Document:

EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         Agreement  made  and  entered  into  the 7th day of June  2001,  by and
between American Claims Evaluation, Inc., a New York corporation, having a place
of business at One Jericho Plaza, Jericho, New York 11753 ("Employer"), and Gary
Gelman, c/o the Company, One Jericho Plaza, Jericho, NY 11753 ("Employee").

                              W I T N E S S E T H:
                              --------------------

         WHEREAS,  Employer is engaged in the business of  providing  vocational
rehabilitation and disability management services; and

         WHEREAS,  Employer  desires to employ Employee as Chairman of the Board
and Chief Executive Officer of Employer,  and Employee desires to be employed by
Employer, all pursuant to the terms and conditions hereinafter set forth;

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
promises and covenants herein contained, it is agreed as follows:

1. EMPLOYMENT; DUTIES.
   ------------------

         Employer  hereby  employs  Employee  as Chairman of the Board and Chief
Executive  Officer of  Employer.  Subject at all times to the  direction  of the
Board of Directors of Employer,  Employee  shall  perform  executive  duties and
shall also  perform  such other  services  and duties as the Board of  Directors
shall determine.

2. EMPLOYMENT.
   ----------

         Employee  hereby  accepts  employment  by  Employer  upon the terms and
conditions  contained  herein and agrees that during the term of this Agreement,
Employee shall devote such time as he in his sole discretion  deems necessary or
appropriate  to promote the business of  Employer.  Except as  specifically  set
forth below, Employee,  during the term of this Agreement,  will not perform any
services for any other entity,  whether such entity conducts a business which is
competitive  with the  business of Employer or is engaged in any other  business
activity;  provided, however, nothing herein contained shall be construed as (a)
preventing  Employee  from  investing  his  personal  assets in any  business or
businesses  which do not  compete  directly or  indirectly  with  Employer,  (b)
preventing  Employee  from  purchasing   securities  in  any  corporation  whose
securities  are  regularly  traded,  if such  purchases  shall not result in his
owning  beneficially  at any  time 3% or more of the  equity  securities  of any
corporation engaged in a business which is competitive,  directly or indirectly,
to that of Employer, or (c) preventing Employee from engaging in any activities,
if he receives the prior  approval of the Board of  Directors  of Employer  with
respect to his engaging in such activities.  Employee is specifically  given the
right to devote time and effort to the  business of American  Para  Professional
Systems, Inc.

<PAGE>

3. TERM.
   ----

         Employee's  employment  hereunder  shall  be for a term of one (1) year
commencing on the date hereof (the  "Effective  Date").  This Agreement shall be
automatically  extended from year to year  thereafter  unless either party gives
not less than three (3) months prior written notice to the other that such party
elects to have this Agreement  terminate  effective at the end of the initial or
then current renewal term.

4. COMPENSATION.
   ------------

         (a) As full  compensation for the performance of the Employee's  duties
on behalf of Employer,  Employer  shall pay Employee a salary at the rate of Two
Hundred  Thirty Eight  Thousand and Eight Hundred  Dollars  ($238,800),  payable
biweekly, or otherwise in accordance with the usual practice of Employer.

         (b) Employer  shall  reimburse  Employee  for the expenses  incurred by
Employee in connection with his duties hereunder,  such expenses to include, but
not be limited to, travel, entertainment,  and automobile; such reimbursement to
be made in accordance  with regular  Employer  policy and upon  presentation  by
Employee of the details of, and vouchers for, such expenses.

5. FRINGE BENEFITS.
   ---------------

         During the term of this  Agreement,  Employer  shall make  available to
Employee on the same terms and conditions as afforded other  employees,  medical
coverage and other fringe benefits.

6. NON-COMPETITION.
   ---------------

         (a) During the term of this Agreement and for a period of two (2) years
from the date of termination of his employment  hereunder,  Employee agrees that
he will not in any manner,  directly or indirectly,  on behalf of himself or any
person, firm, partnership,  joint venture,  corporation or other business entity
("Person"),  solicit any customers  who are  presently or may  hereafter  become
customers of Employer for business similar to Employer's business, or enter into
or engage in any business  substantially similar to Employer's business,  either
as an individual for his own account, or as a partner, joint venturer, employee,
agent,  salesman,  officer,  director or  shareholder  of a Person  operating or
intending to operate in the United States.

         (b) Subsequent to the termination of this Agreement,  Employee will not
interfere with or disrupt or attempt to disrupt Employer's business relationship
with its  customers or suppliers or solicit any of the employees of Employer for
a period of one (1) year from the date of termination of this Agreement.

         (c)  In the  event  that  Employee  breaches  any  provisions  of  this
paragraph or there is a threatened breach, then, in addition to any other rights
which  Employer may have,  Employer  shall be entitled to  injunctive  relief to
enforce  the  restrictions  contained  herein.  In  the  event  that  an  actual
proceeding  is brought in equity to enforce the  provisions  of this  paragraph,
Employee shall not urge as a defense that there is an adequate remedy at law nor
shall  Employer  be  prevented  from  seeking  any other  remedies  which may be
available.

         (d) The  existence of any claim or cause of action by Employer  against
Employee,  whether  predicated  upon  this  Agreement  or  otherwise,  shall not
constitute a defense to the enforcement by Employer of the foregoing restrictive
covenants but shall be litigated separately.

<PAGE>

7. DISABILITY COMPENSATION.
   -----------------------

         If because of mental,  physical or other  disability  Employee shall be
incapacitated from fully performing his obligations and agreements hereunder, he
will receive from Employer the following percentage of the payments to be made:

                Period After Beginning                      Percentage of
                of Disability                               Compensation
                -------------                               ------------
                0-3 months                                   100%
                3-6 months                                    50%
                Thereafter                                   -0-

         Employer  shall  have  the  right  to have  Employee  examined  at such
reasonable  time or times by such  physicians  as Employer  may  designate,  and
Employee will make himself available for and submit himself to such examinations
as and  when  requested.  Any  amounts  received  by  Employee  pursuant  to any
disability  insurance  maintained by Employer  (including  disability  insurance
maintained  under state law) shall be applied against the payments to be made to
Employee under this paragraph 7.

8. EARLY TERMINATION.
   -----------------

         (a) In the event that  Employee  shall die or shall be  disabled  for a
period of time  greater  than six (6) months (the  "Disability  Period."),  this
Agreement  shall be terminated as of the date of death or the date of expiration
of the Disability Period.

         (b) Employer shall have the right to terminate this Agreement,  without
any further  obligation  on  Employer's  part,  upon fifteen (15) days notice if
Employee  commits an offense  involving moral turpitude under federal,  state or
local laws.

         (c) This Agreement  shall  automatically  terminate in the event of the
dissolution, bankruptcy or insolvency of Employer.

9. NOTICES.
   -------

         All  notices  hereunder  shall be in  writing  and shall be sent to the
parties at the  respective  addresses  above set  forth.  All  notices  shall be
delivered in person or given by facsimile,  overnight  courier  service (such as
Federal Express),  registered or certified mail,  postage prepaid,  and shall be
deemed to have been given when  delivered  in person or  deposited in the United
States mail.  Either party may designate any other address to which notice shall
be given,  by giving notice to the other of such change of address in the manner
herein  provided.  A copy of any such notice  shall be sent by ordinary  mail to
Edward I. Tishelman,  Esq.,  Hartman & Craven LLP, 460 Park Avenue,  Suite 1100,
New York, New York 10022.

10. SEVERABILITY OF PROVISIONS.
    --------------------------

         If any  provision  of this  Agreement  shall be  declared by a court of
competent jurisdiction to be invalid,  illegal or incapable of being enforced in
whole or in part, the remaining  conditions  and provisions or portions  thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are  valid,  legal  and  enforceable,  and no  provision  shall  be  deemed
dependent upon any other covenant or provision unless so expressed herein.

<PAGE>

11. ENTIRE AGREEMENT; MODIFICATION.
    ------------------------------

         This Agreement contains the entire agreement of the parties relating to
the  subject  matter  hereof,  and the parties  hereto have made no  agreements,
representations  or warranties  relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.

12. BINDING EFFECT.
    --------------

         The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Employer,  its  successors  and assigns,  and
upon the  Employee  and his  legal  representatives,  heirs and  legatees.  This
Agreement  constitutes a personal service agreement,  and the performance of the
Employee's  obligations  hereunder  may not be  transferred  or  assigned by the
Employee.

13. NON-WAIVER.
    ----------

         The failure of either  party to insist upon the strict  performance  of
any of the terms,  conditions  and  provisions  of this  Agreement  shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms,  conditions  and  provisions  shall  remain in full force and effect.  No
waiver of any term or  condition  of this  Agreement on the part of either party
shall be effective for any purpose  whatsoever  unless such waiver is in writing
and signed by such party.

14. GOVERNING LAW.
    -------------

         This Agreement shall be construed and governed by the laws of the State
of New York.

15. ARBITRATION.
    -----------

         Except as provided in Paragraph  7, any  controversy  or claim  arising
under,  out of, or in  connection  with this  Agreement or any breach or claimed
breach thereof,  shall be settled by arbitration in the Village of Mineola,  New
York,  before a panel of three  arbitrators,  in accordance  with the rules then
obtaining of the American Arbitration  Association,  and judgment upon any award
rendered may be entered in any court having jurisdiction thereof.

16. HEADINGS.
    --------

         The headings of the paragraphs  herein are inserted for convenience and
shall not affect any interpretation of this Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written. American Claims Evaluation, Inc.

                                   By:  /s/ GARY J. KNAUER
                                        ----------------------------------------
                                        Gary J. Knauer, Chief Financial Officer

                                        /s/ GARY GELMAN
                                        ----------------------------------------
                                        Gary Gelman - EmployeeEXHIBIT 4.1

                           MPOWER HOLDING CORPORATION

                           CERTIFICATE OF DESIGNATION
                       OF THE VOTING POWERS, DESIGNATION,
                    PREFERENCES AND RELATIVE, PARTICIPATING,
              OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
                       LIMITATIONS AND RESTRICTIONS OF THE
                      SERIES C CONVERTIBLE PREFERRED STOCK

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

                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware

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

         Mpower Holding Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that pursuant to the authority vested in the Board of Directors
of the Corporation by its Certificate of Incorporation, as amended and restated
on June 27, 2001 (the "Certificate of Incorporation"), and pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, by unanimous written consent or at a meeting
duly called and held, adopted the following resolution which remains in full
force and effect as of the date hereof:

         RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") by its Certificate of
Incorporation, the Board of Directors does hereby create, authorize and provide
for the issuance of Series C Convertible Preferred Stock, par value $.001 per
share, consisting of 1,250,000 shares, having the following designations,
preferences and relative and other special rights, qualifications, limitations
and restrictions.

         1. Designation. The designation of such series is "Series C Convertible
Preferred Stock" (hereinafter in this Certificate of Designation called the
"Series C Preferred") and the number of shares constituting such series shall be
1,250,000, which number may be decreased (but not increased) by the Board of
Directors without a vote of stockholders; provided, however, that such number
may not be decreased below the number of then currently outstanding shares of
Series C Preferred, plus shares issuable upon the exercise of any then
outstanding options, warrants or rights to acquire Series C Preferred. All
capitalized terms used in this Certificate of Designation and not otherwise
defined shall have the meaning given to such terms in Section 12 hereof.

                 In addition, the Board of Directors hereby acknowledges that
the Corporation is the successor of Mpower Communications Corp. ("Mpower"), a
Nevada corporation, for all purposes and, as such, pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of April 12, 2001 (the "Merger
Agreement"), among the Corporation, Mpower and Mpower Merger Company, Inc., a
Delaware corporation, each and every share of Series C Preferred created hereby
is subject to the same terms (including, but not limited to, all powers,

<PAGE>

rights, preferences, limitations, qualifications, restrictions or designations )
in effect at the Effective Time (as defined in the Merger Agreement) with
respect to a share of Series C Convertible Preferred Stock of Mpower (the
"Mpower Series C Preferred") outstanding at the Effective Time (subject to any
modification of such terms after the Effective Time as provided herein) and each
and every designation, preference and relative and other special right,
qualification, limitation and restriction on the Series C Preferred specified
herein has been incorporated fully from the Certificate of Designation governing
the Mpower Series C Preferred and, as such, is hereby modified to the same
extent as such designation, preference and relative and other special right,
qualification, limitation and restriction would have been modified in the
Certificate of Designation governing the Mpower Series C Preferred as of the
Effective Time.

         2. Dividend Rights. Holders of Series C Preferred, prior to and in
preference to the holders of Junior Securities, will be entitled to receive, out
of funds legally available for such purpose, cumulative dividends as provided in
this Section 2. Dividends on each share of Series C Preferred shall accrue at
the rate of 10% per annum on the sum of (i) the Series C Liquidation Value and
(ii) all accrued and unpaid dividends on such share of Series C Preferred from
the date of issuance. Such dividends will be calculated and compounded annually
on December 31 of each year (each a "dividend date") in respect of the prior
twelve month period (the initial such calculation to be made at the same rate
for the number of days elapsed from the date of issue of Series C Preferred to
and including the 31st day of December, 1999). Such dividends shall commence to
accrue on each share of Series C Preferred from the date of issuance thereof
whether or not declared by the Board of Directors, and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and shall continue to accrue thereon until the date the
Series C Liquidation Value of such share (plus all accrued and unpaid dividends
thereon) is paid in full. For purposes of determining the amount of dividends
accrued on the Series C Preferred pursuant to this Section 2 in connection with
the sale, conversion, redemption or repurchase of any Series C Preferred which
may occur between two dividend dates, the applicable dividend rate for such
period shall be multiplied by a fraction, the numerator of which is the actual
number of days elapsed in the then current annual period and the denominator of
which is the total number of days comprising such annual period. All dividends
shall be payable only as, when and in the manner provided for in, Sections 4 and
5 hereof. Except as otherwise provided herein, if at any time the Corporation
pays less than the total amount of dividends then accrued with respect to the
Series C Preferred, such payment shall be distributed ratably among the holders
of Series C Preferred and such other class or series of the Corporation's
Preferred Stock which by its terms is then entitled to receive dividends on a
parity with the Series C Preferred in proportion to the full dividend amount
each such holder would be entitled to receive upon payment of all accrued
dividends on the Series C Preferred and such other Preferred Stock.

         3. Voting Rights.

                 (a) Voting Generally. Except as otherwise required by law or as
provided in this Section 3, the Series C Preferred will vote together with the
Common Stock, and not as a separate class, at any annual or special meeting of
stockholders, and may act by written consent in the same manner as the Common
Stock. In either case, each holder of shares of Series C Preferred will be
entitled to such number of votes as will be equal to the number of whole shares
of Common Stock into which such holder's aggregate number of shares of Series C
Preferred are

                                       2
<PAGE>

convertible pursuant to Section 5 hereof (assuming only for purposes of this
calculation that accrued and unpaid dividends on such shares are not subject to
conversion as described in Section 5(e)) immediately after the close of business
on the record date fixed for such meeting or the effective date of such written
consent.

                 (b) Separate Vote of Series C Preferred. So long as not less
than one-third of the number of shares of Series C Preferred initially issued
remain outstanding, the vote or written consent of a Majority of the Series C
Holders shall be necessary for effecting or validating the following actions
(each a "Restricted Action"):

                    (i)       increase or decrease (other than by redemption or
                              conversion) the total number of authorized shares
                              of, or issue any series of, Preferred Stock which
                              is senior in respect of dividends, liquidation or
                              otherwise to or on a pari passu basis with the
                              Series C Preferred ("Restricted Preferred Stock");

                    (ii)      permit the Corporation or any Subsidiary to sell,
                              convey or otherwise dispose of assets having a
                              value in excess of $5,000,000; or merge into or
                              consolidate with any other Person (other than the
                              Corporation or a Subsidiary); or effect a Sale of
                              the Company;

                    (iii)     voluntarily liquidate, dissolve or wind up the
                              Corporation;

                    (iv)      alter or change the rights, preferences or
                              privileges of the shares of Series C Preferred so
                              as to affect adversely such shares;

                    (v)       declare or pay any dividends or make other
                              distribution on any Junior Securities except for
                              (x) the repurchase of any Common Stock subject to
                              a repurchase right for terminated employees or
                              independent contractors and (y) issuances of
                              Common Stock in satisfaction of accrued and unpaid
                              dividends on Junior Securities; provided such
                              issuances shall not affect the antidilution rights
                              of the holders of Series C Preferred provided for
                              in Section 5 hereof;

                    (vi)      permit the Corporation or any Subsidiary to enter
                              into any transaction or series of related
                              transactions with any Affiliate of the
                              Corporation, other than those directly related to
                              (1) pay or benefits (including stock options)
                              provided to Affiliates who are employees or
                              Directors in accordance with existing agreements
                              or past practices or approved with Required Board
                              Approval; (2) the lease of additional office space
                              in the Las Vegas metropolitan area on terms
                              consistent with the existing leases to which the
                              Corporation is a party, and as approved by the
                              Required Board Approval; or (3) any other
                              arm's-length, commercially reasonable transactions
                              approved by the disinterested Directors in an
                              amount not to exceed $100,000 in any year;

                                       3
<PAGE>

                    (vii)     permit the Corporation or any Subsidiary to
                              acquire the assets or securities of any Person
                              except for acquisitions involving cash, securities
                              or other property with an aggregate Fair Market
                              Value of less than (x) $50 million for any single
                              acquisition and (y) $100 million in the aggregate
                              for all such acquisitions during any 12-month
                              period;

                    (viii)    permit the Corporation or any Subsidiary to incur
                              additional Indebtedness (other than Indebtedness
                              incurred as a result of the refinancing of
                              existing Indebtedness, provided the total
                              outstanding Indebtedness does not increase as a
                              result of such refinancing) in excess of (x) an
                              aggregate at any one time outstanding for the
                              Corporation and its Subsidiaries of up to
                              $100,000,000 until May 5, 2000 plus accrued and
                              unpaid interest on such Indebtedness, (y) after
                              May 5, 2000 until May 5, 2001 an aggregate at any
                              one time outstanding for the Corporation and its
                              subsidiaries of up to $200,000,000 plus accrued
                              and unpaid interest on such Indebtedness and (z)
                              thereafter an aggregate at any one time
                              outstanding for the Corporation and its
                              subsidiaries of $250,000,000 plus accrued and
                              unpaid interest thereon provided that for the
                              purposes of this Section 3(b)(viii), (A) the
                              amount of additional Indebtedness otherwise
                              permitted by this Section 3(b)(viii) shall be
                              reduced by the aggregate liquidation value of all
                              outstanding Restricted Preferred Stock other than
                              up to $200 million of the Corporation's Series D
                              Convertible Preferred Stock ("Series D Preferred")
                              and (B) Indebtedness shall not be deemed to
                              include purchase money financing for capital
                              expenditures in a budget approved by the Required
                              Board Approval;

                    (ix)      make any material changes to the Corporation's
                              then current business plan;

                    (x)       hire a chief executive officer of the Corporation;

                    (xi)      organize any new direct or indirect Subsidiaries
                              of the Corporation other than wholly-owned
                              Subsidiaries or any joint ventures between the
                              Corporation and a third party that involve the
                              diversion of assets or business of the Corporation
                              to the joint venture entity, amend or modify any
                              such joint venture or partnership agreement to
                              which the Corporation or any Subsidiary is a party
                              or restructure any Subsidiary, partnership or such
                              joint venture involving the Corporation or any
                              Subsidiary; or

                    (xii)     issue Additional Shares of Common Stock (or issue
                              other rights that, pursuant to Section 5(k), are
                              deemed to constitute Additional Shares of Common
                              Stock) to the extent that as a result of such
                              issuance (or deemed issuance) the Series C
                              Conversion Price

                                       4
<PAGE>

                              would be reduced to a price less than the Series C
                              Liquidation Value.

                 (c) The holders of the requisite percentage of Series C
Preferred shall either approve or reject a Restricted Action described in
Section 3(b)(vii)-(xi) (a "Special Restricted Action") within twenty (20)
business days of receipt by the holders of Series C Preferred of written notice
and a reasonably detailed description of the proposed Restricted Action;
provided that the failure of the holders of Series C Preferred to approve or
reject the Special Restricted Action within such time period shall not be deemed
to be an approval thereof.

                 (d) In the event the Series C Holders shall reject a Special
Restricted Action, the Corporation shall have the right, at the written election
of the Board, notice of which (the "Company Redemption Notice") shall be
promptly sent to the Series C Holders, to initiate an Optional Redemption, which
will be subject to the terms and conditions contained in Section 6. In the
Company Redemption Notice, the Corporation shall specify the Optional Redemption
Date for purposes of Section 6, which Optional Redemption Date shall not be more
than sixty (60) days from the date of the Company Redemption Notice. Within ten
(10) business days of the receipt of the Company Redemption Notice by the Series
C Holders, a Majority of the Series C Holders shall either (i) acknowledge and
agree in writing to the Optional Redemption or (ii) approve the Special
Restricted Action that is the subject of the Optional Redemption, in which event
the Optional Redemption shall be terminated. In the event the Special Restricted
Action is rejected by the Series C Holders but such Special Restricted Action is
not effected by the Corporation within ninety (90) days of the delivery of the
Company Redemption Notice, and the Optional Redemption has not yet been
consummated, a Majority of the Series C Holders may elect in writing to void the
Optional Redemption and return to the status quo ante.

                 (e) In the event the Corporation takes any Restricted Action
without obtaining the approval of the holders of the Series C Preferred as
required by Section 3(b) (an "Event of Non-Compliance") and a Majority of the
Series C Holders gives written notice to the Board of Directors of the
Corporation of such an Event of Non-Compliance, the Corporation shall then have
thirty (30) days to take such action as is necessary to cure such default to the
satisfaction of a Majority of the Series C Holders. If the Corporation is unable
to cure the Event of Non-Compliance, a Majority of the Series C Holders may then
elect to initiate a Sale of the Company by submitting written notice of that
election to the Board of Directors of the Corporation (a "Sale Notice"). The
Board of Directors will then have an obligation to use its best efforts to
effect a Sale of the Company; provided that within twenty (20) business days of
its receipt of a Sale Notice electing a Sale of the Company, the Board may elect
to initiate an Optional Redemption pursuant to and subject to the terms and
conditions of Section 6 hereof in lieu of a Sale of the Company by providing a
Company Redemption Notice to the Series C Holders. In the Company Redemption
Notice, the Corporation shall specify the Optional Redemption Date for purposes
of Section 6, which Optional Redemption Date shall not be more than sixty (60)
days from the date of the Company Redemption Notice.

                 (f) In the event a Sale of the Company has not been consummated
within six (6) months of a Sale Notice electing a Sale of the Company (and the
Corporation had not elected to initiate an Optional Redemption in lieu of a Sale
of the Company within the time period set forth in Section 3(e)), the Series C
Holders, voting as a separate class, will then have the right to

                                       5
<PAGE>

elect that number of the Directors of the Corporation as shall constitute a
majority of the total number of Directors of the Corporation as shall from time
to time constitute the Board. A special meeting of the stockholders shall be
called by the Corporation from time to time at the written instruction of a
Majority of the Series C Holders for the purpose of electing such Directors.

         4. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Corporation, voluntary or involuntary:

                 (a) The holders of Series C Preferred will be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Junior Securities by
reason of their ownership thereof, but subsequent to the repurchase or payment
in full or other satisfaction of the Senior Secured Notes, an amount per share
of Series C Preferred equal to the greater of (i) the Series C Liquidation Value
plus the greater of (x) the Minimum Dividend Amount and (y) all accrued but
unpaid dividends on such share of Series C Preferred at the rate of 10% per
annum, compounding annually, from the Original Issue Date and (ii) the amount
the holder of one share of Series C Preferred would have received in such
liquidation, dissolution, winding up, merger or Sale of the Company if such
share of Series C Preferred had been converted to Common Stock pursuant to
Section 5 immediately prior to such event; provided if such event occurs prior
to the first anniversary of the Original Issue Date, such conversion shall be
deemed to have occurred on such first anniversary of the Original Issue Date.
For the avoidance of doubt, in determining the amount a holder of Series C
Preferred would have received in any liquidation, dissolution, winding up,
merger or Sale of the Company under clause (ii) of the preceding sentence,
except as set forth in the immediately succeeding sentence hereof, all accrued
dividends on the Series C Preferred shall be assumed to have been paid to the
holders thereof immediately prior to such event in the manner provided for in
Section 5(e) hereof. Notwithstanding the foregoing, all or a portion of accrued
but unpaid dividends shall be extinguished and shall not be payable or deemed
payable upon any liquidation, dissolution or winding up (or Sale of the Company
deemed a liquidation pursuant to Section 4(b) hereof) if, and only to the extent
that, (i) such liquidation, dissolution or winding up occurs on or before the
thirty (30) month anniversary of the Original Issue Date and (ii) the payment of
dividends would result in each holder of Series C Preferred receiving cash
and/or Freely Tradeable Securities with a Fair Market Value in an amount that
exceeds on a per share basis the sum (x) 2.0 times the Series C Liquidation
Value and (y) the Minimum Dividend Amount (a "Qualified Return").

                 If the assets of the Corporation are insufficient to make
payment in full to all holders of Series C Preferred and any other class or
series of the Corporation's Preferred Stock which by its terms is on a parity
upon a liquidation, dissolution or winding up with the Series C Preferred
("Parity Preferred") of the full preferential amounts to which they may be
entitled upon any liquidation, dissolution or winding up (including a Sale of
the Company deemed a liquidation pursuant to Section 4(b) hereof), such assets
shall be distributed (A) first to satisfy all accrued and unpaid dividends on
the Series C Preferred and Parity Preferred (the "Accrued Dividend Amounts"),
and if such assets are insufficient to satisfy the Accrued Dividend Amounts in
full, then such assets shall be distributed ratably among the holders of Series
C Preferred and Parity Preferred in proportion to the full amount each such
holder would otherwise be entitled to receive in respect of the Accrued Dividend
Amounts and (B) after the payment or

                                       6
<PAGE>

satisfaction in full of the Accrued Dividend Amounts, the balance of such assets
shall be distributed ratably among the holders of Series C Preferred and Parity
Preferred in proportion to the full preferential amounts (exclusive of accrued
dividends) each such holder would otherwise be entitled to receive. In any
distribution of assets of the Corporation in connection with any liquidation,
dissolution, winding up, merger or Sale of the Company, the preferential amounts
distributable to the holders of Series C Preferred shall, unless the Majority of
the Series C Holders agree otherwise, be satisfied to the maximum extent
possible with cash, or to the extent there is insufficient cash available, cash
to the maximum extent available and the balance in Freely Tradeable Securities.

                 (b) At the written election of the holders of a Majority of the
Series C Preferred, a Sale of the Company shall be deemed to be a liquidation,
dissolution or winding up of the Corporation, as those terms are used in this
Section 4. In the event a Majority of the Series C Holders elect to treat such
Sale of the Company as a liquidation, dissolution or winding up of the
Corporation, the holders of Series C Preferred shall have the right to
preference upon the distribution of assets or the proceeds to be received as
provided in this Section 4.

                 (c) After setting apart or paying in full the preferential
amounts due the holders of Series C Preferred and Parity Preferred pursuant to
subparagraph (a) of this Section 4, the remaining assets of the Corporation
available for distribution to shareholders, if any, shall be distributed to the
other stockholders of the Corporation as their respective interests may appear.

                 (d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall, within ten
(10) days after the date the Board of Directors approves such action, or twenty
(20) days prior to any shareholders' meeting called to approve such action, or
twenty (20) days after the commencement of an involuntary proceeding, whichever
is earlier, give each holder of shares of Series C Preferred initial written
notice of the proposed action, including a description of the stock, cash and
property to be received by the holders of shares of Series C Preferred upon
consummation of the proposed action and the date of delivery thereof.

                 (e) The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation before the
expiration of thirty (30) days after the mailing of the initial notice of ten
(10) days after the mailing of any subsequent written notice, whichever is
later.

                 (f) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (other than a deemed liquidation
upon a Sale of the Company pursuant to Section 4(b)) which will involve the
distribution of assets other than cash and Freely Tradeable Securities, the
Corporation shall promptly determine the Fair Market Value of such other assets
to be distributed to the holders of shares of Series C Preferred and the holders
of shares of Common Stock.

         5. Conversion Rights. The holders of the Series C Preferred will have
the following rights with respect to the conversion of the Series C Preferred
into shares of Common Stock:

                                       7
<PAGE>

                 (a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Series C Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock (an "Optional Conversion"). The number of shares of
Common Stock to which a holder of Series C Preferred will be entitled upon
conversion (other than in respect of accrued dividends thereon, which shall be
payable as provided in Section 5(e) hereof) will be the product obtained by
multiplying the "Series C Conversion Rate" then in effect (determined as
provided in Section 5(c)), by the number of shares of Series C Preferred being
converted.

                 (b) Mandatory Conversion.

                     (1) At any time commencing on the earlier of (i) the date
that is 386 days after the Original Issue Date or (ii) the date on which the
Series C Holders exercise demand registration rights under Section 2.1(a) of
that certain Amended and Restated Registration Rights Agreement dated the
Original Issue Date, upon the written election of the Board of Directors of the
Corporation given after such earlier date, each share of Series C Preferred
shall be automatically converted into shares of Common Stock at the
then-effective Series C Conversion Rate if the Market Threshold has been
achieved and the Board makes this election and provides the Threshold Notice to
the Series C Holders within 60 days of the first day as of which the Market
Threshold has been achieved (a "Mandatory Conversion"). Payment of accrued
dividends on the Series C Preferred being converted pursuant to a Mandatory
Conversion shall be made as provided in Section 5(e) hereof. In the Threshold
Notice, the Board shall certify its calculation of the Market Threshold, and
provide each holder with such supporting documentation as such holder may
reasonably request.

                     (2) Upon the occurrence of the events specified in
paragraph (1) above, the outstanding shares of Series C Preferred will be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
will not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificates evidencing such
shares of Series C Preferred are either delivered to the Corporation or its
transfer agent as provided in Section 5(e) below.

                 (c) Conversion Rate. The conversion rate in effect at any time
for conversion of the Series C Preferred (the "Series C Conversion Rate") will
be the quotient obtained by dividing Twenty-eight Dollars ($28.00) by the
"Series C Conversion Price," calculated as provided in Section 5(d).

                 (d) Series C Conversion Price. (i) The conversion price for the
Series C Preferred will initially be Twenty-eight Dollars ($28.00) (the "Series
C Conversion Price"). Such initial Series C Conversion Price will be adjusted
from time to time in accordance with this Section 5. All references to the
Series C Conversion Price herein will mean the Series C Conversion Price, as so
adjusted.

                 (e) Mechanics of Conversion. Each holder of Series C Preferred
who desires or is obligated to convert the same into shares of Common Stock
pursuant to this Section 5 will

                                       8
<PAGE>

surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or any transfer agent for the Series C Preferred and will
give written notice to the Corporation at such office that such holder elects or
is obligated to convert same. Such notice will state the number of shares of
Series C Preferred being converted. Thereupon, the Corporation will promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock which equals the number of shares of
Common Stock to which such holder is entitled under the then-effective Series C
Conversion Rate. In addition, upon any such conversion the holder of the shares
of Series C Preferred being converted shall be issued, in satisfaction of the
accrued dividends on the Series C Preferred being converted, that number of
shares of Common Stock as is equal to the greater of (i) the number of shares of
Common Stock whose Fair Market Value equals the amount of all accrued but unpaid
dividends (calculated at the rate of 10% per annum, compounded annually, from
the Original Issue Date, but in no event less than the Minimum Dividend Amount)
on the shares of Series C Preferred being converted and (ii) the number of
shares of Common Stock obtained by dividing the aggregate amount of accrued but
unpaid dividends on the shares of Series C Preferred being converted (but not
less than the Minimum Dividend Amount) by the Series C Conversion Price then in
effect; provided, however, that (A) all of the accrued but unpaid dividends in
excess of the Minimum Dividend Amount shall be extinguished and shall not be
payable with respect to shares of Series C Preferred in the event such shares
are being converted on or before the thirty (30) month anniversary of the
Original Issue Date pursuant to (x) a Mandatory Conversion or (y) an Optional
Conversion within 60 days of the first day as of which the Market Threshold had
been achieved; and (B) the accrued but unpaid dividends shall be extinguished
and shall not be payable in an Optional Conversion that takes place on or before
the thirty (30) month anniversary of the Original Issue Date as part of a Sale
of the Company if, and to the extent that, the payment of dividends in
connection with such Sale of the Company would result in each holder receiving
an amount of cash and/or Freely Tradeable Securities with a Fair Market Value
that exceeds a Qualified Return. In addition, the Corporation shall promptly
deliver to the holder of Series C Preferred being converted a certificate
representing those shares of Series C Preferred, if any, that were not
converted. Such conversion will be deemed to have been made at the close of
business on the date of such surrender of the certificates representing the
shares of Series C Preferred to be converted in the event of a conversion
pursuant to Section 5(a) hereof or, in the case of a Mandatory Conversion, upon
the occurrence of the events specified in Section 5(b)(1) hereof, and the Person
entitled to receive the shares of Common Stock issuable upon such conversion
will be treated for all purposes as the record holder of such shares of Common
Stock on such date.

                 (f) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time after the date that the Original
Issue Date effects a subdivision of the outstanding Common Stock, the Series C
Conversion Price, in effect immediately before that subdivision will be
proportionately decreased. Conversely, if the Corporation at any time or from
time to time after the Original Issue Date combines the outstanding shares of
Common Stock into a smaller number of shares, the Series C Conversion Price in
effect immediately before the combination will be proportionately increased. Any
adjustment under this Section 5(f) will become effective at the close of
business on the record date as of which the subdivision or combination will
become effective.

                                       9
<PAGE>

                 (g) Adjustment for Common Stock Dividends and Distributions. If
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Series C Conversion Price that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Series C Conversion Price then in effect by a fraction
(1) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
divided is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series C Conversion Price will be recomputed accordingly as
of the close of business on such record date and thereafter the Series C
Conversion Price will be adjusted pursuant to this Section 5(g) to reflect the
actual payment of such dividend or distribution.

                 (h) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
will be made so that the holders of the Series C Preferred will receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of the other securities of the Corporation
which they would have received had their Series C Preferred been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Series C Preferred or
with respect to such other securities by their terms.

                 (i) Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date the Common
Stock issuable upon the conversion of the Series C Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 5), in
any such event each holder of Series C Preferred will have the right thereafter
to convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or the change
by holders of the maximum number of shares of Common Stock into which such
shares of Series C Preferred could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.

                 (j) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original Issue Date there
is a merger, consolidation, recapitalization, reclassification, sale of all or
substantially all of the Corporation's assets or

                                       10
<PAGE>

reorganization involving the Common Stock (collectively, a "capital
reorganization") (other than a Sale of the Company provided for in Section 4(b)
or a merger, consolidation, sale of assets, recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 5), as a part of such capital reorganization,
provision will be made so that the holders of the Series C Preferred will
thereafter be entitled to receive upon conversion of the Series C Preferred the
number of shares of stock or other securities or property of the Corporation to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such Capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment will be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
C Preferred after the capital reorganization to the end that the provisions of
this Section 5 (including adjustment of the Series C Conversion Price then in
effect and the number of shares issuable upon conversion of the Series C
Preferred) will be applicable after that event an be as nearly equivalent as
practicable.

                 (k) Sale of Shares Below Series C Conversion Price.

                         (1) If at any time or from time to time after the
Original Issue Date, the Corporation issues or sells, or is deemed by the
provisions of this Section 5(k) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in Section 5(g) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 5(f) above or in connection with the antidilution provisions set forth
in subsection 5(k)(5) hereof, for an Effective Price (as hereinafter defined)
less than the then effective Series C Conversion Price, then and in each such
case, the then existing Series C Conversion Price will be reduced, as of the
opening of business on the date of such issue or sale, to a price (but in no
event to a price less than the Series C Liquidation Value) determined by
dividing (a) the sum of (1) the product derived by multiplying (i) the Series C
Conversion Price in effect immediately prior to such issue or sale times (ii)
the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (2) the consideration, if any
received (or deemed received pursuant to subsection (k)(2)) by the Corporation
upon such issue or sale, by (b) the number of shares of Common Stock deemed
outstanding (as defined below) immediately after such issue or sale. For the
purposes of the preceding sentence, the number of shares of Common Stock deemed
to be outstanding as of a given date will be the sum of (a) the number of shares
of Common Stock actually outstanding, (b) the number of shares of Common Stock
into which the then outstanding Series C Preferred could be converted if fully
converted on the day immediately preceding the given date, and (c) the number of
shares of Common Stock that could be obtained through the exercise or conversion
in full of all other rights, options, warrants and convertible securities on the
day immediately preceding the given date, regardless of whether or not such
securities are fully exercisable for or convertible into Common Stock at such
time.

                         (2) For the purpose of making any adjustment required
under this Section 5(k), the consideration received by the Corporation for any
issue or sale of securities will (a) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after deduction
of any underwriting or similar commissions, compensation or concessions paid or
allowed by the Corporation in connection with such issue or sale but without
deduction of any expenses payable by the Corporation, (b) to the extent it
consists of property

                                       11
<PAGE>

other than cash, be computed at the Fair Market Value of that property, and (c)
if Additional shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for a consideration that covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors with Required
Board Approval to be allocable to such additional Shares of Common Stock,
Convertible Securities or rights or options.

                         (3) For the purpose of the adjustment required under
this Section 5(k), if the Corporation issues or sells any rights or options for
the purchase of, or stock or other securities exchangeable for or convertible
into, Additional Shares of Common Stock (such exchangeable or convertible stock
or securities being herein referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than the
Series C Conversion Price in effect, the Corporation will be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion or exchange thereof and to have received consideration
for the issuance of such shares an amount equal to the total amount of
consideration, if any, received by the Corporation for the issuance of such
rights or options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the
Corporation upon the exercise of such rights or options, plus in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion or exchange
thereof; provided that if in the case of Convertible Securities the minimum
amount of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without references to such
clauses; provided further that if the minimum amount of consideration payable to
the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events, including by reason of antidilution
adjustments, the Effective Price will be recalculated using the figure to which
such minimum amount of consideration is reduced; provided further that if the
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities is subsequently
increased, the Effective Price will be again recalculated using the increased
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities. No further
adjustment of the Series C Conversion Price, as adjusted in each case upon the
issuance of such rights, options or Convertible Securities will be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the exchange or conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Series C Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, will be readjusted
to the Series C Conversion Price that would have been in effect had an
adjustment be made on the basis that the only Additional Shares of Common Stock
so issued were the Additional Shares of Common Stock, if any, actually issued or
sold on the exercise of such rights or options or upon such conversion and that
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration, if any, actually received by the

                                       12
<PAGE>

Corporation for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities ) on the conversion of
such Convertible Securities, provided that such readjustment shall not apply to
prior conversions of Series C Preferred.

                         (4) "Additional Shares of Common Stock" means all
shares of Common Stock issued by the Corporation or deemed to be issued pursuant
to this Section 5(k) whether or not subsequently reacquired or retired by the
Corporation other than (A) shares of Common Stock issued upon conversion of the
Series C Preferred, (B) options to purchase up to Four Million Six Hundred Forty
Thousand (4,640,000) shares of Common Stock granted to employees, officers or
directors of or consultants or advisors to the Corporation or any Subsidiary
pursuant to the Stock Option Plan and the shares of Common Stock issuable upon
exercise of such options, or such increased number of shares of Common Stock as
has been approved by the Required Board Approval, (C) Convertible Securities
outstanding as of the Original Issue Date and the shares of Common Stock
issuable upon exercise or conversion of such Convertible Securities, (D) Common
Stock issued in satisfaction of accrued and unpaid dividends on the Series C
Preferred and any other class or series of Preferred Stock the rights,
privileges and other terms of which have been approved in writing by the
majority of the Series C Holders, and (E) for purposes of Section 5(k)(5),
shares of Common Stock and options to purchase Common Stock issued prior to the
eighteen (18) month anniversary of the Original Issue Date to the extent that
the aggregate Fair Market Value of such shares of Common Stock issued and as to
which options are granted, valued as of the issuance of such shares and options,
do not exceed a total of $5.0 million. The "Effective Price" of Additional
Shares of Common Stock means the quotient determined by dividing (i) the
aggregate consideration received, or deemed to have been received by the
Corporation under this Section 5(k), for the issuance of such Additional Shares
of Common Stock, by (ii) the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold, by the Corporation under
this Section 5(k).

                         (5) Notwithstanding the adjustments to the Series C
Conversion Price otherwise provided for in this Section 5(k), in the event the
Corporation at any time or from time to time issues or sells, or is deemed by
the provisions of this Section 5(k) to have issued or sold, Additional Shares of
Common Stock prior to the eighteen (18) month anniversary of the Original Issue
Date (other than as a dividend or other distribution on any class of stock as
provided in Section 5(g) above and other than a subdivision or combination of
shares of Common Stock as provided in Section 5(f) above) for an Effective Price
that is less than the Series C Conversion Price in effect immediately prior to
such issuance or sale (or deemed issuance or sale), then and in each such event
the Series C Conversion Price shall be reduced (but in no event below the Series
C Liquidation Value), concurrently with such issuance or sale or deemed issuance
or sale, as applicable, of such Additional Shares of Common Stock, to such
Effective Price (but in no event shall the then effective Series C Conversion
Price be increased).

                         (6) Notwithstanding any provision of this Section 5 to
the contrary, in no event shall the aggregate number of shares of Common Stock
issuable upon conversion of the Series C Preferred exceed twenty percent (20%)
of the voting power of the Corporation's

                                       13
<PAGE>

outstanding capital stock as of the Original Issue Date, determined in
accordance with Rule 4310(H) of the National Association of Securities Dealers,
Inc.

                 (l) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Series C Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series C Preferred, the Corporation, at its expense, will compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and will mail such
certificate, by first class mail, postage prepaid, to each registered holder of
Series C Preferred at the holder's address as shown in the Corporation's books.
The certificate will set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based, including
a statement of (1) the Series C Conversion Price at the time in effect, and (2)
the type and amount, if any, of other property that at the time would be
received upon conversion of the Series C Preferred.

                 (m) Notices of Record Date. Upon (1) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution (other than in connection with the declaration
and payment of regular quarterly dividends in Common Stock on the Series D
Preferred), or (2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any other Sale of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation will
mail to each holder of Series C Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, Sale of the
Company, dissolution, liquidation or winding up is expected to become effective,
and (3) the date, if any, that is to be fixed as to when the holders of record
of Common Stock (or other securities) will be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, Sale of the
Company, dissolution, liquidation or winding up.

                 (n) Fractional Shares. No fractional shares of Common Stock
will be issued upon conversion of Series C Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series C Preferred by a holder thereof will be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional shares. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation will, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's Fair Market Value on the date of
conversion.

                 (o) Reservation of Stock Issuable Upon Conversion. The
Corporation will at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series C Preferred, such number of shares of
Common Stock as will from time to time be sufficient to effect the conversion of
all outstanding shares of Series C Preferred. If at any time the number of

                                       14
<PAGE>

authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series C Preferred, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as will be sufficient for such purpose.

                 (p) Notices. Any notice required by the provisions of this
Certificate of Designation to be given to the holders of shares of the Series C
Preferred will be deemed given upon the earlier of actual receipt or seventy-two
(72) hours after the same has been deposited in the United States mail, by
certified or registered mail, return receipt requested, postage prepaid, and
addressed to each holder of record at the address of such holder appearing on
the books of the Corporation.

                 (q) Payment of Taxes. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series C Preferred excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series C Preferred
so converted were registered.

                 (r) No Implied Approval. Notwithstanding any other provision
hereof to the contrary, the provisions of this Section 5, including those
providing for adjustments to the Series C Conversion Price, shall not be
construed as a waiver of the requirements of Section 3(b), and any issuance of
Additional Shares of Common Stock (or deemed issuance thereof) which would
reduce the Series C Conversion Price to an amount less than the Series C
Liquidation Value shall require the prior approval of the Majority of the Series
C Holders pursuant to Section 4(b)(xii).

         6. Optional Redemption.

                 (a) At any time after the sixth anniversary of the Original
Issue Date, or upon a Sale of the Company (but in no event prior to the
Corporation's repurchase or payment or satisfaction in full of the Senior
Secured Notes), a Majority of the Series C Holders may require the Corporation
to redeem all, but not less than all, of the outstanding shares of Series C
Preferred (an "Optional Redemption") by notifying the Corporation in writing of
their intent to exercise the rights afforded by this Section 6(a) and specifying
a date not less than 90 nor more than 120 days from the date of such notice on
which the outstanding shares of Series C Preferred shall be redeemed (the
"Optional Redemption Date"). Upon receipt of such notice, the Corporation shall
promptly notify the remaining holders of Series C Preferred of the Optional
Redemption Date. The recipients of such notices shall be required to participate
in the Optional Redemption. The Corporation shall redeem on the Optional
Redemption Date all the shares of Series C Preferred. Each share of Series C
Preferred to be redeemed shall be redeemed for an amount in cash and/or Freely
Tradeable Securities with a Fair Market Value equal to the greater of (A) the
sum of the Series C Liquidation Value and the greater of the Minimum Dividend
Amount and all accrued dividends on such share of Series C Preferred (provided
that all or a portion of the accrued but unpaid dividends shall be extinguished
and shall not be payable if, and to the extent that (x) the redemption occurs on
or before the thirty (30) month anniversary of the Original Issue Date and (y)
the payment of dividends would result in each holder of Series C Preferred
receiving in cash an amount that exceeds a Qualified Return), and (B) the Fair
Market

                                       15
<PAGE>

Value of the Common Stock into which the Series C Preferred is then convertible
pursuant to Section 5 hereof, including shares of Common Stock issuable upon
conversion in respect of accrued dividends to the extent provided in Section
5(e) hereof (the "Optional Redemption Price").

                 (b) In the event the Optional Redemption is occurring pursuant
to Section 3(d) or Section 3(e), each share of Series C Preferred to be redeemed
shall be redeemed for an amount in cash and/or Freely Tradeable Securities with
a Fair Market Value equal to, the greater of (i) the Optional Redemption Price
and (ii) the price per share set forth in the table below based on the year
during which the redemption occurs (the year number being the time period prior
to an anniversary of the Original Issue Date) and calculated as a multiple of
the Series C Liquidation Value:

                           Year                      Price
                           ----                      -----
                            1                          2.5
                            2                          2.5
                            3                            3
                            4                          3.5
                            5                            4
                            6                          4.5

                 Notwithstanding anything herein to the contrary, an Optional
Redemption pursuant to Section 3(d) or Section 3(e) shall not take place prior
to the Corporation's repurchase or payment or satisfaction in full of the Senior
Secured Notes, or the Corporation's compliance with, or its receipt of the
requisite consent from the holders of the Senior Secured Notes under, the
Indenture.

                 (c) If the funds of the Corporation legally available for
redemption of shares of Series C Preferred on an Optional Redemption Date and/or
shares of Parity Preferred then entitled to redemption are insufficient to
redeem the total number of outstanding shares of Series C Preferred and Parity
Preferred entitled to redemption, the holders of shares of Series C Preferred
and Parity Preferred entitled to redemption shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts that would be payable with respect to the full number of shares owned by
them if all such outstanding shares were redeemed in full. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such shares of Series C Preferred and Parity Preferred, such
funds will be used at the earliest permissible time, to redeem the balance of
such shares, or such portion thereof for which funds are then legally available.
The Corporation shall be obligated to use its best efforts to take such actions
as may be necessary (including, without limitation, the issuance of additional
equity securities, the revaluation or recapitalization of the Corporation or the
consummation of a Sale of the Company) in order to permit the full and timely
redemption of the shares of Series C Preferred entitled to redemption.

                 (d) If, for any reason, the Corporation fails to redeem all
shares of Series C Preferred entitled to redemption on an Optional Redemption
Date, and such failure continues for

                                       16
<PAGE>

a period of six (6) months from the Optional Redemption Date, then the Series C
Holders, voting as a separate class, shall have the right to elect that number
of Directors of the Corporation as shall constitute a majority of the total
number of Directors of the Corporation as shall from time to time constitute the
Board. A special meeting of the stockholders shall be called by the Corporation
from time to time at the written instruction of a Majority of Series C Holders
for the purpose of electing such Directors.

                 (e) Shares of Series C Preferred that have been issued and
reacquired in any manner, including shares purchased or redeemed or exchanged or
converted, shall (upon compliance with any applicable provisions of the General
Corporation Law of the State of Delaware) have the status of authorized but
unissued shares of Preferred Stock of the Corporation undesignated as to series
and may, subject to the requirements of Section 3(b), be designated or
redesignated and issued or resissued, as the case may, as part of any series of
Preferred Stock of the Corporation, other than as Series C Preferred.

         7. Exclusion of Other Rights. Except as may otherwise be required by
law, the shares of Series C Preferred shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this Certificate of Designation. The shares of Series
C Preferred shall have no preemptive or subscription rights pursuant to this
Certificate of Designation.

         8. Rank. The Series C Preferred shall rank senior in right as to
dividends and upon liquidation, dissolution or winding up to all Junior
Securities, whenever issued.

         9. Identical Rights. Each share of the Series C Preferred shall have
the same relative rights and preferences as, and shall be identical in all
respects with, all other shares of the Series C Preferred.

         10. Certificates. So long as any shares of the Series C Preferred are
outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish without charge to each shareholder who so requests, a full statement of
the designation and relative rights, preferences and limitations of each class
of stock or series thereof that the Corporation is authorized to issue and of
the authority of the Board of Directors to designate and fix the relative
rights, preferences and limitations of each series.

         11. Amendments. Any provision of these terms of the Series C Preferred
Stock may be amended, modified or waived if and only if a Majority of the Series
C Holders have consented in writing or by an affirmative vote to such amendment,
modification or waiver of any such provision of this Certificate of Designation,
and upon receipt of such written consent or the obtaining of such affirmative
vote, such amendment, modification or waiver shall be binding on all holders of
Series C Preferred.

         12. Definitions.

         "Additional Shares of Common Stock" shall have the meaning given such
term in Section 5(k)(4) of this Certificate of Designation.

                                       17
<PAGE>

         "Affiliate" or "Affiliates" shall mean with respect to any Person, any
other Person that would be considered to be an affiliate of such Person under
Rule 144(a) of the Rules of Regulations of the Securities and Exchange
Commission, as in effect on the date hereof, if the Corporation were issuing
securities.

         "Certificate of Incorporation" shall have the meaning given such term
on the cover page of this Certificate of Designation.

         "Board" or "Board of Directors" means the Board of Directors of the
Corporation.

         "Company Redemption Notice" shall have the meaning given to such term
in Section 3(d) of this Certificate of Designation.

         "Convertible Securities" shall have the meaning given such term in
Section 5(k)(3) of this Certificate of Designation.

         "Corporation" means Mpower Holding Corporation, a Delaware corporation.

         "Common Stock" means the Corporation's Common Stock, $.001 par value.

         "Effective Price" shall have the meaning given such term in Section
5(k)(4) of this Certificate of Designation.

         "Event of Non-Compliance" shall have the meaning given such term in
Section 3(e) of this Certificate of Designation.

         "Fair Market Value" of the assets or shares of capital stock at issue
shall mean the price that would be paid by a willing buyer of all of the assets
or shares of capital stock of the Corporation, as applicable, in a sale process
designed to attract all possible participants and to maximize value in an arm's
length transaction, such pride to include a control premium and to exclude any
minority, illiquidity or other discounts. The determination of Fair Market Value
shall be made by (i) the Board of Directors of the Corporation, or (ii) if at
the written election of a Majority of the Series C Holders after presentation of
the Board's determination of Fair Market Value, by a nationally recognized
investment banking firm mutually agreeable to the Corporation and a Majority of
the Series C Holders; provided, however, in the event a firm cannot be agreed
upon such amount shall be determined by a nationally recognized investment
banking firm selected by two other such firms, one selected by the Corporation
and the other by a Majority of the Series C Holders. The determination of Fair
Market Value by such investment banking firm shall be final and binding on the
parties. The fees and expenses of such firm shall be paid for by the
Corporation.

         "Freely Tradeable Securities" shall mean shares of a common stock of a
public company listed for trading on the New York Stock Exchange or Nasdaq
National Market that are free of any and all restrictions on sale, including
under Rule 144 or 145 under the Securities Act of 1933, as amended.

         "GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.

                                       18
<PAGE>

         "Indebtedness" shall mean all obligations, contingent (to the extent
required to be reflected in financial statements prepared in accordance with
GAAP) and otherwise, which in accordance with GAAP should be classified on the
obligor's balance sheet as liabilities, including, without limitation, in any
event and whether or not so classified: (i) all debt and similar monetary
obligations, whether direct or indirect; (ii) all liabilities secured by any
mortgage, pledge, security interest, lien, charge or other encumbrance existing
on property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; (iii) all guarantees, endorsements and
other contingent obligations whether direct or indirect in respect of
Indebtedness or performance of others, including any obligation to supply funds
to or in any manner to invest in, directly or indirectly, the debtor, to
purchase Indebtedness, or to assure the owner of Indebtedness against loss,
through an agreement to purchase goods, supplies or services for the purpose of
enabling the debtor to make payment of the Indebtedness held by such owner or
otherwise; (iv) obligations to reimburse issuers of any letters of credit; and
(v) purchase money financing for capital expenditures.

         "Indenture" shall mean that Indenture dated as of September 29, 1997
pursuant to which the Senior Secured Notes have been issued.

         "Junior Securities" shall mean any of the Corporation's Common Stock
and all other equity securities of the Corporation other than (x) the Series C
Preferred and (y) any other shares of the Corporation's preferred stock which
(a) by their terms state that they are not Junior Securities or provide the
holders thereof with rights pari passu with or senior to those of the holders of
Series C Preferred and (b) are approved for issuance in accordance with Section
3 hereof.

         "Majority of the Series C Holders" shall mean the holders of more than
fifty percent (50%) of the then outstanding Series C Preferred.

         "Mandatory Conversion" shall have the meaning given such term in
Section 5(b) of this Certificate of Designation.

         "Market Threshold" shall mean when the closing sales price of the
Common Stock on the Nasdaq Stock Market or the New York Stock Exchange for
twenty (20) consecutive trading days ending within the sixty (60) day period
preceding the Threshold Notice has exceeded the amount which equals 2.0 times
the Series C Liquidation Value (as adjusted from time to time to take into
account stock splits, stock dividends and similar events).

         "Minimum Dividend Amount" means in respect of each share of Series C
Preferred, $2.80; provided if the Corporation at any time subdivides (by stock
split, stock dividend, recapitalization or otherwise) the Series C Preferred
into a greater number of shares or if the Corporation at any time combines (by
reverse stock split or otherwise) the outstanding shares of Series C Preferred
into a smaller number of shares, then the Minimum Dividend Amount in effect
immediately prior to such subdivision or combination shall be proportionately
adjusted. In determining the Minimum Dividend Amount as of given date, the
amount dividends actually paid, if any, prior to such date on such share of
Series C Preferred shall reduce the Minimum Dividend Amount.

                                       19
<PAGE>

         "Optional Conversion" shall have the meaning given such term in Section
5(a) of this Certificate of Designation.

         "Optional Redemption" shall have the meaning given such term in Section
6(a) of this Certificate of Designation.

         "Optional Redemption Date" shall have the meaning given such term in
Section 6(a) of this Certificate of Designation.

         "Optional Redemption Price" shall have the meaning given such term in
Section 6(a) of this Certificate of Designation.

         "Original Issue Date" means December 29, 1999.

         "Person" shall mean any individual, partnership, corporation,
association, trust, joint venture, unincorporated organization and any
government, governmental department or agency or political subdivision thereof.

         "Qualified Return" shall have the meaning given to such term in Section
4(a).

         "Required Board Approval" shall have the meaning given to such term in
the Securityholders Agreement.

         "Restricted Action" shall have the meaning given such term in Section
3(b) of this Certificate of Designation.

         "Sale Notice" shall have the meaning given such term in Section 3(e) of
this Certificate of Designation.

         "Sale of the Company" shall have a single transaction or series of
transactions between the Corporation and/or its stockholders and any Person or
group of Persons (as such term is used in Section 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended) pursuant to which such Person or
group of Persons will (i) acquire shares of capital stock of the Corporation
possessing more than 50% of the voting power of the Corporation, including by
way of merger or consolidation or otherwise, or (ii) acquire all or
substantially all of the assets of the Corporation and its Subsidiaries
(determined on a consolidated basis); notwithstanding the foregoing definition,
a single transaction or series of transactions shall not be deemed a Sale of the
Company unless such transaction or series of transactions is also deemed a
"Change of Control", as defined in the Indenture.

         "Securityholders Agreement" shall mean that certain Amended and
Restated Securityholders Agreement of even date herewith among the Corporation,
the Series B Holders, the Series C Holders and certain other parties, as amended
from time to time.

         "Senior Secured Notes" means the $160,000,000 principal amount of 13%
Senior Secured Notes due 2004 that have been issued pursuant to the Indenture.

                                       20
<PAGE>

         "Series C Conversion Price" shall have the meaning given such term in
Section 5(d) of this Certificate of Designation.

         "Series C Conversion Rate" shall have the meaning given such term in
Section 5(c) of this Certificate of Designation.

         "Series C Holders" shall mean the holders of Series C Preferred.

         "Series C Liquidation Value" means Twenty-Eight Dollars ($28.00),
provided if the Corporation at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) the Series C Preferred into a greater
number of shares or if the Corporation at any time combines (by reverse stock
split or otherwise) the outstanding shares of the Series C Preferred into a
smaller number of shares, then the Series C Liquidation Value in effect
immediately prior to such subdivision or combination shall be proportionately
adjusted.

         "Series C Preferred" shall have the meaning given such term in Section
1 of this Certificate of Designation.

         "Special Restricted Action" shall have the meaning given such term in
Section 3 (c) of this Certificate of Designation.

         "Stock Option Plan" shall mean the Corporation's Stock Option Plan, as
adopted by the Board of Directors on June 30, 1996, and as amended to date.

         "Subsidiary" shall mean any Person as to which the Corporation owns,
directly or indirectly, either (a) 50% or more of such Person's stock (or
similar voting interests) entitled to vote generally in the election of
directors (or other governing body) or (b) 50% or more of the capital or profits
interest of such Person.

         "Threshold Notice" shall mean a written notice from the Corporation to
the holders of Series C Preferred stating that the Market Threshold has been
achieved and providing reasonable evidence thereof.

         13. Severability of Provisions. If any right, preference or limitation
of the Series C Preferred set forth in this Certificate of Designation (as such
Certificate of Designation may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule, law or public
policy, all other rights, preferences and limitations set forth in this
Certificate of Designation (as so amended) which can be given effect without
implicating the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other right, preference or limitation unless so expressed herein.

                     [Signatures are on the following page.]

                                       21
<PAGE>

         IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Chief Executive Officer and President, and
attested to by its Secretary, on June 27, 2001.

                                       MPOWER HOLDING CORPORATION

                                       By /s/ ROLLA P. HUFF
                                         ---------------------------------------
                                         Name:   Rolla P. Huff
                                         Title:  Chief Executive Officer
                                                 and President

Attest:

/s/ RUSSELL I. ZUCKERMAN
---------------------------------------
Name:  Russell I. Zuckerman
Title: Senior Vice President,
       General Counsel and Secretary

                                       Sworn to this 27th day of June, 2001

                                       By /s/ KAREN A. KOCH
                                         ---------------------------------------
                                              Notary Public

                                       22
<PAGE>

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