------

      ATTEST                 PRODUCER

                             (Anker West Virginia Mining Company, Inc.)
                             ------------------------------------------
                             By:  /s/   Ben Daud
                                  -----------------------------
                             Title:     President
                                   ----------------------------

      ATTEST                 PRODUCER

                             (Juliana Mining Company, Inc.)
                             --------------------------------
                             By:  /s/   Ben Daud
                                  ---------------------------
                             Title:     President
                                   --------------------------

      ATTEST                 SUPPLIER'S AGENT
                             (African American Coal Company, Inc.)
                             -------------------------------------
                             By: /s/  Illegible
                                 ---------------------------------
                             Title:
                                   ---------------------------

      ATTEST                 SUPPLIER'S AGENT
                             (Courtney F. Foos Coal Company, Inc.)
                             -------------------------------------
                             By:  /s/  Illegible
                                  ----------------------------
                             Title:
                                   -----------------------

      ATTEST                 PURCHASER

                             (Potomac Electric Power Company)
                             --------------------------------
                             By: /s/  Illegible
                                 ---------------------------
                             Title:
                                   -----------------------

                                       39

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