Document:

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                                                                   Exhibit 10.18

                       RETIREMENT AND EMPLOYMENT AGREEMENT

                  This AGREEMENT (the "AGREEMENT") is made as of the 7th day of
December, 2000 by and among MPOWER COMMUNICATIONS CORP., a Nevada corporation
(the "COMPANY") and Kent F. Heyman ("EXECUTIVE"). Capitalized terms that are not
otherwise defined within the text of this Agreement are defined in Section 6
hereof.

                  WHEREAS, Executive has retired effective December 31, 2000, as
the Senior Vice President & General Counsel of the Company; and

                  WHEREAS, the Company has determined that it is in its best
interests that Executive's employment with the Company continue and Executive
desires to continue his employment with the Company subsequent to his retirement
and that this Agreement supercedes any and all prior written or oral agreements
and understandings with the Company.

                  NOW, THEREFORE, in consideration of the premises and the
covenants and agreements herein contained, the parties hereto agree as follows:

                  1. EMPLOYMENT TERM. The Executive began employment with the
Company on June 1, 1996 and retired effective December 31, 2000. Subject to
earlier termination in accordance with the provisions of this Agreement, the
Agreement shall become effective as of the date hereof and the new term of
Executive's employment with the Company pursuant to this Agreement (the "TERM")
shall begin on January 1, 2001 and continue until December 31, 2001.

                  2. DUTIES. Effective January 1, 2001, Executive shall serve
the Company in such capacity as determined by the Chief Executive Officer (the
"CEO") of the Company and, as needed, shall perform such duties as the CEO or
such other persons as appointed by the CEO, may designate. Such duties shall be
the same as or similar to those performed by Executive prior to the date hereof.
Executive agrees that during the Term, Executive at the sole discretion of the
CEO may be required to spend up to 30% of his work day performing services for
the Company and shall not work as an employee, agent or representative for any
other person, firm or entity where such activity would violate Article 5 of this
Agreement. Effective January 1, 2001, the Executive's primary work location
shall be his choosing but he may be required to travel when necessary to perform
his services for the Company.

                  3. COMPENSATION AND BENEFITS.

                  3.01 FIXED SALARY. During the Term, as compensation for
Executive's services, the Company shall pay Executive a salary at the rate of
$180,000 per annum until December 31, 2000; the additional sum of $94,500 on
January 1, 2001 as retirement severance (the "Severance"); and a salary totaling
$40,500 for the period January 1, 2001 through December 31, 2001 (the "FIXED
SALARY"). The Fixed Salary shall be paid as follows: $3,375 per month through
December 31, 2001. The Severance and Fixed Salary payments shall be made less
appropriate payroll deductions as required by law.

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                  3.02 ANNUAL BONUS. During the Term, Executive shall be
eligible to receive his annual bonus for 2000, with the amount determined by the
Company in accordance with its customary procedures and standards applicable to
the 2000 bonus for other Senior Vice Presidents. The Executive waives his right
to any bonus for 2001.

                  3.03 INITIAL STOCK OPTION AWARDS. The Executive has received
one or more awards of options (the "INITIAL AWARD") to purchase shares of the
Company's common stock at exercise prices set forth in one or more of various
stock option agreements. A summary of the Executive's existing options are
attached as Appendix A hereto. The Executive's Initial Award will remain subject
to the terms and conditions of the applicable stock option agreements. More
specifically, the Executive's options shall continue to vest until the
Termination Date, and the Executive shall have the right to exercise his vested
options at any time prior to the Termination Date and for a period of thirty
(30) days thereafter. Any options that have not vested as of the Termination
Date shall be forfeited. Notwithstanding the foregoing, in the event the
Executive is terminated without Cause, his options shall continue to vest
through December 31, 2001, and his right to exercise all vested options shall
continue through January 31, 2002. All the Executive's options shall fully vest
in the event of a change of control of the Company prior to the Termination
Date, or prior to December 31, 2001 in the event the Executive has been
terminated without Cause. The term "CHANGE OF CONTROL" shall be defined by the
definition in the Company's current Stock Option Plan.

                  3.04 EXPENSES. Through the Termination Date, the Company shall
pay or reimburse Executive for all reasonable business expenses incurred in the
performance of Executive's duties and which are consistent with the Company's
policies, practices and procedures, upon submission of appropriate vouchers and
other supporting data.

                  3.05 BENEFITS. Through the Termination Date, and through
September 15, 2001 if the Executive is terminated without cause, Executive and
his eligible dependents shall be entitled to participate in all general pension,
profit-sharing, life, medical, disability and other insurance and benefit plans
in effect for similarly situated executives of the Company. As of December 7,
2000, all vacation accruals shall cease, any unused vacation balance will be
paid out in accordance with the company's policy on December 31, 2000.

         3.06 LOANS. Upon the satisfactory completion by the Executive of his
obligations under this Agreement, and in particular, but not limited to, him
obligations to perform services until September 15, 2001 and his further
obligations pursuant to Section 5, the Company shall (i) waive the Company's
right, if any, to repurchase any shares of the Company's stock from the
Executive, and (ii) permit the outstanding loans of the Executive to be repaid
in thirty-six (36) equal monthly installments of principal and interest (at the
rate of six percent (6%) per annum, compounded quarterly), with such payments to
commence of the Termination Date. In the event of a breach of any of the terms
and conditions of this Agreement, or the Executive's resignation prior to
September 15, 2001 or termination for Cause by the Company, all balances on
loans made by the Company to the Executive shall be immediately due and payable,
and the Company shall be entitled to exercise its rights then existing with
respect to the repurchase of the Company's shares. The Executive's termination
without Cause or Executive's resignation subsequent to September 15, 2001, shall
not be deemed a breach of this Agreement nor evidence

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of the Executive's failure to perform services until September 15, 2001 or
satisfactorily complete his obligations hereunder.

                  4. TERMINATION OF EMPLOYMENT. Subject to the terms of this
Section 4, the Company may terminate Executive's employment under this Agreement
at any time and for any reason.

                  4.01 TERMINATION OR RESIGNATION BY EXECUTIVE. In the event
that, during the Term, Executive's employment is terminated by the Company for
any reason or Executive resigns from his employment hereunder for any reason,
Executive shall receive the following: (i) accrued and unpaid Fixed Salary and
reimbursement for any outstanding business expenses through the Termination
Date; (ii) the Severance payment referred to in section 3.01; and (iii) such
other accrued compensation and benefits (including post-retirement benefits) as
may be due through the Termination Date under the terms of the compensation and
benefit plans in which Executive participates. In addition, in the event that
the Executive resigns or is terminated by the Company for other than Cause,
Executive shall receive a severance payment ("the SEVERANCE BENEFITS") of a lump
sum equal to any unpaid Fixed Salary due the Executive through December 31,
2001, provided, however, that Executive's right to receive any Severance
Benefits hereunder shall be contingent upon execution by him of a Waiver and
Release of Claims in favor of the Company and its affiliates substantially in
the form set forth in Appendix B hereto, his continued availability up to thirty
percent (30%) of his workday to assist in the transition of his work and him
compliance with the obligations set forth in Section 5 of this Agreement.

                  4.02 TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Executive's death or Disability, Executive's Fixed Salary shall continue to be
paid until the end of the Term to Executive or his estate, as the case may be.
Neither the Executive, nor his estate, as the case may be, shall be entitled to
continue to receive any benefits other than the Fixed Salary, proceeds from
insurance per the terms of any applicable policy and reimbursement of expenses,
and all further vesting of options shall cease.

                  4.03 NO OTHER PAYMENTS OR BENEFITS. As of the Termination
Date, other than the payments and benefits expressly provided for or referred to
in this Section 4, all obligations of the Company to Executive, other than as
required by law or provided under any applicable employee benefit plan of the
Company, shall cease.

                  4.04 NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company or by Executive during the Term shall be communicated
by a Notice of Termination to the other party hereto. The Notice of Termination
shall, if applicable, indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.

                  4.05 BREACH OF RESTRICTIVE COVENANTS. If, at any time
Executive breaches any of the provisions of Sections 5.01, 5.02, 5.03 and/or
5.05 below, he shall not be eligible, as of the date of such breach, for any
Severance Benefits described in this Section 4 and all obligations of the
Company to pay any such Severance Benefits hereunder shall thereupon cease.

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                  5. RESTRICTIVE COVENANTS.

                  5.01 CONFIDENTIALITY; NONDISCLOSURE. Executive understands and
acknowledges that in the course of Executive's employment, Executive has had and
will continue to have access to and will learn information proprietary to the
Company and its affiliates (the "COMPANY ") that concerns the technological
innovations, operation and methodology of the Company , including, without
limitation, business plans, financial information, protocols, proposals,
manuals, procedures and guidelines, computer source codes, programs, software,
know-how and specifications, copyrights, trade secrets, market information,
Developments (as hereinafter defined), data and customer information
(collectively, "PROPRIETARY INFORMATION"). "DEVELOPMENTS" shall mean all data,
discoveries, findings, reports, designs, inventions, improvements, methods,
practices, techniques, developments, programs, concepts and ideas, whether or
not patentable, relating to the present or planned activities, or the products
and services of the Company . Executive agrees that during the period beginning
on the date of his hiring and continuing in perpetuity thereafter, Executive
shall keep confidential and shall not disclose any such Proprietary Information
to any third party, except as required to fulfill Executive's duties in
connection with employment by the Company, and shall not misuse, misappropriate
or exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply to any information which Executive can demonstrate (i)
was already available to the public at the time of disclosure, or subsequently
became available to the public, otherwise than by breach of this Agreement or
(ii) was the subject of a court order to disclose. Upon any termination of
Executive's employment, Executive will immediately return to the Company all
Proprietary Information and copies thereof in Executive's possession.

                  5.02 NO COMPETING EMPLOYMENT. Prior to the Termination Date,
Executive hereby acknowledges that in the course of Executive's employment with
the Company, Executive has become familiar, and will become familiar, with the
trade secrets of the Company and with other confidential information concerning
the Company , and that Executive's services have been and will be of special,
unique and extraordinary value to the Company. Therefore, Executive hereby
agrees that until the Termination Date, Executive shall not, unless Executive
receives the prior written consent of the Board of Directors of the Company (the
"BOARD"), directly or indirectly, knowingly own an interest in, manage, operate,
join, control, lend money or render financial or other assistance to or
participate in or be connected, an officer, employee, partner, stockholder,
consultant or otherwise, any individual, partnership, firm, corporation or other
business organization or entity that competes with the business of the Company
as such businesses exist or are in the process of being formed or acquired as of
the Termination Date, within any geographical area in which the Company is
engaged, services customers, or was actively planning to engage during the Term
or as of the Termination Date; PROVIDED, HOWEVER, that this Section 5.02 shall
not proscribe Executive's ownership, either directly or indirectly, of less than
one percent of any class of securities which are listed on a national securities
exchange or quoted on the automated quotation system of the National Association
of Securities Dealers, Inc. For purposes of this Agreement, an individual or
entity shall be deemed to compete with the Company if, at the time the Executive
provides services to such individual or entity, said individual or entity offers
for sale any of the services or products (i) then being offered for sale by the
Company, or (ii) which the Company has then existing plans to offer within the
next six months. A competing entity shall include, but not be limited to, RBOCs,
ILECs and CLECs.

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                  5.03 RESTRICTIONS ON SOLICITATION. During the Restricted
Period and except as required pursuant to Executive's duties to the Company in
connection with the employment relationship, Executive will not, directly or
indirectly: (i) solicit or contact any customer of the Company (or any other
entity that Executive knows is a potential customer with respect to specific
products of the Company and with which Executive have had contact during the
period of Executive's employment with the Company) for any commercial pursuit
that to Executive's knowledge is in competition with the Company , or that to
Executive's knowledge is contemplated from time to time during the period of
Executive's employment with the Company by Company 's business plan; (ii) take
away or interfere or attempt to interfere with any custom, trade, business,
patronage or other business relation of the Company , or induce, or attempt to
induce, any employees, agents or consultants of or to the Company to do anything
from which Executive is restricted by reason of this Section 5; or (iii) induce
or aid others to induce employees, agents or consultants of the Company to
terminate their employment with the Company , or interfere or attempt to
interfere with any employees, agents or consultants of the Company .

                  5.04 EXTENSION OF RESTRICTED PERIOD. The Restricted Period
shall be extended by the length of any period during which Executive is in
breach of any of the terms of Section 5 hereof.

                  5.05 ASSIGNMENT OF DEVELOPMENTS. During the Term, all
Developments that are at any time made, conceived or suggested by Executive,
whether acting alone or in conjunction with others, shall be the sole and
absolute property of the Company, free of any reserved or other rights of any
kind on Executive's part. During the Term, if such Developments were made,
conceived or suggested by Executive during or as a result of Executive's
employment relationship with the Company , thereafter, Executive shall promptly
make full disclosure of any such Developments to the Company and, at the
Company's cost and expense, do all acts and things (including, among others, the
execution and delivery under oath of patent and copyright applications and
instruments of assignment) deemed by the Company to be necessary or desirable at
any time in order to effect the full assignment to the Company, or of
Executive's right and title, if any, to such Developments. Executive
acknowledges and agrees that any invention, concept, design or discovery that
concretely relates to or is associated with Executive's work for the Company
that is described in a patent application or is disclosed to a third party
directly or indirectly by Executive during the Restricted Period shall be the
property of and owned by the Company and such disclosure by patent application
or otherwise shall constitute a breach of Section 5.01 above.

                  5.06 APPLICATION OF COVENANTS. The activities described in
this Section 5 shall be prohibited regardless of whether undertaken by Executive
in an individual or representative capacity, and regardless of whether performed
for Executive's own account or for the account of any other individual,
partnership, firm, corporation or other business organization (other than the
Company).

                  5.07 INJUNCTIVE RELIEF. Without limiting the remedies
available to the Company, Executive acknowledges that a breach of any of the
covenants contained in this Section 5 may result in material irreparable injury
to the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and

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that, in the event of such a breach or threat thereof, the Company shall be
entitled to seek a temporary restraining order or a preliminary or permanent
injunction restraining Executive from engaging in activities prohibited by this
Section 5 or such other relief as may be required to specifically enforce any of
the covenants in this Section 5.

                  5.08 REASONABLENESS OF COVENANTS. If, at the time of
enforcement of the covenants set forth in this Section 5, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope or geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope or area.

                  5.09 VIOLATION AND REMEDY. If the Company reasonably
determines that Executive has breached any of the provisions of this Section 5,
in addition to any other remedies available to the Company in law or equity, the
Company shall be entitled to immediately suspend as of the date of such breach
the provision to Executive of any payments or benefits under this Agreement,
including without limitation, the Severance Benefit outlined in Section 4 of
this Agreement, and any Severance Benefits already paid shall be immediately
returned to the Company.

                  6. DEFINITIONS.

                  "CAUSE" shall mean a termination of Executive's employment
which is a result of any of the following: (A) his continued failure or refusal
to perform the duties of his employment pursuant to this Agreement; (B) his
breach of Article 5 of this Agreement; (C) his willful and material violation of
any federal or state law or regulation applicable to the business of the
Company, (D) his plea of no contest to or conviction of a felony involving moral
turpitude, (E) his perpetration of a common law fraud; or (F) any other willful
misconduct by Executive which is materially injurious to the Company.

                   "DISABILITY" shall mean Executive's incapacity due to
physical or mental illness which causes such Participant to be absent from the
full-time performance of Executive's duties with the Company for one-hundred and
twenty days during any twelve month period.

                  "NOTICE OF TERMINATION" shall mean the notice provided in the
event of any termination of Executive's employment by the Company or resignation
by Executive's during the Term which shall be communicated to the other party
hereto.

                  "RESTRICTED PERIOD" shall mean: (i) the period during which
Executive is employed with the Company; and (ii) following a termination of
Executive's employment with the Company for any reason, the period beginning on
the Termination Date and ending on the later of (A) the last day of the Term and
(B) the first anniversary of the Termination Date.

                  "TERMINATION DATE" shall be determined as follows: (i) if
Executive's employment is terminated for Disability, sixty days after a Notice
of Termination is given (provided that Executive shall not have returned to the
full-time performance of Executive's duties during such sixty-day period); (ii)
if Executive's employment is terminated by the Company without Cause, the date
specified in the Notice of Termination, which date shall be no earlier than 30
days after the date such notice is delivered to Executive, as the case may be
(or if

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no date is specified in the Notice of Termination, sixty days after the Notice
of Termination is received by the Company or delivered to Executive, as the case
may be); (iii) if Executive's employment is terminated by the Company for Cause,
the date specified in the Notice of Termination; (iv) in the event of
Executive's resignation of employment, the Termination Date shall be the date
set forth in the Notice of Termination, which date shall be no earlier than
thirty days after the date such notice is received by the Company; (v) the
Termination Date in the event of Executive's death shall be the date of
Executive's death; or (vi) December 31, 2001 if not terminated sooner pursuant
to this Agreement.

                  7. NOTICES. All notices under this Agreement shall be in
writing and shall be deemed to have been duly given if personally delivered
against receipt or if mailed by registered or certified mail, return receipt
requested, addressed to the Company and to Executive, at the address indicated
below or to such other person or address as may be designated by like notice
hereunder. Any such notice shall be deemed to have been given on the day
delivered, if personally delivered, or on the third business day after the date
of mailing, if mailed.

                  To the Company:

                           Mpower Communications Corp.
                           175 Sully's Trail, Suite 300
                           Pittsford, NY  14534

                           Attention:  Russell I. Zuckerman, Esq.

                  To Executive, at the address provided by him.

                  8. DISPUTE RESOLUTION PROCESS.

                  8.01 NEGOTIATION. (a) Executive and the Company shall attempt
in good faith to resolve any controversy, claim or dispute of whatever nature
arising in connection with the Agreement or the employment relationship
generally, including but not limited to those arising out of or relating to
performance, valuation, breach, termination, enforceability or validity thereof,
whether such claim is based on rights, privileges or interests recognized by or
based upon statute, contract, tort, common law or otherwise (a "DISPUTE"),
promptly by negotiation between Executive and the Company or such person or
group of persons as the Company may designate. For purposes of this Section 8
only, the term "COMPANY" shall be deemed to mean the Company or its designee(s).

                  (b) Executive must provide the Company with a written notice
(a "DISPUTE NOTICE") of any Dispute which has not been resolved in the normal
course of business. Within 15 business days after delivery of the Dispute
Notice, the Company shall submit to Executive a written response (the
"RESPONSE"). The Dispute Notice shall include a statement setting forth the
position of Executive and a summary of arguments supporting such position. The
Response shall include the Company's position with respect to the Dispute and a
summary of the arguments supporting such position. Within 60 business days after
delivery of the Dispute Notice, the Company, and Executive shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to attempt to resolve the Dispute.

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                  (c) If the Dispute has not been resolved within 90 business
days after delivery of the Dispute Notice, or if Executive and the Company, or
its designee, fail to meet within 60 business days after delivery of the Dispute
Notice as provided above, either party may initiate mediation of the Dispute as
hereinafter provided.

                  (d) All negotiations pursuant to this Section 8.01 shall be
treated as compromise and settlement negotiations. Nothing said or disclosed,
nor any document produced, in the course of such negotiations which is not
otherwise independently discoverable shall be offered or received as evidence or
used for impeachment or for any other purpose in any current or future
arbitration or litigation.

                  8.02 MEDIATION. (a) If the Dispute has not been resolved by
negotiation as described above, Executive shall make a good faith attempt to
settle the Dispute by mediation pursuant to the provisions of this Section 8.02
before resorting to arbitration pursuant to Section 8.03 hereof.

                  (b) Unless the parties to the Dispute agree otherwise, the
mediation shall be conducted in accordance with the CPR Institute for Dispute
Resolution Model Procedure for Mediation of Business Disputes then in effect by
a mediator chosen in good faith by the Company.

                  (c) Unless the parties to the Dispute agree otherwise, the
mediator shall be a neutral and impartial lawyer with excellent academic and
professional credentials who has had both training and experience as a mediator
of disputes.

                  (d) Executive may initiate mediation of the Dispute by giving
the Company written notice (a "MEDIATION NOTICE"). Within 15 business days after
the delivery of the Mediation Notice, the Company shall notify Executive of its
choice of the mediator.

                  (e) Within 30 business days after the mediator has been
selected as provided above, Executive and the Company and their respective
attorneys shall meet with the mediator for one or more mediation sessions of at
least four hours cumulatively. If the Dispute cannot be settled at such
mediation sessions or at any mutually agreed continuation thereof, either party
may give the other and the mediator a written notice declaring the mediation
process at an end, in which event then the Dispute shall be resolved by
arbitration as hereinafter provided.

                  (f) All conferences and discussions which occur in connection
with the mediation conducted pursuant to the Plan shall be deemed settlement
discussions, and nothing said or disclosed, nor any document produced, which is
not otherwise independently admissible or discoverable shall be offered or
received as evidence or used for impeachment or for any other purpose in any
current or future arbitration or litigation.

                  (g) The provisions of this Section 8.02 may be enforced by any
court of competent jurisdiction, and the party seeking enforcement shall be
entitled to all costs and expenses, including reasonable attorneys' fees, to be
paid by the party against whom enforcement is ordered.

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                  (h) Except as provided in Section 8.02(g) above, the costs of
the mediation shall be paid by the Company.

                  8.03 ARBITRATION. (a) If the Dispute has not been resolved by
negotiation as provided in Section 8.01 or mediation as provided in Section 8.02
then, the Dispute shall be determined by arbitration in Rochester, New York in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") then in effect by a panel of three arbitrators who (A) have
the qualifications and experience set forth in Section 8.03(b) and (B) are
selected as provided in Section 8.03(c). Any issue as to whether or the extent
to which the Dispute is subject to the arbitration and other dispute resolution
provisions contained in this Agreement, including but not limited to issues
relating to the validity or enforceability of these arbitration provisions, the
applicability of any statute of limitations or other defense relating to the
timeliness of the assertion of any claim or any other matter relating to the
arbitrability of such claim, shall be decided by the arbitrators. The
arbitrators shall base their award on the terms of the Agreement, and the
arbitrators shall strictly follow the law and judicial precedents which a United
States District Judge sitting in the Western District of the State of New York
would apply in the event the Dispute were litigated in such court. The
arbitrators shall render their decision in writing and, unless both parties
agree otherwise, shall include an explanation of the reasons for the award,
which explanation shall be limited to the extent necessary to support the award
and need not attempt to cover all issues raised by the parties. The arbitration
shall be governed by the substantive laws of New York State applicable to
contracts made and to be performed therein, without regard to conflicts of law
rules, and by the arbitration law chosen by the arbitrators, and the arbitrator
shall have no power or authority to order or grant any remedy or relief that a
court could not order or grant under applicable law. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
                  (b) Every person named on all lists of potential arbitrators
shall be neutral and impartial with excellent academic and professional
credentials (A) with experience in the subject matter of the Dispute and (B) who
has had both training and experience as an arbitrator and is generally available
to serve as an arbitrator.

                  (c) The arbitrators shall be selected as provided in this
Section 8.03(c) and otherwise in accordance with the AAA's Commercial
Arbitration Rules then in effect, except that each party shall be entitled to
strike on a peremptory basis, for any reason or no reason, any or all of the
names of potential arbitrators on any list submitted to the parties by the AAA
as well as any person selected by the AAA to serve as an arbitrator by
administrative appointment. In the event the parties cannot agree on the
selection of the arbitrator, a neutral third-party who shall be mutually agreed
upon by Executive and the Company shall nominate five persons who in his or her
opinion, meet the criteria set forth in Section 8.03(b) which nominees may not
include persons named on any list submitted by the AAA. Each party shall be
entitled to strike one of such five nominees on a peremptory basis and any other
nominees for cause within 10 business days after its receipt of such list of
nominees indicating its order of preference with respect to the remaining
nominees. If two of such nominees have been stricken by the parties, the
unstricken nominees shall be the arbitrators. If less than two nominees are
stricken by the parties, the Company shall choose the arbitral panel from among
the remaining choices. This process shall be repeated until a panel of three
arbitrators has been chosen.

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                  (d) The provisions of this Section 8.03 may be enforced by any
court of competent jurisdiction, and the party seeking enforcement shall be
entitled to all costs and expenses, including reasonable attorneys' fees, to be
paid by the party against whom enforcement is ordered.

                  (e) The costs and fees of the arbitration will be divided
equitably by the arbitrator between the parties; PROVIDED, HOWEVER, that in the
event that either party prevails over the other party in connection with an
arbitration arising out of the breach of this Agreement, the non-prevailing
party shall be liable for all reasonable attorney's fees and expenses incurred
in connection with any action for damages or the enforcement of any provision of
this Agreement brought by the other party.

                  9. MISCELLANEOUS.

                  9.01 NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Agreement
nor any of the rights or benefits evidenced hereby shall confer upon Executive
any right to continuance of employment by the Company or interfere in any way
with the right of the Company to terminate Executive's employment, subject to
the provisions of Section 4 above, for any reason, with or without Cause.

                  9.02 SOURCE OF PAYMENTS. All payments provided under this
Agreement (other than payments made pursuant to a plan which provides otherwise
or as otherwise expressly provided hereunder) shall be paid in cash from the
general funds of the Company, and no special or separate fund shall be
established, and no other segregation of assets made, to assure payment.
Executive will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder. To the extent that any person acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.

                  9.03 EXECUTIVE'S REPRESENTATION. Executive hereby represent
and warrant to the Company that the execution and delivery by Executive of this
Agreement to the Company will not breach the terms of any contract, agreement or
understanding to which Executive is party. Executive further acknowledges and
agrees that a breach of this representation by Executive shall render this
Agreement void ab initio and of no further force and effect.

                  9.04 SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and, in the case of the
Company, business successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise), but no other person shall acquire or have any
rights under or by virtue of this Agreement, and the obligations of Executive
under this Agreement may not be assigned or delegated.

                  9.05 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed,

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construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.

                  9.06 WITHHOLDING. Amounts paid to Executive's hereunder shall
be subject to all applicable federal, state and local tax withholdings.

                  9.07 TAX STATUS. The parties acknowledge that notwithstanding
the terms of the Executive's share option agreements, the terms of this
Agreement and the nature of the Executive's continuing obligations to the
Company may cause all or a portion of the Executive's options to lose their
status as qualified incentive stock options under the Internal Revenue Code, and
all tax consequences of such modifications shall be the sole responsibility of
the Executive and not of the Company.

                  9.08 HEADINGS. The headings contained in this Agreement are
intended solely for convenience of reference and shall not affect the rights of
the parties to this Agreement.

                  9.09 SURVIVAL. All of the provisions and restrictions set
forth in Section 5 shall survive and continue in full force in accordance with
their terms notwithstanding any termination of the Term.

                  9.10 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

                  9.11 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws and decisions of the State of
New York applicable to contracts made and to be performed therein without giving
effect to the principles of conflict of laws.

                  9.12 ENTIRE AGREEMENT; MODIFICATION; WAIVER; INTERPRETATION.
This Agreement contains the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations and oral understandings, if any, including, without limitation, any
prior agreements between Executive and Primary Network. Neither this Agreement
nor any of its provisions may be modified, amended, waived, discharged or
terminated, in whole or in part, except in writing signed by the party to be
charged. No waiver of any such provision or any breach of or default under this
Agreement shall be deemed or shall constitute a waiver of any other provision,
breach or default. All pronouns and words used in this Agreement shall be read
in the appropriate number and gender, the masculine, feminine and neuter shall
be interpreted interchangeably and the singular shall include the plural and
vice versa, as the circumstances may require.

         IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.

                                                     MPOWER COMMUNICATIONS CORP.

                                       11
<PAGE>   12
                                             By: _______________________________
                                                 Name:
                                                 Title:

                                                  ______________________________
                                                   Kent F. Heyman

                                       12
<PAGE>   13
                                   APPENDIX A

                                  KENT KEYMAN

                                EXISTING OPTIONS

<TABLE>
<S>            <C>                 <C>                 <C>          <C>
GRANT          EXPIRATION          GRANT               OPTION       OPTIONS
DATE           DATE                TYPE                PRICE        OUTSTANDING

6/1/96         6/1/06              Incentive           $1.11        28,800
9/4/98         9/4/08              Non-Qualified       $5.33         1,800
9/4/98         9/4/08              Incentive           $5.33         7,200
9/14/00        9/14/10             Incentive           $8.70        40,812
9/14/00        9/14/10             Non-Qualified       $8.70        71,688
</TABLE>

TOTAL OPTIONS OUTSTANDING                                          150,300
<PAGE>   14
                                   APPENDIX B

Mpower Communications Corp.
175 Sully's Trail, Suite 300
Pittsford, NY 14534

                                     RELEASE

                  I, [NAME], am a party to an Employment Agreement
("AGREEMENT"), dated April 16, 2000, with Mpower Communications Corp, a Nevada
corporation (the "COMPANY"). The Agreement contemplates that, on the Termination
Date (as such term is defined in the Agreement), I will deliver a Release in the
form set forth below, and I now desire to deliver such Release to the Company in
the manner contemplated by the Agreement.

                  1. General Release. In consideration of the obligations and
payments provided to me under Section 4 of the Agreement, I hereby release and
forever discharge the Company and its employees, officers and directors from any
and all claims, actions and causes of action (collectively, "CLAIMS"),
including, without limitation, any Claims arising under any applicable federal,
state or local law, or any law of any foreign jurisdiction, that I may have, or
in the future may possess, arising out of (i) my employment relationship with
and service as an employee, officer or director of any of the Company , and the
termination of such relationship or service, or (ii) any event, condition,
circumstance or obligation that occurred, existed or arose on or prior to the
date hereof. I further agree that the payments and benefits described in the
Agreement are in full satisfaction of any and all claims for payments or
benefits that I may have against the Company arising out of my employment
relationship, my service as an employee, officer or director of the Company and
the termination thereof.

                  2. Specific Release of ADEA Claims. In consideration of the
payments and benefits provided to me under Section 4 of the Agreement, I hereby
release and forever discharge the Company and its employees, officers and
directors from any and all Claims that I may have as of the date of my signing
of this Release arising under the FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT
OF 1967, AS AMENDED, and the applicable rules and regulations promulgated
thereunder ("ADEA").

                  3. Release of Unknown Claims. I understand that I am releasing
Claims under Section 1 that I may not know about, and that is my intent. I
expressly waive all rights that I might have under any law that is intended to
prevent unknown Claims from being released and I understand the significance of
doing so. In addition, I expressly acknowledge that the Release under Section 1
is intended to include and does include in its effect, without limitation, all
Claims which I do not know or suspect to exist in my favor at the time of
execution of this Release and that this Release expressly contemplates the
extinguishment of all such Claims.

                  4. Representation. I hereby represent and agree that I have
not filed, and will not file, any action, complaint, charge, grievance or
arbitration against any of the Company or any of their respective employees,
officers, directors or agents.

                  5. Acknowledgment. By signing this Release, I hereby
acknowledge and confirm the following:

             (a) Consultation with an Attorney. I was advised in writing by the
       Company in connection with my resignation to consult with an attorney of
       my choice prior to signing the Agreement and this Release and to have
       such attorney explain to me the terms of the Agreement and this Release,
       including, without limitation, the terms relating to my release of claims
       arising under ADEA.

             (b) Understand this Agreement. I have read the Agreement and this
       Release carefully and completely and understand each of the terms
       thereof.

                                       13
<PAGE>   15
             (c) Twenty-One Days to Consider. I was given not less than
       twenty-one days to consider the terms of the Agreement and this Release
       and to consult with an attorney of my choosing with respect thereto, and
       that for a period of seven days following my signing of this Release, I
       have the option to revoke this Release in accordance with the terms set
       forth below.

             (d) Consideration. By signing this Release, I hereby acknowledge
       and confirm that I am providing the Release and discharge set forth
       herein only in exchange for consideration in addition to anything of
       value to which I am already entitled.

       6. Revocation. I have the right to revoke this Release during the
seven-day period (the "REVOCATION PERIOD") commencing immediately following the
date I sign and deliver this Release to the Company . The Revocation Period
shall expire at 5:00 p.m., New York time, on the last day of the Revocation
Period; PROVIDED, HOWEVER, that if such seventh day is not a business day, the
Revocation Period shall extend to 5:00 p.m. on the next succeeding business day.
In the event of any such revocation by me, the obligations of the Company to
make the payments contemplated by Section 4 of the Agreement shall terminate and
be of no further force and effect as of the date of such revocation. No such
revocation by me shall be effective unless it is in writing and signed by me and
received by a representative of the Company prior to the expiration of the
Revocation Period.

       My signature below indicates my agreement with the terms and provisions
described above.

       ____________________________                  [NAME]

                                                  ____________________________
                                                  Date

                                       14<PAGE>   1
                                                                     EXHIBIT 4.8
                          MPOWER HOLDING CORPORATION

                      FORM OF 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 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, as amended (hereinafter referred to as the "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.

          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

                                       1
<PAGE>   2
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 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");

                                       2
<PAGE>   3
                           (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 Vega 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;

                           (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

                                       3
<PAGE>   4
                                    $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
                                    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

                                       4
<PAGE>   5
(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 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

                                       5
<PAGE>   6
repurchase or payment in full or other satisfaction of the Senior 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 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.

                                       6
<PAGE>   7
                  (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:

                  (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.

                                       7
<PAGE>   8
                  (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 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

                                       8
<PAGE>   9
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.

                  (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

                                       9
<PAGE>   10
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 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

                                       10
<PAGE>   11
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 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.

                                       11
<PAGE>   12
                         (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 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)

                                       12
<PAGE>   13
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 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

                                       13
<PAGE>   14
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
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,

                                       14
<PAGE>   15
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 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)

                                       15
<PAGE>   16
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:

<TABLE>
<CAPTION>
         Year                      Price
         ----                      -----
<S>                                <C>
          1                          2.5
          2                          2.5
          3                            3
          4                          3.5
          5                            4
          6                          4.5
</TABLE>

                  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 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.

                                       16
<PAGE>   17
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.

         "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

                                       17
<PAGE>   18
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.

                                       18
<PAGE>   19
         "GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.

         "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.

         "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

                                       19
<PAGE>   20
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.

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

         "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.

                                       20
<PAGE>   21
         "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 Indenture" shall mean that Indenture dated as of March 24,
2000 pursuant to which the 13% Senior Notes have been issued.

         "13% Senior Notes" shall mean all 13% Senior Notes due 2010 that have
been issued pursuant to the Senior Indenture.

         "Senior Notes" shall mean all outstanding Senior Secured Notes and 13%
Senior Notes.

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

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

         "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.

                                       21
<PAGE>   22
         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.]

                                       22
<PAGE>   23
         IN WITNESS WHEREOF, the Corporation has cause this Certificate of
Designation to be signed by its President, and attested to by its Secretary, on
_______________, ____.

                                      MPOWER HOLDING CORPORATION

                                      By _______________________________________
                                           Name:
                                           Title:  President

Attest:

___________________________________
Name:
Title:  Secretary

                                      Sworn to this ___ day of _________, 2001

                                      By  ____________________________________
                                                        Notary Public

                                       23

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