As filed with the Securities and Exchange Commission on November 14, 2001

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2001

Commission file number 333-49397

---

Focal Communications Corporation(Exact name of registrant as specified in its charter)

Delaware(State of incorporation)

36-4167094(IRS Employer Identification Number)


200 N. LaSalle Street
Suite 1100
Chicago, IL 60601(Address of principal executive offices, including zip code)

(312) 895-8400(Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or required for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days:  Yes /x/  No / /

The
number of shares outstanding of the issuer's common stock, as of October 31, 2001:

Common
stock ($.01 par value) 171,347,924 shares

---

INDEX

|                               |  |                                                                                                                 |  | Page
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  FINANCIAL INFORMATION |  |                                                                                                                
|Item 1.                        |  | Financial Statements (Unaudited)                                                                                |  | 4   
|                               |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 |  | 4   
|                               |  | Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000                            |  | 5   
|                               |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000           |  | 6   
|                               |  | Condensed Notes to Interim Consolidated Financial Statements                                                    |  | 7   
|Item 2.                        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 11  
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 16  
|PART II  OTHER INFORMATION    |  |                                                                                                                
|Item 1.                        |  | Legal and Administrative Proceedings                                                                            |  | 17  
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                       |  | 17  
|Item 3.                        |  | Defaults Upon Senior Securities                                                                                 |  | 17  
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                             |  | 17  
|Item 5.                        |  | Other Information                                                                                               |  | 17  
|Item 6.                        |  | Exhibit and Reports on Form 8-K                                                                                 |  | 17  
|                               |  | SIGNATURES                                                                                                      |  | 20  

---



INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this Quarterly Report on Form 10-Q that are not historical facts. These "forward-looking statements" can be identified
by the use of terminology such as "believes," "expects," "may," "will," "should" or "anticipates" or comparable terminology. These forward-looking statements include, among others, statements
concerning:



These
statements are only predictions. You should be aware that these forward-looking statements are subject to risks and uncertainties, including financial, regulatory developments,
industry growth and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. The most important factors that could prevent
us from achieving our stated goals include, but are not limited to, our failure to:



3

---





PART IFINANCIAL INFORMATION

Item 1. Financial Statements

FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)  For the Three and Nine Months Ended September 30, 2001
and 2000  (Dollars in thousands, except per share amounts)

|                                                                    |                                     | For the three months ended
September 30 |            | For the nine months ended
September 30 |        
|------------------------------------------------------------------- | ----------------------------------- | --------------------------------------- | ---------- | -------------------------------------- | -------
|
|REVENUE:                                                            |                                     |                                         |            |                                        |        
|                                                                    | Enterprise revenue                  |                                         | $          | 40,212                                 |        
|                                                                    | Internet service provider revenue   |                                         |            | 44,909                                 |        
|                                                                    |                                     |                                         |            |                                        |        
|                                                                    |                                     | Total revenue                           |            |                                        | 85,121 
|                                                                    |                                     |                                         |            |                                        |        
|EXPENSES:                                                           |                                     |                                         |            |                                        |        
|                                                                    | Network expenses                    |                                         |            | 41,318                                 |        
|                                                                    | Selling, general and administrative |                                         |            | 46,518                                 |        
|                                                                    | Depreciation and amortization       |                                         |            | 27,447                                 |        
|                                                                    | Non-cash compensation expense       |                                         |            | 1,773                                  |        
|                                                                    | Restructuring costs                 |                                         |            | 25,706                                 |        
|                                                                    |                                     |                                         |            |                                        |        
|                                                                    |                                     | Total operating expenses                |            |                                        | 142,762
|                                                                    |                                     |                                         |            |                                        |        
|OPERATING LOSS                                                      |                                     |                                         | (57,641    | )                                      |        
|                                                                    |                                     |                                         |            |                                        |        
|OTHER INCOME (EXPENSE):                                             |                                     |                                         |            |                                        |        
|                                                                    | Interest income                     |                                         |            | 338                                    |        
|                                                                    | Interest expense, net               |                                         |            | (17,861                                | )      
|                                                                    | Other income                        |                                         |            |                                       |        
|                                                                    |                                     |                                         |            |                                        |        
|                                                                    |                                     | Total other expense                     |            |                                        | (17,523
|                                                                    |                                     |                                         |            |                                        |        
|LOSS BEFORE INCOME TAXES AND EXTRAORDINARY GAIN                     |                                     |                                         | (75,164    | )                                      |        
|BENEFIT FOR INCOME TAXES                                            |                                     |                                         |           |                                        |        
|                                                                    |                                     |                                         |            |                                        |        
|NET LOSS BEFORE EXTRAORDINARY GAIN                                  |                                     |                                         | (75,164    | )                                      |        
|GAIN ON DEBT EXTINGUISHMENT, NET OF TAX                             |                                     |                                         | 11,493     |                                        |        
|                                                                    |                                     |                                         |            |                                        |        
|NET LOSS                                                            |                                     | $                                       | (63,671    | )                                      | $      
|                                                                    |                                     |                                         |            |                                        |        
|BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK:               |                                     |                                         |            |                                        |        
|                                                                    | Loss from Continuing Operations     |                                         | $          | (1.22                                  | )      
|                                                                    | Extraordinary Gain                  |                                         |            | 0.18                                   |        
|                                                                    |                                     |                                         |            |                                        |        
|                                                                    |                                     | Basic and Diluted Net Loss per Share    |            | $                                      | (1.04  
|                                                                    |                                     |                                         |            |                                        |        
|BASIC WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING |                                     |                                         | 61,388,785 |                                        |        
|                                                                    |                                     |                                         |            |                                        |        

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

4

---



FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS  As of September 30, 2001 and December 31, 2000  (Dollars in thousands,
except share amounts)

|                                          |                                                                                                                                                                         | September 30,
2001                   |         | December 31,
2000 |        
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                    |                                                                                                                                                                         |                                      |         |                   |        
|CURRENT ASSETS:                           |                                                                                                                                                                         |                                      |         |                   |        
|                                          | Cash and cash equivalents                                                                                                                                               |                                      | $       | 6,563             |        
|                                          | Short-term investments                                                                                                                                                  |                                      |         |                  |        
|                                          | Accounts receivable, net of allowance for doubtful accounts of $11,100 and $9,600 at September 30, 2001 and December 31, 2000, respectively                             |                                      |         | 92,289            |        
|                                          | Other current assets                                                                                                                                                    |                                      |         | 23,813            |        
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          |                                                                                                                                                                         | Total current assets                 |         |                   | 122,665
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|PROPERTY, PLANT and EQUIPMENT, at cost    |                                                                                                                                                                         |                                      | 618,156 |                   |        
|                                          | Less  Accumulated depreciation                                                                                                                                         |                                      |         | (152,873          | )      
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          | Property, Plant and Equipment, net                                                                                                                                      |                                      |         | 465,283           |        
|OTHER NONCURRENT ASSETS                   |                                                                                                                                                                         |                                      | 22,503  |                   |        
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          |                                                                                                                                                                         | $                                    | 610,451 |                   | $      
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                                         |                                      |         |                   |        
|CURRENT LIABILITIES:                      |                                                                                                                                                                         |                                      |         |                   |        
|                                          | Accounts payable                                                                                                                                                        |                                      | $       | 40,867            |        
|                                          | Accrued liabilities                                                                                                                                                     |                                      |         | 26,419            |        
|                                          | Current maturities of long-term debt                                                                                                                                    |                                      |         | 10,372            |        
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          |                                                                                                                                                                         | Total current liabilities            |         |                   | 77,658 
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|LONG-TERM DEBT, net of current maturities |                                                                                                                                                                         |                                      | 606,237 |                   |        
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|OTHER NONCURRENT LIABILITIES              |                                                                                                                                                                         |                                      | 10,844  |                   |        
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|STOCKHOLDERS' EQUITY:                     |                                                                                                                                                                         |                                      |         |                   |        
|                                          | Common stock, $.01 par value; 100,000,000 shares authorized; 61,819,973 and 61,454,594 issued and outstanding at September 30, 2001 and December 31, 2000, respectively |                                      |         | 619               |        
|                                          | Additional paid-in capital                                                                                                                                              |                                      |         | 192,259           |        
|                                          | Deferred compensation                                                                                                                                                   |                                      |         | (932              | )      
|                                          | Accumulated deficit                                                                                                                                                     |                                      |         | (276,234          | )      
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          |                                                                                                                                                                         | Total stockholders' (deficit) equity |         |                   | (84,288
|                                          |                                                                                                                                                                         |                                      |         |                   |        
|                                          |                                                                                                                                                                         | $                                    | 610,451 |                   | $      
|                                          |                                                                                                                                                                         |                                      |         |                   |        

The
accompanying condensed notes are an integral part of these condensed consolidated financial statements.

5

---



FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)  For the Nine Months Ended September 30, 2001 and
2000  (Dollars in thousands)

|                                                     |                                                                             | For the nine months
ended September 30                   |                                              
|---------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                             |                                                          |                                              
|                                                     | Net loss                                                                    |                                                          | $                                            
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                                          |                                              
|                                                     |                                                                             | Depreciation and amortization                            |                                              
|                                                     |                                                                             | Non-cash compensation expense                            |                                              
|                                                     |                                                                             | Loss on disposal of fixed assets                         |                                              
|                                                     |                                                                             | Amortization of discount on senior notes                 |                                              
|                                                     |                                                                             | Extraordinary gain on extinguishment of debt, net of tax |                                              
|                                                     |                                                                             | Unpaid portion of restructuring charge                   |                                              
|                                                     |                                                                             | Other                                                    |                                              
|                                                     |                                                                             | Changes in operating assets and liabilities:             |                                              
|                                                     |                                                                             |                                                          | Accounts receivable                          
|                                                     |                                                                             |                                                          | Other current assets                         
|                                                     |                                                                             |                                                          | Accounts payable and accrued liabilities     
|                                                     |                                                                             |                                                          | Other non-current assets and liabilities, net
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                             |                                                          |                                              
|                                                     | Capital expenditures                                                        |                                                          |                                              
|                                                     | Change in short-term investments                                            |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                             |                                                          |                                              
|                                                     | Repurchase of Notes                                                         |                                                          |                                              
|                                                     | Net proceeds from issuance of long-term debt                                |                                                          |                                              
|                                                     | Payments on long-term debt                                                  |                                                          |                                              
|                                                     | Net proceeds from the issuance of common stock                              |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|                                                     |                                                                             |                                                          |                                              
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                             |                                                          | (164,854                                     
|CASH AND CASH EQUIVALENTS, beginning of period       |                                                                             |                                                          | 171,417                                      
|                                                     |                                                                             |                                                          |                                              
|CASH AND CASH EQUIVALENTS, end of period.            |                                                                             | $                                                        | 6,563                                        
|                                                     |                                                                             |                                                          |                                              

The
accompanying condensed notes are an integral part of these condensed consolidated financial statements.

6

---



FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES      CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands, except share amounts)

1. Basis of Presentation

Except as otherwise required by the context, references in this Form 10-Q to "Focal", "we", "us", or "our" refer to the combined businesses
of Focal Communications Corporation and all of its subsidiaries. The accompanying interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring
adjustments, which we believe are necessary to present fairly the financial statements in accordance with generally accepted accounting principles for the respective periods presented. Certain
information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These interim condensed consolidated financial statements should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 30, 2001. The consolidated balance sheet at December 31,
2000 included herein was derived from our audited consolidated financial statements, but does not include all disclosures required under generally accepted accounting principles.

Certain
amounts in the prior period's consolidated financial statements have been reclassified to conform with the current period presentation.

2. Property, Plant and Equipment

Property, plant and equipment is stated at cost, which includes direct costs and capitalized interest, and is depreciated once placed in service using the
straight line method.

Property,
plant and equipment consists of the following:

|                               |       | September 30, 2001 |          | December 31, 2000 |  
|------------------------------ | ----- | ------------------ | -------- | ----------------- | -
|
|Building and improvements      |       | $                  | 8,444    |                   | $
|Communications network         |       |                    | 401,536  |                   |  
|Computer equipment             |       |                    | 52,834   |                   |  
|Leasehold improvements         |       |                    | 98,613   |                   |  
|Furniture and fixtures         |       |                    | 10,819   |                   |  
|Motor vehicles                 |       |                    | 518      |                   |  
|Assets under capital lease     |       |                    | 22,660   |                   |  
|Construction in progress       |       |                    | 22,732   |                   |  
|                               |       |                    |          |                   |  
|                               |       |                    | 618,156  |                   |  
|Less: Accumulated depreciation |       |                    | (152,873 | )                 |  
|                               |       |                    |          |                   |  
|                               | Total |                    | $        | 465,283           |  
|                               |       |                    |          |                   |  

3. Debt

Long-term debt consists of the following:

7

---

FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except share amounts)

|                                                                                                                                                     |       | September 30, 2001 |         | December 31, 2000
|---------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ------------------ | ------- | -----------------
|
|12.125% senior discount notes due 2008, net of unamortized discount of $40,115 and $59,888 at September 30, 2001 and December 31, 2000, respectively |       | $                  | 227,318 |                  
|11.875% senior notes due 2010, net of unamortized discount of $1,555 and $1,789 at September 30, 2001 and December 31, 2000, respectively            |       |                    | 259,220 |                  
|Senior Secured Credit Facility                                                                                                                       |       |                    | 75,000  |                  
|Secured equipment term loan                                                                                                                          |       |                    | 28,309  |                  
|Capitalized lease obligations and other                                                                                                              |       |                    | 26,762  |                  
|                                                                                                                                                     |       |                    |         |                  
|                                                                                                                                                     |       |                    | 616,609 |                  
|Less  current maturities                                                                                                                            |       |                    | 10,372  |                  
|                                                                                                                                                     |       |                    |         |                  
|                                                                                                                                                     | Total |                    | $       | 606,237          
|                                                                                                                                                     |       |                    |         |                  

We
have borrowed a total of $75,000 under our Senior Secured Credit Facility (the "Credit Facility") as of September 30, 2001. The draws under the Credit Facility bear an
interest rate of LIBOR plus additional basis points and the principal payments will begin on November 30, 2003.

On
August 9, 2001, we announced a $430,000 comprehensive recapitalization plan (see Note 7). In conjunction with this plan, we purchased $16,793 in principal amount of
our High Yield notes ("Notes") during August 2001. This early retirement of our Notes resulted in an after-tax extraordinary gain of $11,493.

4. Restructuring

During the third quarter of 2001, we revised our business plan to reflect several initiatives which included; (1) the consolidation of our voice and
data business units; (2) a 22 market business plan; (3) a refinement of our managed Internet access strategy; and (4) the scale back of our DSL initiatives. In conjunction with
this revised business plan, we recorded a $25,706 charge for the reduction of our workforce, the abandonment of excess network facilities, the write-off of related network assets and other
related costs. The $25,706 is comprised of $14,128 in network fixed asset write-downs, $9,402 in abandonment of excess network facilities, $1,328 in employee severance costs and $848 in other related
charges. For the three months ended September 30, 2001 amounts paid associated with the abandoment of excess network facilities, employee severance, and other related charges totaled $4,013,
$922, and $302, respectively. A restructuring loss on fixed assets write-downs of $14,128 has been recorded during the third quarter of 2001. The remaining unpaid restructuring costs of $6,341 are
included in accrued liabilities in our consolidated balance sheet as of September 30, 2001.

5. Loss Per Share

We compute basic loss per common share based on the weighted average number of shares of common stock outstanding for the period. This calculation excludes
certain unvested shares of restricted common stock. Diluted earnings per common share are adjusted for the assumed exercise of dilutive stock options and unvested shares of common stock. Since the
results of the adjustments required for the diluted weighted average common shares outstanding are anti-dilutive for the three and nine months ended September 30, 2001 and 2000, they have been
excluded from the net loss per share calculation. Our basic and diluted weighted average number of shares outstanding for the three and nine months ended September 30, 2001 and 2000 is as
follows:

|                                                              |  | Three
Months Ended
September 30,
2001 |  | Three
Months Ended
September 30,
2000 |  | Nine
Months Ended
September 30,
2001 |  | Nine
Months Ended
September 30,
2000
|------------------------------------------------------------- |  | ------------------------------------- |  | ------------------------------------- |  | ------------------------------------ |  | ------------------------------------
|Basic weighted average number of common shares outstanding    |  | 61,388,785                            |  | 60,504,463                            |  | 61,200,011                           |  | 60,321,464                          
|Dilutive stock options and unvested common shares             |  | 548,667                               |  | 5,155,074                             |  | 1,698,473                            |  | 4,958,280                           
|                                                              |  |                                       |  |                                       |  |                                      |  |                                     
|Dilutive weighted average number of common shares outstanding |  | 61,937,452                            |  | 65,659,537                            |  | 62,898,484                           |  | 65,279,744                          
|                                                              |  |                                       |  |                                       |  |                                      |  |                                     

8

---

FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except share amounts)

6. Segment Information

We currently operate solely in the United States and are organized primarily on the basis of strategic geographic operating segments that provide
communications services in each respective geographic region. All of our geographic operating segments have been aggregated into one reportable segment as of and for the periods ended
September 30, 2001 and 2000, and as of December 31, 2000.

Our
chief operating decision makers view earnings before interest, income taxes, depreciation and amortization ("EBITDA") as the primary measure of profit and loss. The following
represents information about revenues, EBITDA (which excludes non-cash compensation and restructuring costs), total assets and capital expenditures as of September 30, 2001 and
December 31, 2000, and for the nine months ended September 30, 2001 and 2000:

|        |  | Nine Months Ended |        
|------- |  | ----------------- | -------
|
|Revenue |  | $                 | 249,168
|EBITDA  |  |                   | (811   

|                     |  | September 30,
2001 |         | December 31,
2000
|-------------------- |  | ------------------ | ------- | -----------------
|Total assets         |  | $                  | 522,336 |                  
|Capital expenditures |  |                    | 95,024  |                  
|                     |  |                    |         |                  

The
following reconciles our total segment EBITDA to our consolidated net loss before income taxes for the nine months ended September 30, 2001 and 2000:

|                                    |                                                     | Nine
Months Ended
September 30,
2001 |         | Nine
Months Ended
September 30,
2000 |  
|----------------------------------- | --------------------------------------------------- | ------------------------------------ | ------- | ------------------------------------ | -
|Total EBITDA for reportable segment |                                                     | $                                    | (811    | )                                    | $
|Depreciation and amortization       |                                                     |                                      | (71,273 | )                                    |  
|Interest expense, net               |                                                     |                                      | (48,543 | )                                    |  
|Interest income                     |                                                     |                                      | 3,419   |                                      |  
|Other income                        |                                                     |                                      |        |                                      |  
|Restructuring Costs                 |                                                     |                                      | (25,706 | )                                    |  
|Non-cash compensation               |                                                     |                                      | (5,220  | )                                    |  
|                                    |                                                     |                                      |         |                                      |  
|                                    | Net loss before income taxes and extraordinary gain |                                      | $       | (148,134                             | )
|                                    |                                                     |                                      |         |                                      |  

The
following reconciles our total segment assets to our consolidated total assets as of September 30, 2001 and December 31, 2000:

|                                    |                           | September 30,
2001 |         | December 31,
2000
|----------------------------------- | ------------------------- | ------------------ | ------- | -----------------
|Total assets for reportable segment |                           | $                  | 522,336 |                  
|Cash and short-term investments     |                           |                    | 6,563   |                  
|Other current assets                |                           |                    | 11,106  |                  
|Property, plant and equipment, net  |                           |                    | 47,943  |                  
|Other noncurrent assets             |                           |                    | 22,503  |                  
|                                    |                           |                    |         |                  
|                                    | Total consolidated assets |                    | $       | 610,451          
|                                    |                           |                    |         |                  

|1 |  | EBITDA is not a measurement of financial performance under generally accepted accounting principles, is not intended to represent cash flows from operations, and should not be considered as an alternative to net loss as
an indicator of our operating performance or to cash flows as a measure of liquidity. We believe EBITDA is widely used by analysts, investors and other interested parties in the telecommunications industry. EBITDA is not necessarily comparable to
similarly titled measures for other companies.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except share amounts)

7. Subsequent Event And Pro Forma Financial Data

On October 26, 2001, we completed our $430,000 comprehensive recapitalization plan which included: (1) the infusion of $150,000 of investment
capital, consisting of the issuance of $50,000 in class A redeemable voting convertible preferred stock and the incurrence of $100,000 in senior convertible
loans, which will mature on December 31, 2007. Both securities are convertible into our common shares and will accrue 8% payment-in-kind, ("PIK") interest or dividends. The PIK interest and
dividends are for five years with acceleration provisions in the event of certain developments such as change in control or prepayments. After five years interest and dividends may be payable in cash,
at our option; (2) exchange and purchase arrangements that resulted in the retirement of approximately $295,000 in principal amount at maturity of our Notes (includes $3,900 in Notes still to
be exchanged pursuant to existing exchange agreements), (3) the issuance through a pro rata dividend to our stockholders of record as of October 25, 2001 of warrants to purchase common
stock, (4) an amendment to our existing senior credit facility to provide a total of $225,000 of borrowing capacity, and (5) approval to effect a reverse stock split between 1:5 to 1:35.
Prior to the recapitalization, covenants of the credit facility limited our borrowing capacity to approximately $150,000.

The
following unaudited pro forma condensed balance sheet data gives effect to the recapitalization and also gives effect for the conversion of the convertible debt as if both had
taken place on September 30, 2001:

|                                                    |  | Actual
As of
September 30,
2001 |         | Pro Forma
Recapitalization
As of
September 30,
2001(1)(3) |   | Pro Forma
As if
Converted
Basis
September 30,
2001(2)(3)
|--------------------------------------------------- |  | ------------------------------- | ------- | --------------------------------------------------------- | - | --------------------------------------------------------
|
|Cash and short-term investments                     |  | $                               | 6,563   |                                                           | $ | 145,919                                                 
|Accounts receivable and other current assets        |  |                                 | 116,102 |                                                           |   | 115,637                                                 
|Property, plant and equipment, net                  |  |                                 | 465,283 |                                                           |   | 465,283                                                 
|Other noncurrent assets                             |  |                                 | 22,503  |                                                           |   | 25,222                                                  
|                                                    |  |                                 |         |                                                           |   |                                                         
|                                                    |  | $                               | 610,451 |                                                           | $ | 752,061                                                 
|                                                    |  |                                 |         |                                                           |   |                                                         
|Accounts payable and accrued liabilities            |  | $                               | 67,286  |                                                           | $ | 68,386                                                  
|Long-term debt, includes current portion            |  |                                 | 616,609 |                                                           |   | 357,658                                                 
|Other noncurrent liabilities                        |  |                                 | 10,844  |                                                           |   | 10,844                                                  
|Convertible note                                    |  |                                 |        |                                                           |   | 100,000                                                 
|Class A redeemable convertible preferred stock, net |  |                                 |        |                                                           |   | 45,895                                                  
|Total stockholders' (deficit) equity                |  |                                 | (84,288 | )                                                         |   | 169,278                                                 
|                                                    |  |                                 |         |                                                           |   |                                                         
|                                                    |  | $                               | 610,451 |                                                           | $ | 752,061                                                 
|                                                    |  |                                 |         |                                                           |   |                                                         

10

---



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

General.We provide voice, data and Internet infrastructure services to large, communications-intensive users in major
cities. We began operations in 1996 and initiated service first in Chicago in May 1997. As of September 30, 2001 we offered service in a total of 22 markets which encompasses a
total of 53 metropolitan statistical areas, or MSAs. As of September 30, 2001 we had 652,648 lines installed and in service.

During
August 2001, we began the implementation of our revised business plan in conjunction with our $430 million comprehensive recapitalization plan. Our revised
business plan includes several initiatives as follows:



Revenue.Enterprise revenue includes all services sold to corporations, government entities and value added resellers.
Internet Service Provider ("ISP") revenue includes all services sold to ISP customers. Our Enterprise and ISP service offerings include circuit switched lines, private lines, colocation, DSL, managed
internet access, and other broadband services. Enterprise and ISP revenue is composed of monthly recurring charges, private line sales, usage charges, and initial non-recurring charges.
Monthly recurring charges include the fees paid by our customers for lines in service, additional features on those lines, and colocation space. Monthly recurring charges are derived only from end
user customers. Usage charges consist of fees paid by carriers for each call made, fees paid by the ILEC and other CLECs as reciprocal compensation, and access charges paid by the IXCs for long
distance traffic that we originate and terminate. Non-recurring revenue is typically derived from fees charged to install new customer lines and is deferred and amortized over estimated
customer lives.

Expenses.Our expenses are categorized as network expenses; selling, general and administrative; depreciation and
amortization; and non-cash compensation expense. Network expenses are composed of leased transport charges, private line costs, the cost of leasing space in ILEC central offices for
colocating our transmission equipment, the costs of leasing our nationwide Internet network, reciprocal compensation payments and the cost of completing long distance calls. Leased transport charges
are the lease payments we make for the use of fiber transport facilities connecting our customers to our switches and for our connection to the ILECs' and other CLECs' networks. Generally, we have
been successful in negotiating lease agreements that match the duration of our customer contracts, thereby allowing us to avoid the risk of incurring expenses associated with transport facilities that
are not being used by revenue generating customers.

Our
strategy of initially leasing rather than building our own fiber transport facilities has resulted in our cost of service being a significant component of total cost. Accordingly,
our network expenses may be higher on a relative basis compared to CLECs that own a higher percentage of their transport network. However, compared to these same companies, our capital expenditures
are significantly lower.

11

---

A key aspect of our "smart-build" strategy is that we only operate in Tier-1 markets which are served by multiple fiber providers. When traffic volumes grow sufficiently
to justify investing in our own network, we have purchased our own fiber capacity. As of September 30, 2001 we were operating our own fiber networks in 10 of our markets.

Selling,
general and administrative expense ("SG&A") consists of network and customer care personnel costs, sales force compensation and promotional expenses as well as the cost of
corporate activities related to regulatory, finance, human resources, legal, executive, and other administrative activities. We expect our SG&A expense to be lower as a percentage of revenue than that
of our competitors because of the efficiencies derived from our focus on large customers in Tier-1 markets. These customers generally utilize a larger number of switched access lines
relative to the average business customer,
resulting in more revenue per sale, higher sales productivity and a lower cost to serve on a per line basis.

We
record monthly non-cash compensation expense related to shares issued to some of our executive officers in November 1996, in connection with the
September 30, 1998 amendments to vesting agreements with some of our executive officers, in connection with stock options granted to employees, an outside consultant, and directors during 1999
and related to shares issued to a director during the first quarter of 1999. We will continue to record non-cash compensation expense in future periods relating to these events through the
third quarter of 2003.

Quarterly Results

The following table sets forth unaudited financial, operating and statistical data for each of the specified quarters of 2001 and 2000. The unaudited quarterly
financial information has been prepared on the same basis as our Consolidated Financial Statements and, in our opinion, contains all normal recurring adjustments necessary to fairly state this
information. The operating results for any quarter are not necessarily indicative of results for any future period.

|                                                   |  | 2001 |         | 2000 |  
|-------------------------------------------------- |  | ---- | ------- | ---- | -
|
|Enterprise Revenue ($ mil)                         |  | $    | 40,212  |      | $
|Internet Service Provider Revenue ($ mil)          |  | $    | 44,909  |      | $
|Lines Sold During the Quarter                      |  |      | 104,452 |      |  
|Cumulative Net Lines Installed to Date (1)         |  |      | 652,648 |      |  
|Estimated Enterprise Lines as % of Installed Lines |  |      | 53      | %    |  
|ILEC Switches Interconnected                       |  |      | 2,441   |      |  
|Quarterly Minutes of Use (Billions)                |  |      | 8.3     |      |  
|Markets in Operation                               |  |      | 22      |      |  
|MSAs Served                                        |  |      | 53      |      |  
|Circuit Switches Operational                       |  |      | 26      |      |  
|Capital Expenditures ($ mil)                       |  | $    | 28      |      | $
|Employees                                          |  |      | 1,242   |      |  
|Sales Force (2)                                    |  |      | 256     |      |  

We
sold 104,452 lines during the third quarter of 2001, had gross installs of 86,369 lines, and installed 56,850 lines on a net basis. Both the sales and
installation activity was heavily weighted in favor of our Enterprise business. We disconnected 29,519 lines during the third quarter of 2001. The disconnected lines were concentrated in the
ISP business. We believe that the short-term nature of these issues and the strength of our enterprise business will enable Focal to reach its targeted net line growth of 247,000 to
257,000 lines for 2001.

12

---

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

Enterprise revenue increased 99% to $40.2 million during the third quarter of 2001 from revenue of $20.2 million in the third quarter of 2000.
Enterprise revenue grew approximately 94% to $39.0 million in the third quarter of 2001 from the third quarter of 2000 after adjusting for the non-recurring revenue in the third
quarter of 2001. ISP revenue increased 11% to $44.9 million during the third quarter of 2001 compared to $40.6 million in revenue for the third quarter of 2000. On a normalized basis
after adjusting for the non-recurring revenue in the third quarter of 2001, ISP revenue increased by approximately 6% to $43.0 million compared to the third quarter of 2000. Our ISP
business remained under pressure during the third quarter and as a result we continued to experience a high level of line disconnects in this segment of the market. We installed 55,833 and 1,017 net
enterprise and ISP lines during the third quarter of 2001, respectively.

Network
expenses totaled $41.3 million for the third quarter of 2001 compared to $23.9 million for the third quarter of 2000. This $17.4 million increase resulted
from our expansion into new markets and related costs for leased transport facilities, usage settlements, and colocation. Our gross margin was approximately 51% for the third quarter of 2001 and 61%
for the third quarter of 2000. This decrease in our gross margin on a year over year basis is a direct result of costs incurred to support our market expansion, the rollout of our managed Internet
access services, and the impact of reduced reciprocal compensation and access rates. Our SG&A expenses fell from 69.3% to 54.6% as a percentage of revenue for the three months ended
September 30, 2000 and 2001, respectively. However, on a total cost basis, our SG&A expenses increased by $4.4 million to $46.5 million during the third quarter of 2001. This
increase is the result of an increase in our employee base, an increase in sales related expenses, the expansion into new markets and an increase in other corporate expenses.

Depreciation
and amortization increased from $15.9 million to $27.4 million in the comparative three-month periods. This increase of $11.5 million is a result of
our expansion into new markets and an increase in our fixed asset base in our existing markets. Interest income decreased from $4.8 million in the third quarter of 2000, to $0.3 million
in the comparable period of 2001. This $4.5 million decrease is primarily due to the use of our cash, cash equivalents, and short-term investments for capital expenditures
associated with the build-out of our nationwide network. Our net interest expense increased to $17.9 million in the third quarter of 2001 from $13.1 million in the third
quarter of 2000. This $4.8 million increase is primarily due to interest expense charges under our Senior Secured Credit Facility (the "Credit Facility").

During
August 2001, in conjunction with our $430 million comprehensive recapitalization plan, we purchased $16.8 million in principal amount of our Notes which
resulted in an after-tax extraordinary gain of $11.5 million being recorded in the third quarter of 2001.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

Enterprise revenue increased 115% to $110.4 million compared to $51.4 million for the nine months ended September 30, 2000. Enterprise
revenue grew approximately 94% to $100.0 million for the nine months ended September 30, 2001 from the same period of 2000 after adjusting for the non-recurring revenue
items. Our ISP revenue increased 20% from $115.4 million in 2000 to $138.7 million for the nine months ended September 30, 2001. On a normalized basis after adjusting for the
non-recurring revenue items in 2001, ISP revenue increased by approximately 17% to $135.0 million for the nine months ended September 30, 2001 compared to the same period of
2000. This increase in our enterprise
and ISP revenue is primarily due to the net installation of 184,514 and 32,862 enterprise and ISP lines respectively, during the nine months ended September 30, 2001.

Network
expenses were $115.9 million for the nine months ended September 30, 2001 compared to $63.6 million for the nine months ended September 30, 2000.
This $52.3 million increase resulted from costs incurred to support our market expansion, the rollout of our managed Internet access services, and related costs for leased facilities, usage
settlements, and colocations. Our gross margin was approximately 53% and 62% for the nine months ended September 30, 2001 and 2000, respectively. This decrease in our gross margin between
comparable periods is a direct result of costs incurred to support our market expansion, the rollout of our managed Internet access services, and the impact of reduced reciprocal compensation and
access rates. Our SG&A expenses fell from 66.9% to 53.8% as a percentage of revenue for the nine months ended September 30, 2000 and 2001, respectively. However,

13

---

on a total cost basis our SG&A expenses increased by $22.6 million to $134.1 million during the nine months ended September 30, 2001 as a result of an increase in our employee
base, an increase in sales related expenses, the expansion into new markets and an increase in other corporate expenses.

Depreciation
and amortization increased from $39.0 million to $71.3 million in the comparative nine-month periods in 2000 and 2001, respectively. This
increase of $32.3 million is a result of our expansion into additional new markets and an increase in our fixed asset base in our existing markets.

Interest
income decreased from $17.1 million for the first nine months ended September 30, 2000, to $3.4 million in the comparable period of 2001. This
$13.7 million decrease is primarily due to our cash, cash equivalents, and short-term investments decreasing from $203.9 million at September 30, 2000 to
$6.6 million at September 30, 2001 as a result of cash utilized in the build-out of our nationwide network. Interest expense increased from $39.9 million in the nine
months ended September 30, 2000 to $48.5 million in the nine months ended September 30, 2001. This $8.6 million net increase is primarily due to interest expense charges
relating to our Credit Facility.

Liquidity and Capital Resources

On October 26, 2001, we completed our $430 million comprehensive recapitalization plan designed to provide us with sufficient financing to
implement our revised business plan and improve our existing capital structure. The components of the recapitalization plan included: (1) the infusion of $150 million of investment
capital, consisting of the issuance of $50 million in class A redeemable voting convertible preferred stock and the incurrence of $100 million in senior convertible loans, which
will mature on December 31, 2007. Both securities are convertible into our common shares and will accrue 8% payment-in-kind, ("PIK") interest or dividends. The PIK interest and dividends are
for five years with acceleration provisions in the event of certain developments such as change in control or prepayments. After five years interest and dividends may be payable in cash, at our
option; (2) exchange and purchase arrangements that resulted in the retirement of approximately $295 million in principal amount at maturity (includes $3.9 million in Notes still
to be exchanged pursuant to existing exchange agreements) of our 12.125% senior discount notes due 2008 and our 11.875% senior notes due 2010 ("Notes"), (3) the issuance through a pro rata
dividend to our stockholders of record as of October 25, 2001 of warrants to purchase common stock, (4) an amendment to our existing senior credit facility to provide a
total of $225 million of borrowing capacity, and (5) approval to effect a reverse stock split between 1:5 to 1:35.

As
a result of our recapitalization, we have significantly restructured our balance sheet. On a proforma basis as if the recapitalization had taken place on September 30, 2001
(see note 7 to our consolidated financial statements), our cash would have been approximately $145.0 million and our total debt components reduced to $357.7 million in Notes and
other secured debt and $100.0 million in senior convertible loans. In addition, the amendment of our senior credit facility provides us with approximately $150 million of additional
borrowing capacity which will be available in two tranches; $55.0 million for 2002 and $95.0 million thereafter.

Our
revised business plan requires significant operating and capital expenditures, a substantial portion of which will be incurred before significant related revenue is realized.
These expenditures, together with associated operating expenses, may result in our having substantial negative operating cash flow and substantial net operating losses for the foreseeable future,
including the remainder of 2001 and fiscal year 2002. Our revised plan indicates that our revenue for the year 2001 will be approximately $331.0 million to $334.0 million and EBITDA will
be in a range of approximately $5.0 million loss to a $1.0 million loss for 2001. Although we believe that our revised plan, cost estimates and the scope and timing of our planned
network build-out are reasonable, we cannot assure that actual costs or the timing of the expenditures, or that the scope and timing of our build-out, will be consistent with
current estimates.

In
conjunction with our revised business plan, we recorded a $25.7 million restructuring charge for a reduction in our workforce, the abandonment of excess network facilities,
the write-off of related network assets and other related costs. The $25.7 million is comprised of $14.1 million in network fixed asset write-downs, $9.4 million in
abandonment of excess network facilities, $1.3 million in employee severance costs and $0.9 million in other related charges. For the three months ended September 30, 2001 amounts
paid associated with the abandonment of excess network facilities, employee severance,

14

---

and other related charges totaled $4.0 million, $0.9 million, and $0.3 million, respectively. A restructuring loss on fixed assets write-downs of $14.1 million has been
recorded during the third quarter of 2001. The remaining unpaid restructuring costs of $6.4 million are included in accrued liabilities in the consolidated balance sheet as of
September 30, 2001.

Our
capital expenditures were approximately $95.0 million for the nine months ended September 30, 2001. This primarily reflects capital spending to support our
enterprise and ISP line growth, the rollout of our managed Internet access services and new market expansion. We estimate that our capital expenditures in connection with our current revised business
plan will be approximately $120.0 million to $130.0 million for 2001. Our expectations of future capital requirements and cash flows from operations are based on current estimates. Our
actual capital requirements and cash flows could differ significantly from those estimates.

Net
cash used in operating activities increased by $134.9 million to $145.4 million during the nine months ended September 30, 2001, compared to the same period
in 2000. This increased use of cash is primarily due to a $45.5 million increase in our accounts receivable and a $59.0 million decrease in our
outstanding accounts payable during the first nine months of 2001. Our accounts payable were unusually high at December 31, 2000 which was subsequently resolved. Net cash used in investing
activities was $84.7 million for the nine months ended September 30, 2001 compared to $232.0 million for the nine months ended September 30, 2000. This decrease of
$147.3 million is primarily the result of reduced capital expenditures on market expansion during the first nine months of 2001. Net cash provided by financing activities decreased by
$188.6 million for the nine months ended September 30, 2001 to $65.2 million. This decrease is primarily the net result of the $259.2 million in net proceeds we received
from the issuance of our 11.875% senior notes in January 2000 which was partially off-set by $75.0 million of borrowings under our Credit Facility in 2001.

Based
on current estimates including the benefit of our recapitalization, we expect that our existing cash and investment balances, and future cash flows (expected to be provided from
ongoing operations) will be sufficient to fully fund our operations and capital expenditure requirements as contemplated in our revised business plan. Our expectations of future capital requirements
and cash flows from operations are based on current estimates. Our actual capital requirements and cash flows could differ significantly from these estimates. If plans or assumptions change or prove
to be inaccurate, we may be required to seek additional sources of capital, seek additional capital sooner than currently anticipated, or modify our expansion plans.

Effect of New Accounting Standards

Accounting for Business Combinations

In July 2001, the FASB issued SFAS No. 141, "Accounting for Business Combinations," effective for all business combinations initiated and made after
June 30, 2001. SFAS 141 requires that all business combinations be accounted for under the purchase method and establishes additional reporting requirements for business combinations. As
of September 30, 2001, we have not had any business combination transactions. In the future we will account for all business combinations under the purchase method and we do not expect that the
adoption of this statement to have an effect on our operations.

Accounting for Goodwill and Other Intangible Assets

In July 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets," effective for fiscal years beginning after
December 15, 2001. SFAS 142 requires the use of a non-amortization approach to account for purchased goodwill and for separately recognized (non-goodwill) intangible assets that have an
indefinite useful life. Under this approach, goodwill and intangibles will not be amortized, but will be periodically reviewed for impairment and expensed against earnings only in periods in which the
recorded value exceeds the fair value. Our adoption of this statement will not have a current effect of intangible assets currently on the books but could result in significant changes to amortization
expense and the classification and recording of intangibles on any future acquisitions.

15

---

The discussions under "Management's Discussion and Analysis of Financial Condition and Results of Operations" contain forward-looking statements. These statements are subject to a
number of risks and uncertainties that could cause actual results to differ substantially from our projections. See "Information Regarding Forward-looking Statements" on page 3 of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We minimize our exposure to market risk by maintaining a conservative investment portfolio, which primarily consists of debt securities, typically maturing
within one year, and entering into long-term debt obligations with appropriate pricing and terms. We do not hold or issue derivative, derivative commodity or other financial instruments
for trading purposes. Financial instruments held for other than trading purposes do not impose a material market risk on us.

We
are exposed to interest rate risk on our Credit Facility debt and any additional variable rate debt financing which may be needed to fund our operations. The interest rate on this
debt financing will depend on market conditions at that time, and may differ from the rates we have secured on our current debt.

A
significant portion of our long-term debt bears fixed interest rates, and accordingly, the fair market value of the long-term debt is sensitive to changes in
interest rates. We have no cash flow or earnings exposure due to market interest rate changes for our fixed long-term debt obligations. The fair market value of our Credit Facility debt
approximates the carrying value as of September 30, 2001 due to the variable interest rate feature of the debt instrument.

On
October 26, 2001, we completed a comprehensive recapitalization plan (see Note 7 to our consolidated financial statements).

The
table below provides additional information about our 1998 Notes, 2000 Notes, and Credit Facility. For additional information about our long-term debt obligations, see
our Consolidated Financial Statements and accompanying notes related thereto appearing elsewhere in this report.

|                  |  | As of September 30, 2001
|----------------- |  | ------------------------
|
|2001              |  |                        
|2002              |  |                        
|2003              |  | 1,875                   
|2004              |  | 9,375                   
|2005              |  | 16,875                  
|Thereafter        |  | 575,083                 
|                  |  |                         
|                  |  | 603,208                 
|                  |  |                         
|Fair Market Value |  | 215,061                 
|                  |  |                         

16

---



PART IIOTHER INFORMATION

Item 1.Legal and Administrative Proceedings

With the exception of the matters discussed below, we are not aware of any material litigation against us. In the ordinary course of our business, we are
involved in a number of regulatory proceedings before various state commissions and the FCC.

On
April 17, 2000, we joined with a number of other CLECs in a complaint in federal district court in Virginia against two interexchange carriers (IXCs)AT&T and
Sprintbased on these carriers' refusal to pay portions of switched access charges owed in connection with long distance calls carried to or from our customers. The IXCs alternatively
claimed that they did not order switched access services from us, or that our rates for such switched access services were excessive. We have settled this dispute with Sprint. Effective June 14, 2001,
the FCC found that IXCs could not refuse CLEC interstate access service on a prospective basis, provided that such rates were at or below a presumptively-reasonable safe harbor, and Focal's interstate
rates are currently within the safe harbor. On October 22, 2001, the FCC found that, as a matter of federal law, IXCs such as AT&T were not free to withhold payment from CLECs for interstate switched
access service, even prior to June 14, 2001. Instead, IXCs must pay the tariffed rate and are free to challenge the interstate rate level before the FCC. AT&T has appealed this FCC order to the United
States Circuit Court of Appeals for the DC Circuit. In addition, Focal expects that AT&T will shortly file a formal challenge to Focal's Interstate rates before the FCC. A final judicial decision
finding that IXCs can refuse CLEC access service, or a finding that Focal's access rates are now unreasonable, or were historically unreasonable would have an adverse financial impact.

Item 2.Changes in Securities and Use of Proceeds

Not Applicable.

Item 3.Defaults Upon Senior Securities

Not Applicable.

Item 4.Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5.Other Information

Not Applicable

Item 6.Exhibit and Reports on Form 8K



|Exhibit
Number |  | Exhibit Description                                                                                                                                    |  | Location                                                                                                  
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Amendment to the Restated Certificate of Incorporation, filed on October 26, 2001 with the Secretary of State of the State of Delaware. |  | Incorporated by reference to Exhibit 99.1 of the Form 8-K dated October 29, 2001 (the October 29 Form 8-K)

17

---

|3.2 |  | Certificate of Designation of Series A Redeemable Voting Convertible Preferred Stock, filed on October 26, 2001 with the Secretary of State of the State of Delaware.                                                                                                                                                                                                                                                                                                                                                      |  | Incorporated by reference to Exhibit 99.2 of the October 29 Form 8-K              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------
|4.1 |  | Preferred Stock Purchase and Loan Commitment Agreement dated August 9, 2001 (the "Purchase Agreement"), by the among Focal Communications Corporation, Madison Dearborn Capital Partners IV, L.P., Frontenac VIII Limited Partnership, Frontenac
Masters VIII Limited Partnership and Battery Ventures III, L.P.                                                                                                                                                                                                           |  | Incorporated by reference to Exhibit 99.1 of the Form 8-K dated August 29, 2001   
|4.2 |  | Joinder Agreement and Amendment No. 1, dated September 21, 2001, among the Company, Madison Dearborn Capital Partners IV, L.P., Frontenac VIII Limited Partnership, Battery Ventures III, L.P., Battery Ventures, VI, L.P., Battery Investment Partners VI,
 LLC Great Hill Equity Partners Limited Partnership, Great Hill Investors, LLC, Great Hill Equity Partners II Limited and Great Hill Affiliate Partners II Limited Partnership                                                                                 |  | Incorporated by reference to Exhibit 99.1 of the Form 8-K dated September 27, 2001
|4.3 |  | Amendment No. 2 to the Preferred Stock Purchase and Loan Commitment Agreement, dated as of October 11, 2001, by and among the Company, Madison Dearborn Capital Partners IV, L.P., Frontenac VIII Limited Partnership, Frontenac Masters VIII Limited
Partnership, Battery Ventures III, L.P., Battery Ventures VI, L.P., Battery Investment Partners VI, LLC. Great Hill Equity Partners II Limited Partnership and Great Hill Affiliate Partners II Limited Partnership.                                                 |  | Incorporated by reference to Exhibit 99.4 of the October 29 Form 8-K              
|4.5 |  | Voting Agreement, dated August 9, 2001, by and among Focal Communications Corporation, Madison Capital Partners, L.P., Frontenac VI Limited Partnership and Battery Ventures III, L.P.                                                                                                                                                                                                                                                                                                                                     |  | Incorporated by reference to Exhibit 99.6 of the Form 8-K dated August 29, 2001   
|4.6 |  | Form of Exchange Agreement (Exhibit I to Purchase Agreement)                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Incorporated by reference to Exhibit 99.5 of the Form 8-K dated August 29, 2001   
|4.7 |  | Conversion Agreement, dated as of October 26, 2001, by and among the Company, Madison Dearborn Capital Partners IV, L.P., Frontenac VIII Limited Partnership, Frontenac Masters VIII Limited Partnership, Battery Ventures III, L.P., Battery Ventures VI,
L.P., Battery Investment Partners VI, LLC, Great Hill Equity Partners Limited Partnership, Great Hill Investors, LLC, Great Hill Equity Partners II Limited Partnership, Great Hill Affiliate Partners II Limited Partnership and Randolph Street Partners
III. |  | Incorporated by reference to Exhibit 99.3 of the October 29 Form 8-K              
|4.8 |  | First Amended and Restated Registration Agreement, dated as of October 26, 2001, by and among the Company, the Persons listed on the Schedule of Original Institutional Investors attached thereto, the Persons listed on the Schedule of New
Institutional Investors and attached thereto, the Person, listed on the Schedule of Exchanging Bondholders attached thereto, and the Persons listed on the Scheduled of Executive Investors attached thereto.                                                                |  | Incorporated by reference to Exhibit 99.5 of the October 29 Form 8-K              

18

---

|4.9  |  | First Supplemental Indenture, dated as of October 26, 2001 between the Company and BNY Midwest Trust Company, as Trustee providing for the issuance of the Company's 12.125% Senior Discount Notes due 2008.                                                                                                  |  | Incorporated by reference to Exhibit 99.8 of the October 29 Form 8-K 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|4.10 |  | First Supplemental Indenture, dated as of October 26, 2001 between the Company and BNY Midwest Trust Company, as Trustee providing for the issuance of the Company's 11.875% Senior Notes due 2010.                                                                                                           |  | Incorporated by reference to Exhibit 99.9 of the October 29 Form 8-K 
|4.11 |  | Warrant Agreement, dated as of October 26, 2001 between the Company and Computershare Trust Company of New York, as warrant agent.                                                                                                                                                                            |  | Incorporated by reference to Exhibit 99.10 of the October 29 Form 8-K
|10.1 |  | Amended and Restated Credit and Guaranty Agreement, dated as of October 26, 2001, by and among the Company, Focal Financial Services, Inc., certain subsidiaries of the Company as identified therein, Goldman Sachs Credit Partners L.P., Salomon Smith
Barney Inc., Citibank, N.A. and Bank of America N.A. |  | Incorporated by reference to Exhibit 99.6 of the October 29 Form 8-K 
|10.2 |  | Master Pledge and Security Agreement, dated as of October 26, 2001, by and among the Company, certain subsidiaries of the Company as identified therein the Citicorp USA, Inc., as collateral agent.                                                                                                          |  | Incorporated by reference to Exhibit 99.7 of the October 29 Form 8-K 



During
the third quarter and prior to November 14, 2001, we filed three Current Reports on Form 8-K, which were filed on August 29, 2001, September 27, 2001 and October 29, 2001.
We announced the comprehensive recapitalization plan, the amendment of the Preferred Stock Purchase and Loan Commitment Agreement, and the completion of a comprehensive recapitalization plan
respectively.

19

---



SIGNATURES

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

| |  | FOCAL COMMUNICATIONS CORPORATION
| |  | --------------------------------

|Signature                                     |  | Title                                                                              |  | Date             
|--------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -----------------
|                                              |  |                                                                                    |  |                  
|/s/ROBERT C. TAYLOR, JR.Robert C. Taylor, Jr. |  | President and Chief Executive Officer (Authorized Officer)                         |  | November 14, 2001
|/s/RONALD REISINGRonald Reising               |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |  | November 14, 2001
|/s/GREGORY J. SWANSONGregory J. Swanson       |  | Controller (Principal Accounting Officer)                                          |  | November 14, 2001

20

---

QuickLinks