Document:

* IMPORTANT NOTE:  CERTAIN  MATERIAL,  INDICATED BY AN ASTERISK ("*"),  HAS BEEN
OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

                                CREDIT AGREEMENT

                           dated as of August 9, 2000

                                  by and among

                             PATHNET OPERATING, INC.
                                as the Borrower,

                           PATHNET FIBER EQUIPMENT LLC
                                       and
                             PATHNET REAL ESTATE LLC
                                 as Guarantors,

                              NORTEL NETWORKS INC.
                           as the Administrative Agent

                                       and

                            THE LENDERS NAMED HEREIN

                  $105,000,000 ADVANCING TERM LOANS A FACILITY

                  $105,000,000 ADVANCING TERM LOANS B FACILITY

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<TABLE>
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                                                  TABLE OF CONTENTS

                                                                                                               PAGE

<S>                                                                                                              <C>

ARTICLE 1 - Definitions...........................................................................................1
         Section 1.1       Definitions, etc.......................................................................1
         Section 1.2       Other Definitional Provisions.........................................................31
         Section 1.3       Accounting Terms and Determinations...................................................31
         Section 1.4       Financial Covenants and Reporting.....................................................32

ARTICLE 2 - Loans................................................................................................32
         Section 2.1       Commitments...........................................................................32
         Section 2.2       Notes.................................................................................33
         Section 2.3       Repayment of Loans....................................................................33
         Section 2.4       Interest..............................................................................35
         Section 2.5       Borrowing Procedure...................................................................36
         Section 2.6       Optional Prepayments, Conversions and Continuations of Loans..........................37
         Section 2.7       Mandatory Prepayments.................................................................37
         Section 2.8       Minimum Amounts.......................................................................39
         Section 2.9       Certain Notices.......................................................................39
         Section 2.10      Use of Proceeds.......................................................................40
         Section 2.11      Fees..................................................................................41
         Section 2.12      Computations..........................................................................42
         Section 2.13      Termination or Reduction of Commitments...............................................42

ARTICLE 3 - Payments.............................................................................................43
         Section 3.1       Method of Payment and Application of Payments.........................................43
         Section 3.2       Pro Rata Treatment....................................................................43
         Section 3.3       Sharing of Payments, Etc..............................................................44
         Section 3.4       Non-Receipt of Funds by the Administrative Agent......................................44
         Section 3.5       Taxes.................................................................................45
         Section 3.6       Withholding Tax Exemption.............................................................45
         Section 3.7       Reinstatement of Obligations..........................................................46
         Section 3.8       No Force Majeure, Disputes............................................................46

ARTICLE 4 - Yield Protection and Illegality......................................................................47
         Section 4.1       Additional Costs......................................................................47
         Section 4.2       Limitation on Types of Loans..........................................................48
         Section 4.3       Illegality............................................................................49
         Section 4.4       Treatment of Affected Loans...........................................................49
         Section 4.5       Compensation..........................................................................49
         Section 4.6       Capital Adequacy......................................................................50

ARTICLE 5 - Security.............................................................................................50
         Section 5.1       Collateral............................................................................50
         Section 5.2       Guaranties............................................................................51
         Section 5.3       New Subsidiaries; Additional Capital Stock............................................51
         Section 5.4       Mortgaged Properties; Subordinations and Waivers......................................52
         Section 5.5       Further Assurances....................................................................54
         Section 5.6       Setoff................................................................................54
         Section 5.7       The Collateral Agent; the Collateral Agency Agreement; Required Priority of Liens. ...54
         Section 5.8       Release...............................................................................54
         Section 5.9       Non-Disturbance and Attornment........................................................55

ARTICLE 6 - Conditions Precedent.................................................................................55
         Section 6.1       Initial Extension of Credit...........................................................55
         Section 6.2       All Extensions of Credit..............................................................62
         Section 6.3       Closing Certificates..................................................................62

ARTICLE 7 - Representations and Warranties.......................................................................63
         Section 7.1       Existence.............................................................................63
         Section 7.2       Financial Statements..................................................................63
         Section 7.3       Corporate Action; No Breach...........................................................64
         Section 7.4       Operation of Business; Licenses and Contract Rights-of-Way............................64
         Section 7.5       Intellectual Property.................................................................65
         Section 7.6       Litigation and Judgments..............................................................65
         Section 7.7       Rights in Properties and Contract Rights-of-Way; Liens................................66
         Section 7.8       Enforceability........................................................................66
         Section 7.9       Approvals.............................................................................66
         Section 7.10      Debt..................................................................................67
         Section 7.11      Taxes.................................................................................67
         Section 7.12      Margin Securities.....................................................................67
         Section 7.13      ERISA.................................................................................67
         Section 7.14      Disclosure............................................................................68
         Section 7.15      Loan Parties; Capitalization..........................................................68
         Section 7.16      Compliance with Laws..................................................................68
         Section 7.17      Investment Company Act................................................................68
         Section 7.18      Public Utility Holding Company Act....................................................68
         Section 7.19      Environmental Matters.................................................................68
         Section 7.20      Year 2000 Compliance..................................................................70
         Section 7.21      Labor Disputes and Acts of God........................................................70
         Section 7.22      Material Contracts....................................................................70
         Section 7.23      Bank Accounts.........................................................................70
         Section 7.24      Outstanding Securities................................................................70
         Section 7.25      Solvency..............................................................................70
         Section 7.26      Employee Matters......................................................................70
         Section 7.27      Insurance.............................................................................71
         Section 7.28      Common Enterprise.....................................................................71
         Section 7.29      No Default under Other Agreements.....................................................71
         Section 7.30      Reorganization; Contract Rights-of-Way; Collocation Sites.............................71
         Section 7.31      PNI Senior Notes......................................................................72
         Section 7.32      Status of Network Build-Out...........................................................72
         Section 7.33      Nature of Assets Contributed to the Borrower..........................................72

ARTICLE 8 - Affirmative Covenants................................................................................73
         Section 8.1       Reporting Requirements................................................................73
         Section 8.2       Maintenance of Existence; Conduct of Business.........................................77
         Section 8.3       Ownership and Maintenance of Properties and Licenses and Contract Rights-of-Way.......77
         Section 8.4       Taxes and Claims......................................................................78
         Section 8.5       Insurance.............................................................................78
         Section 8.6       Inspection Rights.....................................................................80
         Section 8.7       Keeping Books and Records.............................................................80
         Section 8.8       Compliance with Laws..................................................................81
         Section 8.9       Compliance with Agreements............................................................81
         Section 8.10      Further Assurances....................................................................81
         Section 8.11      ERISA.................................................................................81
         Section 8.12      Non-Consolidation.....................................................................82
         Section 8.13      Year 2000 Compliance..................................................................82
         Section 8.14      Trade Accounts Payable................................................................82
         Section 8.15      Delivery of Certain Amendments, Material Contracts and Subordinated Debt Documents....82
         Section 8.16      Interest Rate Protection..............................................................82
         Section 8.17      Ownership of Certain Assets and Businesses............................................83
         Section 8.18      Veracity and Accuracy of Financial Statements.........................................83
         Section 8.19      Investment Company Act and Public Utility Holding Company Act.........................83
         Section 8.20      Installment Sales or Leases of Nortel Networks Goods and Services.....................84
         Section 8.21      Management Services...................................................................84
         Section 8.22      Post-Closing Consents.................................................................84

ARTICLE 9 - Negative Covenants...................................................................................84
         Section 9.1       Debt. ................................................................................84
         Section 9.2       Limitation on Liens...................................................................86
         Section 9.3       Mergers, Etc..........................................................................87
         Section 9.4       Restricted Payments...................................................................87
         Section 9.5       Investments...........................................................................88
         Section 9.6       Limitation on Issuances of Capital Stock..............................................89
         Section 9.7       Transactions with Affiliates..........................................................90
         Section 9.8       Disposition of Property...............................................................91
         Section 9.9       Sale and Leaseback....................................................................92
         Section 9.10      Lines of Business.....................................................................93
         Section 9.11      Environmental Protection..............................................................94
         Section 9.12      Intercompany Transactions.............................................................94
         Section 9.13      Management Fees.......................................................................94
         Section 9.14      Master Purchase Agreement.............................................................94
         Section 9.15      Modification of Certain Agreements....................................................94
         Section 9.16      ERISA.................................................................................95
         Section 9.17      No Prepayment of Debt, Etc............................................................95
         Section 9.18      Rights of Third Parties in Intellectual Property......................................96

ARTICLE 10 - Financial Covenants.................................................................................96
         Section 10.1      Total Debt to Total Capitalization....................................................96
         Section 10.2      Total Debt to Annualized EBITDA.......................................................96
         Section 10.3      EBITDA to Debt Service Coverage.......................................................96
         Section 10.4      EBITDA to Consolidated Interest Expense...............................................97
         Section 10.5      Gross Revenues........................................................................97

ARTICLE 11 - Default.............................................................................................97
         Section 11.1      Events of Default.....................................................................97
         Section 11.2      Remedies.............................................................................100
         Section 11.3      Performance by the Administrative Agent, etc.........................................101

ARTICLE 12 - The Administrative Agent...........................................................................101
         Section 12.1      Appointment, Powers and Immunities...................................................101
         Section 12.2      Rights of Administrative Agent as a Lender...........................................102
         Section 12.3      Defaults.............................................................................102
         Section 12.4      INDEMNIFICATION......................................................................103
         Section 12.5      Independent Credit Decisions.........................................................104
         Section 12.6      Several Commitments..................................................................104
         Section 12.7      Successor Administrative Agent.......................................................104

ARTICLE 13 - Miscellaneous......................................................................................105
         Section 13.1      Expenses.............................................................................105
         Section 13.2      INDEMNIFICATION......................................................................105
         Section 13.3      Limitation of Liability..............................................................106
         Section 13.4      No Duty..............................................................................107
         Section 13.5      No Fiduciary Relationship............................................................107
         Section 13.6      Equitable Relief.....................................................................107
         Section 13.7      No Waiver; Cumulative Remedies.......................................................107
         Section 13.8      Successors and Assigns...............................................................107
         Section 13.9      Survival.............................................................................111
         Section 13.10     ENTIRE AGREEMENT.....................................................................111
         Section 13.11     Amendments...........................................................................111
         Section 13.12     Maximum Interest Rate................................................................112
         Section 13.13     Notices..............................................................................113
         Section 13.14     GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS........................113
         Section 13.15     Counterparts.........................................................................114
         Section 13.16     Severability.........................................................................114
         Section 13.17     Headings.............................................................................114
         Section 13.18     Construction.........................................................................114
         Section 13.19     Independence of Covenants............................................................114
         Section 13.20     Confidentiality......................................................................114
         Section 13.21     WAIVER OF JURY TRIAL.................................................................115
         Section 13.22     Approvals and Consent................................................................115
         Section 13.23     Service of Process...................................................................116
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                  INDEX TO EXHIBITS
<S>                 <C>

Exhibit A           -    Form of Assignment and Acceptance
Exhibit B           -    Form of Collateral Agency Agreement
Exhibit C           -    Form of Guaranty Agreement
Exhibit D           -    Form of Holdings Agreement
Exhibit E           -    Form of Holdings Pledge Agreement
Exhibit F           -    Form of Indemnity and Contribution Agreement
Exhibit G           -    Form of Perfection Certificate
Exhibit H           -    Form of Security Agreement
Exhibit I           -    Form of Subordination Agreement
Exhibit J-1         -    Form of Term Note A
Exhibit J-2         -    Form of Term Note B
Exhibit K           -    Form of Notice of Borrowings, Conversions, Continuations and Prepayments
Exhibit L           -    Form of Compliance Certificate

                                                 INDEX TO SCHEDULES

Schedule 1.1(a)     -    Certain Permitted Holders
Schedule 1.1(b)     -    Certain Permitted Liens
Schedule 7.4        -    Licenses
Schedule 7.5        -    Intellectual Property
Schedule 7.6        -    Litigation, Etc.
Schedule 7.7        -    Real Property; Contract Rights-of-Way
Schedule 7.10       -    Existing Debt
Schedule 7.13       -    Plans
Schedule 7.15       -    Loan Parties; Capitalization
Schedule 7.22       -    Material Contracts
Schedule 7.23       -    Bank Accounts
Schedule 7.26       -    Employee Matters
Schedule 7.27       -    Insurance
Schedule 8.17       -    Telecommunications Assets Not Owned by the Borrower and its Subsidiaries
Schedule 9.5        -    Certain Investments
Schedule 9.10       -    Certain Agreements of Real Estate Subsidiaries
Schedule 10.1       -    Total Debt to Total Capitalization
Schedule 10.2       -    Total Debt to Annualized EBITDA
Schedule 10.3       -    EBITDA to Debt Service Coverage
Schedule 10.4       -    EBITDA to Consolidated Interest Expense
Schedule 10.5       -    Gross Revenues
</TABLE>

<PAGE>

                                CREDIT AGREEMENT

         THIS  CREDIT  AGREEMENT,  dated as of August 9,  2000,  is by and among
PATHNET OPERATING, INC., a Delaware corporation (the "BORROWER"),  PATHNET FIBER
EQUIPMENT LLC, a Delaware limited liability company ("PFE"), PATHNET REAL ESTATE
LLC, a Delaware limited liability company ("PRE"),  each of the lending entities
which is a party hereto (as evidenced by the signature  pages of this Agreement)
or  which  may  from  time to time  become a party  hereto  as a  lender  or any
successor or assignee thereof (individually,  a "LENDER" and, collectively,  the
"LENDERS"), and NORTEL NETWORKS INC., a Delaware corporation,  as administrative
agent for itself and the other  Lenders  (in such  capacity,  together  with its
successors in such capacity, the "ADMINISTRATIVE AGENT").

                                   RECITALS:
                                   --------

         A. The  Borrower  desires to obtain  term loan  facilities  aggregating
$210,000,000  in  principal  amount to finance the  purchase of Nortel  Networks
Goods and Services by the Borrower and/or PFE.

         B. The Lender(s)  identified on the signature  pages of this  Agreement
desire  to  provide  such  credit   facilities   with  the   assistance  of  the
Administrative  Agent upon and subject to the terms and provisions  contained in
this Agreement.

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

                                    ARTICLE 1

                                   DEFINITIONS

         Section 1.1  DEFINITIONS, ETC. As used in this Agreement, the following
terms shall have the following meanings:

         "ADDITIONAL COSTS" means as specified in SECTION 4.1(A).

         "ADJUSTED  EURODOLLAR  RATE"  means,  for any  Eurodollar  Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary,  to
the nearest 1/16 of one percent)  determined by the  Administrative  Agent to be
equal to (a) the  Eurodollar  Rate for such  Eurodollar  Loan for such  Interest
Period divided by (b) one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.

                                       1
<PAGE>

         "ADJUSTED NET INCOME"  means,  as to any Person (the "SUBJECT  PERSON")
and its Consolidated  Subsidiaries  and for any period,  Consolidated Net Income
excluding  the  following  (without  duplication)  to the extent that any of the
following shall have been included in  Consolidated  Net Income for such period:
(a) any net gain or loss arising from the sale of any capital asset; (b) any net
gain or loss arising from any write-up or write-down of assets;  (c) earnings or
losses of any other Person,  substantially  all of the assets of which have been
acquired  by the  subject  Person or a  Consolidated  Subsidiary  of the subject
Person in any manner,  to the extent that such  earnings or losses were realized
by such other  Person  prior to the date of such  acquisition;  (d)  earnings or
losses of any  Person  (other  than a  Consolidated  Subsidiary  of the  subject
Person) in which the subject Person or a Consolidated  Subsidiary of the subject
Person has an  ownership  interest,  unless such  earnings  have  actually  been
received by the subject  Person or such  Consolidated  Subsidiary in the form of
cash distributions; and (e) any net gain or loss arising from the acquisition of
any securities of the subject Person or a Consolidated Subsidiary of the subject
Person.

         "ADMINISTRATIVE AGENT" means as specified in the introductory paragraph
of this Agreement.

         "ADMINISTRATIVE  AGENT'S LETTER" means the letter agreement dated as of
August 9, 2000 between the Administrative Agent and the Borrower.

         "AFFILIATE" means, as to any Person (the "SUBJECT  PERSON"),  any other
Person  (a) that  directly  or  indirectly  through  one or more  intermediaries
controls or is  controlled  by, or is under  direct or indirect  common  control
with, the subject Person,  (b) that directly or indirectly  beneficially owns or
holds ten  percent or more of any class of voting  Capital  Stock of the subject
Person,  or (c) ten  percent  or more of the  voting  Capital  Stock of which is
directly or indirectly beneficially owned or held by the subject Person. For the
purposes of this  definition and the definition of the term "Change in Control",
"control"  when used with  respect to any  Person  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"controlling" and "controlled" have meanings  correlative to the foregoing.  For
purposes of the Loan Documents,  neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any other Loan Party.

         "AGENT" means either the Administrative  Agent or the Collateral Agent,
and "AGENTS" means the Administrative Agent and the Collateral Agent.

         "AGGREGATE  COMMITMENTS"  means,  as to all  Lenders,  the Term Loans A
Commitments and the Term Loans B Commitments.

         "AGREEMENT"   means  this   Agreement  and  any  and  all   amendments,
modifications, supplements, renewals, extensions or restatements hereof.

         "AMORTIZATION  COMMENCEMENT  DATE" means the Quarterly  Date falling in
the calendar  quarter  immediately  succeeding the calendar quarter in which the
earlier of the following dates occurs:  (a) June 30, 2003, or (b) June 30, 2001,
if less than $[*] in aggregate  principal  amount of the Loans has been advanced
as of such date.

         "ANNUALIZED  EBITDA"  means,  as to any  Person  and  its  Consolidated
Subsidiaries  and for the  applicable  period,  EBITDA for the two most recently
completed fiscal quarters multiplied by two.

                                       2
<PAGE>

         "APPLICABLE  LENDING  OFFICE"  means,  for each Lender and each Type of
Loan,  the  lending  office of such  Lender  (or an  Affiliate  of such  Lender)
designated  for such Type of Loan below its name on the  signature  pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant to
an assignment  made in  accordance  with SECTION  13.8,  in the  Assignment  and
Acceptance  executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which such Lender's Loans of such Type
are to be made and maintained.

         "APPLICABLE  MARGIN" means the rate per annum equal to (a) with respect
to each  Base  Rate  Loan,  [*]  percent  ([*]%)  and (b) with  respect  to each
Eurodollar Loan, [*] percent ([*]%).

         "APPROVED  FUND" means (a) with  respect to any Lender  which is a fund
primarily  engaged in making,  purchasing  or otherwise  investing in commercial
loans,  any other fund which is  primarily  engaged  in  making,  purchasing  or
otherwise investing in commercial loans or extending, or investing in extensions
of, credit for its own account in the ordinary  course of its business and which
is managed or advised  by the same  investment  advisor as such  Lender or by an
Affiliate  of such  investment  advisor or (b) any other  entity  which has been
approved  by the  Administrative  Agent and which is (or which is  managed  by a
manager which manages funds which are) primarily  engaged in making,  purchasing
or  otherwise  investing  in  commercial  loans or  extending,  or  investing in
extensions  of,  credit  for its  own  account  in the  ordinary  course  of its
business;  PROVIDED, HOWEVER, that Approved Fund shall not include any Affiliate
of the Borrower.

         "APPROVED SERVICES AGREEMENT" means that certain Intercompany  Services
Agreement  dated as of August 9, 2000 between PNI and the  Borrower,  a true and
correct copy of which has been provided to the Administrative Agent.

         "APPROVED  TAX  ALLOCATION  AGREEMENT"  means that  certain Tax Sharing
Agreement dated as of August 9, 2000 between  Holdings and the Borrower,  a true
and correct copy of which has been provided to the Administrative Agent.

         "ASSET   CONTRIBUTION   AGREEMENT"  means  that  certain   Contribution
Agreement dated as of August 9, 2000 among Holdings, the Borrower, PRE and PFE.

         "ASSET DISPOSITION" means the disposition of any or all of the Property
of the Borrower or any of its Subsidiaries,  whether by sale,  lease,  transfer,
assignment,  condemnation or otherwise,  but excluding (a) sales of inventory in
the ordinary  course of business,  (b) the grant of a Lien as security,  (c) any
involuntary  disposition  resulting  from casualty  damage to Property,  and (d)
dispositions  of equipment if and to the extent that the  equipment  disposed of
is,  concurrently  therewith,  exchanged  or replaced by  equipment  of equal or
greater value.

         "ASSIGNEE" means as specified in SECTION 13.8(B).

         "ASSIGNING LENDER" means as specified in SECTION 13.8(B).

                                       3
<PAGE>

         "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance  entered
into by a Lender and its  Assignee  and  accepted  by the  Administrative  Agent
pursuant to SECTION 13.8(E), in substantially the form of EXHIBIT A hereto.

         "BANKRUPTCY CODE" means as specified in SECTION 11.1(E).

         "BASE RATE" means, at any time, the greater of (a) the rate of interest
per annum then most recently  announced or  established by the Reference Bank at
its principal  office in New York City as its highest  commercial  prime or base
rate then in effect,  or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%).  The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers.  Each change
in any  interest  rate  provided for herein based upon the prime or base rate or
the Federal Funds Rate  resulting from a change in the prime or base rate or the
Federal  Funds  Rate,  respectively,  shall take  effect  without  notice to the
Borrower  at the time of such  change in the  prime or base rate or the  Federal
Funds Rate, respectively.

         "BASE RATE LOANS"  means  Loans that bear  interest at rates based upon
the Base Rate.

         "BASLE  ACCORD" means the proposals for  risk-based  capital  framework
described  by  the  Basle  Committee  on  Banking  Regulations  and  Supervisory
Practices  in  its  paper   entitled   "International   Convergence  of  Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.

         "BOARD OF DIRECTORS"  means (a) with respect to any Loan Party which is
a corporation, the board of directors of such Loan Party and (b) with respect to
any Loan  Party  which is not a  corporation,  an  analogous  body,  officer  or
representative  of such Loan Party  which is the  functional  equivalent  of the
board of directors  of a  corporation  and which has the power and  authority to
authorize and  effectuate the  execution,  delivery and  performance of the Loan
Documents  to be  executed  by such Loan Party and other  actions to be taken by
such Loan Party.

         "BOARD  RESOLUTION"  means  a copy  of a  resolution  certified  by the
Secretary or an Assistant  Secretary or analogous  officer of any Loan Party, as
applicable based upon the context in which such term appears,  to have been duly
adopted by its Board of Directors and to be in full force and effect on the date
of such certification.

         "BORROWER"  means  as  specified  in  the  initial  paragraph  of  this
Agreement.

         "BORROWING"  means a Loan or group of Loans of the same  Class and Type
made,  converted or  continued  on the same date and, in the case of  Eurodollar
Loans, as to which a single Interest Period is in effect.

                                       4
<PAGE>

         "BUSINESS DAY" means (a) any day other than a Saturday, Sunday or other
day on which  commercial banks are authorized or required by law to close in New
York, New York, Dallas, Texas, or Boston,  Massachusetts and (b) with respect to
all  Borrowings,  payments,  Conversions,  Continuations,  Interest  Periods and
notices in connection  with  Eurodollar  Loans,  any day which is a Business Day
described  in CLAUSE  (A) above  and  which is also a day on which  dealings  in
Dollar deposits are carried out in the London interbank market.

         "BUSINESS  PLAN" means the Borrower's  marketing and Network  build-out
plans,  budget and schedule as  submitted to and approved by the  Administrative
Agent,  including  financial  projections  of the Borrower and its  Consolidated
Subsidiaries for the ten year period beginning on the Closing Date, certified by
the chief  financial  officer of the  Borrower as being  prepared  generally  in
accordance  with GAAP (except for the absence of  footnotes),  such  projections
giving  effect to the Debt to be incurred  under this  Agreement  as well as the
other Debt to be  incurred by the  Borrower  and its  Consolidated  Subsidiaries
during such period. As of the Closing Date, the Business Plan dated as of August
4, 2000 and identified as "Pathnet Financial  Projections" shall be the Business
Plan for purposes of this Agreement.

         "CAPITAL  EXPENDITURES"  means,  as to any Person and its  Consolidated
Subsidiaries,  amounts paid or Debt incurred by such Persons in connection  with
the purchase or lease by such  Persons of Property  that would be required to be
capitalized  and shown on the balance sheet of such Persons in  accordance  with
GAAP.

         "CAPITAL  LEASE   OBLIGATIONS"   means,   as  to  any  Person  and  its
Consolidated Subsidiaries,  the obligations of such Persons to pay rent or other
amounts  under a lease of (or other  agreement  conveying the right to use) real
and/or personal Property, which obligations are classified as a capital lease on
a balance sheet of such Persons under GAAP. For purposes of this Agreement,  the
amount  of such  Capital  Lease  Obligations  shall  be the  capitalized  amount
thereof, determined in accordance with GAAP.

         "CAPITAL  STOCK"  means  corporate  stock  and any and all  securities,
shares,  partnership  interests  (whether  general,  limited,  special  or other
partnership   interests),   limited  liability  company  interests,   membership
interests,  equity  interests,  participations,   rights  or  other  equivalents
(however  designated) of corporate  stock or any of the foregoing  issued by any
entity (whether a corporation,  a partnership,  a limited  liability  company or
another entity) and includes,  without limitation,  securities  convertible into
Capital Stock and rights, warrants or options to acquire Capital Stock.

         "CASUALTY  EVENT"  means any casualty or other damage to, or any taking
under power of eminent domain or by condemnation  or similar  proceeding of, any
Property or asset  (including,  without  limitation,  Fiber and  Conduit) of the
Borrower or any Subsidiary of the Borrower after the Closing Date.

                                       5
<PAGE>

         "CHANGE IN CONTROL"  means the  existence or  occurrence  of any of the
following:  (a) any Capital  Stock of the  Borrower is owned by any Person other
than Holdings;  (b) any Capital Stock of any Subsidiary of the Borrower is owned
by any Person  other  than the  Borrower  or a  Wholly-Owned  Subsidiary  of the
Borrower;  (c) any  Person  or two or more  Persons  (other  than the  Permitted
Holders  or a group  controlled  by  Permitted  Holders)  acting  as a group (as
defined in Section  13d-3 of the Exchange  Act) shall have  acquired  beneficial
ownership  (within  the  meaning of Rule 13d-3 of the  Securities  and  Exchange
Commission under the Exchange Act) of [*]% or more of the outstanding  shares of
Voting  Stock  of  Holdings;  (d)  individuals  who,  as of  the  Closing  Date,
constitute the Board of Directors of Holdings (the "INCUMBENT  BOARD") cease for
any  reason to  constitute  at least a  majority  of the Board of  Directors  of
Holdings; PROVIDED, HOWEVER, that any individual becoming a director of Holdings
subsequent  to the Closing  Date whose  election or  nomination  for election by
Holdings'  shareholders  was  approved  by a vote of at least a majority  of the
directors then comprising the Incumbent Board shall be considered as though such
individual  were a  member  of the  Incumbent  Board,  but  excluding,  for this
purpose,  any such  individual  whose  initial  assumption of office occurs as a
result of either an actual or  threatened  election  contest  (as such terms are
used in Rule 14a-11 of  Regulation  14A  promulgated  under the Exchange Act) or
other actual or threatened solicitation of proxies or contest by or on behalf of
a Person other than the Board of Directors of Holdings;  or (e) the consummation
of any transaction the result of which is that any Person or group  beneficially
owns more of the Voting Stock of Holdings  than is  beneficially  owned,  in the
aggregate, by the Permitted Holders.

         "CLASS"  when used in  reference  to any Loan or  Borrowing,  refers to
whether such Loan, or the Loans  comprising such Borrowing,  are Term Loans A or
Term Loans B and,  when used in reference to any  Commitment,  refers to whether
such Commitment is a Term Loans A Commitment or a Term Loans B Commitment.

         "CLOSING DATE" means August 9, 2000, the date of this Agreement.

         "CODE" means the Internal  Revenue  Code of 1986,  as amended,  and the
regulations promulgated and rulings issued thereunder.

         "COLLATERAL"  means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported or required  (in  accordance  with the
Loan  Documents)  to be  created  by any  Loan  Document  as  security  for  the
Obligations or any portion thereof.

         "COLLATERAL   AGENCY   AGREEMENT"  means  the  Collateral   Agency  and
Intercreditor  Agreement among the Collateral Agent, the  Administrative  Agent,
the Borrower,  Holdings, PRE and PFE, substantially in the form of EXHIBIT B, as
such  agreement may be amended,  modified,  supplemented,  renewed,  extended or
restated  with the prior  written  consent of the  Administrative  Agent and the
Required Lenders.

         "COLLATERAL  AGENT"  means State  Street Bank and Trust  Company in its
capacity as collateral agent for the "Secured  Parties" (as such term is defined
in the  Collateral  Agency  Agreement)  under  the  Security  Documents  and the
Guaranty Agreements.

         "COMMITMENT"  means,  as to any  Lender,  such  Lender's  Term  Loans A
Commitment or Term Loans B Commitment (as  applicable  based upon the context in
which such term is used) and  "COMMITMENTS"  means, as to any one or more of the
Lenders,  such  Lender's or Lenders'  (as  applicable  based upon the context in
which  such  term  is  used)  Term  Loans  A  Commitment(s)  and  Term  Loans  B
Commitment(s), collectively.

                                       6
<PAGE>

         "COMMITMENT  PERCENTAGE"  means,  as to any  Lender  and as to the Term
Loans A Commitments,  the Term Loans B Commitments or the Aggregate  Commitments
(as  applicable  based  upon  the  context  in which  such  term is  used),  the
percentage equivalent of a fraction, the numerator of which is the amount of the
outstanding  Term Loans A  Commitment,  Term  Loans B  Commitment  or  Aggregate
Commitments (as applicable) of such Lender (or if such applicable Commitment has
terminated or expired, the outstanding principal amount of the Term Loans A, the
Term Loans B or the Loans, respectively,  of such Lender) and the denominator of
which is the aggregate amount of the outstanding Term Loans A Commitments,  Term
Loans B Commitments or Aggregate  Commitments (as applicable) of all Lenders (or
if such  applicable  Commitments  have  terminated  or  expired,  the  aggregate
outstanding principal amount of the Term Loans A, the Term Loans B or the Loans,
respectively,  of all Lenders), as adjusted from time to time in accordance with
SECTION 13.8.

         "COMMUNICATIONS  ACT"  means the  Communications  Act of 1934,  and any
similar or successor  federal statute,  and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.

         "CONDUIT"  means any conduit  capable of containing one or more strands
of Fiber.

         "CONSOLIDATED   FIXED  CHARGES"   means,  as  to  any  Person  and  its
Consolidated  Subsidiaries and for any period, the sum of (without  duplication)
(a) Consolidated Interest Expense of such Persons paid or payable in cash during
such period,  PLUS (b) all scheduled  payments (as such  scheduled  payments are
reduced by  application  of any  prepayments)  of principal  with respect to the
Loans and other  outstanding  Debt during such period,  PLUS (c) all prepayments
(if any) of  principal  with  respect  to the Loans and other  outstanding  Debt
during such period to the extent such prepayments reduced any scheduled payments
that would have been due within one year after the date of prepayment,  PLUS (d)
taxes of such Persons  paid or payable in cash during such period,  PLUS (e) the
aggregate  amount paid by such  Persons in cash during such period on account of
Capital Expenditures.

         "CONSOLIDATED  INTEREST  EXPENSE"  means,  as to  any  Person  and  its
Consolidated  Subsidiaries  and for any  period,  and without  duplication,  all
interest on Debt of such  Persons  paid or payable in cash  during such  period,
including the interest  portion of payments under Capital Lease  Obligations but
excluding Qualifying Fiber or Conduit Purchases.

         "CONSOLIDATED  NET INCOME" means, as to any Person and its Consolidated
Subsidiaries  and for any period,  the net income (or loss) of such  Persons for
such period, determined on a consolidated basis in accordance with GAAP.

         "CONSOLIDATED  SUBSIDIARY"  means,  with  respect  to any  Person,  any
Subsidiary the financial  attributes of which are or would be consolidated  with
those of such Person in the consolidated  financial statements of such Person in
accordance with GAAP.

         "CONTINUE",   "CONTINUATION"   and  "CONTINUED"   shall  refer  to  the
continuation  pursuant to SECTION 2.6 of a Eurodollar  Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.

         "CONTRACT RATE" means as specified in SECTION 13.12(A).

                                       7
<PAGE>

         "CONTRACT  RIGHTS-OF-WAY"  means any and all rights-of-way  (whether an
easement,  lease, contract or agreement in any form) or similar authorization to
use any real  property  or any  interest  therein  contractually  granted by any
Person  to or in  favor  of any  Loan  Party  in  connection  with,  and used in
connection with, the Network, including, without limitation, leases and licenses
entered into in connection with the Master Rights-of-Way Agreements.

         "CONTRIBUTED  CAPITAL"  means,  as to any  Person and as of any date of
determination,  the sum of (without  duplication) (a) cash equity  contributions
made to such Person as of such date  (including  cash equity  contributed  on or
before the Closing Date) and non-cash equity  contributions  made to such Person
prior to the  Closing  Date if and to the extent (but only if and to the extent)
that such non-cash equity contributions are expressly reflected in the financial
statements  delivered by the Borrower  pursuant to SECTION 7.2 hereof,  PLUS (b)
the amount of cash proceeds of  Subordinated  Debt received by such Person as of
such date, MINUS (c) the aggregate amount of any Restricted  Payments (excluding
dividends paid by the Borrower to Holdings as permitted by CLAUSE (C) of SECTION
9.4) paid or made by such Person as of such date in cash or other Property other
than  Capital  Stock of such  Person,  MINUS  (d) the  aggregate  amount of cash
interest  paid on  Subordinated  Debt of such  Person as of such date,  PLUS (e)
non-cash  equity  contributions  of Contract  Rights-of-Way  made to such Person
after the Closing Date if and to the extent (but only if and to the extent) that
such Contract  Rights-of-Way are valued in a manner consistent with both (i) the
prior  valuation   methods  of  the  Borrower  and  Holdings   regarding  equity
contributions  of Contract  Rights-of-Way  by Holdings to the  Borrower and (ii)
GAAP.

         "CONVERT",  "CONVERSION"  and  "CONVERTED"  shall refer to a conversion
pursuant  to SECTION 2.6 or ARTICLE 4 of one Type of Loan into the other Type of
Loan.

         "CURRENT DATE" means (a) a date occurring no more than 30 days prior to
the  Closing  Date  or  other  relevant  date  as may be  specified  herein  (as
applicable)  or (b) such earlier date which is acceptable to the  Administrative
Agent.

         "CUSTOMER  AGREEMENT" means an agreement providing for the sale, lease,
transfer,  swap,  exchange  or other  disposition  of, or the grant of any other
right to use, or the grant of an option to purchase, acquire, lease or otherwise
use, all or any part of the Network,  whether relating to transmission capacity,
Conduit  or any  individual  strand  or  strands  of Fiber,  including,  without
limitation, any such agreements between the Borrower and its Subsidiaries.

                                       8
<PAGE>

         "DEBT" means as to any Person at any time  (without  duplication):  (a)
all indebtedness, liabilities and obligations of such Person for borrowed money;
(b) all  indebtedness,  liabilities and obligations of such Person  evidenced by
bonds,  notes,  debentures or other similar  instruments;  (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
Property or services,  except trade  accounts  payable of such Person arising in
the ordinary  course of business that are not past due by more than 90 days; (d)
all Capital Lease Obligations of such Person;  (e) all Debt of others Guaranteed
by such Person; (f) all indebtedness,  liabilities and obligations  secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations  secured  thereby have been assumed by such Person or
are  non-recourse  to such Person;  (g) all  reimbursement  obligations  of such
Person  (whether  contingent  or  otherwise)  in  respect  of letters of credit,
bankers'  acceptances,  surety or other bonds and similar  instruments;  (h) all
indebtedness,  liabilities  and  obligations  of such Person to redeem or retire
shares of Capital Stock of such Person;  (i) all  indebtedness,  liabilities and
obligations of such Person under Interest Rate  Protection  Agreements;  and (j)
all  indebtedness,  liabilities  and  obligations  of such  Person in respect of
unfunded  vested  benefits  under any pension  plans.  With  respect to any Debt
issued with original issue discount, the outstanding principal amount thereof at
any time shall be equal to the  remainder  of the face amount of such Debt MINUS
the remaining  unamortized  portion of the original  issue discount at such time
determined in accordance with GAAP.

         "DEBT  SERVICE"   means,   as  to  any  Person  and  its   Consolidated
Subsidiaries and for any period,  the sum of (a)  Consolidated  Interest Expense
for such  Persons  paid or  payable in cash  during  such  period,  PLUS (b) all
scheduled payments (as such scheduled payments are reduced by the application of
any  prepayments  made)  of  principal  with  respect  to the  Loans  and  other
outstanding Debt during such period.

         "DEFAULT"  means an Event of Default or the  occurrence  of an event or
condition  which with  notice or lapse of time or both would  become an Event of
Default.

         "DEFAULT  RATE" means,  in respect of any  principal of any Loan at all
times during which any Default has occurred and is  continuing  or in respect of
any other amount  payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise),  a rate per annum during the period of such Default or during the
period  commencing  on the due date of such other amount until such other amount
is paid in full equal to the lesser of (a) the sum of [*]  percent  ([*]%)  plus
the Base Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans or (b) the Maximum Rate;  PROVIDED,  HOWEVER,  that if such amount in
default is principal  of a Eurodollar  Loan and the due date is a day other than
the last  day of an  Interest  Period  therefor,  the  "Default  Rate"  for such
principal  shall be, for the period from and  including  the due date and to but
excluding the last day of the Interest Period  therefor,  the lesser of the rate
per annum equal to (i) the sum of [*] percent  ([*]%) plus the interest rate for
such  Eurodollar  Loan for such  Interest  Period as  provided in CLAUSE (II) of
SECTION  2.4(A)  hereof  or (ii) the  Maximum  Rate  and,  thereafter,  the rate
provided for above in this definition.

         "DOLLARS" and "$" mean lawful money of the U.S.

         "EBITDA" means, as to any Person and its Consolidated  Subsidiaries and
for any period,  without duplication,  the sum of the following for such Persons
for such period determined on a consolidated  basis in accordance with GAAP: (a)
Adjusted Net Income, PLUS (b) Consolidated Interest Expense, PLUS (c) income and
franchise taxes to the extent deducted in determining  Adjusted Net Income, plus
(d) depreciation and amortization  expense and other non-cash,  non-tax items to
the extent  deducted in  determining  Adjusted  Net Income,  MINUS (e)  non-cash
income to the extent  included in  determining  Adjusted  Net  Income,  PLUS (f)
non-cash losses to the extent deducted in determining Adjusted Net Income.

                                       9
<PAGE>

         "ELIGIBLE  ASSIGNEE" means (a) any Lender or Affiliate of a Lender, (b)
any  commercial  bank,  savings  and loan  association,  savings  bank,  finance
company,  insurance  company,  pension  fund,  mutual  fund or  other  financial
institution  (whether a corporation,  partnership,  limited liability company or
other entity) which has been  approved by the  Administrative  Agent as a Lender
under this  Agreement  or (c) any Approved  Fund;  PROVIDED,  HOWEVER,  that (i)
Eligible  Assignee  shall not include any  Affiliate  of the  Borrower  and (ii)
Eligible  Assignee  shall not include any  business  competitor  of the Borrower
engaged in the same service  offering  line of business as the  Borrower  except
after the occurrence and during the continuance of an Event of Default.

         "ELIGIBLE  SECURED  DEBT" means (a) Debt of the  Borrower in respect of
the Loans,  (b) any other Debt for borrowed  money of the  Borrower  incurred to
finance the  acquisition,  construction,  installation or improvement of capital
assets  (including  Fiber and Conduit) that constitute part of the Collateral or
the Real  Estate  Assets  and (c) any Debt for  borrowed  money of the  Borrower
incurred to refinance  Debt referred to in CLAUSE (B) above in  compliance  with
the  proviso  to CLAUSE  (J) of  SECTION  9.1  (other  than  CLAUSE  (V) of such
proviso);  PROVIDED  that (i) in the case of any Debt  described  in CLAUSE  (B)
above,  (A) such Debt is  incurred  within [*] days of such  acquisition  or the
completion of such  construction,  installation or improvement and the principal
amount thereof does not exceed [*]% of the aggregate  cost of such  acquisition,
construction,  installation or improvement,  (B) the initial committed amount of
such Debt is at least $10,000,000, and (C) the weighted average life to maturity
of such Debt is equal to or longer than the remaining  weighted  average life to
maturity  of the  Loans  advanced  pursuant  to this  Agreement  and  the  Loans
committed to be advanced  pursuant to this Agreement as if such Loans  committed
to be advanced had been  advanced as of the date of  determination,  (ii) in the
case of any Debt described in CLAUSE (B) or (C) above, (A) the holder or holders
of such  Debt (or a duly  authorized  representative  thereof  on behalf of such
holders)  shall  have  become  a party to the  Collateral  Agency  Agreement  as
provided therein,  (B) at the time any such Debt is incurred (including pursuant
to any increase in the principal  amount thereof) no Default shall have occurred
and be continuing  (both before and after giving effect to such  incurrence) and
the Borrower  shall be in  compliance  with each of the  covenants  set forth in
ARTICLE  10  determined  on a pro  forma  basis  as of the  last day of the most
recently ended fiscal quarter of the Borrower for which financial statements are
available  as though such Debt had been  incurred on the last day of such fiscal
quarter for testing  compliance with each such covenant,  and the Borrower shall
have delivered to the  Administrative  Agent a reasonably  detailed  calculation
demonstrating  such  compliance,  and (C) no  premium  or  penalty is payable in
connection  with any  prepayment of such Debt, and (iii) in the case of any Debt
referred  to in CLAUSE  (B) or (C)  above,  such Debt is not  Guaranteed  by any
Person  (other than  pursuant to the Guaranty  Agreement) or secured by any Lien
(other than Liens granted under the Security Documents).

         "ELIGIBLE  SECURED DEBT DOCUMENTS" means the agreements,  documents and
instruments evidencing or governing any Eligible Secured Debt.

                                       10
<PAGE>

         "ENVIRONMENTAL  LAW" means any  federal,  state,  provincial,  local or
foreign  law,  statute,  code or  ordinance,  principle  of common law,  rule or
regulation,  as well as any  License,  order,  decree,  judgment  or  injunction
issued,   promulgated,   approved  or  entered  by  any  Governmental  Authority
thereunder,  relating to pollution or the protection,  cleanup or restoration of
the  environment  or natural  resources,  or to the public health or safety,  or
otherwise  governing  the  generation,  use,  handling,  collection,  treatment,
storage, transportation, recovery, recycling, discharge or disposal of Hazardous
Materials,  including,  without  limitation as to U.S. laws,  the  Comprehensive
Environmental  Response,  Compensation  and  Liability Act of 1980, 42 U.S.C.ss.
9601 ET SEQ., the Superfund  Amendment and  Reauthorization Act of 1986, 99-499,
100 Stat.  1613,  the Resource  Conservation  and Recovery Act of 1976, 42 U. S.
C.ss. 6901 ET SEQ., the  Occupational  Safety and Health Act, 29 U S.C.ss.651 ET
SEQ., the Clean Air Act, 42 U.S.C.ss.7401 ET SEQ., the Clean Water Act, 33 U. S.
C.ss.1251 ET SEQ., the Emergency Planning and Community Right to Know Act, 42 U.
S. C.ss.11001 ET SEQ., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C.ss.136 ET SEQ., and the Toxic Substances  Control Act, 15 U.S.C.ss.2601 ET
SEQ., and any state or local counterparts.

         "ENVIRONMENTAL  LIABILITIES"  means, as to any Person, all liabilities,
obligations,  responsibilities,  Remedial  Actions,  losses,  damages,  punitive
damages,  consequential damages,  treble damages, costs and expenses (including,
without limitation,  all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility  studies),
fines,  penalties,  sanctions and interest  incurred as a result of any claim or
demand,  by any Person,  whether  based in  contract,  tort,  implied or express
warranty,  strict  liability or  criminal,  penal or civil  statute,  including,
without limitation,  any Environmental Law, License, order or agreement with any
Governmental  Authority or other Person,  arising from environmental,  health or
safety conditions or the Release or threatened  Release of a Hazardous  Material
into the environment.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended from time to time,  and the  regulations  and published  interpretations
thereunder.

         "ERISA AFFILIATE" means any corporation or trade or business which is a
member of a group of entities,  organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.

         "EURODOLLAR  LOANS" means Loans that bear  interest at rates based upon
the Eurodollar Rate or the Adjusted Eurodollar Rate.

         "EURODOLLAR  RATE"  means,  for any  Eurodollar  Loan for any  Interest
Period  therefor,  the rate per annum  (rounded  upwards,  if necessary,  to the
nearest 1/16 of 1%) appearing on Telerate  Page 3750 (or any successor  page) as
the London  interbank  offered rate for  deposits in Dollars in the  approximate
amount of the proposed Eurodollar Loan at approximately 11:00 a.m. (London time)
two  Business  Days  prior to the first day of such  Interest  Period for a term
comparable to such  Interest  Period.  If such rate ceases to be available  from
Telerate  News  Service,   the  Eurodollar  Rate  shall  be  determined  by  the
Administrative  Agent in good faith from another  financial  reporting  service,
which service shall be reasonably acceptable to the Borrower.

         "EVENT OF DEFAULT" has the meaning specified in SECTION 11.1.

         "EXCESS  CASH  FLOW"  means,  as to any  Person  and  its  Consolidated
Subsidiaries  and for any fiscal  year,  and without  duplication,  the positive
remainder  (if any) of (a) EBITDA for such  fiscal year MINUS (b) the sum of (i)
taxes  payable in cash for such fiscal year,  PLUS (ii) all  principal  and cash
interest  payments on Debt  (including  the  principal  component of any Capital
Lease  Obligations  but excluding  Qualifying  Fiber or Conduit  Purchases) made
during such fiscal year, whether optional, mandatory or scheduled payments, PLUS
(iii)  Capital  Expenditures  (but  only to the  extent  paid  in  cash  and not
financed) made during such fiscal year.

                                       11
<PAGE>

         "EXCESS PROCEEDS AMOUNT" means as specified in SECTION 2.7(A).

         "EXCHANGE  ACT" means the  Securities  Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations  thereunder (or respective
successors thereto).

         "EXCLUDED TAXES" means, with respect to either Agent, any Lender or any
other  recipient of any payment to be made by or on account of any obligation of
the Borrower under this Agreement,  (a) income or franchise taxes imposed on (or
measured by) its net income by the U.S., or by the  jurisdiction  under the laws
of which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its applicable lending office is located
or any  Governmental  Authority  of or in any of the  foregoing,  including  any
minimum or alternative Taxes based upon net income, (b) any branch profits taxes
imposed by the U.S.  or any similar  tax  imposed by any other  jurisdiction  in
which the Borrower is located or any Governmental  Authority of or in any of the
foregoing  and (c) in the  case of a  Foreign  Lender  (other  than an  assignee
pursuant to a request by the Borrower under this Agreement), any withholding tax
that is  imposed  on amounts  payable  to such  Foreign  Lender at the time such
Foreign  Lender  becomes a party to this  Agreement (or designates a new lending
office) or is  attributable  to such  Foreign  Lender's  failure to comply  with
SECTION 3.6, except to the extent that such Foreign Lender (or its assignor,  if
any) was  entitled,  at the time of  designation  of a new  lending  office  (or
assignment),  to receive  additional  amounts from the Borrower  with respect to
such withholding tax pursuant to SECTION 3.5.

         "FCC" means the Federal  Communications  Commission  and any  successor
agency.

         "FCC LICENSES" means all Licenses issued by the FCC.

         "FEDERAL  FUNDS RATE" means,  for any day, the rate per annum  (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal  to  the  weighted  average  of  the  rates  on  overnight  Federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by Federal
funds brokers on such day, as published by the Federal  Reserve Bank of New York
on the Business Day next succeeding  such day,  PROVIDED that (a) if the day for
which such rate is to be  determined  is not a Business  Day, the Federal  Funds
Rate for such day shall be such rate on such  transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day  shall be the  average  rate  which  would  be  charged  to the
Reference  Bank  on  such  day  on  such   transactions  as  determined  by  the
Administrative Agent.

         "FIBER"  means  fiber  optic  cable  that  is,  or is  intended  to be,
installed in the Network or any strand or strands of fiber  included in any such
cable, as the context may provide.

         "FIBER OR CONDUIT  PURCHASE" means, with respect to the Borrower or any
of its Subsidiaries, any acquisition (by purchase, lease, exchange or otherwise)
of any Fiber or Conduit or right to use Fiber or Conduit for use in the Network.

                                       12
<PAGE>

         "FIBER OR CONDUIT  SALE" means,  with respect to the Borrower or any of
its  Subsidiaries,  any sale,  lease,  transfer or other  disposition of, or any
grant of any other right to use, or any grant of an option to purchase, acquire,
lease  or  otherwise  use,  all or  part of the  Network,  whether  relating  to
transmission  capacity or any  individual  Conduit or Conduits or any individual
strand or strands of Fiber.

         "FOREIGN LENDER" means any Lender that is organized under the laws of a
jurisdiction other than the U.S., any State thereof or the District of Columbia.

         "GAAP" means generally  accepted  accounting  principles,  applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American  Institute of Certified Public  Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective  successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent  basis" when the  accounting  principles
applied in a current  period are  comparable  in all material  respects to those
accounting principles applied in a preceding period.

         "GOVERNMENTAL  AUTHORITY"  means any nation or  government,  any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

         "GOVERNMENTAL  REQUIREMENT"  means any law, statute,  code,  ordinance,
order, rule, regulation,  judgment,  decree, injunction,  franchise,  License or
other directive or requirement of any federal, state, county, municipal, parish,
provincial or other Governmental Authority or any department, commission, board,
court, agency or any other instrumentality of any of them.

         "GROSS   REVENUES"  means,  as  to  any  Person  and  its  Consolidated
Subsidiaries  for any period,  gross  revenues of such Persons  determined  on a
consolidated basis in accordance with GAAP.

         "GUARANTEE"  by  any  Person  means  any   obligation,   contingent  or
otherwise,  of such Person directly or indirectly guaranteeing any Debt or other
obligation  of any other  Person and,  without  limiting the  generality  of the
foregoing,  any  indebtedness,  liability  or  obligation,  direct or  indirect,
contingent  or  otherwise,  of such Person (a) to purchase or pay (or advance or
supply  funds for the  purchase  or  payment  of) such Debt or other  obligation
(whether  arising  by  virtue  of  partnership  arrangements,  by  agreement  to
keep-well,  to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (b) entered into for
the purpose of  assuring  in any other  manner the obligee of such Debt or other
indebtedness,  liability or obligation  as to the payment  thereof or to protect
the obligee against loss in respect thereof (in whole or in part), PROVIDED that
the term "Guarantee" shall not include endorsements for collection or deposit in
the  ordinary  course of  business.  The term  "Guarantee"  used as a verb has a
corresponding  meaning.  The  amount of any  Guarantee  shall be deemed to be an
amount equal to the stated or determinable  amount of the primary  obligation in
respect of which such Guarantee is made or, if not stated or  determinable,  the
maximum  anticipated  liability  in respect  thereof  (assuming  such  Person is
required to perform thereunder).

                                       13
<PAGE>

         "GUARANTORS"  means PFE, PRE and each other  Subsidiary of the Borrower
at any time  existing and each other  Person which has executed a Guaranty,  and
"Guarantor" means any of such Persons.

         "GUARANTY  AGREEMENT" means a guaranty agreement  guaranteeing  payment
and  performance of the  Obligations in form and substance  satisfactory  to the
Administrative  Agent  executed  by a Guarantor  in favor of the  Administrative
Agent and the Lenders or in favor of the Collateral Agent, and includes, without
limitation,  the Guaranty Agreement executed by each of the Subsidiaries and the
Collateral  Agent  substantially in the form of EXHIBIT C, as any such agreement
may be amended, modified,  supplemented,  renewed, extended or restated with the
prior written consent of the Administrative Agent and the Required Lenders.

         "HAZARDOUS  MATERIAL"  means any  substance,  product,  liquid,  waste,
pollutant,  chemical,  contaminant,  insecticide,  pesticide,  gaseous  or solid
matter,  organic  or  inorganic  matter,  fuel,   micro-organisms,   ray,  odor,
radiation,  energy,  vector,  plasma,  constituent  or material  which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant,  a deleterious substance, a contaminant or a source of pollution or
contamination  under  any  Environmental  Law,  including,  without  limitation,
asbestos, petroleum,  underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.

         "HOLDINGS"   means   Pathnet   Telecommunications,   Inc.,  a  Delaware
corporation.

         "HOLDINGS  AGREEMENT"  means the  agreement  between the Parent and the
Borrower,  substantially  in the form of  EXHIBIT  D, as such  agreement  may be
amended,  modified,  supplemented,  renewed, extended or restated with the prior
written consent of the Administrative Agent and the Required Lenders.

         "HOLDINGS NOTE GUARANTY" means the Guarantee dated as of March 30, 2000
executed by Holdings,  pursuant to which Holdings  guaranteed payment of the PNI
Senior Notes.

         "HOLDINGS PLEDGE AGREEMENT" means the Pledge Agreement between Holdings
and the  Collateral  Agent  substantially  in the form of EXHIBIT E, as any such
agreement may be amended, modified, supplemented,  renewed, extended or restated
with the prior  written  consent of the  Administrative  Agent and the  Required
Lenders.

         "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.

         "INDEMNITY AND CONTRIBUTION AGREEMENT" means the Indemnity, Subrogation
and  Contribution  Agreement  among  the  Borrower,  the  Subsidiaries  and  the
Collateral Agent,  substantially in the form of EXHIBIT F, as any such agreement
may be amended, modified,  supplemented,  renewed, extended or restated with the
prior written consent of the Administrative Agent and the Required Lenders.

                                       14
<PAGE>

         "INSURANCE  RECOVERY"  means,  with  respect  to  any  Property  of the
Borrower  or any of its  Subsidiaries  and  any  single  occurrence  or  related
occurrences  with respect thereto,  the receipt or constructive  receipt by such
Loan Party, or the payment by an insurance company to the Administrative  Agent,
of proceeds  of any such  Property or  casualty  insurance  other than  business
interruption insurance,  including,  without limitation,  such receipt resulting
from any Casualty Event.

         "INTELLECTUAL  PROPERTY"  means any U.S.  or  foreign  patents,  patent
applications,  trademarks,  trade names,  service marks,  brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service  mark   registrations   and   applications,   copyrights  and  copyright
registrations and applications,  inventions,  invention  disclosures,  protected
formulae,  formulations,  processes,  methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information,  engineering know-how, customer and supplier information,  assembly
and test data drawings or royalty rights.

         "INTEREST  PERIOD"  means,  with respect to any Eurodollar  Loan,  each
period  commencing  on the date such Loan is made or Converted  from a Base Rate
Loan or (if Continued) the last day of the next preceding  Interest  Period with
respect to such Loan,  and ending on the  numerically  corresponding  day in the
first,  second,  third or sixth calendar month  thereafter,  as the Borrower may
select as provided in SECTION 2.9 hereof,  except that each such Interest Period
which  commences on the last Business Day of a calendar month (or on any day for
which there is no numerically  corresponding  day in the appropriate  subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month.  Notwithstanding  the foregoing:  (a) each Interest Period which
would  otherwise  end on a day which is not a Business Day shall end on the next
succeeding  Business Day (or, if such succeeding  Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Maturity Date with respect to any
Loans shall end on such Maturity Date;  (c) no more than seven Interest  Periods
for Eurodollar Loans shall be in effect at the same time; (d) no Interest Period
shall have a duration of less than one month and, if the Interest Period for any
Eurodollar  Loans would otherwise be a shorter  period,  such Loans shall not be
available hereunder;  and (e) no Interest Period for a Loan may commence before,
and end after, any principal  payment date unless,  after giving effect thereto,
the aggregate  principal  amount of the Eurodollar Loans having Interest Periods
that end after such  principal  payment  date shall be equal to or less than the
amount of the applicable Loans scheduled to be outstanding  hereunder after such
principal payment date.

         "INTEREST  RATE  PROTECTION  AGREEMENT"  means,  with  respect  to  the
Borrower,  an interest rate swap, cap or collar agreement or similar arrangement
between the Borrower and one or more Lenders or other  counterparties  providing
for the transfer or mitigation of interest rate risks either  generally or under
specified contingencies.

         "INVESTMENTS" means as specified in SECTION 9.5.

         "LENDER" and "LENDERS"  means as specified in the initial  paragraph of
this Agreement.

         "LICENSE" means any consent, permit, franchise, certificate,  approval,
order, license, rights-of-way (whether an easement, lease, contract or agreement
in any form) or other  authorization,  including,  without  limitation,  any FCC
License but excluding any Contract Rights-of-Way.

                                       15
<PAGE>

         "LIEN"  means,  with respect to any  Property,  any mortgage or deed of
trust,  pledge,  hypothecation,   assignment,   deposit  arrangement,   security
interest, tax lien, financing statement,  pledge, charge, hypothecation or other
lien,  charge,  easement  (other  than any  easement  not  materially  impairing
usefulness),  encumbrance,  preference,  priority or other security agreement or
preferential  arrangement of any kind or nature whatsoever on or with respect to
such Property  (including,  without  limitation,  any conditional  sale or other
title retention  agreement having  substantially the same economic effect as any
of the foregoing).

         "LOAN  DOCUMENTS"  means  this  Agreement,   the  Notes,  the  Guaranty
Agreements,  the Security  Documents,  the  Administrative  Agent's Letter,  the
Collateral  Agency  Agreement,   the  Holdings   Agreement,   the  Subordination
Agreement,  the Indemnity and Contribution  Agreement and all other  agreements,
documents,  instruments  and  certificates  now  or  hereafter  executed  and/or
delivered  pursuant to or in connection  with any of the foregoing,  and any and
all amendments, modifications, supplements, renewals, extensions or restatements
thereof.

         "LOAN  PARTY"  means the  Borrower,  Holdings,  any  Subsidiary  of the
Borrower,  any  Guarantor  or any Person who  grants a Lien on any  Property  to
secure the payment or performance of the Obligations or any portion thereof, and
"LOAN PARTIES" means all of such Persons; PROVIDED,  HOWEVER, that PNI shall not
be  deemed  to be a Loan  Party by virtue of the fact that PNI is a party to the
Approved Services Agreement.

         "LOANS" means the Term Loans A and the Term Loans B.

         "MAGTEN  LITIGATION"  means the  litigation  evidenced by the Complaint
filed with the Supreme Court of the State of New York, County of New York, Index
No. 602083/00 styled as Magten Partners,  L.P. and others as plaintiffs  against
Pathnet, Inc., Pathnet Telecommunications, Inc., Richard Jalkut, The Bank of New
York,  Colonial Pipeline Company,  The Burlington  Northern and Sante Fe Railway
Company and CSX Transportation, Inc., as defendants.

         "MASTER  PURCHASE  AGREEMENT"  means the that certain  Master  Purchase
Agreement, dated as of June 18, 1999, by and between PNI and Nortel Networks, as
assigned  to  and  assumed  by  Holdings   and  the  Borrower  and  as  amended,
supplemented or restated from time to time.

         "MASTER  RIGHTS-OF-WAY  AGREEMENTS"  means that certain (a) Fiber Optic
Access Agreement dated as of March 30, 2000, between Holdings and The Burlington
Northern  and Santa Fe Railway  Company,  (b) Fiber  Optic  Access  and  License
Agreement  dated as of March 30, 2000,  between CSX  Transportation,  Inc.,  for
itself and as operator for New York Central  Lines LLC,  and  Holdings,  and (c)
Fiber Optic Access and Purchase  Agreement  dated as of March 30, 2000,  between
Holdings and Colonial  Pipeline  Company,  in each case  including any leases or
licenses  executed  or to be executed in  connection  therewith  and as any such
agreement  may be  amended  or  modified  from time to time in  accordance  with
SECTION 9.15.

                                       16
<PAGE>

         "MATERIAL  ADVERSE EFFECT" means any material adverse effect on (a) the
business,  assets,  financial condition or results of operations of the Borrower
individually or of the Borrower and its  Subsidiaries  taken as a whole, (b) the
validity or  enforceability  of any of the Loan  Documents or the Liens,  rights
and/or remedies of the Collateral  Agent,  the  Administrative  Agent and/or the
Lenders thereunder,  or (c) the ability of any Loan Party to pay and perform its
indebtedness, liabilities and/or obligations under any of the Loan Documents.

         "MATERIAL CONTRACTS" means (a) any Eligible Secured Debt Documents, (b)
the  Rights-of-Way  Contribution  Agreement  and (c) as to any Loan  Party,  any
Customer Agreement or supply,  purchase,  service,  employment,  tax, indemnity,
shareholder  or other  agreement or contract for which the  aggregate  amount or
value of  services  performed  or to be  performed  for or by, or funds or other
Property  transferred  or to be  transferred  to or by,  any Loan  Party to such
agreement or contract,  or by which any Loan Party or any of its  Properties  is
otherwise bound,  during any fiscal year of such Loan Party exceeds (i) $[*] (or
the  equivalent  amount in any  currency)  with  respect to other than  Customer
Agreements or (ii) $[*] (or the equivalent  amount in any currency) with respect
to  any  Customer  Agreement,   and  any  and  all  amendments,   modifications,
supplements, renewals or restatements thereof.

         "MATURITY DATE" means the earlier to occur of (a) June 30, 2006, or (b)
June 30, 2004, if less than  $10,000,000  in aggregate  principal  amount of the
Loans has been advanced as of June 30, 2001.

         "MAXIMUM  RATE"  means,  with  respect  to  any  Lender,   the  maximum
non-usurious  interest rate or an amount  computed in reference to such rate (as
applicable),  if any, that any time or from time to time may be contracted  for,
taken, reserved,  charged or received with respect to the particular Obligations
as to which such rate is to be  determined,  payable to such Lender  pursuant to
this Agreement or any other Loan Document,  under laws applicable to such Lender
which are  presently  in effect  or, to the extent  allowed  by law,  under such
applicable  laws  which  may  hereafter  be in effect  and which  allow a higher
maximum  non-usurious  interest rate than applicable laws now allow. The Maximum
Rate shall be  calculated  in a manner that takes into account any and all fees,
payments  and other  charges in respect of the Loan  Documents  that  constitute
interest  under  applicable  law.  Each change in any interest rate provided for
herein based upon the Maximum Rate  resulting  from a change in the Maximum Rate
shall take effect  without  notice to the Borrower at the time of such change in
the Maximum Rate.

         "MONTHLY DATE" means the last day of each month of each year, the first
of which shall be August 31, 2000.

         "MORTGAGE"  means a mortgage,  deed of trust,  assignment of leases and
rents,  leasehold mortgage or other security  agreement,  document or instrument
granting,  evidencing or creating a Lien on any  Mortgaged  Property as security
for the Obligations or any portion thereof in form and substance satisfactory to
the  Administrative  Agent and the Collateral  Agent executed by any Loan Party,
and any and all amendments, modifications,  supplements, renewals, extensions or
restatements thereof.

         "MORTGAGED   PROPERTIES"   means  each  parcel  of  real   Property  or
improvements thereto in which a Lien has been granted or purported to be granted
pursuant  to a Mortgage as may be  required  from time to time  pursuant to this
Agreement (including, without limitation, pursuant to ARTICLE 5).

                                       17
<PAGE>

         "MULTIEMPLOYER  PLAN"  means a  multiemployer  plan  defined as such in
Section 3(37) of ERISA to which  contributions have been made by or are required
from the  Borrower  or any ERISA  Affiliate  since  1974 and which is covered by
Title IV of ERISA.

         "NET PROCEEDS" means,  with respect to any Asset  Disposition,  (a) the
gross amount of cash  received by the Borrower or any of its  Subsidiaries  from
such  Asset  Disposition,  MINUS (b) the  amount,  if any,  of all taxes paid or
payable by the Borrower or any of its Subsidiaries  directly resulting from such
Asset Disposition  (including the amount,  if any,  estimated by the Borrower in
good  faith at the time of such  Asset  Disposition  for  taxes  payable  by the
Borrower  or any of its  Subsidiaries  on or  measured  by net  income  or  gain
resulting from such Asset Disposition),  MINUS (c) the reasonable  out-of-pocket
costs and expenses  incurred by the Borrower or such  Subsidiary  in  connection
with such  Asset  Disposition  (including  reasonable  brokerage  fees paid to a
Person other than an Affiliate of the  Borrower)  excluding any fees or expenses
paid to an Affiliate of the Borrower, MINUS (d) amounts applied to the repayment
of Debt (other than the  Obligations)  secured by any Permitted Lien (if any) on
the Property  subject to the Asset  Disposition.  "NET PROCEEDS" with respect to
any Asset  Disposition  shall also include proceeds (after deducting any amounts
specified in CLAUSES (B),  (C) and (D) of the  preceding  sentence) of insurance
with  respect  to any  actual or  constructive  loss of  Property,  an agreed or
compromised  loss of Property or the taking of any  Property  under the power of
eminent  domain or  condemnation  or similar  proceedings  and awards in lieu of
condemnation  similar  proceedings for the taking of Property under the power of
eminent domain or otherwise.

         "NETWORK" means the Borrower's  telecommunications  network  (including
populated or unpopulated Conduit), consisting primarily of fiber optic cable but
also including copper lines, wireless assets and other telecommunication  media,
for the provision of  communications  or related services  developed,  installed
and/or operated,  to be developed,  installed and/or operated in the continental
U.S. and, to the extent permitted by SECTION 9.10(E), Canada and Mexico, in each
case as described in or contemplated by the Business Plan.

         "NORTEL NETWORKS" means Nortel Networks Inc., a Delaware corporation.

         "NORTEL NETWORKS EQUIPMENT" means all hardware,  software and equipment
(including fixtures) manufactured, sold or otherwise provided to the Borrower or
any other  Subsidiary  of the  Borrower  by  Nortel  Networks,  Nortel  Networks
Corporation  and/or  their  affiliates,   including,   without  limitation,  all
equipment  sold to the Borrower or a Subsidiary of the Borrower  pursuant to the
Master Purchase Agreement.

         "NORTEL   NETWORKS  GOODS  AND  SERVICES"  means  (a)  Nortel  Networks
Equipment and related software (including Nortel Networks Software),  (b) sales,
installation and commissioning of Nortel Networks Equipment and related software
(including Nortel Networks Software), and (c) project management,  system design
and  installation  services  performed by personnel of Nortel  Networks,  Nortel
Networks Corporation and/or their affiliates.

                                       18
<PAGE>

         "NORTEL NETWORKS  SOFTWARE" means any and all software sold or licensed
by Nortel Networks,  Nortel Networks  Corporation and/or their affiliates to the
Borrower or any Subsidiary of the Borrower,  including,  without limitation, all
source code and object code and all  manuals  and other  documentation  relating
thereto and each copy thereof regardless of the media in which they are stored.

         "NOTES"  means the Term Notes A and the Term Notes B, and "NOTE"  means
any of such promissory notes.

         "NOTICE OF BORROWING" means as specified in SECTION 2.9.

         "OBLIGATIONS"  means  any  and all (a)  indebtedness,  liabilities  and
obligations of the Borrower or any other Loan Party to the Administrative  Agent
and the Lenders, or any of them,  evidenced by and/or arising pursuant to any of
the Loan  Documents  (including,  without  limitation,  this  Agreement  and the
Notes), now existing or hereafter arising,  whether direct,  indirect,  related,
unrelated, fixed, contingent, liquidated,  unliquidated, joint, several or joint
and several, including,  without limitation, (i) the obligations of the Borrower
or any  other  Loan  Party to repay  the  Loans,  to pay  interest  on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency,  reorganization  or  other  similar  filing)  and to pay  all  fees,
indemnities,  costs and expenses (including attorneys' fees) provided for in the
Loan  Documents  and (ii)  the  indebtedness  constituting  the  Loans  and such
interest,   fees,  indemnities,   costs  and  expenses,  and  (b)  indebtedness,
liabilities  and  obligations  of the Borrower or any other Loan Party under any
and all  Interest  Rate  Protection  Agreements  that it may enter into with any
Lender with the written  consent of the  Administrative  Agent and the  Required
Lenders.

         "OTHER TAXES" means any and all present or future stamp or  documentary
taxes or any other excise or property  taxes,  charges or similar levies arising
from any payment made under any Loan Document or from the  execution,  delivery,
performance or enforcement of, or otherwise with respect to, any Loan Document.

         "PAYOR" means as specified in SECTION 3.4.

         "PBGC" means the Pension  Benefit  Guaranty  Corporation  or any entity
succeeding to all or any of its functions under ERISA.

         "PENSION  PLAN" means an employee  pension  benefit  plan as defined in
Section 3(2) of ERISA  (including a Multiemployer  Plan) which is subject to the
funding  requirements  under Section 302 of ERISA or Section 412 of the Code, in
whole or in part,  and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.

         "PERFECTION  CERTIFICATE"  means a certificate in the form of EXHIBIT G
or any other form approved by the Collateral Agent and the Administrative Agent.

                                       19
<PAGE>

         "PERMITTED HOLDERS" means (a) the Persons identified on SCHEDULE 1.1(A)
hereto who are shareholders of Holdings as of the Closing Date together with any
of their respective  Affiliates if (and only if) such Affiliates  satisfy either
CLAUSE (B) or clause (c) of the  definition  of the term  "Affiliate"  as if the
reference to "ten percent or more" contained in each of such CLAUSES (b) and (C)
instead  were a reference  to "greater  than 50%",  and (b) any spouse,  parent,
sibling,  child or grandchild of any of the aforesaid individuals (in each case,
whether such relationship  arises from birth or adoption or through marriage) or
any trust  established  for the benefit of any such  individuals  or any spouse,
parent,  sibling,  child or  grandchild  of any such  individuals  (in each case
whether such relationship arises from birth or adoption or through marriage).

         "PERMITTED LIENS" mean:

                  (a)      Liens disclosed on SCHEDULE 1.1(B) hereto;

                  (b)  Liens   securing   the   Obligations   in  favor  of  the
         Administrative  Agent (for the benefit of the Administrative  Agent and
         the  Lenders)  or  the  Collateral   Agent  (for  the  benefit  of  the
         Administrative  Agent and the Lenders and the other holders of Eligible
         Secured Debt) pursuant to the Loan Documents;

                  (c)  encumbrances  consisting  of  easements,   rights-of-way,
         zoning  restrictions or other  restrictions on the use of real Property
         or  imperfections  to  title  that  do  not  (individually  or  in  the
         aggregate)  materially  affect  the  value of the  Property  encumbered
         thereby or materially  impair the ability of the Borrower or any of its
         Subsidiaries to use such Property in its businesses;

                  (d) Liens for taxes, assessments or other governmental charges
         that are not  delinquent or which are being  contested in good faith by
         appropriate   proceedings,   which   proceedings  have  the  effect  of
         preventing the forfeiture or sale of the Property subject to such Liens
         or the  forfeiture or sale of which  Property has been prevented by the
         posting of bonds or the taking of other  appropriate  actions,  and for
         which adequate  reserves (as  determined in accordance  with GAAP) have
         been established;

                  (e) statutory Liens of mechanics,  materialmen,  warehousemen,
         carriers,   landlords  or  other  similar   statutory   Liens  securing
         obligations  that  are not yet due  and are  incurred  in the  ordinary
         course  of  business  or which  are being  contested  in good  faith by
         appropriate   proceedings,   which   proceedings  have  the  effect  of
         preventing the forfeiture or sale of the Property subject to such Liens
         or the  forfeiture or sale of which  Property has been prevented by the
         posting of bonds or the taking of other  appropriate  actions,  and for
         which adequate  reserves (as  determined in accordance  with GAAP) have
         been established;

                  (f) Liens resulting from good faith deposits to secure payment
         of worker's compensation or other social security programs or to secure
         the performance of tenders, statutory obligations,  surety, performance
         and appeal  bonds,  bids,  contracts  (other than for payment of Debt),
         Licenses,  Contract Rights-of-Way or leases, all in the ordinary course
         of business;

                                       20
<PAGE>

                  (g)  purchase-money  Liens on any Property  acquired after the
         Closing  Date or the  assumption  after the Closing Date of any Lien on
         Property  existing at the time of such  acquisition (and not created in
         contemplation  of  such  acquisition),  or a Lien  incurred  after  the
         Closing Date in  connection  with any  conditional  sale or other title
         retention  agreement or Capital Lease Obligation (other than Qualifying
         Fiber or Conduit Purchases); PROVIDED that:

                           (i) any Property  subject to any of the foregoing (A)
                  is acquired by the Borrower or any of its  Subsidiaries in the
                  ordinary course of its respective business and (B) the Lien on
                  such Property  attaches  concurrently  or within 90 days after
                  the acquisition thereof;

                           (ii) the Debt secured by any Lien so created, assumed
                  or  existing  shall not  exceed the lesser of the cost or fair
                  market  value  at the  time  of  acquisition  of the  Property
                  covered  thereby   (inclusive  of  the  cost  of  engineering,
                  furnishing and installation services directly relating to such
                  Property)  and  shall  not be less  than 75% of the  amortized
                  value of the Property acquired with the proceeds of such Debt;

                           (iii)  each  such  Lien  shall  attach  only  to  the
                  Property so acquired and the proceeds thereof; and

                           (iv) the aggregate  amount of all Debt secured by all
                  such  Liens,  when  aggregated  with the Debt  secured  by all
                  purchase-money  Liens  and all  Liens in  connection  with any
                  conditional sale or other title retention agreement or Capital
                  Lease  Obligation  (other  than  Qualifying  Fiber or  Conduit
                  Purchases)  existing  as of the  Closing  Date or at any other
                  time,  shall not exceed  $[*] at any time  outstanding  in the
                  aggregate;

                  (h) Liens  created under the Eligible  Secured Debt  Documents
         securing the Eligible  Secured Debt permitted to be incurred under this
         Agreement,  which Liens must be pari passu and of equal priority to the
         Liens  securing  the  Obligations  and must be subject to the terms and
         provisions of the Collateral Agency Agreement;

                  (i)  judgment  liens  in  respect  of  judgments  that  do not
         constitute an Event of Default under CLAUSE (H) of SECTION 11.1;

                  (j) deposits with insurance companies to secure obligations in
         respect of insurance premiums other than life insurance premiums, which
         deposits do not exceed the lesser of the amount of premiums  payable in
         respect of such insurance  within one year after the date of deposit or
         $500,000 in aggregate amount at any time payable;

                  (k) any  interest  or title of a lessor  under  any  lease not
         prohibited by this Agreement in respect of the leased asset,  including
         rights of lessors under ground leases in respect of real Property;

                  (l) leases,  subleases or rights-of-way granted to others that
         are not prohibited by this  Agreement and do not  materially  interfere
         with the  ordinary  conduct of  business  of the  Borrower  or any Loan
         Party;

                                       21
<PAGE>

                  (m) rights in  respect  of the  Network  arising  pursuant  to
         Customer Agreements relating thereto,  PROVIDED,  however, that none of
         such  rights may result in the  Borrower's  failure to comply  with the
         terms and provisions of this Agreement,  including, without limitation,
         CLAUSE (E) of SECTION 9.8;

                  (n) Liens  attaching to Fiber or Conduit  acquired as a result
         of Fiber or Conduit Purchases,  which Liens existed at the time of such
         acquisition,  were not created in contemplation of such acquisition and
         were  not  granted  by any Loan  Party  and  which  Liens do not have a
         material  adverse  effect on or interfere  with the  Borrower's and its
         Subsidiaries' ability to operate such Fiber or Conduit; and

                  (o)  Any  extension,  renewal  or  replacement  of  any of the
         foregoing  Permitted  Liens,  PROVIDED that Liens  permitted under this
         CLAUSE  (O) shall  not be  extended  or spread to cover any  additional
         indebtedness or Property;

PROVIDED,  HOWEVER,  that (A) none of the Permitted Liens (except those in favor
of the  Administrative  Agent  securing  payment of the  Obligations  or, if the
Collateral  Agency  Agreement  is in effect,  in favor of the  Collateral  Agent
securing  payment of the  Obligations  and Eligible  Secured Debt) may attach or
relate  to (1) the  Capital  Stock of or any  other  ownership  interest  in the
Borrower or any of its  Subsidiaries or (2) any right,  title or interest of the
Borrower or any of its  Subsidiaries  in or to any Real Estate  Assets except as
permitted  in  accordance  with  SECTION  9.2(B)  and (B)  except  for the Liens
disclosed on SCHEDULE  1.1(B) which are  expressly  identified  as  constituting
purchase  money Liens,  none of the  Permitted  Liens  referred to in CLAUSE (A)
preceding  may have a  priority  equal  or  prior  to the  Liens in favor of the
Administrative Agent as security for the Obligations.

         "PERMITTED  TELECOMMUNICATIONS  JOINT  VENTURE"  means  a  corporation,
partnership or other entity engaged in one or more Telecommunications Businesses
in which the Borrower owns, directly or indirectly, an equity interest.

         "PERSON"  means  any  individual,   corporation,   trust,  association,
company,  partnership,  joint venture,  limited liability  company,  joint stock
company, Governmental Authority or other entity.

         "PFE" means as specified in the initial paragraph of this Agreement.

         "PLAN"  means any  employee  benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.

         "PNI" means Pathnet, Inc., a Delaware corporation.

         "PNI SENIOR NOTES" means the "Notes" as such term is defined in the PNI
Senior Notes Indenture.

                                       22
<PAGE>

         "PNI SENIOR NOTES INDENTURE"  means that certain  Indenture dated as of
April 8, 1998, between PNI and The Bank of New York, as trustee,  as amended and
supplemented by that certain  Supplemental  Indenture dated as of March 30, 2000
between PNI, Holdings and The Bank of New York, as trustee.

         "PRE" means as specified in the initial paragraph of this Agreement.

         "PRINCIPAL  OFFICE"  means the principal  office of the  Administrative
Agent  in  Richardson,   Texas,   presently  located  at  2221  Lakeside  Blvd.,
Richardson, Texas 75082.

         "PROHIBITED TRANSACTION" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.

         "PROPERTY"  means  property  and/or assets of all kinds,  whether real,
personal or mixed, tangible or intangible  (including,  without limitation,  all
rights  relating  thereto),  whether  owned or  acquired on or after the Closing
Date.

         "QUALIFYING  FIBER  OR  CONDUIT   PURCHASES"  means  Fiber  or  Conduit
Purchases  which  constitute   Capital  Lease  Obligations  and  for  which  all
consideration  payable  therefor  was  paid  in  full  by  the  Borrower  or its
Subsidiaries at the time of acquisition.

         "QUARTERLY DATE" means the last day of each March, June,  September and
December of each year, the first of which shall be September 30, 2000.

         "REAL  ESTATE   ASSETS"  means  (a)  the   Rights-of-Way   Contribution
Agreement, the Contract Rights-of-Way and all other interests in real estate, or
in contracts  relating to real estate,  comprising the right-of-way  (whether an
easement, lease, contract or agreement in any form) for the Network, (b) all the
Fiber or Conduit installed in the Network,  (c) any other assets comprising part
of the Network that constitute real Property or fixtures and (d) all fiber optic
cable or strands of fiber or conduit  comprising  or intended to comprise a part
of the Network and  obtained  pursuant  to any swap or exchange  agreement,  but
excludes any real Property or interests  therein not referred to in CLAUSES (A),
(B) or (C) preceding.

         "RECEIVABLES" means, as at any date of determination  thereof, each and
every  "account"  as such  term is  defined  in the  UCC and  includes,  without
limitation,  the unpaid portion of the  obligation,  as stated on the respective
invoice,  or,  if there is no  invoice,  other  writing,  of a  customer  of the
Borrower  or any of its  Subsidiaries  in respect of  services  rendered  by the
Borrower or any of its Subsidiaries.

         "REFERENCE BANK" means Citibank, N.A.

         "REGISTER" means as specified in SECTION 13.8(D).

         "REGISTERED NOTE" means as specified in SECTION 2.2(B).

         "REGISTERED NOTE REGISTER" means as specified in SECTION 13.8(H).

                                       23
<PAGE>

         "REGULATION  D" means  Regulation  D of the Board of  Governors  of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time.

         "REGULATORY CHANGE" means, with respect to any Lender, any change after
the Closing  Date in any U.S.  federal or state or foreign  laws or  regulations
(including  Regulation  D) or the  adoption  or  making  after  such date of any
interpretations,  directives,  guidelines  or  requests  applying  to a class of
lenders  including such Lender of or under any U.S.  federal or state or foreign
laws or regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.

         "RELEASE"  means,  as to any  Person,  any  release,  spill,  emission,
leaking,  pumping,  injection,  deposit,  discharge,   disposal,   dispersement,
leaching  or  migration  of  Hazardous  Materials  into the  indoor  or  outdoor
environment or into or out of Property owned by such Person, including,  without
limitation,  the movement of Hazardous  Materials  through or in the air,  soil,
surface water or ground water.

         "REMEDIAL  ACTION" means all actions  required to (a) cleanup,  remove,
respond to,  treat or  otherwise  address  Hazardous  Materials in the indoor or
outdoor  environment,  (b)  prevent the Release or threat of Release or minimize
the  further  Release  of  Hazardous  Materials  so that they do not  migrate or
endanger  or  threaten  to  endanger  public  health or welfare or the indoor or
outdoor  environment,  (c) perform studies and  investigations on the extent and
nature of any actual or  suspected  contamination,  the remedy or remedies to be
used  or  health  effects  or  risks  of  such  contamination,  or  (d)  perform
post-remedial monitoring, care or remedy of a contaminated site.

         "REORGANIZATION"  means  (a) the  organization  and  capitalization  of
Holdings  pursuant  to which (i) one or more  Persons  contributed  to  Holdings
interests in real estate  comprising  right-of-way for the Network (the "Initial
Right-of-Way")  in  consideration  of the  issuance by Holdings of shares of its
capital  stock to such Persons and (ii) the then  existing  shareholders  of PNI
prior to such  organization and  capitalization  contributed to Holdings all the
outstanding  shares of Capital Stock of PNI in  consideration of the issuance by
Holdings of shares of its Capital  Stock to such then existing  shareholders  of
PNI, (b) the PNI Senior Notes Indenture was amended or modified, or waivers were
obtained   thereunder,   as  necessary  to  permit,   among  other  things,  the
transactions  described  in CLAUSE (A) above and CLAUSES (C) and (E) below,  (c)
Holdings  executed and delivered the Holdings Note Guaranty in  consideration of
the amendments, modifications or waivers referred to in CLAUSE (B) above.

         "REPAYMENT"  means,  in  respect of any Debt,  the  direct or  indirect
repayment, prepayment, redemption, purchase, acquisition, defeasance, retirement
or  other  satisfaction  of the  principal  of such  Debt,  in whole or in part,
whether optional or mandatory. "REPAY" has a meaning correlative thereto.

         "REPORTABLE EVENT" means any of the events set forth in Section 4043(b)
of ERISA other than any such event for which the 30-day notice  requirement  has
been waived in regulations issued by the PBGC.

                                       24
<PAGE>

         "REQUIRED  LENDERS"  means, at any date of  determination,  (a) Lenders
holding  two-thirds  or more (in Dollar  amount) of the sum of (i) the aggregate
outstanding  principal  amount of the Loans  PLUS (ii) the  aggregate  principal
amount of the  outstanding  Commitments  if,  as of such date of  determination,
Nortel  Networks  holds  50% or more of the sum of the  amounts  referred  to in
CLAUSES (I) and (II) immediately  preceding and (b) Lenders holding in excess of
50% (in Dollar  amount) of the sum of (i) the  aggregate  outstanding  principal
amount of the Loans PLUS (ii) the aggregate  principal amount of the outstanding
Commitments  if, as of such date of  determination,  Nortel  Networks holds less
than  50% of the  sum of  the  amounts  referred  to in  CLAUSES  (I)  and  (II)
immediately preceding.

         "REQUIRED PAYMENT" means as specified in SECTION 3.4.

         "RESERVE  REQUIREMENT" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor,  the maximum rate at which reserves (including any
marginal,  supplemental  or emergency  reserves)  are required to be  maintained
during such Interest  Period under any  regulations of the Board of Governors of
the  Federal  Reserve  System (or any  successor)  by such  Lender for  deposits
exceeding $1,000,000 against "Eurocurrency  Liabilities" as such term is used in
Regulation  D.  Without  limiting  the  effect  of the  foregoing,  the  Reserve
Requirement  shall reflect any other reserves  required to be maintained by such
Lenders  by  reason  of any  Regulatory  Change  against  (a)  any  category  of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the  Adjusted  Eurodollar  Rate  is to be  determined  or (b)  any  category  of
extensions of credit or other assets which include Eurodollar Loans.

         "RESPONSIBLE  OFFICER" means, as to any Loan Party, the chief executive
officer,  the president,  any vice president,  the chief financial officer,  the
chief operating officer or the treasurer of such Person.

         "RESTRICTED  PAYMENT"  means (a) any  dividend  or other  distribution,
payment  or  penalty  (whether  in cash,  Property  or  obligations),  direct or
indirect,  paid or payable by the Borrower or any of its Subsidiaries on account
of, with respect to or in  connection  with (or the setting apart of money for a
sinking or other analogous fund for) any shares of any class of Capital Stock of
the Borrower or any of its Subsidiaries now or hereafter  outstanding,  except a
dividend  payable solely in shares of that class of stock to the holders of that
class; (b) any redemption,  conversion,  exchange,  retirement,  sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any  shares  of  any  class  of  Capital  Stock  of the  Borrower  or any of its
Subsidiaries  now or hereafter  outstanding;  (c) any payment or  prepayment  of
principal of, premium,  if any, or interest on, or any  redemption,  conversion,
exchange, purchase, retirement or defeasance of, or payment with respect to, any
subordinated debt (including, without limitation, Subordinated Debt and any Debt
which is  subordinated  pursuant to the  Subordination  Agreement);  and (d) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire  shares of any class of Capital  Stock of the
Borrower or any of its Subsidiaries now or hereafter outstanding.

                                       25
<PAGE>

         "RIGHTS-OF-WAY  CONTRIBUTION AGREEMENT" means that certain Right of Way
Contribution Agreement dated as of the Closing Date among Holdings, as assignor,
the  Borrower,  as assignee  from  Holdings  and  assignor  to PRE,  and PRE, as
assignee,  in form  and  substance  satisfactory  to the  Administrative  Agent,
pursuant to which all  rights,  titles and  interests  of Holdings in and to the
Master Rights-of-Way Agreements, as they relate to at least 4,000 route miles of
Contract  Rights-of-Way  to be selected by the  Borrower  from time to time,  is
assigned to PRE.

         "SECURITY  AGREEMENTS" means security  agreements,  pledge  agreements,
securities  pledge  agreements  and other  agreements,  documents or instruments
evidencing  or creating a Lien as security  for the  Obligations  or any portion
thereof in form and substance  satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the  Administrative  Agent for the benefit of the
Administrative  Agent and the Lenders or in favor of the Collateral  Agent,  and
any such agreement,  document or instrument  subsequently executed in accordance
or  connection  with this  Agreement or any other Loan  Document,  and includes,
without  limitation,  each of the Pledge and  Security  Agreements  between  the
Borrower  or  any   Subsidiary  of  the  Borrower  and  the   Collateral   Agent
substantially  in the form of EXHIBIT H, as any such  agreement  may be amended,
modified,  supplemented,  renewed,  extended or restated  with the prior written
consent of the Administrative Agent and the Required Lenders.

         "SECURITY DOCUMENTS" means the Security Agreements, the Holdings Pledge
Agreement,  the  Mortgages  and the  Collateral  Agency  Agreement,  as any such
agreement may be amended, modified, supplemented,  renewed, extended or restated
from time to time with the prior written consent of the Administrative Agent and
the  Required  Lenders,  and any and  all  other  agreements,  deeds  of  trust,
mortgages,   chattel  mortgages,   security  agreements,   pledges,  guaranties,
assignments of proceeds,  assignments of income, assignments of contract rights,
assignments  of  partnership   interests,   assignments  of  royalty  interests,
assignments  of  performance  or  other  collateral  assignments,  subordination
agreements,  undertakings  and  other  agreements,  documents,  instruments  and
financing statements now or hereafter executed and/or delivered by any Person as
security or assurance for the payment or performance  of the  Obligations or any
part thereof.

         "SENIOR DEBT" means, as to any Person and its Consolidated Subsidiaries
and as of any date of  determination,  the remainder of (a) Total Debt MINUS (b)
the aggregate principal amount of Subordinated Debt then outstanding.

         "SIGNIFICANT POINT OF PRESENCE" means a Network point-of-presence where
$1,500,000  or more of fair market value of  equipment  owned by the Borrower or
any of its Subsidiaries is located.

                                       26
<PAGE>

         "SOLVENT"  means,  with  respect  to any  Person  as of the date of any
determination,  that on such  date (a) the fair  value of the  Property  of such
Person (both at fair  valuation and at present fair  saleable  value) is greater
than  the  total  liabilities,   including,   without   limitation,   contingent
liabilities,  of such Person,  (b) the present fair saleable value of the assets
of such  Person is not less than the  amount  that will be  required  to pay the
probable  liability  of such  Person on its debts as they  become  absolute  and
matured,  (c) such  Person is able to realize  upon its assets and pay its debts
and other  liabilities,  contingent  obligations  and other  commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will,  incur debts or liabilities  beyond such Person's
ability to pay as such debts and liabilities  mature, and (e) such Person is not
engaged in business or a transaction,  and is not about to engage in business or
a transaction,  for which such Person's  Property would constitute  unreasonably
small capital after giving due  consideration to current and anticipated  future
capital requirements and current and anticipated future business conduct and the
prevailing  practice  in the  industry  in which  such  Person  is  engaged.  In
computing the amount of contingent  liabilities  at any time,  such  liabilities
shall be computed at the amount which,  in light of the facts and  circumstances
existing at such time,  represents the amount that can reasonably be expected to
become an actual or matured liability.

         "SUBORDINATED  DEBT" means Debt of the Borrower  which meets all of the
following  requirements:  (a) such  Debt is wholly  unsecured;  (b) such Debt is
contractually  subordinated,  as to  payment,  to payment of the Loans and other
Obligations  on  terms,  and  pursuant  to  agreements  in form  and  substance,
satisfactory to the Administrative  Agent and the Required Lenders; and (c) such
Debt is evidenced and governed by agreements,  documents and instruments in form
and  substance,  and  containing  payment,  subordination  and  other  terms and
provisions,  which  have  been  approved  by the  Administrative  Agent  and the
Required Lenders in writing prior to the incurrence of such Debt.

         "SUBORDINATED  DEBT DOCUMENTS" means any and all agreements,  documents
and instruments now or hereafter evidencing or governing any Subordinated Debt.

         "SUBORDINATION  AGREEMENT" means the Subordination  Agreement among the
Loan Parties and the Collateral  Agent,  substantially in the form of EXHIBIT I,
as any such agreement may be amended, modified, supplemented,  renewed, extended
or restated with the prior written consent of the  Administrative  Agent and the
Required Lenders.

         "SUBSIDIARY"  means,  with respect to any Person,  any  corporation  or
other entity of which at least a majority of the outstanding  shares of stock or
other ownership  interests  having by the terms thereof ordinary voting power to
elect a  majority  of the board of  directors  (or  Persons  performing  similar
functions) of such corporation or entity  (irrespective of whether or not at the
time, in the case of a corporation,  stock of any other class or classes of such
corporation  shall have or might have voting power by reason of the happening of
any  contingency)  is at the time directly or indirectly  owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or more
of its Subsidiaries.

         "TAXES"  means any and all present or future  taxes,  levies,  imposts,
duties,  deductions,   charges  or  withholdings  imposed  by  any  Governmental
Authority.

         "TELECOMMUNICATIONS  ASSETS" means, with respect to any Person,  assets
(including, without limitation, rights-of-way, trademarks and licenses) directly
or  indirectly  relating  to  or  for  the  design,  development,  construction,
installation,  integration  operation,  maintenance or provision of the Network,
including,  without limitation, any businesses or services in which the Borrower
is  currently   engaged  and   including   any   computer   systems  used  in  a
Telecommunications    Business.    The   determination   of   what   constitutes
Telecommunications  Assets shall be made in good faith by the Board of Directors
of the  Borrower  and  evidenced  by a  resolution  of such  Board of  Directors
delivered to the Administrative Agent.

                                       27
<PAGE>

         "TELECOMMUNICATIONS  BUSINESS" means the business of (a)  transmitting,
or providing  services  relating to the  transmission  of, voice,  video or data
through owned or leased  transmission  facilities,  (b) constructing,  creating,
developing,   acquiring   or  marketing   Telecommunications   Assets  or  other
communications related network equipment,  software and other devices for use in
a telecommunications  business or (c) evaluating,  participating or pursuing any
other activity or opportunity  that is primarily  related to those identified in
CLAUSE (A) or (B) above;  PROVIDED that the  determination of what constitutes a
Telecommunications  Business  shall  be made  in  good  faith  by the  board  of
directors of the Borrower.

         "TERM LOANS A" means as specified in SECTION 2.1(A).

         "TERM LOANS A COMMITMENT"  means, as to any Lender,  the obligation (if
any) of such Lender to make Term Loans A  hereunder  in an  aggregate  principal
amount up to but not  exceeding  the amount set forth  opposite the name of such
Lender on the signature pages hereto under the heading "Term Loans A Commitment"
or, if such Lender is a party to an Assignment and Acceptance, the amount of the
"Term Loans A Commitment" set forth in the most recent Assignment and Acceptance
of such  Lender,  as the same may be reduced or  terminated  pursuant to SECTION
2.13 or SECTION 11.2, and "Term Loans A Commitments"  means such  obligations of
all Lenders. As of the Closing Date, the aggregate principal amount of the Terms
Loans A Commitments is $105,000,000.

         "TERM LOANS A COMMITMENT  TERMINATION DATE" means the earliest to occur
of (a) June 30, 2003, (b) the date upon which the Term Loans A are fully funded,
or (c) June 30, 2001, if less than $10,000,000 in aggregate  principal amount of
the Loans has been advanced as of such date.

         "TERM  LOANS A LENDERS"  means the Lenders who hold any Term Loans A or
who have any Term Loans A Commitments.

         "TERM LOANS B" means as specified in SECTION 2.1(B).

         "TERM LOANS B COMMITMENT"  means, as to any Lender,  the obligation (if
any) of such Lender to make Term Loans B  hereunder  in an  aggregate  principal
amount up to but not  exceeding  the amount set forth  opposite the name of such
Lender on the signature pages hereto under the heading "Term Loans B Commitment"
or, if such Lender is a party to an Assignment and Acceptance, the amount of the
"Term Loans B Commitment" set forth in the most recent Assignment and Acceptance
of such  Lender,  as the same may be reduced or  terminated  pursuant to SECTION
2.13 or SECTION 11.2, and "TERM LOANS B COMMITMENTS"  means such  obligations of
all Lenders. As of the Closing Date, the aggregate principal amount of the Terms
Loans B Commitments is $105,000,000.

         "TERM LOANS B COMMITMENT  TERMINATION DATE" means the earliest to occur
of (a) June 30, 2003, (b) the date upon which the Term Loans B are fully funded,
or (c) June 30, 2001, if less than $10,000,000 in aggregate  principal amount of
the Loans has been advanced as of such date.

         "TERM  LOANS B LENDERS"  means the Lenders who hold any Term Loans B or
who have any Term Loans B Commitments.

                                       28
<PAGE>

         "TERM  NOTES A" means the  promissory  notes in the form of EXHIBIT J-1
hereto  made  by the  Borrower  evidencing  the  Term  Loans  A and  any and all
amendments,  modifications,  supplements,  renewals,  extensions or restatements
thereof and all substitutions therefor (including promissory notes issued by the
Borrower  pursuant  to  SECTION  13.8),  and  "TERM  NOTE A"  means  any of such
promissory notes.

         "TERM  NOTES B" means the  promissory  notes in the form of EXHIBIT J-2
hereto  made  by the  Borrower  evidencing  the  Term  Loans  B and  any and all
amendments,  modifications,  supplements,  renewals,  extensions or restatements
thereof and all substitutions therefor (including promissory notes issued by the
Borrower  pursuant  to  SECTION  13.8),  and  "TERM  NOTE B"  means  any of such
promissory notes.

         "TOTAL  CAPITALIZATION"  means,  as to any Person and its  Consolidated
Subsidiaries and as of any date of  determination,  the sum of (a) Total Debt of
such Persons as of such date PLUS (b) the remainder of (i)  Contributed  Capital
of such Persons as of such date MINUS (ii) if and to the extent that such amount
is  included  in  Contributed   Capital,   the  aggregate  principal  amount  of
Subordinated Debt of such Persons  outstanding as of such date,  determined on a
consolidated basis in accordance with GAAP.

         "TOTAL DEBT" means, as to any Person and its Consolidated  Subsidiaries
and as of any date of determination,  the aggregate principal amount of all Debt
of such Persons  outstanding,  determined on a consolidated  basis in accordance
with GAAP.

         "TYPE"  means any type of Loan  (i.e.,  a Base Rate Loan or  Eurodollar
Loan).

         "UCC"  means the Uniform  Commercial  Code as in effect in the State of
New York and/or any other  jurisdiction,  the laws of which may be applicable to
or in connection  with the  creation,  perfection or priority of any Lien on any
Property created pursuant to any Security Document.

         "U.S." means the United States of America.

         "U.S.  PERSON" means a citizen or resident of the U.S., a  corporation,
partnership,  limited  liability company or other entity created or organized in
or under any laws of the U.S.  or any  estate or trust  that is  subject to U.S.
Federal income taxation regardless of the source of its income.

         "U.S.  TAXES"  means any  present or future  tax,  assessment  or other
charge  or levy  imposed  by or on behalf of the U.S.  or any  taxing  authority
thereof.

         "VENDOR"  means  Nortel  Networks in its  capacity as vendor  under the
Master Purchase Agreement.

         "VOTING  STOCK" of any Person means  Capital Stock of such Person which
ordinarily  has voting power for the election of directors,  managers or general
partners (or persons performing  similar  functions) of such Person,  whether at
all times or only for so long as no senior class of  securities  has such voting
power by reason of any contingency.

                                       29
<PAGE>

         "WHOLLY-OWNED   SUBSIDIARY"  means,  with  respect  to  any  Person,  a
Subsidiary  of such Person all of whose  outstanding  Capital  Stock (other than
directors'  qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries.

         "YEAR 2000  COMPLIANT"  means that (a) the services,  products or other
item(s) at issue accurately  process,  provide and/or receive all date/time data
(including  calculating,   comparing,  sequencing,  processing  and  outputting)
within,   from,  into  and  between  centuries   (including  the  twentieth  and
twenty-first  centuries  and the  years  1999 and  2000),  including  leap  year
calculations,  and (b) neither the  performance  nor the  functionality  nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
with the "year 2000"  representations  and warranties and covenants contained in
this  Agreement   includes  proper   date/time  data  century   recognition  and
recognition of 1999 and 2000,  calculations that accommodate  single century and
multi-century  formulae  and  date/time  values  before,  on, after and spanning
January 1, 2000, and date/time  data interface  values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current  date/time will cause any error,  interruption or decreased
performance  in or for such  services,  products  and  other  item(s),  (ii) all
manipulations of date and time related data (including  calculating,  comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used  independently  or in combination with other services,
products and/or items,  (iii) date/time  elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including  leap  year   calculations,   (iv)  where  any  date/time  element  is
represented  without a century,  the correct century will be unambiguous for all
manipulations  involving that element,  (v) authorization  codes,  passwords and
zaps (purge  functions)  will function  normally and in the same manner  during,
prior to, on and after  January  1,  2000,  including  the  manner in which they
function with respect to expiration  dates and CPU serial numbers,  and (vi) the
business'  supply  of the  services,  products  and  other  item(s)  will not be
interrupted,  delayed, decreased or otherwise affected by the advent of the year
2000.

                                       30
<PAGE>

         Section 1.2 OTHER DEFINITIONAL PROVISIONS. All definitions contained in
this  Agreement  are equally  applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any   particular   provision   of  this   Agreement.   The  term   "continuing",
"continuation"  or "continuance"  means, in reference to any Default or Event of
Default  that has  occurred,  that such Default or Event of Default has not been
either cured to the reasonable  satisfaction of the Administrative  Agent within
the  applicable  grace period (if any)  specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite  Lenders in
accordance  with  SECTION  13.11.  The term "pro  rata",  as it  relates  to the
application  of  payments to the Term Loans A and/or the Term Loans B, means pro
rata based upon the relative outstanding principal amounts of such Loans. Unless
otherwise  specified,  all  Article  and  Section  references  pertain  to  this
Agreement.  Terms used  herein  that are  defined in the UCC,  unless  otherwise
defined herein,  shall have the meanings specified in the UCC. All references in
this  Agreement  to any  agreement  shall be  deemed  to mean and  refer to such
agreement as it may be amended,  modified or  supplemented  from time to time if
(but only if) such  amendment,  modification  or supplement has been approved by
the Administrative  Agent and the requisite Lenders, is expressly referred to in
such  reference  or is  otherwise  expressly  permitted  by the  terms  of  this
Agreement.

         Section 1.3       ACCOUNTING TERMS AND DETERMINATIONS.

         (a) Except as may be expressly provided herein to the contrary, (i) all
accounting terms (whether or not specifically defined herein) shall be construed
in  accordance  with  GAAP  (subject  to year end  adjustments,  if  applicable)
consistent  with such  accounting  principles  applied in the preparation of the
audited financial  statements  referred to in SECTION 7.2(A), (ii) all financial
information  delivered to the Administrative Agent pursuant to SECTION 8.1 shall
be  prepared  in  accordance  with GAAP  (subject  to year end  adjustments,  if
applicable)  applied  on a basis  consistent  with  such  accounting  principles
applied in the preparation of the audited financial statements of the applicable
Person  referred to in SECTION 7.2 or in accordance  with Section 8.7, and (iii)
with respect to accounting terms or financial  information  defined or described
in reference to a Person and its Consolidated  Subsidiaries,  all such terms and
information  shall be construed as applying to such Person and its  Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP.

         (b) The  Borrower  shall  deliver to the  Administrative  Agent and the
Lenders,  at the same time as the delivery of any annual or quarterly  financial
statement  under SECTION 8.1, (i) a description,  in reasonable  detail,  of any
material  variation  between the application of GAAP employed in the preparation
of the next  preceding  annual or  quarterly  financial  statements  prepared in
accordance with SECTION 1.3(A)  preceding as to which no objection has been made
by the  Administrative  Agent and (ii)  reasonable  estimates of the  difference
between such statements arising as a consequence thereof.

         (c) To enable the ready and consistent determination of compliance with
the covenants set forth in this Agreement, the Borrower will not change the last
day of its  fiscal  year from  December  31 or the last days of the first  three
fiscal  quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.

         (d) Unless  otherwise  expressly  provided herein to the contrary,  all
references  herein to the Closing  Date shall be deemed to mean and refer to the
Closing Date after giving  effect to all  transactions  which occur on or before
such date.

         Section 1.4 FINANCIAL COVENANTS AND REPORTING. All financial statements
and reports  required to be delivered  pursuant to this  Agreement and the other
Loan  Documents,  and  all  financial  covenants  (if  any)  contained  in  this
Agreement,  shall be prepared or determined (as  applicable) in accordance  with
GAAP (except as may be expressly provided to the contrary herein) and, if and to
the extent  that such  statements,  reports or  covenants  are to be prepared or
determined  on a  consolidated  basis,  shall be  prepared  or  determined  on a
consolidated basis for the Borrower and its Consolidated  Subsidiaries except as
may be expressly provided to the contrary herein.

                                       31
<PAGE>

                                    ARTICLE 2

                                      LOANS

         Section 2.1       COMMITMENTS.

         (a) TERM LOANS A. Subject to the terms and conditions of this Agreement
(including,  without  limitation,  SECTION  2.13(A)  and ARTICLE 6), each Lender
severally  agrees to make one or more  loans to the  Borrower  from time to time
from and including the Closing Date to but excluding the Term Loans A Commitment
Termination  Date up to but not  exceeding  the amount (if any) of such Lender's
Term  Loans A  Commitment  as then in effect  (such  loans  referred  to in this
SECTION 2.1(A) now or hereafter made by the Lenders to the Borrower,  including,
without  limitation,  such loans which remain outstanding after the Term Loans A
Commitment Termination Date, are hereinafter collectively called the "TERM LOANS
A"). The Borrower may not reborrow the Term Loans A which have been repaid.

         (b) TERM LOANS B. Subject to the terms and conditions of this Agreement
(including,  without  limitation,  SECTION  2.13(A)  and ARTICLE 6), each Lender
severally  agrees to make one or more  loans to the  Borrower  from time to time
from and including the Closing Date to but excluding the Term Loans B Commitment
Termination  Date up to but not  exceeding  the amount (if any) of such Lender's
Term  Loans B  Commitment  as then in effect  (such  loans  referred  to in this
SECTION 2.1(B) now or hereafter made by the Lenders to the Borrower,  including,
without  limitation,  such loans which remain outstanding after the Term Loans B
Commitment Termination Date, are hereinafter collectively called the "TERM LOANS
B"); PROVIDED,  HOWEVER, that the Borrower may not borrow Term Loans B until the
Term Loans A have been fully  funded.  The  Borrower  may not  reborrow the Term
Loans B which have been repaid.

         (c)  CONTINUATION  AND  CONVERSION  OF LOANS.  Subject to the terms and
conditions  of this  Agreement,  the  Borrower may borrow the Loans as Base Rate
Loans or  Eurodollar  Loans and,  until the  Maturity  Date with  respect to the
applicable Loans, the Borrower may Continue Eurodollar Loans or Convert Loans of
one Type into Loans of the other Type.

         (d) LENDING  OFFICES.  Loans of each Type made by each Lender  shall be
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.

         Section 2.2       NOTES.

                                       32
<PAGE>

         (a)  NOTES.  Each of the Term Loans A and the Term Loans B made by each
Lender  shall  be  evidenced  by a single  promissory  note of the  Borrower  in
substantially  the form of EXHIBIT J-1 and  EXHIBIT  J-2,  respectively,  hereto
dated the Closing Date (or such appropriate later date if such Lender is a party
to an  Assignment  and  Acceptance),  payable  to the order of such  Lender in a
principal  amount  equal to (i) with respect to the Term Loans A, the sum of (A)
the aggregate  principal  amount of the Term Loans A of such Lender PLUS (B) the
aggregate  principal  amount of the  unfunded  Term Loans A  Commitment  of such
Lender and (ii) with  respect to the Term Loans B, the sum of (A) the  aggregate
principal  amount  of the Term  Loans B of such  Lender  PLUS (B) the  aggregate
principal  amount  of the  unfunded  Term  Loans B  Commitment  of such  Lender,
respectively,  as originally in effect and otherwise duly completed. Each Lender
is  hereby  authorized  by  the  Borrower  to  endorse  on  the  schedule  (or a
continuation  thereof)  attached  to the  Note of  such  Lender,  to the  extent
applicable,  the  date,  amount  and Type of and the  Interest  Period  for each
applicable  Loan made by such  Lender  to the  Borrower  and the  amount of each
payment  or  prepayment  of  principal  of such Loan  received  by such  Lender,
provided that any failure by such Lender to make any such endorsement  shall not
affect the  obligations of the Borrower under any such Note or this Agreement in
respect of any such Loan.

         (b)  REGISTERED  NOTES.  Any Lender that is not a U.S.  Person and that
could become  completely  exempt from  withholding  of U.S.  Taxes in respect of
payment of any Obligations due to such Lender  hereunder  relating to any of its
Loans if such Loans were in registered form for U.S. Federal income tax purposes
may request the Borrower (through the  Administrative  Agent),  and the Borrower
agrees  thereupon,  to exchange such Lender's  Note  evidencing  its Loans for a
promissory  note registered as provided in SECTION 13.8(H) hereof (a "REGISTERED
NOTE").  Registered  Notes  may  not be  exchanged  for  Notes  that  are not in
registered form.

         Section 2.3       REPAYMENT OF LOANS.

         (a)  REPAYMENT  OF  TERM  LOANS  A.  The  Borrower  shall  pay  to  the
Administrative  Agent for the account of each Term Loans A Lender the  principal
amount  of the  Term  Loans A  outstanding  as of the  Term  Loans A  Commitment
Termination  Date (and the principal  amount of such Term Loans A outstanding as
of such date shall be due and payable) in 12 quarterly installments,  commencing
on the  Amortization  Commencement  Date and  continuing on each  Quarterly Date
thereafter,  each of  which  installments  shall  be in an  amount  equal to the
percentage of the aggregate  principal  amount of such Term Loans A specified in
the following table:
<TABLE>
<CAPTION>

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

                                              Percentage of the Aggregate Principal Amount of each of the
                Principal Installment                            Loans Due and Payable
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------
<S>                     <C>                                               <C>
                          1                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          2                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          3                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          4                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          5                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          6                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          7                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------
</TABLE>

                                       33
<PAGE>
<TABLE>
<CAPTION>
                          <S>                                             <C>

                          8                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          9                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         10                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         11                                               [*]%
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         12                                               [*]%
         ------------------------------------ -------------------------------------------------------------
</TABLE>

In addition,  the Borrower shall pay to the Administrative Agent for the account
of  each  Lender  all  outstanding  principal  of the  Term  Loans  A  (and  all
outstanding  principal  of the Term Loans A shall be due and payable in full) on
the Maturity Date.

         (b)  REPAYMENT  OF  TERM  LOANS  B.  The  Borrower  shall  pay  to  the
Administrative  Agent for the account of each Term Loans B Lender the  principal
amount  of the  Term  Loans B  outstanding  as of the  Term  Loans B  Commitment
Termination  Date (and the principal  amount of such Term Loans B outstanding as
of such date shall be due and payable) in 12 quarterly installments,  commencing
on the  Amortization  Commencement  Date and  continuing on each  Quarterly Date
thereafter,  each of  which  installments  shall  be in an  amount  equal to the
percentage of the aggregate  principal  amount of such Term Loans B specified in
the following table:
<TABLE>
<CAPTION>

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

                                              Percentage of the Aggregate Principal Amount of each of the
                Principal Installment                            Loans Due and Payable
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------
                          <S>                                             <C>

                          1                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          2                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          3                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          4                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          5                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          6                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          7                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          8                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                          9                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         10                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         11                                               [*]
         ------------------------------------ -------------------------------------------------------------
         ------------------------------------ -------------------------------------------------------------

                         12                                               [*]
         ------------------------------------ -------------------------------------------------------------
</TABLE>

                                       34
<PAGE>

In addition,  the Borrower shall pay to the Administrative Agent for the account
of  each  Lender  all  outstanding  principal  of the  Term  Loans  B  (and  all
outstanding  principal  of the Term Loans B shall be due and payable in full) on
the Maturity Date.

         Section 2.4       INTEREST.
                           --------

         (a) INTEREST RATE. The Borrower shall pay to the  Administrative  Agent
for the account of each Lender interest on the unpaid  principal  amount of each
Loan made by such Lender (or deemed  made by such Lender with  respect to a Loan
assigned to such Lender  after the making of such Loan) to the  Borrower for the
period commencing on the date of such Loan to, but excluding, the date such Loan
shall be paid in full, at the following rates per annum:

                  (i) during  the  periods  such Loan is a Base Rate  Loan,  the
         lesser  of (A) the Base  Rate  PLUS the  Applicable  Margin  or (B) the
         Maximum Rate; and

                  (ii) during the periods  such Loan is a Eurodollar  Loan,  the
         lesser of (A) the Adjusted  Eurodollar Rate PLUS the Applicable  Margin
         or (B) the Maximum Rate.

         (b)  PAYMENT  DATES.  Accrued  interest  on the Loans  shall be due and
payable as follows:

                  (i)      in the case of Base Rate Loans, on each Monthly Date;

                  (ii) in the case of each  Eurodollar  Loan, on the last day of
         the  Interest  Period  with  respect  thereto  and,  in the  case of an
         Interest  Period greater than three months,  at  three-month  intervals
         after the first day of such Interest Period;

                  (iii) upon the payment or  prepayment  (whether  mandatory  or
         optional)  of any Loan or the  Conversion  of any Loan to a Loan of the
         other  Type  (but only on the  principal  amount  so paid,  prepaid  or
         Converted); and

                  (iv) with  respect to all  Loans,  on the  Maturity  Date with
         respect to such Loans.

         (c) DEFAULT INTEREST. Notwithstanding the foregoing, the Borrower shall
pay to the  Administrative  Agent for the account of each Lender interest at the
applicable  Default  Rate (i) at all times during which any Default has occurred
and is  continuing,  on any principal of any Loan  outstanding,  and (ii) to the
fullest extent  permitted by law, any other amount payable by the Borrower under
this  Agreement or any other Loan  Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity,  by acceleration
or  otherwise)  for the period from and  including  the due date  thereof to but
excluding the date the same is paid in full. Interest accrued and payable at the
Default Rate shall be payable from time to time on demand by the  Administrative
Agent.

         Section 2.5       BORROWING PROCEDURE.

                                       35
<PAGE>

         (a)  STANDARD  PROCEDURE.  The Borrower  shall give the  Administrative
Agent notice of each  Borrowing  hereunder in  accordance  with SECTION 2.9. Not
later than 1:00 p.m.  (New York,  New York time) on the date  specified for each
Borrowing  hereunder,  each Lender will make available the amount of the Loan to
be made by it on such date to the Administrative Agent, at the Principal Office,
in immediately  available funds, for the account of the Borrower.  The amount of
each Borrowing hereunder so received by the Administrative  Agent shall, subject
to the terms and conditions of this  Agreement,  be made  available,  for and on
behalf of the Borrower,  in  immediately  available  funds by no later than 1:00
p.m. (New York,  New York time) on the date  specified for each Borrowing in the
Notice of Borrowing therefor;  PROVIDED,  HOWEVER, that the Administrative Agent
shall cause such amount to be made available on such date directly to or for the
benefit of the Person who is to receive the proceeds of such Loan in  accordance
with SECTION 2.10 (e.g.,  the Vendor if and to the extent that  proceeds of such
Borrowing   are  used  to  pay  for  Nortel   Networks   Goods  and   Services).
Notwithstanding  anything to the contrary contained in this Agreement, if and to
the extent that Nortel Networks is a Lender under this  Agreement,  the Borrower
further  hereby  irrevocably  agrees  that  each Loan to be  advanced  by Nortel
Networks  to the  Borrower  in  accordance  with  this  Agreement  (and  only in
accordance with this Agreement and after the Administrative Agent's receipt of a
Notice of Borrowing  executed by the Borrower) may (in the  discretion of Nortel
Networks)  be  effectively  disbursed  on the date set  forth in the  Notice  of
Borrowing  for such  disbursement  to the  Borrower by virtue of a credit in the
amount of such Loan given to the Borrower under the Master  Purchase  Agreement;
PROVIDED,  HOWEVER,  that the initial  advance of Loans made on the Closing Date
shall be paid to the Borrower to the extent of amounts  previously  paid, at any
time on or after January 1, 2000 and prior to the Closing Date, in cash by or on
behalf of the Borrower to Nortel  Networks to purchase Nortel Networks Goods and
Services,  including  sales and use taxes and freight  charges  relating to such
Nortel Networks Goods and Services, under the Master Purchase Agreement.

         (b) AUTOMATIC  ADVANCEMENT  OF LOANS.  Notwithstanding  anything to the
contrary  contained in this Agreement,  the  Administrative  Agent shall, at the
request of Nortel  Networks  so long as it is the only Lender  hereunder,  cause
Loans to be advanced by the Lenders for and on behalf of the Borrower whether or
not (i) any Notice of Borrowing is given in  accordance  with SECTION 2.9,  (ii)
any of the  conditions  precedent  set forth in ARTICLE 6 hereof are  satisfied,
(iii)  any  Default  exists,  or (iv) any  other  fact or  circumstance  exists,
PROVIDED that Nortel Networks shall have given five Business Day's prior written
notice to the  Administrative  Agent and the Borrower of Nortel Networks' desire
to cause the Lenders to make such Loans and all  proceeds of such Loans are used
to pay the purchase  price for Nortel  Networks Goods and Services which has not
been  disputed by the  Borrower and which has not been paid when due pursuant to
the Master  Purchase  Agreement.  All Loans  advanced  pursuant to this  SECTION
2.5(B) shall be initially advanced as Eurodollar Loans with a one month Interest
Period  (unless the Borrower has requested in writing,  at least three  Business
Days prior to such advance,  that any of such Loans have an Interest Period with
a different  duration in accordance with the requirements of this Agreement) or,
if the maximum number of Interest  Periods for Eurodollar  Loans is already then
in effect, as Base Rate Loans and shall be advanced first as Term Loans A (until
the Term  Loans A are fully  funded)  and then as Term  Loans B (but  after such
advancement, may be Converted or Continued in accordance with this Agreement).

                                       36
<PAGE>

         Section 2.6 OPTIONAL  PREPAYMENTS,  CONVERSIONS  AND  CONTINUATIONS  OF
LOANS.  Subject to SECTION 2.8,  the Borrower  shall have the right from time to
time to prepay the Loans in whole or in part (without  premium or penalty except
as may be provided pursuant to SECTION 4.5), to Convert all or part of a Loan of
one Type into a Loan of another Type or to Continue Eurodollar Loans;  PROVIDED,
HOWEVER,  that (a) the Borrower  shall give the  Administrative  Agent notice of
each such prepayment, Conversion or Continuation as provided in SECTION 2.9, (b)
Eurodollar  Loans may only be Converted  on the last day of the Interest  Period
and any  payment of  Eurodollar  Loans on any day other than the last day of the
Interest  Period  shall be subject to  payment  of the  additional  compensation
specified in SECTION 4.5, (c) except for  Conversions  of Eurodollar  Loans into
Base Rate Loans, no Conversions or  Continuations  shall be made while a Default
has occurred and is continuing,  and (d) optional prepayments of the Loans shall
be applied to the  principal  of the Loans  prepaid in the inverse  order of the
maturities of the then remaining  installments of such Loans. No amounts prepaid
pursuant to this SECTION 2.6 may be reborrowed.

         Section 2.7       MANDATORY PREPAYMENTS.

         (a) ASSET  DISPOSITIONS,  ETC. The Borrower shall,  within two Business
Days after it receives  any Net  Proceeds of any Asset  Disposition,  other than
Asset  Dispositions   constituting  either  Fiber  or  Conduit  Sales  expressly
permitted  to be  consummated  in  accordance  with  CLAUSE (E) of SECTION  9.8,
proceeds of any  Insurance  Recovery or proceeds of or  resulting  from  eminent
domain,  condemnation  or similar  proceedings  (whether  the same relate to the
Collateral,  the Real Estate Assets or other Property)  aggregating in excess of
$[*] during any period of 12 consecutive months or less (the aggregate amount of
all such Net Proceeds or proceeds exceeding $[*] received during any such period
are herein  called the  "EXCESS  PROCEEDS  AMOUNT"),  pay to the  Administrative
Agent, as a prepayment of the Loans (which  prepayment  shall be without premium
or penalty  except as may be provided  pursuant to SECTION  4.5),  an  aggregate
amount equal to the Excess Proceeds Amount; PROVIDED,  HOWEVER, that (i) no such
prepayment will be required if and to the extent that the Excess Proceeds Amount
is under binding  contract to be  re-invested  in productive  assets used in the
ordinary course of the Borrower's or its Subsidiary's  (as applicable)  business
within [*] days of the receipt of such Excess  Proceeds  Amount and is, in fact,
so re-invested  within [*] days of the receipt of such Excess  Proceeds  Amount,
(ii) the  Excess  Proceeds  Amount  shall be  deposited  into a cash  collateral
account held by the  Administrative  Agent  pursuant to an agreement in form and
substance  satisfactory  to the  Administrative  Agent  until  such time as such
amount (exclusive of any interest accrued thereon) is either  re-invested within
such [*] day period or applied to the Loans or other  Obligations as provided in
this SECTION 2.7, and (iii) if, at the time of any such required prepayment, any
Eligible  Secured Debt is  outstanding,  then the Excess  Proceeds Amount may be
paid to the  Collateral  Agent (as  opposed  to the  Administrative  Agent)  and
distributed pro rata to the Administrative Agent and the holders of the Eligible
Secured Debt (or their  representatives)  for  application to the Loans or other
Obligations and to such Eligible  Secured Debt in accordance with the Collateral
Agency Agreement.

                                       37
<PAGE>

         (b) EXCESS CASH FLOW. The Borrower shall, commencing on the first March
31 occurring after the Term Loans A Commitment  Termination  Date and continuing
on each  March 31  thereafter,  pay (or cause to be paid) to the  Administrative
Agent,  as a  prepayment  of the Loans and other  Obligations  then  outstanding
(which  prepayment shall be without premium or penalty except as may be provided
pursuant to SECTION  4.5),  an aggregate  amount equal to [*] percent  ([*]%) of
Excess Cash Flow of the Borrower and its  Subsidiaries  for the fiscal year then
most  recently  ended;  PROVIDED,  HOWEVER,  that  if,  at the  time of any such
required prepayment,  any Eligible Secured Debt is outstanding or the Collateral
Agency  Agreement  shall be in effect,  then the amount  required  to be prepaid
pursuant  to this  SECTION  2.7(B)  shall be paid to the  Collateral  Agent  (as
opposed  to  the   Administrative   Agent)  and  distributed  pro  rata  to  the
Administrative  Agent and the  holders of the  Eligible  Secured  Debt (or their
representatives)  for application to the Loans or other  Obligations and to such
Eligible Secured Debt in accordance with the Collateral Agency Agreement.

         (c) OTHER DEBT.  In the event and on each occasion that the Borrower or
any  Subsidiary  of the  Borrower  Repays any Debt of the  Borrower  or any such
Subsidiary or Debt for borrowed money which the Borrower or any such  Subsidiary
has Guaranteed,  then the Borrower  shall,  within three Business Days after the
date of such Repayment,  prepay the Loans in an aggregate principal amount equal
to the  product of (i) the sum of the  aggregate  principal  amount of the Loans
outstanding at the time,  multiplied by (ii) a fraction,  the numerator of which
is the aggregate principal amount of such Repayment and the denominator of which
is the  amount  of  consolidated  Debt  of the  Borrower  and  its  Consolidated
Subsidiaries  immediately prior to such Repayment  (excluding Debt in respect of
the Loans and Debt outstanding under revolving credit facilities); PROVIDED that
prepayments  of the Loans shall not be required  pursuant to this SECTION 2.7(C)
in  respect  of (A) any  Repayment  of the Loans,  (B) any  scheduled  repayment
(excluding any voluntary or mandatory  prepayment) of Debt, (C) any Repayment of
Debt to the extent such Repayment is refinanced by incurring other Debt that (1)
has a scheduled  final  maturity  date that is on or after the  scheduled  final
maturity date of the Debt being  refinanced,  (2) has a weighted average life to
maturity that is equal to or longer than the remaining  weighted average life to
maturity of the Debt being  refinanced,  determined  immediately prior to giving
effect to such  Repayment,  (3) does not include any provisions that may require
mandatory  Repayment thereof prior to scheduled  maturity,  other than scheduled
repayments taken into  consideration  in determining  compliance with CLAUSE (2)
above, and does not include other provisions that are materially more burdensome
taken as a whole than provisions  included in the Debt being refinanced  (except
that  Eligible  Secured  Debt that is incurred to refinance  other  secured Debt
permitted by SECTION 9.1 may have prepayment  provisions that are  substantially
the same as those applicable to the Loans hereunder),  (4) is issued or incurred
by the same Person that issued or incurred the Debt being  refinanced and is not
Guaranteed  or  secured  by any  Lien  unless  the  Debt  being  refinanced  was
Guaranteed  or secured (in which case such Debt shall not be  Guaranteed  by any
Person that did not Guarantee the Debt being refinanced and shall not be secured
by a Lien on any asset that did not secure  the Debt being  refinanced),  except
that  Eligible  Secured  Debt that is incurred to refinance  other  secured Debt
permitted by SECTION 9.1 may be secured by the Security  Documents if the assets
securing such  refinanced  secured Debt become  Collateral  effective  upon such
refinancing,  and  (5) is  subordinated  to the  Obligations  on  terms  no less
favorable than the terms on which the Debt being refinanced was so subordinated,
if such  refinanced  Debt is  subordinated to the Loans, or (D) any Repayment of
Debt  outstanding  under a revolving  credit facility to the extent that (1) the
commitments  of the  lenders to make  loans  thereunder  remain in effect  after
giving  effect  to such  Repayment  and (2) the  borrower  thereunder  does  not
voluntarily  reduce the principal  amount  available under such revolving credit
facility within six months of any such prepayment.

         (d) SALE OF THE NETWORK.  The  Borrower  shall,  concurrently  with any
sale,  transfer or other disposition of all or substantially all of the Network,
prepay  in full (i) the  outstanding  principal  amount of all  Loans,  (ii) all
interest  accrued  and  unpaid  with  respect  to all  Loans and (iii) all other
outstanding Obligations.

                                       38
<PAGE>

         (e) APPLICATION OF MANDATORY  PREPAYMENTS.  All prepayments pursuant to
SECTION  2.7(A),  SECTION  2.7(B),  SECTION  2.7(C) and SECTION  2.7(D) shall be
applied first pro rata to the principal of the Term Loans A and the Term Loans B
in the inverse order of the maturities of the then remaining installments of the
Loans and then to the  remaining  outstanding  Obligations  in such order as the
Administrative Agent may determine.

         (f) NO REBORROWING. No amounts prepaid pursuant to this SECTION 2.7 may
be reborrowed.

         Section 2.8 MINIMUM  AMOUNTS.  Except for  Conversions  and prepayments
pursuant to SECTION 2.7 and ARTICLE 4, each Borrowing,  each Conversion and each
optional  prepayment  of  principal  of the Loans shall be in an amount at least
equal to  $1,000,000  or an integral  multiple  of  $100,000  in excess  thereof
(Borrowings,  prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans,  having different  Interest Periods at the same
time hereunder shall be deemed separate Borrowings,  prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period).

         Section  2.9  CERTAIN   NOTICES.   Notices  by  the   Borrower  to  the
Administrative   Agent  of  terminations   or  reductions  of  Commitments,   of
Borrowings,  Conversions,  Continuations  and  prepayments  of Loans  and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the  Administrative  Agent not later than 11:00 a.m. (New York,  New
York,  time) on the  applicable  Business  Day prior to the date of the relevant
termination, reduction, Borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:
<TABLE>
<CAPTION>

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

                                                                                Number of
                             Notice                                        Business Days Prior
------------------------------------------------------------------- ----------------------------------
------------------------------------------------------------------- ----------------------------------
<S>                                                                                 <C>

Terminations or Reductions of Commitments                                           1
------------------------------------------------------------------- ----------------------------------
------------------------------------------------------------------- ----------------------------------

Borrowings of Loans which are Base Rate Loans                                       2
------------------------------------------------------------------- ----------------------------------
------------------------------------------------------------------- ----------------------------------

Borrowings of Loans which are Eurodollar Loans                                      3
------------------------------------------------------------------- ----------------------------------
------------------------------------------------------------------- ----------------------------------

Prepayments of Loans                                                                3
------------------------------------------------------------------- ----------------------------------
</TABLE>

                                       39
<PAGE>

Each such notice of  termination  or reduction  shall  specify the amount of the
Commitments  to be  terminated  or  reduced.  Each such notice of  Borrowing  (a
"NOTICE OF BORROWING"), Conversion, Continuation or prepayment shall specify the
Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to
SECTION 2.8 hereof) and Type of the Loans to be borrowed,  Converted,  Continued
or prepaid (and,  in the case of a Conversion,  the Type of Loans to result from
such  Conversion)  and  the  date  of  Borrowing,  Conversion,  Continuation  or
prepayment  (which shall be a Business  Day).  Each such notice of  termination,
reduction,  Borrowing,  Conversion,  Continuation or prepayment  shall be in the
form of EXHIBIT K hereto,  appropriately completed as applicable. Each Notice of
Borrowing  (a) shall  certify  that all  proceeds  of the  requested  Loans are,
concurrently  with the making of such Loans,  being used by the Borrower for the
purpose  specified  in SECTION 2.10 and (b) shall be  accompanied  by such other
evidence as to use of the  proceeds  of such  Borrowing,  as the  Administrative
Agent may  reasonably  request  from time to time.  Each notice  which  includes
reference to the duration of an Interest Period shall specify the Loans to which
such  Interest  Period is to relate.  The  Administrative  Agent shall  promptly
notify  the  Lenders  of the  contents  of each  such  notice.  In the event the
Borrower  fails to select  the Type of Loan,  or the  duration  of any  Interest
Period for any Eurodollar Loan, within the time period and otherwise as provided
in this SECTION  2.9,  such Loan (if  outstanding  as  Eurodollar  Loan) will be
automatically  Converted  into a Base  Rate  Loan on the last  day of  preceding
Interest  Period  for such Loan or (if  outstanding  as a Base Rate  Loan)  will
remain as, or (if not then  outstanding)  will be made as, a Base Rate Loan. The
Borrower may not borrow any Eurodollar Loans,  Convert any Loans into Eurodollar
Loans or Continue any Loans as  Eurodollar  Loans if the interest  rate for such
Eurodollar Loans would exceed the Maximum Rate.

         Section 2.10      USE OF PROCEEDS.

         (a) LOANS.  The Borrower agrees that all proceeds of the Loans shall be
used to finance  the  purchase  price for  Nortel  Networks  Goods and  Services
provided by the Vendor under the Master  Purchase  Agreement,  [*] sales and use
taxes and freight  charges,  which Nortel  Networks  Goods and Services shall be
used in the construction  and operation of the Network.  None of the proceeds of
the Loans may be used to reimburse  the  Borrower  for its prior  payment of the
purchase price for any Nortel  Networks Goods and Services;  PROVIDED,  HOWEVER,
that the initial  advance of the Loans made on the  Closing  Date may be used by
the Borrower to reimburse the Borrower for any amounts  previously  paid in cash
by the  Borrower  to Nortel  Networks  to  purchase  Nortel  Networks  Goods and
Services,  including  sales and use taxes and freight  charges  relating to such
Nortel Networks Goods and Services, under the Master Purchase Agreement.

         (b)  TRANSFER  OF  PROCEEDS  TO PFE.  Notwithstanding  anything  to the
contrary  contained herein, the Borrower may,  substantially  currently with its
receipt of the proceeds of any of the Loans,  contribute such proceeds as equity
to the capital of PFE, or loan such  proceeds to PFE in  accordance  with CLAUSE
(H) of SECTION  9.1, if and to the extent  (but only if and to the extent)  that
(i) PFE,  promptly  upon its  receipt of such  proceeds,  uses such  proceeds as
required by the terms and  provisions  of this  SECTION 2.10 and (ii) the Nortel
Networks  Goods and Services  purchased  by PFE with such  proceeds are promptly
sold or leased by PFE to the Borrower  pursuant to an installment sales contract
or a lease, respectively, in compliance with SECTION 8.20.

         (c)  MARGIN  STOCK.  None of the  proceeds  of any  Loan may be used to
acquire any security in any  transaction  that is subject to Section 13 or 14 of
the Exchange Act or to purchase or carry any margin stock (within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System).

         Section 2.11      FEES.

                                       40
<PAGE>

         (a)  Subject  to  SECTION   13.12,   the  Borrower  shall  pay  to  the
Administrative  Agent for the account of each applicable Lender (i) a commitment
fee on the daily average  outstanding  amount of each such Lender's Term Loans A
Commitment (as the same may be terminated or reduced  pursuant to SECTION 2.13),
for the period from and  including the later to occur of the Closing Date or the
date on which such  Lender (or its  predecessor  in interest  with  respect to a
Commitment  assigned  to  such  Lender  as to  which  a  commitment  fee has not
previously been paid during the applicable  period) initially became a Lender to
but  excluding the Term Loans A Commitment  Termination  Date at the rate of (A)
[*] percent  ([*]%) per annum at all times during which the daily average of the
aggregate  principal  amount of the Term Loans A outstanding is equal to or less
than [*] percent ([*]%) of the aggregate  amount of the Term Loans A Commitments
as originally in effect  (i.e.,  without  reduction as a result of the making of
the Term Loans A),  and (B) [*]  percent  ([*]%)  per annum at all times  during
which the daily  average of the aggregate  principal  amount of the Term Loans A
outstanding  is greater than [*] percent  ([*]%) of the aggregate  amount of the
Term Loans A Commitments as originally in effect (i.e.,  without  reduction as a
result of the  making of the Term  Loans A),  and (ii)  subject  to the  proviso
below,  a commitment  fee on the daily average  outstanding  amount of each such
Lender's  Term  Loans B  Commitment  (as the same may be  terminated  or reduced
pursuant to SECTION 2.13),  for the period from and including the later to occur
of the  Closing  Date or the date on which such  Lender (or its  predecessor  in
interest  with  respect to a  Commitment  assigned  to such Lender as to which a
commitment  fee has not  previously  been paid  during  the  applicable  period)
initially  became  a  Lender  to but  excluding  the  Term  Loans  B  Commitment
Termination  Date at the rate of (A) [*]  ([*]%)  per annum at all times  during
which the daily  average of the aggregate  principal  amount of the Term Loans B
outstanding is equal to or less than [*] percent ([*]%) of the aggregate  amount
of the Term Loans B Commitments as originally in effect (i.e., without reduction
as a result of the making of the Term Loans B), and (B) [*]  percent  ([*]%) per
annum at all times during  which the daily  average of the  aggregate  principal
amount of the Term Loans B outstanding is greater than [*] percent ([*]%) of the
aggregate  amount of the Term Loans B Commitments as originally in effect (i.e.,
without  reduction  as a result of the making of the Term Loans B), in each case
(i.e., as to each of CLAUSES (I) and (II) preceding) based on a [*] day year and
the actual number of days elapsed and based upon the daily  average  outstanding
amount  of the  Term  Loans A  Commitments  or the  Term  Loans  B  Commitments,
respectively,  which accrued commitment fees shall be payable in arrears on each
Quarterly Date and on the Term Loans A Commitment  Termination  Date or the Term
Loans B Commitment Termination Date, respectively; PROVIDED, HOWEVER, that it is
agreed and understood  that no commitment fee shall commence to accrue  pursuant
to this  SECTION  2.11 on the daily  average  unused or  unfunded  amount of any
Lender's  Term Loans B Commitment  until such time as the Term Loans A have been
fully funded and that the commitment fee rate shall be calculated separately for
the Term Loans A Commitments and the Term Loans B Commitments.

         (b)  Subject  to  SECTION  13.12,  the  Borrower  agrees  to pay to the
Administrative  Agent and Nortel  Networks such additional fees as are specified
in the  Administrative  Agent's  Letter,  which  fees  shall be  payable in such
amounts and on such dates as are specified therein.

         Section  2.12  COMPUTATIONS.  Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on (a) all Base Rate Loans shall be
computed on the basis of a year of 365 or 366 days,  as the case may be, and (b)
all  Eurodollar  Loans  shall be computed on the basis of a year of 360 days and
the actual  number of days elapsed  (including  the first day but  excluding the
last day)  occurring  in the period  for which  payable  unless,  in the case of
interest or fees which  constitute  interest (if  applicable),  such calculation
would result in a usurious rate, in which case interest or fees which constitute
interest (if  applicable)  shall be  calculated on the basis of a year of 365 or
366 days, as the case may be.

                                       41
<PAGE>

         Section 2.13      TERMINATION OR REDUCTION OF COMMITMENTS.

         (a)  Notwithstanding   anything  to  the  contrary  contained  in  this
Agreement,  each of the  Commitments  shall  automatically  terminate  upon  the
earlier to occur of (i) the  occurrence  of any Change in  Control,  or (ii) any
sale, transfer or other disposition of all or substantially all of the Network.

         (b) The  Borrower  shall have the right to  terminate or reduce in part
the  unused  portion  of the Term  Loans A  Commitments  and/or the Term Loans B
Commitments  at any  time  and  from  time to time  prior  to the  Term  Loans A
Commitment  Termination Date and the Term Loans B Commitment  Termination  Date,
respectively; PROVIDED, HOWEVER, that (i) no such termination or reduction shall
be  effective  unless  the  Borrower  shall  have  given  notice  of  each  such
termination  or  reduction  as  provided  in SECTION  2.9 and (ii) each  partial
reduction of any such Commitment  shall be in an aggregate amount at least equal
to $1,000,000 or an integral multiple of $100,000 in excess thereof.

         (c)  The  Commitments  may  not be  reinstated  after  they  have  been
terminated or increased after they have been reduced.

                                    ARTICLE 3

                                    PAYMENTS

                                       42
<PAGE>

         Section 3.1 METHOD OF PAYMENT AND APPLICATION OF PAYMENTS. All payments
of principal,  interest, fees and other amounts to be made by the Borrower under
this Agreement and the other Loan Documents shall be made to the  Administrative
Agent at the  Principal  Office  for the  account  of each  Lender's  Applicable
Lending Office in Dollars and in immediately  available  funds,  without setoff,
deduction or counterclaim, not later than 1:00 p.m. (New York, New York time) on
the date on which such  payment  shall  become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business  Day).  The Borrower  shall,  at the time of making each such  payment,
specify to the Administrative  Agent the sums payable by the Borrower under this
Agreement  and the other Loan  Documents  to which such payment is to be applied
(and in the  event  that the  Borrower  fails to so  specify,  or if an Event of
Default has occurred and is continuing,  the Administrative Agent may apply such
payment to the Obligations in such order and manner as the Administrative  Agent
may elect, subject to this SECTION 3.1 and SECTION 3.2). Upon the occurrence and
during the  continuation of an Event of Default,  all proceeds of any Collateral
and all other funds of the  Borrower  in the  possession  of the  Administrative
Agent  or  any  Lender  may  be  applied  by  the  Administrative  Agent  to the
Obligations  in such  order and  manner as the  Administrative  Agent may elect,
subject  to  SECTION  3.2;  PROVIDED,  HOWEVER,  that in the  event of any sale,
disposition or liquidation of the Collateral or any portion  thereof as a result
of or in  connection  with the  occurrence of an Event of Default and receipt by
the  Administrative  Agent  of any  proceeds  thereof,  or in the  event  of any
bankruptcy  or  similar  proceedings  involving  the  Borrower  or  any  of  its
Subsidiaries  and  receipt  by the  Administrative  Agent of any  payments  with
respect to the  Obligations in connection  therewith,  all proceeds  thereof (i)
shall be applied in  accordance  with the  Collateral  Agency  Agreement (if the
Collateral Agency Agreement is then in effect) and (ii) all proceeds received by
the  Administrative  Agent pursuant to the Collateral  Agency  Agreement (if the
Collateral  Agency Agreement is then in effect) or otherwise shall be applied by
the   Administrative   Agent  as  follows   unless   otherwise   agreed  by  the
Administrative  Agent and the Required  Lenders:  (A) first,  to  reimburse  the
Administrative  Agent for all fees,  costs and  expenses  relating to such sale,
disposition or liquidation or bankruptcy or similar proceedings, (B) second, pro
rata to the accrued and unpaid interest with respect to the Term Loans A and the
Term Loans B, (C) third,  pro rata to the  principal of the Term Loans A and the
Term Loans B (until such Loans are paid in full),  and (D)  fourth,  to the then
remaining outstanding  Obligations in such order as the Administrative Agent may
determine.  Each  payment  received  by  the  Administrative  Agent  under  this
Agreement  or any other Loan  Document for the account of a Lender shall be paid
promptly to such Lender, in immediately available funds, for the account of such
Lender's Applicable Lending Office. Whenever any payment under this Agreement or
any  other  Loan  Document  shall  be  stated  to be due on a day  that is not a
Business Day, such payment may be made on the next succeeding  Business Day, and
such extension of time shall in such case be included in the  computation of the
payment of interest and commitment fee, as the case may be.

         Section 3.2 PRO RATA TREATMENT. Except to the extent otherwise provided
in this Agreement: (a) each Loan shall be made by the Lenders under SECTION 2.1,
each payment of  commitment  fees under  SECTION  2.11(A)  shall be made for the
account of the Lenders, as applicable,  and each termination or reduction of the
Commitments  under  SECTION  2.13  shall be applied  to the  Commitments  of the
Lenders,  pro rata  according  to the  respective  unused  Commitments;  (b) the
making,  Conversion and  Continuation  of Loans of a particular Type (other than
Conversions  provided  for by  SECTION  4.4)  shall be made pro rata  among  the
Lenders holding Loans of such Type according to the amounts of their  respective
Commitments;  (c) each payment and prepayment by the Borrower of principal of or
interest on Loans of a particular Type shall be made to the Administrative Agent
for the account of the Lenders holding Loans of such Type pro rata in accordance
with the respective unpaid principal amounts of such Loans held by such Lenders;
and (d) Interest Periods for Loans of a particular Type shall be allocated among
the Lenders  holding  Loans of such Type pro rata  according  to the  respective
principal amounts held by such Lenders.

                                       43
<PAGE>

         Section 3.3 SHARING OF PAYMENTS,  ETC. If a Lender shall obtain payment
of any  principal  of or interest on any of the  Obligations  due to such Lender
hereunder  through  the  exercise  of  any  right  of  setoff,   banker's  lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders  participations  in the  Obligations  held by the other Lenders in
such amounts, and make such adjustments from time to time, as shall be equitable
to the end that all the  Lenders  shall  share pro rata in  accordance  with the
unpaid  principal and interest on the  Obligations  then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of  participations  sold or  otherwise)  if all or any portion of
such excess payment is thereafter  rescinded or must otherwise be restored.  The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Lender so purchasing a  participation  in the  Obligations  by the
other Lenders may exercise all rights of setoff,  banker's lien, counterclaim or
similar  rights with  respect to such  participation  as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. Nothing
contained  herein  shall  require any Lender to exercise any such right or shall
affect  the  right of any  Lender  to  exercise,  and  retain  the  benefits  of
exercising, any such right with respect to any other indebtedness,  liability or
obligation of the Borrower.

         Section 3.4 NON-RECEIPT OF FUNDS BY THE  ADMINISTRATIVE  AGENT.  Unless
the  Administrative  Agent shall have been  notified by a Lender or the Borrower
(the  "PAYOR")  prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"REQUIRED  PAYMENT"),  which notice shall be effective  upon  receipt,  that the
Payor does not intend to make the Required Payment to the Administrative  Agent,
the Administrative  Agent may assume that the Required Payment has been made and
may, in reliance upon such  assumption  (but shall not be required to), make the
amount  thereof  available  to the  intended  recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative  Agent the
amount made  available to it together  with  interest  thereon in respect of the
period  commencing  on the  date  such  amount  was  so  made  available  by the
Administrative  Agent  until the date the  Administrative  Agent  recovers  such
amount at a rate per annum equal to the Federal Funds Rate for such period.

         Section 3.5       TAXES.

                                       44
<PAGE>

         (a) All  payments by the  Borrower of  principal of and interest on the
Loans and of all fees and other amounts  payable under the Loan Documents  shall
be made free and clear of, and without  withholding  or  deduction by reason of,
any present or future Indemnified Taxes or Other Taxes. If any Indemnified Taxes
or Other Taxes are so levied or imposed,  the Borrower will (i) make  additional
payments in such  amounts so that every net payment of principal of and interest
on the Loans and of all other  amounts  payable by it under the Loan  Documents,
after  withholding  or deduction for or on account of any  Indemnified  Taxes or
Other Taxes  (including any tax imposed on or measured by net income of a Lender
attributable  to  payments  made to or on  behalf of a Lender  pursuant  to this
SECTION 3.5 and any penalties or interest  attributable to such payments),  will
not be less  than  the  amount  provided  for  herein  or  therein  absent  such
withholding  or  deduction  (PROVIDED  that  the  Borrower  shall  not  have any
obligation to pay such additional  amounts to any Lender to the extent that such
Indemnified  Taxes or Other Taxes are levied or imposed by reason of the failure
of such Lender to comply with the  provisions  of SECTION  3.6),  (ii) make such
withholding or deduction and (iii) remit the full amount deducted or withheld to
the relevant  Governmental  Authority in accordance with applicable law. Without
limiting  the  generality  of the  foregoing,  the Borrower  will,  upon written
request  of any  Lender,  reimburse  each  such  Lender  for the  amount  of (A)
Indemnified Taxes or Other Taxes levied or imposed by any Governmental Authority
and paid by such Lender as a result of payments  made by the  Borrower  under or
with respect to the Loans other than Indemnified Taxes or Other Taxes previously
withheld or  deducted  by the  Borrower  which have  previously  resulted in the
payment of the required  additional  amount to such Lender,  and (B) Indemnified
Taxes or Other Taxes levied or imposed with respect to any Lender  reimbursement
under the foregoing  CLAUSE (A), so that the net amount  received by such Lender
(net  of  payments  made  under  or  with  respect  to  the  Loans)  after  such
reimbursement  will not be less  than the net  amount  such  Lender  would  have
received if such Indemnified Taxes or Other Taxes on such  reimbursement had not
been  levied  or  imposed.   The  Borrower   shall   furnish   promptly  to  the
Administrative  Agent for distribution to each affected Lender,  as the case may
be, upon request of such Lender,  official receipts evidencing any such payment,
withholding or reduction.

         (b) The  Borrower  will  indemnify  the  Administrative  Agent and each
Lender (without duplication) against, and reimburse the Administrative Agent and
each  Lender  for,  all  present  and future  Indemnified  Taxes or Other  Taxes
(including  interest and penalties) levied or collected  (whether or not legally
or correctly imposed,  assessed, levied or collected).  Any such indemnification
shall be on an after-tax basis,  taking into account any such Indemnified  Taxes
or Other Taxes imposed on the amounts paid as indemnity.

         (c) Without prejudice to the survival of any other term or provision of
this  Agreement,  the  obligations  of the Borrower under this SECTION 3.5 shall
survive the payment of the Loans and the other  Obligations  and  termination of
the Commitments.

         Section  3.6  WITHHOLDING  TAX  EXEMPTION.  Each  Lender  that  is  not
incorporated  or otherwise  formed under the laws of the U.S. or a state thereof
agrees that it will,  prior to or on or about the Closing  Date or the date upon
which it initially  becomes a party to this  Agreement and if it is legally able
to do so,  deliver  to the  Borrower  and the  Administrative  Agent,  two  duly
completed copies of U.S. Internal Revenue Service Form W-8ECI or W-8BEN or other
equivalent  successor  form,  as  appropriate,  certifying in any case that such
Lender is entitled to receive payments from the Borrower under any Loan Document
without  deduction or withholding of any U.S. federal income taxes.  Each Lender
which so delivers a Form W-8ECI or W-8BEN or other equivalent successor form, as
appropriate,   further   undertakes   to  deliver  to  the   Borrower   and  the
Administrative  Agent, two additional  copies of such form (or a successor form)
on or  before  the date such  form  expires  or  becomes  obsolete  or after the
occurrence of any event  requiring a change in the most recent form so delivered
by it, and such amendments  thereto or extensions or renewals  thereof as may be
reasonably  requested by the Borrower or the Administrative  Agent, in each case
certifying  that such Lender is entitled to receive  payments  from the Borrower
under any Loan Document  without  deduction or withholding  of any U.S.  federal
income  taxes,  unless an event  (including  without  limitation  any  change in
treaty,  law or  regulation)  has  occurred  prior to the date on which any such
delivery would  otherwise be required which renders all such forms  inapplicable
or which would prevent such Lender from duly  completing and delivering any such
form  with  respect  to  it  and  such  Lender  advises  the  Borrower  and  the
Administrative  Agent that it is not capable of receiving such payments  without
any deduction or withholding of U.S. federal income tax.

                                       45
<PAGE>

         Section 3.7 REINSTATEMENT OF OBLIGATIONS.  Notwithstanding  anything to
the contrary  contained in this  Agreement  or any other Loan  Document,  if the
payment of any amount of principal  of or interest  with respect to the Loans or
any other  amount of the  Obligations,  or any portion  thereof,  is  rescinded,
voided or must otherwise be refunded by the  Administrative  Agent or any Lender
upon the insolvency,  bankruptcy or  reorganization of the Borrower or otherwise
for any  reason  whatsoever,  then  each of (a) the  Obligations,  (b) the  Loan
Documents  (including,  without  limitation,  this Agreement,  the Notes and the
Security  Documents),  (c) the indebtedness,  liabilities and obligations of the
Borrower  and any other Loan  Parties  and (d) all Liens for the  benefit of the
Administrative  Agent and the Lenders  created  under or  evidenced  by the Loan
Documents,  will be automatically  reinstated and become automatically effective
and in full force and effect,  all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.

         Section 3.8 NO FORCE MAJEURE,  DISPUTES.  The Borrower's  obligation to
pay all  amounts  due under the  Loans  and the other  Obligations  shall not be
affected  by (a) any setoff,  counterclaim,  recoupment,  deduction,  abatement,
suspension, diminution, reduction, defense or other right which the Borrower may
have against the Vendor for any reason  whatsoever  arising under or pursuant to
the Master Purchase  Agreement or otherwise relating to the purchase of goods or
services from the Vendor, (b) any defect in the condition,  design, operation or
fitness for use of, or any damage to or loss or destruction of, any equipment or
material  or service  provided by the Vendor,  (c) any  insolvency,  bankruptcy,
reorganization  or similar  proceedings  by or against the Borrower or affecting
any of its  Properties,  (d) any  action of any  Governmental  Authority  or any
damage to or destruction of or any taking of the Borrower's Property or any part
thereof, (e) any change, waiver, extension,  indulgence or failure to perform or
comply with, or other action or omission  herein or in the other Loan  Documents
(except  for  express  written  modifications  to this  Agreement  or other Loan
Documents as and in the manner  permitted under this Agreement or the other Loan
Documents), (f) any dissolution of the Borrower or any other Loan Party, (g) any
inability or illegality  with respect to the use or ownership of the  Borrower's
Property,  (h) any  failure  to  obtain,  or  expiration,  suspension  or  other
termination of, or interruption to, any required  licenses,  permits,  consents,
authorizations,  approvals or other legal  requirements,  (i) the  invalidity or
unenforceability  of any of the Loan Documents or any other infirmity therein or
any lack of power or authority of the Administrative  Agent or any Lender or the
Borrower,  or (j) any other  event or  circumstance  whatsoever,  whether or not

                                       46
<PAGE>

similar  to any of the  foregoing  and  whether or not the  Borrower  shall have
notice or  knowledge  of any of the  foregoing,  it being the  intention  of the
Administrative  Agent and the Lenders and the Borrower that the  Obligations  of
the  Borrower  shall be absolute  and  unconditional  and shall be separate  and
independent  covenants and agreements and shall continue  unaffected  unless the
requirements to pay or perform the same shall have been  terminated  pursuant to
an express provision thereof or of any of the other Loan Documents.

                                    ARTICLE 4

                         YIELD PROTECTION AND ILLEGALITY

         Section 4.1       ADDITIONAL COSTS.

         (a) The  Borrower  shall pay directly to each Lender from time to time,
promptly  upon the  request of such  Lender,  the costs  incurred by such Lender
which such Lender  determines are  attributable  to its making or maintaining of
any  Eurodollar  Loans  or its  obligation  to make  any of such  Loans,  or any
reduction in any amount  receivable  by such Lender  hereunder in respect of any
such Loans or  obligations  (such  increases in costs and  reductions in amounts
receivable  being  herein  called  "ADDITIONAL   COSTS"),   resulting  from  any
Regulatory Change which:

                  (i) changes  the basis of  taxation of any amounts  payable to
         such Lender under this Agreement or its Notes in respect of any of such
         Loans (other than Excluded Taxes);

                  (ii) imposes or modifies any reserve, special deposit, minimum
         capital,   capital  ratio  or  similar  requirement   relating  to  any
         extensions  of credit or other assets of, or any deposits with or other
         liabilities or commitments of, such Lender (including any of such Loans
         or any deposits  referred to in the definition of "Eurodollar  Rate" in
         SECTION 1.1 hereof, but excluding the Reserve Requirement to the extent
         it is included in the calculation of the Adjusted Eurodollar Rate); or

                  (iii) imposes any other condition  affecting this Agreement or
         the Notes or any  extensions of credit or  liabilities  or  commitments
         contemplated hereunder or thereunder.

Each Lender will notify (and provide reasonable supporting documentation to) the
Borrower (with a copy to the Administrative  Agent) of any event occurring after
the Closing Date which will entitle such Lender to compensation pursuant to this
SECTION 4.1(A) as promptly as practicable after it obtains knowledge thereof and
determines to request such  compensation,  and (if so requested by the Borrower)
will designate a different Applicable Lending Office for the Eurodollar Loans of
such  Lender if such  designation  will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole opinion of such Lender,  violate
any law,  rule or regulation  or be in any way  disadvantageous  to such Lender,
PROVIDED that such Lender shall have no obligation to so designate an Applicable
Lending  Office located in the U.S. Each Lender will furnish the Borrower with a
certificate  setting  forth  the basis and the  amount of each  request  of such
Lender  for  compensation  under this  SECTION  4.1(A).  If any Lender  requests
compensation  from the Borrower under this SECTION 4.1(A),  the Borrower may, by
notice to such Lender  (with a copy to the  Administrative  Agent),  suspend the
obligation of such Lender to make or Continue making, or Convert Base Rate Loans
into,  Eurodollar Loans until the Regulatory  Change giving rise to such request
ceases to be in effect (in which case the provisions of SECTION 4.4 hereof shall
be applicable).

                                       47
<PAGE>

         (b) Without  limiting the effect of the  foregoing  provisions  of this
SECTION 4.1, in the event that, by reason of any Regulatory  Change,  any Lender
either (i) incurs  Additional  Costs based on or measured by the excess  above a
specified level of the amount of a category of deposits or other  liabilities of
such Lender which  includes  deposits by reference to which the interest rate on
Eurodollar  Loans is determined  as provided in this  Agreement or a category of
extensions  of credit or other assets of such Lender which  includes  Eurodollar
Loans or (ii) becomes  subject to  restrictions on the amount of such a category
of  liabilities  or assets which it may hold,  then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such  Lender to make or  Continue  making,  or Convert  Base Rate Loans into,
Eurodollar  Loans  hereunder  shall be suspended  until such  Regulatory  Change
ceases to be in effect (in which case the provisions of SECTION 4.4 hereof shall
be applicable).

         (c)  Determinations  and allocations by any Lender for purposes of this
SECTION 4.1 of the effect of any  Regulatory  Change on its costs of maintaining
its  obligation  to make Loans or of making or  maintaining  Loans or on amounts
receivable by it in respect of Loans and of the additional  amounts  required to
compensate such Lender in respect of any Additional  Costs,  shall be conclusive
in the  absence  of  manifest  error,  provided  that  such  determinations  and
allocations are made on a reasonable basis.

         Section  4.2  LIMITATION  ON TYPES OF  LOANS.  Anything  herein  to the
contrary  notwithstanding,  if with  respect  to any  Eurodollar  Loans  for any
Interest Period therefor:

         (a) the Administrative  Agent determines (which  determination shall be
conclusive  absent  manifest  error) that  quotations of interest  rates for the
relevant  deposits referred to in the definition of "Eurodollar Rate" in SECTION
1.1 hereof are not being  provided in the  relative  amounts or for the relative
maturities  for purposes of  determining  the rate of interest for such Loans as
provided in this Agreement; or

         (b) the  Required  Lenders  determine  (which  determination  shall  be
conclusive absent manifest error) and notify the  Administrative  Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted  Eurodollar Rate" in SECTION 1.1 hereof on the basis of which the rate
of interest for such Loans for such  Interest  Period is to be determined do not
accurately  reflect the cost to the Lenders of making or maintaining  such Loans
for such Interest Period;

then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such  condition  remains in  effect,  the  Lenders  shall be under no
obligation  to  make  Eurodollar  Loans  or to  Convert  Base  Rate  Loans  into
Eurodollar  Loans and the Borrower shall, on the last day(s) of the then current
Interest  Period(s) for the  outstanding  Eurodollar  Loans,  either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.

                                       48
<PAGE>
         Section 4.3  ILLEGALITY.  Notwithstanding  any other  provision of this
Agreement,  in the  event  that  it  becomes  unlawful  for  any  Lender  or its
Applicable  Lending Office to (a) honor its obligation to make Eurodollar  Loans
or (b) maintain  Eurodollar  Loans,  then such Lender shall promptly  notify the
Borrower  (with a copy to the  Administrative  Agent)  thereof and such Lender's
obligation to make or maintain  Eurodollar  Loans and to Convert Base Rate Loans
into  Eurodollar  Loans  hereunder  shall be  suspended  until such time as such
Lender  may  again  make  and  maintain  Eurodollar  Loans  (in  which  case the
provisions of SECTION 4.4 hereof shall be applicable).

         Section 4.4  TREATMENT  OF AFFECTED  LOANS.  If the  obligation  of any
Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans
is  suspended  pursuant  to SECTION 4.1 or SECTION  4.3  hereof,  such  Lender's
Eurodollar  Loans shall be  automatically  Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by SECTION 4.1(B) or SECTION 4.3 hereof, on
such earlier date as such Lender may specify to the Borrower  with a copy to the
Administrative Agent) and, unless and until such Lender gives notice as provided
below that the  circumstances  specified  in SECTION  4.1 or SECTION  4.3 hereof
which gave rise to such Conversion no longer exist:

         (a) to the  extent  that such  Lender's  Eurodollar  Loans have been so
Converted,  all payments and  prepayments of principal  which would otherwise be
applied to such Lender's  Eurodollar  Loans shall be applied instead to its Base
Rate Loans; and

         (b) all Loans which would otherwise be made or Continued by such Lender
as Eurodollar  Loans shall be made as or Converted  into Base Rate Loans and all
Loans of such Lender which would  otherwise be Converted into  Eurodollar  Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.

If such Lender gives notice to the Borrower that the circumstances  specified in
SECTION  4.1 or SECTION  4.3 hereof  which gave rise to the  Conversion  of such
Lender's  Eurodollar  Loans  pursuant to this SECTION 4.4 no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when Eurodollar Loans are outstanding,  such Lender's Base Rate Loans shall
be automatically  Converted, on the first day(s) of the next succeeding Interest
Period(s) for such  outstanding  Eurodollar  Loans,  to the extent  necessary so
that,  after  giving  effect  thereto,  all Loans  held by the  Lenders  holding
Eurodollar Loans and by such Lender are held pro rata (as to principal  amounts,
Types and Interest Periods) in accordance with their respective Commitments.

         Section 4.5 COMPENSATION.  The Borrower shall pay to the Administrative
Agent for the account of each Lender,  promptly  upon the request of such Lender
through the Administrative  Agent, such amount or amounts as shall be sufficient
(in the reasonable  opinion of such Lender) to compensate it for any loss,  cost
or expense incurred by it as a result of:

                                       49
<PAGE>

         (a) Any payment,  prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant  to  SECTION  11.2) on a date  other  than the last day of an  Interest
Period for such Loan; or

         (b) Any  failure by the  Borrower  for any reason  (including,  without
limitation, the failure of any conditions precedent specified in ARTICLE 6 to be
satisfied) to borrow,  Convert or prepay a Eurodollar  Loan on the date for such
Borrowing,  Conversion  or  prepayment  specified  in  the  relevant  notice  of
Borrowing, prepayment or Conversion under this Agreement.

         Section 4.6 CAPITAL  ADEQUACY.  If, after the Closing Date,  any Lender
shall have determined that the adoption or implementation of any applicable law,
rule or regulation  regarding capital adequacy  (including,  without limitation,
any law,  rule or  regulation  implementing  the Basle  Accord),  or any  change
therein,  or any change in the  interpretation or administration  thereof by any
central bank or other Governmental  Authority charged with the interpretation or
administration  thereof,  or  compliance by such Lender (or its parent) with any
guideline,  request or  directive  regarding  capital  adequacy  (whether or not
having the force of law) of any  central  bank or other  Governmental  Authority
(including,  without limitation, any guideline or other requirement implementing
the Basle  Accord),  has or would have the effect of reducing the rate of return
on such Lender's (or its parent's)  capital as a consequence of its  obligations
hereunder or the  transactions  contemplated  hereby to a level below that which
such  Lender  (or  its  parent)  could  have  achieved  but for  such  adoption,
implementation,  change or compliance  (taking into  consideration such Lender's
policies  with respect to capital  adequacy) by an amount  reasonably  deemed by
such Lender to be material,  then from time to time,  within ten  Business  Days
after  demand by such  Lender  (with a copy to the  Administrative  Agent),  the
Borrower  shall pay to such  Lender  such  additional  amount or amounts as will
compensate such Lender (or its parent) for such reduction. A certificate of such
Lender  claiming  compensation  under this  SECTION  4.6 and  setting  forth the
additional  amount or amounts  to be paid to it  hereunder  shall be  conclusive
absent  manifest  error,  PROVIDED that the  determination  thereof is made on a
reasonable basis. In determining such amount or amounts, such Lender may use any
reasonable averaging and attribution methods.

                                    ARTICLE 5

                                    SECURITY

         Section 5.1  COLLATERAL.  To secure the full and  complete  payment and
performance  of  the  Obligations,  the  Borrower  will,  and  will  cause  each
Subsidiary of the Borrower to, grant to the Administrative Agent for the benefit
of the Administrative Agent and the Lenders a perfected,  first priority Lien on
all of the right, title and interest of the Borrower and the Subsidiaries of the
Borrower in and to all of their  Properties (as more  specifically  described in
the Security  Documents) and on all of the right, title and interest of Holdings
in and to all Capital  Stock of the  Borrower and  intercompany  Debt owed to or
held  by  Holdings  and  the  Rights-of-Way   Contribution  Agreement  (as  more
specifically described in the Security Documents) whether now owned or hereafter
acquired, pursuant to the Security Documents, including, without limitation, the
following:

                                       50
<PAGE>

         (a) all Capital Stock of the Borrower and each of the  Subsidiaries  of
the Borrower;

         (b)  all of  the  Property  (as  such  Property  is  more  specifically
described in the Security Documents), including tangible and intangible Property
and real and personal Property,  of the Borrower and each of the Subsidiaries of
the  Borrower,   including,  without  limitation,  the  following:   Investments
(including  certificates of deposit);  accounts;  inventory (including,  without
limitation,  work in  process);  equipment;  deposit  accounts  (including  cash
collateral  accounts);  brokerage accounts;  investment  property;  instruments;
contract  rights  (including,   without   limitation,   the  Asset  Contribution
Agreement,  the Rights-of-Way  Contribution Agreement, all contracts relating to
Contract  Rights-of-Way  and  other  rights-of-way,  easements,  leases  and all
related  contracts  and all other  contracts  relating  to the  construction  or
operation of the Network,  and all consents and waivers necessary or appropriate
from all parties to such contracts,  including, without limitation, all consents
and waivers  necessary or appropriate to permit the collateral  assignment of or
security  interest in such  contracts);  customer  deposits in  connection  with
purchase orders;  general  intangibles;  real Property and interests therein (if
and to the extent required  pursuant to SECTION 5.4);  chattel paper;  Licenses;
Intellectual Property; and intercompany Debt;

         (c) all Debt (i) owed by Holdings to the Borrower or any  Subsidiary of
the  Borrower,  (ii) owed by the Borrower to Holdings or any  Subsidiary  of the
Borrower,  or (iii) owed by any  Subsidiary  of the  Borrower to Holdings or the
Borrower or another Subsidiary of the Borrower; and

         (d)  all  cash  and  non-cash  proceeds  and  products  of  any  of the
foregoing.

Notwithstanding  anything to the contrary contained in this ARTICLE 5 or SECTION
8.10,  unless  and until an Event of Default  has  occurred  and is  continuing,
neither the Borrower nor any of its Subsidiaries shall be required, by virtue of
this  ARTICLE 5 or SECTION  8.10,  to  execute  any  mortgage,  deed of trust or
similar  agreement or UCC financing  statement  granting or perfecting a Lien on
any Real Estate Assets or fixtures if and to the extent that such mortgage, deed
of trust or similar agreement or UCC financing statement is required to be filed
in any county, parish or equivalent subdivision of any State; PROVIDED, HOWEVER,
that the Borrower and its Subsidiaries  shall be required to execute and deliver
(A) UCC financing  statements (1) constituting  transmitting  utility filings or
(2)  constituting  fixture  filings  in all  counties,  parishes  or  equivalent
subdivisions of any State whereat any Significant Points of Presence are located
whether or not an Event of Default has then occurred and is  continuing  and (B)
all such mortgages,  deeds of trust or similar  agreements and all UCC financing
statements  referred  to  in  this  sentence  above  upon  the  request  of  the
Administrative  Agent or the  Required  Lenders and at any time and from time to
time after the occurrence and during the continuance of an Event of Default.

         Section  5.2   GUARANTIES.   The  Borrower   will  cause  each  of  the
Subsidiaries of the Borrower (whether owned as of the Closing Date or thereafter
organized  or  created)  to  Guarantee  the  payment  and   performance  of  the
Obligations pursuant to the Guaranties.

         Section   5.3   NEW    SUBSIDIARIES;    ADDITIONAL    CAPITAL    STOCK.
Contemporaneously  with the creation or  acquisition  of any  Subsidiary  of the
Borrower after the Closing Date, the Borrower will:

                                       51
<PAGE>

         (a) grant or cause to be granted to the  Administrative  Agent, for the
benefit of itself and the Lenders, a perfected, first priority security interest
in all Capital Stock of such Subsidiary owned by Holdings or the Borrower or any
Subsidiary of the Borrower (to the extent such Capital Stock was not  previously
pledged to the Administrative Agent);

         (b) cause each such Subsidiary to Guarantee the payment and performance
of the  Obligations  by executing and delivering to the  Administrative  Agent a
Guaranty or a joinder therein acceptable to the Administrative Agent; and

         (c)  cause  each  such   Subsidiary  to  execute  and  deliver  to  the
Administrative Agent a Security Agreement and such other Security Documents,  in
form and substance acceptable to the Administrative Agent, as the Administrative
Agent may request to grant the  Administrative  Agent, for the benefit of itself
and the  Lenders,  a  perfected,  first  priority  Lien on all  Property of such
Subsidiary.

Contemporaneously  with the  issuance  of any  additional  Capital  Stock of the
Borrower or any of the  Subsidiaries of the Borrower after the Closing Date, the
Borrower  will,  and will cause  Holdings  and each of the  Subsidiaries  of the
Borrower to (as applicable),  grant or cause to be granted to the Administrative
Agent, for the benefit of the Administrative Agent and the Lenders, a perfected,
first  priority  security  interest  in all  Capital  Stock or  other  ownership
interests in the Borrower or such  Subsidiary of the Borrower owned by Holdings,
the Borrower or any Subsidiary of the Borrower (to the extent such Capital Stock
or other  ownership  interests are already not so pledged to the  Administrative
Agent).  The Borrower  covenants that none of the Capital Stock to be pledged in
accordance  with this SECTION 5.3 will be subject to any  transfer  restriction,
shareholders'  agreement or other restriction except for such restrictions under
applicable  securities laws, such  restrictions  existing as of the Closing Date
which have been disclosed to the Administrative  Agent in the Security Documents
and  such  restrictions,  if  any,  as  may  be  reasonably  acceptable  to  the
Administrative  Agent. In connection with and in addition to the foregoing,  the
Borrower  will,  and will cause  Holdings  and each of the  Subsidiaries  of the
Borrower  and other  appropriate  Persons (as  applicable)  to,  execute  and/or
deliver such further agreements,  documents and instruments (including,  without
limitation,  stock certificates,  stock powers and financing  statements) as the
Administrative  Agent may reasonably  request in order for it (or the Collateral
Agent, as applicable) to obtain and maintain the perfected, first priority Liens
to be granted in accordance with this SECTION 5.3.

                                       52
<PAGE>

         Section 5.4       MORTGAGED PROPERTIES; SUBORDINATIONS AND WAIVERS.

         (a) Without  limiting the  generality of the other terms and provisions
of this ARTICLE 5, the Borrower  will,  and the Borrower  will cause each of the
Subsidiaries  of the Borrower  to, on the Closing Date (with  respect to any fee
real  Property or leasehold  interest  therein  owned as of the Closing Date) or
contemporaneously  with the  acquisition  of any fee real  Property or leasehold
interest  therein (with  respect to any fee real Property or leasehold  interest
therein  acquired after the Closing Date),  execute,  acknowledge and deliver to
the  Administrative  Agent a Mortgage  or an  amendment  or  modification  to an
existing  Mortgage  covering all fee real Property and all  leasehold  interests
therein  owned  by any such  Loan  Party,  together  with  evidence  in form and
substance  reasonably  satisfactory to the Administrative  Agent and its counsel
that the  Mortgage  creates a valid,  first  priority  Lien on the fee estate or
leasehold estate (as applicable),  in favor of the Administrative  Agent for the
benefit of the  Administrative  Agent and the Lenders  securing  the payment and
performance of the Obligations  (including,  without limitation and if requested
by the  Administrative  Agent,  a  commitment  for a  mortgagee  policy of title
insurance insuring the Administrative Agent's first priority Lien status created
by such Mortgage or a title opinion in favor of the  Administrative  Agent,  and
together with current  appraisals  and surveys  certified to the  Administrative
Agent and the Lenders complying with all applicable regulatory  requirements (if
and to the extent required by applicable regulatory requirements)), all of which
shall be in form and substance  reasonably  satisfactory  to the  Administrative
Agent;  PROVIDED,  HOWEVER,  that, with respect to any particular  parcel of fee
real  Property,  the  Borrower  and its  Subsidiaries  shall not be  required to
execute a Mortgage or Mortgages in favor of the Administrative Agent unless such
fee real Property has a fair market value  (exclusive of equipment but inclusive
of buildings and other fixtures) of more than $[*]; PROVIDED,  FURTHER, HOWEVER,
that, with respect to any particular  leasehold  interest in real Property,  the
Borrower  and its  Subsidiaries  shall not be  required to execute a Mortgage or
Mortgages in favor of the  Administrative  Agent unless such leasehold  interest
has an aggregate  fair market value of more than $[*] (based upon the  intrinsic
value of such leasehold  interests in excess of the rental payable  thereunder).
In addition,  if requested by the Administrative  Agent, the Borrower shall, and
shall cause each of the Subsidiaries of the Borrower with a fee interest in such
Property  having a fair market value  (exclusive  of equipment  but inclusive of
buildings and other  fixtures) of more than $[*] to, provide the  Administrative
Agent  with a current  environmental  assessment  of such  Property  in form and
substance  reasonably  satisfactory to the  Administrative  Agent.  This SECTION
5.4(A) shall not apply to any Contract Rights-of-Way.

         (b)  With  respect  to each  lease  of real  Property  executed  by the
Borrower or any of its  Subsidiaries,  the Borrower will, and will cause each of
the  Subsidiaries  of the  Borrower  to,  obtain  waivers or  subordinations  of
landlord's  and similar  Liens from each lessor and other  agreements  from such
lessor and its lenders  necessary or  appropriate  to ensure the  Administrative
Agent's  perfected,  first priority Lien on the Collateral or Property  affected
thereby,  the  Administrative  Agent's access to such Collateral or Property and
the right of the Administrative  Agent, the Lenders or their designee to succeed
to the rights of such Loan Party  that is the  lessee  under the lease,  in each
case in form and substance reasonably  satisfactory to the Administrative Agent;
PROVIDED,  HOWEVER, that the Borrower and its Subsidiaries will only be required
to use commercially reasonable efforts to obtain such waivers, subordinations or
other  agreements from landlords or owners and their lenders (without the giving
of  monetary   consideration  to  the  Persons   providing  such  agreements  as
consideration for such  agreements).  This SECTION 5.4(B) shall not apply to any
Contract Rights-of-Way.

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         (c) The Borrower  will, and will cause its  Subsidiaries  to, cause any
carrier, warehouseman, mechanic, materialman, repairman, landlord, owner, bailee
or other similar Person in possession of Fiber or Conduit or otherwise  relating
to any  Contract  Rights-of  Way  included  in the  Network to execute a written
agreement,  in form and  substance  satisfactory  to the  Administrative  Agent,
waiving  or  subordinating  any  Liens on such  Fiber  or  Conduit  or  Contract
Rights-of-Way,  respectively;  PROVIDED,  HOWEVER,  that  the  Borrower  and its
Subsidiaries  will only be required to use  commercially  reasonable  efforts to
obtain such a written  agreement  from  landlords or owners and their lenders or
parties to Contract  Rights-of-Way (without the giving of monetary consideration
to the Persons providing such agreements as consideration for such agreements).

         Section 5.5 FURTHER  ASSURANCES.  In  addition  to the  foregoing,  the
Borrower  will,  and  will  cause  each of the  other  Loan  Parties  and  other
appropriate  Persons (as  applicable)  to,  execute  and/or deliver such further
agreements,  documents and instruments (including, without limitation,  Security
Documents and financing  statements) as the Administrative  Agent may reasonably
request  from  time  to time in  order  for it to  obtain  and  maintain  valid,
perfected,  first priority Liens (subject only to Permitted  Liens which are, as
provided in the  definition  of the term  "Permitted  Liens",  permitted to have
priority  equal to or greater  than the Liens  securing the  Obligations)  to be
granted in accordance with this ARTICLE 5.

         Section 5.6 SETOFF.  If an Event of Default  shall have occurred and be
continuing,  each Lender is hereby authorized at any time and from time to time,
without  notice to the  Borrower or any other Loan Party (any such notice  being
hereby expressly waived by the Borrower and the other Loan Parties),  to set off
and apply any and all deposits (general or special, time or demand,  provisional
or final excluding any trust  accounts) at any time held and other  indebtedness
at any time  owing by such  Lender to or for the  credit or the  account  of the
Borrower or any other Loan Party against any and all of the  Obligations  now or
hereafter  existing under this  Agreement,  such Lender's Note or any other Loan
Document, irrespective of whether or not the Administrative Agent or such Lender
shall have made any demand under this Agreement,  such Lender's Note or any such
other Loan Document and although such Obligations may be unmatured.  Each Lender
agrees promptly to notify the Borrower (with a copy to the Administrative Agent)
after any such setoff and  application,  PROVIDED  that the failure to give such
notice shall not affect the validity of such setoff and application.  The rights
and  remedies of each  Lender  hereunder  are in  addition  to other  rights and
remedies  (including,  without  limitation,  other rights of setoff)  which such
Lender may have.

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         Section 5.7 THE  COLLATERAL  AGENT;  THE COLLATERAL  AGENCY  AGREEMENT;
REQUIRED PRIORITY OF LIENS.  Notwithstanding  anything to the contrary contained
in this ARTICLE 5, (a) so long as any Eligible Secured Debt remains outstanding,
all Liens securing the  Obligations  shall be granted in favor of the Collateral
Agent  for the  benefit  of the  Administrative  Agent and the  Lenders  and the
holders  of the  Eligible  Secured  Debt and shall be  subject  to the terms and
provisions of the Collateral  Agency  Agreement and (b) all references to "first
priority"  contained in this ARTICLE 5 shall mean first  priority but subject to
any  Permitted  Liens  which are,  as  provided  in the  definition  of the term
"Permitted Liens", expressly permitted to have priority equal to or greater than
the  Liens  securing  the  Obligations.  No  breach  of  ARTICLE  5 or any other
provision of this  Agreement  shall be deemed to have  occurred by virtue of the
Liens in  favor of the  Collateral  Agent,  or the  rights  or  remedies  of the
Collateral Agent, governed by the Collateral Agency Agreement.

         Section 5.8 RELEASE. The Administrative Agent (or the Collateral Agent,
if the Collateral  Agency  Agreement is in effect) shall,  at the expense of the
Borrower and in a reasonably  prompt fashion after  receiving a written  request
from the  Borrower to do so,  release its Lien on any portion of the  Collateral
(or rights therein and thereto) which is permitted to be sold in accordance with
SECTION  9.8  and  which  is  then  being  sold;  PROVIDED,  HOWEVER,  that  the
Administrative  Agent  (or  the  Collateral  Agent,  if  the  Collateral  Agency
Agreement is in effect)  shall not be obligated to provide such a release  until
concurrently  with the consummation of such sale and unless the Borrower and the
other Loan Parties have complied with, or are then complying with, all terms and
provisions of this Agreement in connection  with such sale  (including,  without
limitation and if applicable,  the mandatory prepayment  requirements of SECTION
2.7(A)). Each release provided pursuant to this SECTION 5.8 shall be in form and
substance reasonably satisfactory to the Administrative Agent.

         Section 5.9       NON-DISTURBANCE AND ATTORNMENT.  [*]

                                    ARTICLE 6

                              CONDITIONS PRECEDENT

         Section 6.1 INITIAL EXTENSION OF CREDIT.  The obligation of each Lender
to make its initial  Loan under this  Agreement is subject to the receipt by the
Administrative  Agent  (and the  Collateral  Agent in the case of the  documents
referred to in clause (h) below),  on or before the Closing  Date, of all of the
following in form and substance  satisfactory to the  Administrative  Agent (and
the  Collateral  Agent in the case of the  documents  referred  to in CLAUSE (H)
below) and the Lenders  and,  in the case of actions to be taken,  the taking of
the following required actions and evidence that such actions have been taken to
the satisfaction of the Administrative Agent:

         (a)  RESOLUTIONS.  Resolutions  of the Board of Directors or equivalent
governing  body (as  applicable)  certified  by the  Secretary  or an  Assistant
Secretary  or  equivalent  officer or  representative  of each Loan Party  which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;

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<PAGE>

         (b) INCUMBENCY  CERTIFICATE.  A certificate of incumbency  certified by
the  Secretary or an Assistant  Secretary (or other  analogous  officer) of each
Loan Party certifying as to the name of each officer or other  representative of
such Loan Party (i) who is authorized to sign the Loan  Documents to which it is
or is to be a party (including any certificates contemplated therein),  together
with specimen signatures of each such officer or other representative,  and (ii)
who will,  until replaced by other officers or  representatives  duly authorized
for  that  purpose,  act as its  representative  for  the  purposes  of  signing
documents and giving  notices and other  communications  in connection  with the
Loan Documents and the transactions contemplated thereby;

         (c) CERTIFICATES OR ARTICLES OF INCORPORATION,  ETC. The certificate or
articles of  incorporation or other analogous  constitutional  documents of each
Loan Party certified by the Secretary of State or other applicable  Governmental
Authority of the state of incorporation or organization of such entity and dated
as of a Current Date;

         (d) BYLAWS, ETC. The bylaws or other analogous constitutional documents
of each Loan Party  certified by its  Secretary or an  Assistant  Secretary  (or
other analogous officer or representative);

         (e) GOVERNMENTAL CERTIFICATES. Certificates of appropriate officials as
to the  existence  and  good  standing  of  each  of  the  Loan  Parties  in its
jurisdiction of incorporation or organization and in all  jurisdictions in which
such Loan Party is  qualified  or is  required  to qualify to do  business  as a
foreign entity, each such certificate to be dated as of a Current Date;

         (f) NOTES.  The Notes duly  completed and executed by the Borrower (one
payable  to the order of each  Lender  with  respect to each of its Term Loans A
Commitment and Term Loans B Commitment, as applicable);

         (g)   ADMINISTRATIVE   AGENT   DOCUMENTS.   Counterparts   of  (i)  the
Subordination Agreement signed on behalf of all Loan Parties, (ii) the Indemnity
and Contribution  Agreement signed on behalf of the Borrower and each Subsidiary
of the Borrower and (iii) the Parent Agreement signed on behalf of the Parent;

         (h)      ADMINISTRATIVE AGENT AND COLLATERAL AGENT DOCUMENTS.

                  (i)  counterparts  of (A) the  Guaranty  Agreements  signed on
         behalf  of  each  Subsidiary  of the  Borrower  and  (B)  the  Security
         Agreements  signed on behalf of the Borrower and each Subsidiary of the
         Borrower;

                  (ii) a counterpart of the Collateral  Agency  Agreement signed
         on behalf of the Borrower;

                  (iii)  as  and to  the  extent  required  by  this  Agreement,
         evidence  satisfactory to the  Administrative  Agent and the Collateral
         Agent that all  agreements,  documents and  instruments,  including UCC
         financing  statements,  required by law or reasonably  requested by the
         Administrative Agent or the Collateral Agent to be filed, registered or
         recorded  to create or perfect the Liens  intended to be created  under
         the Security  Agreement  have been so filed,  registered or recorded or
         delivered  to  the  Collateral   Agent  for  filing,   registration  or
         recording;

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<PAGE>

                  (iv) evidence satisfactory to the Administrative Agent and the
         Collateral  Agent that all filing fees and taxes  payable in connection
         with the filings,  registrations  and  recordations  referred to in the
         foregoing CLAUSE (III) have been paid or provided for;

                  (v)  counterparts of the Holdings Pledge  Agreement  signed on
         behalf of Holdings;

                  (vi) certificates  representing all the outstanding  shares of
         Capital Stock of, or other  ownership  interests in (if such  ownership
         interest shall be  certificated),  the Borrower and each  Subsidiary of
         the Borrower owned by or on behalf of any Loan Party;

                  (vii) promissory  notes evidencing all intercompany  Debt owed
         to any Loan Party by the Borrower or any  Subsidiary  of the  Borrower,
         including,  without limitation, the promissory note made by PFE payable
         to the order of the Borrower,  which promissory note shall evidence the
         subordinated, intercompany Debt permitted in accordance with CLAUSE (H)
         of SECTION 9.1 relating to proceeds of the Loans loaned by the Borrower
         to PFE as contemplated by SECTION 2.10(B);

                  (viii)  stock or bond  powers  and  instruments  of  transfer,
         endorsed in blank,  with respect to such  certificates  and  promissory
         notes;

                  (ix) a completed Perfection Certificate dated the Closing Date
         and signed by a Responsible Officer of the Borrower,  together with all
         attachments contemplated thereby,  including the results of a search of
         the UCC (or  equivalent)  filings made with respect to the Borrower and
         each  Subsidiary of the Borrower in the  jurisdictions  contemplated by
         the Perfection  Certificate and copies of the financing  statements (or
         similar  documents)  disclosed by such search and  evidence  reasonably
         satisfactory to the Administrative  Agent and the Collateral Agent that
         the Liens indicated by such financing statements (or similar documents)
         are permitted by SECTION 9.2 or have been released;

                  (x)      [intentionally omitted];

                  (xi) with  respect  to each  existing  lease of real  Property
         where  Collateral  is  located  and if and to the  extent  required  by
         SECTION 5.4,  waivers or  subordinations  of landlord's Liens from each
         lessor and other agreements from such lessor and its lenders  necessary
         or  appropriate  to ensure  the  Collateral  Agent's  perfected,  first
         priority Lien on the Collateral or Property  affected  thereby (subject
         to the  terms  of the  Collateral  Agency  Agreement),  the  Collateral
         Agent's  access to such  Collateral  or  Property  and the right of the
         Collateral  Agent,  the  Lenders  or their  designee  to succeed to the
         rights of the Loan Party that is the  lessee  under the lease,  in each
         case in form and substance  satisfactory to the  Administrative  Agent;
         and

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<PAGE>

                  (xii) if and to the extent required by SECTION 5.4,  Mortgages
         executed  by the  Borrower  and/or the  Subsidiaries  of  Borrower  (as
         applicable)  pertaining to the real Property Collateral owned or leased
         by such Loan Party (one Mortgage executed by each such Loan Party) and,
         with respect to each tract of such real Property, a mortgagee policy of
         title  insurance  insuring the  Collateral  Agent's first priority Lien
         status  (subject to the terms of the  Collateral  Agency  Agreement) of
         each such Mortgage,  a current survey  certified to the  Administrative
         Agent and the  Lenders,  an  appraisal  complying  with all  applicable
         regulatory  requirements  (if and to the extent  required by applicable
         regulatory  requirements) and an environmental survey acceptable to the
         Administrative Agent;

         (i) INSURANCE  CERTIFICATES AND POLICIES.  Certificates  evidencing all
insurance  policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;

         (j)  LIEN  SEARCHES.  Lien  searches  in the  name of each of the  Loan
Parties (and in all names under which any of them has done  business  within the
last five years) in each jurisdiction  where such Loan Party maintains an office
or has Property,  showing no financing  statements or other Lien  instruments of
record  affecting  the  Collateral  except for  Permitted  Liens and Liens being
released prior to or concurrently with the making of the initial Loan;

         (k) MASTER PURCHASE AGREEMENT. The Master Purchase Agreement shall have
been executed and delivered by all parties thereto, and the Administrative Agent
shall have received a copy of the Master  Purchase  Agreement as so executed and
delivered,  certified by a  Responsible  Officer of the Borrower as being a true
and correct copy of such document;

         (l) PAYMENT OF FEES AND EXPENSES. The Borrower shall have paid all fees
due on or before the  Closing  Date as  specified  in this  Agreement  or in the
Administrative Agent's Letter and all fees, costs and expenses of or incurred by
the  Administrative  Agent and its counsel to the extent billed on or before the
Closing Date and payable pursuant to this Agreement;

         (m) COMPLIANCE WITH LAWS. The Borrower and the other Loan Parties shall
have  complied  in all  material  respects  with all  Governmental  Requirements
necessary to execute and deliver this Agreement and the other Loan Documents and
to perform and consummate the  transactions  contemplated  by this Agreement and
the other Loan Documents;

         (n) NO  PROHIBITIONS.  No Governmental  Requirement  shall prohibit the
execution  or  delivery  of this  Agreement  or any other Loan  Document  or the
performance or consummation of the  transactions  contemplated by this Agreement
or any other Loan Document, and no order, judgment or decree of any Governmental
Authority or arbitrator  shall,  and,  except for the Magten  Litigation  (as to
which there shall not have been any  adverse  determination  or ruling as of the
Closing  Date),  no  litigation or other  proceeding  shall be pending or to the
Borrower's  knowledge,  threatened which would,  enjoin,  prohibit,  restrain or
otherwise  adversely affect in any material respect the execution or delivery of
this Agreement or any other Loan Document or the  performance or consummation of
the  transactions  contemplated  by this Agreement or any other Loan Document or
otherwise have a Material Adverse Effect;

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<PAGE>

         (o) FINANCIAL  STATEMENTS.  Copies of each of the financial  statements
referred to in SECTION 7.2, in each case as certified by a  Responsible  Officer
of the applicable Loan Party as having been prepared in accordance with GAAP and
as fairly presenting the financial  condition of the applicable Loan Party as of
the  respective  dates  indicated  therein  and  results of  operations  for the
respective periods indicated therein;

         (p) OPINIONS OF COUNSEL.  Favorable  legal  opinions of counsel for the
Loan Parties,  in form and substance and issued by law firms satisfactory to the
Administrative  Agent,  with respect to the Loan Parties and with respect to the
Loan  Documents  and a  favorable  legal  opinion of  regulatory  counsel to the
Borrower  and  its  Subsidiaries  in  form  and  substance  satisfactory  to the
Administrative Agent;

         (q) LEGAL  MATTERS AND LOAN  DOCUMENTS.  All matters of a legal  nature
relating to the Borrower and the other Loan Parties and this  Agreement  and the
other Loan  Documents  shall be reasonably  satisfactory  to the  Administrative
Agent and its counsel, and the Administrative Agent shall have received all such
other  agreements,  documents  and  instruments,  each in form and substance and
executed  and  delivered by all parties,  as the  Administrative  Agent may have
reasonably requested to receive;

         (r) BUSINESS  PLAN. A copy of the Business  Plan in form and  substance
satisfactory to the Administrative Agent;

         (s) MATERIAL CONTRACTS, ETC. A true and correct and fully executed copy
of each of the Eligible Secured Debt Documents (as executed and delivered by all
parties  thereto),  the Master  Rights-of-Way  Agreements and all other Material
Contracts  in  existence  as  of  the  Closing   Date,  in  form  and  substance
satisfactory to the Administrative Agent;

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<PAGE>

         (t) LICENSES AND CONTRACT  RIGHTS-OF-WAY.  Copies of all Licenses  from
Governmental   Authorities  and  Contract  Rights-of-Way   (including,   without
limitation,  leases relating  thereto) relating to the Network and affecting any
Loan Party in connection  with its businesses or any of the Properties  owned or
leased  by it  and  in  connection  with  its  businesses  to be  conducted  and
Properties  to be owned or leased as  contemplated  by the  Business  Plan,  and
evidence  satisfactory  to the  Administrative  Agent that the Borrower and each
other Loan Party is able to  construct  and operate  the  Network and  otherwise
conduct its businesses as currently conducted with the use of such Licenses from
Governmental  Authorities and Contract  Rights-of-Way  in full force and effect,
PROVIDED,  HOWEVER, that, given the incremental nature of the build-out plan for
the  Network  as  contemplated  by the  Business  Plan,  Licenses  and  Contract
Rights-of-Way  with respect to portions of the Network not yet built out are not
required to have been  obtained or to be in effect  pursuant to this CLAUSE (T);
and the  Administrative  Agent shall be satisfied that (i) the Borrower and each
other  Loan Party has the  appropriate  right to use each of such  Licenses  and
Contract Rights-of-Way pursuant to license agreements, rights-of-way agreements,
leases or other  agreements,  documents  or  instruments  in form and  substance
reasonably  satisfactory  to the  Administrative  Agent,  which  rights shall be
assignable  (other  than  rights  thereunder  which  are not,  by  their  terms,
assignable  except that the Contract  Rights-of-Way for the long-haul portion of
the Network shall be assignable) shall be assignable to the Administrative Agent
and by the  Administrative  Agent to its  transferees  upon the occurrence of an
Event of Default,  and (ii) the  Borrower and each other Loan Party has complied
with all initial and  on-going  conditions  of the  issuance and use of all such
Licenses and Contract  Rights-of-Way and all other terms and provisions  thereof
(except  with  respect to Contract  Rights-of-Way  which is not  material to the
business of the Borrower or any of its Subsidiaries);

         (u) WAIVERS AND  CONSENTS.  To the extent not referred to in CLAUSE (H)
preceding,  copies  of all  material  waivers  and  consents  necessary  for the
execution,  delivery  and  performance  by each of the Loan  Parties of the Loan
Documents to which it is a party, including, without limitation, any waivers and
consents in  connection  with the Master  Purchase  Agreement  and the  Eligible
Secured Debt Documents as the Administrative  Agent may require and the grant of
a  security  interest  in  each  Material  Contract  of  the  Borrower  and  its
Subsidiaries,  which  waivers and consents  shall be certified by a  Responsible
Officer of the  Borrower as true and correct  copies of such  consents as of the
Closing Date;

         (v) REGULATORY  APPROVALS.  Evidence satisfactory to the Administrative
Agent  that  all  filings,   consents  or  approvals  with  or  of  Governmental
Authorities  necessary or  appropriate to execute and deliver this Agreement and
the  other  Loan  Documents  and to  perform  and  consummate  the  transactions
contemplated by the Loan Documents have been made and obtained, as applicable;

         (w) NO MATERIAL ADVERSE CHANGE. As of the Closing Date, (i) no material
adverse  change  shall have  occurred  with respect to the  businesses,  assets,
financial  condition,   results  of  operations,   operations,   capitalization,
indebtedness, liabilities, obligations, profitability or prospects or Properties
or of the general  affairs or management of the Borrower  individually or of the
Borrower  and its  Subsidiaries  taken as a whole,  in each case since March 31,
2000,  and (ii) the  Administrative  Agent shall be satisfied that the financial
performance  of the Borrower and its  Subsidiaries  prior to the Closing Date is
not  materially  different  from the financial  projections  for such  Person(s)
through the Closing Date that were  previously  submitted to the  Administrative
Agent;

         (x)  ACCOUNTANT'S  LETTER.  A letter  from  Holdings  and the  Borrower
authorizing the independent  public  accountants of Holdings and the Borrower to
communicate  with  the  Administrative   Agent  and  the  Lenders  (so  long  as
representatives  of  the  Borrower  have  an  opportunity  to  be  present)  and
requesting  that such  accountants  acknowledge  reliance by the  Administrative
Agent and the Lenders on past, present and future financial statements;

         (y) SOLVENCY.  A certificate  from each of the Loan Parties  certifying
that each of the Loan Parties is Solvent;

         (z) HOLDINGS EQUITY  CONTRIBUTION.  At least $60,000,000 in cash and at
least  $70,000,000 in aggregate fair market value of  rights-of-way  and related
assets constituting a part of the Real Estate Assets shall have been contributed
as equity to the  capital of the  Borrower  by  Holdings  pursuant  to the Asset
Contribution Agreement, and, in addition to the foregoing,  rights to acquire at
least 4,000  miles of  Contract  Rights-of-Way  shall have been  contributed  as
equity to the capital of the Borrower by Holdings  pursuant to the Rights-of-Way
Contribution Agreement;

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         (aa) COLLATERAL AGENCY AGREEMENT. The Collateral Agency Agreement shall
have been executed and delivered by all parties  thereto and the  Administrative
Agent shall be satisfied that the Collateral  Agency Agreement creates valid and
binding obligations of such parties which are enforceable in accordance with the
terms  thereof  (subject  to  bankruptcy,  insolvency  or other  laws of general
application  relating  to the  enforcement  of  creditors'  rights  and  general
principles of equity);

         (bb) NO-DEFAULT  CERTIFICATE.  A certificate  executed by a Responsible
Officer of the  Borrower  evidencing  that,  as of the  Closing  Date,  all Loan
Parties are in compliance with all covenants contained in the Loan Documents;

         (cc)  REORGANIZATION.  The Reorganization  shall have been consummated,
the terms and  conditions  of the  Reorganization  and all related  transactions
shall be reasonably  satisfactory in all material respects to the Administrative
Agent and the Lenders,  copies of all material  agreements  and other  documents
pursuant to which the  Reorganization  and all related  transactions  shall have
been effected shall have been delivered to the Administrative Agent and shall be
reasonably satisfactory in all material respects to the Administrative Agent and
the Lenders;

         (dd) RIGHTS-OF-WAY  CONTRIBUTION AGREEMENT AND HOLDINGS AGREEMENT. Each
of the  Rights-of-Way  Contribution  Agreement and the Holdings  Agreement shall
have been  executed  by  Holdings,  the  Borrower  and PRE and,  pursuant to the
Rights-of-Way  Contribution  Agreement and in accordance therewith,  PRE and its
successors  and assigns shall have acquired the  unconditional  right to use all
Contract Rights-of-Way relating to the Network;

         (ee)  APPROVED  SERVICES  AGREEMENT.  A true  and  correct  copy of the
Approved  Services  Agreement  in effect as of the  Closing  Date and,  pursuant
thereto and in accordance  therewith,  the Borrower and its  Subsidiaries  shall
have  acquired the right to use  collocation,  interconnection  and other rights
held by PNI as are  appropriate  for the  Borrower to operate the Network in the
markets  served by PNI which are  contemplated  to be served by the  Borrower as
specified in the Business Plan;

         (ff) APPROVED TAX ALLOCATION AGREEMENT.  A true and correct copy of the
Approved Tax Allocation Agreement in effect as of the Closing Date;

         (gg)  PNI  SENIOR  NOTES  INDENTURE  AND  RELATED  REGISTRATION  RIGHTS
AGREEMENT.  A true and correct  copy of the PNI Senior Notes  Indenture  and all
other material agreements entered into in connection therewith;

         (hh) NOTICES TO PARTIES TO MASTER  RIGHTS-OF-WAY  AGREEMENTS.  Holdings
shall have  provided  to each of the other  parties to the Master  Rights-of-Way
Agreements written notice of the assignments by Holdings of certain rights under
the  Master  Rights-of-Way   Agreements  to  the  Borrower  and  the  subsequent
assignments by the Borrower of such rights to PRE,  together with  agreements by
the  Borrower  and  PRE  to be  bound  by  the  terms  of  each  of  the  Master
Rights-of-Way Agreements;

         (ii)  TELECOMMUNICATIONS  ASSETS.  The Board of  Directors  of Holdings
shall have adopted a resolution  determining  that all Nortel Networks Goods and
Services  that  may be  financed  by the  Borrower  pursuant  to this  Agreement
constitute "Telecommunications Assets" as such term is defined in the PNI Senior
Notes Indenture and a copy of such resolutions  shall have been delivered to the
trustee under the PNI Senior Notes Indenture; and

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<PAGE>

         (jj) LICENSE OF MARKS.  Agreements shall have been executed pursuant to
which PNI  grants to  Holdings,  and  Holdings  grants to the  Borrower  and its
Subsidiaries,  the royalty-free right to use the "Pathnet" and other trademarks,
service marks, logos and designs.

The Borrower  shall  deliver,  or cause to be delivered,  to the  Administrative
Agent  sufficient  counterparts of each agreement,  document or instrument to be
received  by the  Administrative  Agent  under  this  SECTION 6. 1 to permit the
Administrative  Agent to  distribute  a copy of the same to each of the Lenders.
After the request of the  Borrower,  the  Administrative  Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this SECTION 6.1.

         Section 6.2 ALL EXTENSIONS OF CREDIT.  The obligation of each Lender to
make any Loan  (including  the initial Loan) under this  Agreement is subject to
the  continued  satisfaction  of each of the  conditions  precedent set forth in
SECTION 6.1 and each of the following additional conditions precedent:

         (a) NO DEFAULT  OR  MATERIAL  ADVERSE  EFFECT.  No Default or  Material
Adverse Effect shall have occurred and be continuing,  or would result from such
Loan;

         (b)  REPRESENTATIONS  AND WARRANTIES.  All of the  representations  and
warranties  of the  Borrower  and  the  other  Loan  Parties  contained  in this
Agreement and in the other Loan Documents shall be true and correct on and as of
the date of such Loan with the same force and effect as if such  representations
and  warranties  had been made on and as of such date  except to the extent made
with reference to an earlier date;

         (c)  USE  OF  PROCEEDS.  The  Borrower  shall  have  certified  to  the
Administrative  Agent  that all  proceeds  of the Loans  then  being made by the
Lenders  are,  concurrently  with the  making of such  Loans,  being used by the
Borrower for the purposes specified in SECTION 2.10;

         (d) MASTER PURCHASE AGREEMENT.  The Master Purchase Agreement shall not
have been terminated by the Borrower or any other Loan Party and shall remain in
full force and effect;

         (e) FULL  DISCLOSURE.  Neither  the  Borrower  nor any other Loan Party
shall have  failed to  disclose  to the  Administrative  Agent or any Lender any
material  fact with  respect to the  Network or its  business  or its  financial
condition  (including  any  contingent  liabilities),  or shall  have  failed to
disclose any information,  the absence of which makes any information previously
disclosed to the Administrative Agent or any Lender materially misleading; and

         (f)  ADDITIONAL  DOCUMENTATION.  The  Administrative  Agent  shall have
received such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request.

         Section 6.3 CLOSING CERTIFICATES. The Borrower shall, concurrently with
the Closing Date (with respect to the conditions  precedent set forth in SECTION
6.1)  and  concurrently  with  the  date of the  making  of each  other  Loan if
requested by the Administrative Agent, execute and deliver to the Administrative
Agent a certificate  in form and substance  satisfactory  to the  Administrative
Agent certifying as to the satisfaction of each of the conditions  precedent set
forth in this  ARTICLE 6 which are  required to be  satisfied  on or before such
date (without  regard to whether such matters are, in fact,  satisfactory to the
Administrative   Agent  to  the  extent  that  such   satisfaction  is  required
hereunder).

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                                    ARTICLE 7

                         REPRESENTATIONS AND WARRANTIES

         The Borrower  represents and warrants to the  Administrative  Agent and
the Lenders that the following  statements  are (on the Closing Date,  and after
giving  effect to the funding of the initial  Loans on the  Closing  Date),  and
continuing  after the Closing  Date will be (as long as the  Obligations  or any
part thereof are outstanding or any Lender has any Commitment hereunder),  true,
correct and complete:

         Section 7.1  EXISTENCE.  Each of the Loan Parties (a) is a  corporation
(or other entity) duly  organized,  validly  existing and in good standing under
the laws of the jurisdiction of its incorporation (or organization), (b) has all
requisite  corporate or other entity (as applicable)  power and authority to own
its Properties and carry on its business as now conducted,  and (c) is qualified
to do business in all  jurisdictions  in which the nature of its business  makes
such  qualification  necessary  and where  failure  to so  qualify  would have a
Material  Adverse  Effect.  Each of the Loan Parties has the power and authority
and legal right to execute,  deliver and perform its obligations  under the Loan
Documents to which it is or may become a party.

         Section 7.2       FINANCIAL STATEMENTS.

         (a) The Borrower  has  delivered  to the  Administrative  Agent and the
Lenders (i) the audited  consolidated  and  consolidating  financial  statements
(including  balance sheet and statements of income or operations,  shareholders'
equity and cash flows) of Holdings and its  Consolidated  Subsidiaries as of and
for the fiscal  year ended  December  31,  1999,  (ii) the  unaudited  financial
statements  (including  balance sheet and  statements  of income or  operations,
shareholders'   equity  and  cash  flows)  of  Holdings  and  its   Consolidated
Subsidiaries  (including,  without  limitation,  the Borrower) as of and for the
fiscal  period ended March 31, 2000,  and (iii) an unaudited  pro forma  balance
sheet of the Borrower and its Consolidated  Subsidiaries dated as of the Closing
Date which gives  effect to the initial  Loans made on the Closing  Date and the
other  transactions to occur on such date or on the Closing Date. Such financial
statements  are true and correct  (subject to any  estimates  or  approximations
permitted in accordance  with GAAP),  have been prepared in accordance with GAAP
(except,  in the case of other than annual  financial  statements,  for year-end
adjustments and the absence of financial  statement  footnotes required by GAAP)
and fairly and accurately present,  in all material respects,  on a consolidated
and consolidating  (where applicable) basis, the financial condition of Holdings
and its Consolidated Subsidiaries (including,  without limitation, the Borrower)
or, with  respect to the pro forma  balance  sheet  referred to in clause  (iii)
preceding,  the Borrower and its Consolidated  Subsidiaries,  in each case as of
such dates and the results of operations  for the respective  periods  indicated
therein. There has not been, as of the Closing Date, any material adverse change
in the  financial  condition,  results of  operations,  businesses,  operations,
Properties,  capitalization, assets, liabilities or prospects of the Borrower on
an individual basis, of the Borrower and its Subsidiaries taken as a whole or of
Holdings and its Subsidiaries  taken as a whole, in each case since December 31,
1999.

         (b) The Business Plan  (including,  without  limitation,  the financial
projections  contained  therein)  represents,  as of the Closing Date,  the good
faith estimate of the Borrower and its respective senior  management  concerning
the  probable  financial  condition  and  performance  of the  Borrower  and its
Subsidiaries  for the time period covered  thereunder based upon the assumptions
believed by such management to be reasonable at the time made.

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         Section 7.3 CORPORATE  ACTION; NO BREACH.  The execution,  delivery and
performance  by each of the Loan Parties of the Loan Documents to which it is or
may  become a party and  compliance  with the terms and  provisions  hereof  and
thereof have been duly authorized by all requisite  entity action and do not and
will not (a) violate or conflict  with, or result in a breach of, or require any
consent  under (i) the  certificate  or articles of  incorporation,  articles of
organization,  bylaws,  regulations or other constituent  documents of such Loan
Party, (ii) any Governmental  Requirement  (including,  without limitation,  the
Communications  Act, any rule or regulation of the FCC or any rule or regulation
of any  federal  or  state  public  utility  commission  or  other  Governmental
Authority)  or any  order,  writ,  injunction  or  decree  of  any  Governmental
Authority or arbitrator, or (iii) any material agreement, document or instrument
to which  any Loan  Party  is a party or by which  any Loan  Party or any of its
Property  is bound or subject,  including,  without  limitation,  the PNI Senior
Notes  Indenture,  the  Master  Rights-of-Way   Agreements,   the  Rights-of-Way
Contribution  Agreement and the Customer  Agreements or (b) constitute a default
under any such  material  agreement,  document or  instrument,  or result in the
creation or imposition of any Lien (except a Lien in favor of the Administrative
Agent or the Collateral  Agent under the Collateral  Agency Agreement for and on
behalf of the Lenders  under the  Security  Documents  as provided in ARTICLE 5)
upon any of the  revenues or Property of any Loan Party.  Without  limiting  the
generality of the foregoing,  (A) the Loans and other Obligations constitute (or
will constitute when incurred) "Telecommunications  Indebtedness" and "Permitted
Indebtedness"  as such terms are defined in the PNI Senior Notes  Indenture  and
therefore  constitute  (or will  constitute  when incurred) Debt permitted to be
incurred in accordance  with the PNI Senior Notes Indenture  (including  Section
1011 thereof),  (B) the Liens granted  pursuant to the Security  Documents which
secure the  payment  and  performance  of the  Obligations  constitute  (or will
constitute  when created)  "Permitted  Liens" as such term is defined in the PNI
Senior  Notes  Indenture  and  therefore  constitute  (or will  constitute  when
created)  Liens  permitted  to exist in  accordance  with the PNI  Senior  Notes
Indenture   (including  Section  1015  thereof)  and  (C)  the  limitations  and
restrictions  on the  payment of  dividends  and the making of other  Restricted
Payments  are  permitted  in  accordance  with the PNI  Senior  Notes  Indenture
(including Section 1018 thereof).

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         Section 7.4 OPERATION OF BUSINESS; LICENSES AND CONTRACT RIGHTS-OF-WAY.
Each  of  the  Loan  Parties  (a)  possesses  all  Licenses  from   Governmental
Authorities and Contract  Rights-of-Way  that are material to the conduct of its
businesses as then conducted (PROVIDED,  HOWEVER,  that the Administrative Agent
and the Lenders  acknowledge that the Borrower and its Subsidiaries do not have,
as of the Closing  Date,  any  Licenses to provide  competitive  local  exchange
carrier services but have contracted with PNI to provide such services  pursuant
to the Approved Services  Agreement),  and (b) has complied with all initial and
on-going  conditions  to the issuance and use of all such  Licenses and Contract
Rights-of-Way except where failure to comply could not reasonably be expected to
have a Material Adverse Effect. None of such Persons is in violation of any such
Licenses  or  Contract  Rights-of-Way  which  could be expected to result in any
termination  or  cessation  thereof.  All  of  such  Licenses  required  by  any
Governmental Requirement (including, without limitation, the Communications Act,
any rule or regulation  of the FCC or any state public  utility  commission)  or
issued by any  Governmental  Authority as of the Closing Date are  summarized by
category or type, as relevant to the  operation of each Loan Party,  on SCHEDULE
7.4.  Such  Licenses  set forth on  SCHEDULE  7.4 have  been duly  issued by the
appropriate  Governmental  Authority (as  applicable)  and are in full force and
effect,  and all  provisions  of such  Licenses  have been  complied with in all
material respects. As of the Closing Date, no such License set forth on SCHEDULE
7.4 is subject to any pending or, to the knowledge of the  Borrower,  threatened
revocation  or  termination  proceeding  or  action.  The  provision  by  PNI of
"Professional Services", "Wireless Services", "CLEC Services" (as such terms are
defined in the Approved  Services  Agreement) and other associated  services and
access rights and other rights to the Borrower does not and will not (i) violate
or conflict with, or result in a breach of, or require any consent under (A) the
certificate or articles of incorporation,  bylaws or other constituent documents
of PNI, (B) any Governmental  Requirement  (including,  without limitation,  the
Communications  Act, any rule or regulation of the FCC or any rule or regulation
of any  federal  or  state  public  utility  commission  or  other  Governmental
Authority)  or any  order,  writ,  injunction  or  decree  of  any  Governmental
Authority or arbitrator,  or (C) any material agreement,  document or instrument
to  which  PNI is a party  or by which  PNI or any of its  Property  is bound or
subject,  including,  without limitation, the PNI Senior Notes Indenture or (ii)
constitute a default under any such material agreement, document or instrument.

         Section  7.5  INTELLECTUAL  PROPERTY.  As  of  the  Closing  Date,  all
Intellectual  Property  of a material  nature  owned or used by each of the Loan
Parties in the operation of its business is set forth on SCHEDULE 7.5. Except as
set forth on SCHEDULE  7.5,  each of the Loan Parties owns or possesses (or will
be licensed or have the full right to use) all  Intellectual  Property  which is
necessary  or  appropriate  for the  operation  of its  businesses  as presently
conducted and as proposed to be conducted,  without any known  conflict with the
rights of others.  The  consummation  of the  transactions  contemplated by this
Agreement  and the other Loan  Documents  will not  materially  alter or impair,
individually or in the aggregate, any of such rights of any of the Loan Parties.
To the Borrower's  knowledge and except as set forth on SCHEDULE 7.5, no product
or service of any of the Loan Parties  infringes upon any Intellectual  Property
of any other Person,  and no claim or litigation is pending or, to the knowledge
of the Borrower,  threatened against any Loan Party contesting its right to sell
or otherwise  use any product or material or service  which could  reasonably be
expected to have a Material  Adverse  Effect.  There is no violation by any Loan
Party of any right of such Loan Party with respect to any material  Intellectual
Property owned or used by such Loan Party.

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<PAGE>

         Section 7.6  LITIGATION  AND  JUDGMENTS.  Each material  action,  suit,
investigation or proceeding in any court or before any arbitrator or mediator or
before  or by  any  Governmental  Authority  (whether  or not  any  Governmental
Authority is a party  thereto)  pending or, to the  knowledge  of the  Borrower,
threatened  against or affecting  any Loan Party,  or that relates to any of the
Loan  Documents as of the Closing  Date,  is disclosed on SCHEDULE  7.6. None of
such  actions,   suits,   investigations  or  proceedings  could,  if  adversely
determined, reasonably be expected to have a Material Adverse Effect, other than
the Magten  Litigation  which could,  if adversely  determined,  have a Material
Adverse Effect,  PROVIDED,  HOWEVER,  that, as of the Closing Date, the Borrower
does not believe that the Magten  Litigation will be determined in a manner that
is materially adverse to PNI or Holdings. Except as may be disclosed on SCHEDULE
7.6, as of the Closing Date, there are no outstanding judgments against any Loan
Party. No Loan Party has received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed to any liability or  disadvantage
that could reasonably be expected to have a Material Adverse Effect.

         Section 7.7 RIGHTS IN  PROPERTIES  AND CONTRACT  RIGHTS-OF-WAY;  LIENS.
Except as disclosed on SCHEDULE 7.7A and except for Contract Rights-of-Way, none
of the Loan Parties owns any fee or leasehold  interest in any real  Property as
of the Closing Date. SCHEDULE 7.7B discloses all Contract Rights-of-Way owned by
each Loan Party as of the Closing Date.  Each Loan Party has good and marketable
title to or, with respect to leasehold  interests,  valid leasehold interests in
all of its material  Properties  and assets,  real and  personal,  including the
material  Properties,  assets and leasehold interests reflected in the financial
statements  described in SECTION  7.2(A),  except where failure to have good and
marketable  title or valid leasehold  interests could not reasonably be expected
to have a Material  Adverse  Effect,  and none of the  Properties  or  leasehold
interests  of any Loan  Party is subject to any Lien,  except  Permitted  Liens.
Except  for any  Permitted  Liens,  none of the  Loan  Parties  has  granted  or
voluntarily  allowed or permitted to exist any Lien to or in favor of any Person
(other  than the  Administrative  Agent  for and on  behalf  of the  Lenders  as
security for the Obligations) which attaches or relates to any of the Collateral
and the  Liens  on the  Collateral  in  favor of the  Administrative  Agent  are
perfected,  first priority Liens (subject to the terms of the Collateral  Agency
Agreement).

         Section  7.8  ENFORCEABILITY.  The Loan  Documents  have  been duly and
validly  executed  and  delivered  by each of the Loan  Parties  that is a party
thereto,  and such Loan  Documents  constitute  the  legal,  valid  and  binding
obligations of each such Loan Party, enforceable against each such Loan Party in
accordance  with  their  respective  terms,  except as  limited  by  bankruptcy,
insolvency or other laws of general  application  relating to the enforcement of
creditors' rights and general principles of equity.

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<PAGE>

         Section 7.9 APPROVALS. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental  Authority (including
the FCC) or third party is or will be necessary for the  execution,  delivery or
performance  by any  Loan  Party  of any of  the  Loan  Documents  or any of the
Material  Contracts  to which it is or will be a party  or for the  validity  or
enforceability thereof, except for such authorizations,  approvals, consents and
filings as have been  validly  obtained or made and are in full force and effect
or, with respect to Material  Contracts  only, as to which the failure to obtain
or make could not reasonably be expected to have a Material Adverse Effect.  The
consummation  of the  transactions  contemplated  by the Loan  Documents and the
Material Contracts does not require the consent or approval of any other Person,
except such consents and approvals (a) as have been validly  obtained and are in
full  force and  effect  or (b) as to which the  failure  to obtain  could  not,
individually  or in the  aggregate,  reasonably  be  expected to have a Material
Adverse  Effect.  None of the Loan  Parties  has failed to obtain  any  material
License from any Governmental Authority (including,  without limitation, any FCC
License) or Contract Rights-of-Way necessary or appropriate for the ownership or
use of any of its  Properties,  conduct of its business and  performance  of the
Business Plan as currently conducted.

         Section  7.10  DEBT.  The  Loans  made and  contemplated  to be made in
accordance with this Agreement and the Obligations are permitted to be incurred,
and are  permitted  to be  secured by all  Collateral,  in  accordance  with the
Collateral  Agency Agreement.  As of the Closing Date,  neither the Borrower nor
any of its Subsidiaries has any Debt other than (a) the Obligations, and (b) the
Debt disclosed on SCHEDULE 7.10 hereto.

         Section  7.11  TAXES.  Each of the Loan  Parties  has filed (a) all tax
returns (federal,  state and local) and reports required to be filed, including,
without limitation,  all income, franchise,  employment,  Property and sales tax
returns, and (b) all other material tax returns and reports required to be filed
except where  failure to file any such return or report could not  reasonably be
expected to have a Material  Adverse Effect,  and has paid all federal and other
material  taxes  (shown  on such  returns  or  reports  to be due and  payable),
assessments,  fees and other  governmental  charges levied or imposed upon it or
its  Properties,  income or assets  otherwise due and payable before they become
delinquent,  except those which are being contested in good faith by appropriate
proceedings  and for which  adequate  reserves  have been provided in accordance
with GAAP and no notice of Lien has been filed or recorded. There is no proposed
tax assessment  against any Loan Party which could, if the assessment were made,
reasonably be expected to have a Material Adverse Effect.

         Section  7.12 MARGIN  SECURITIES.  None of the Loan  Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the  purpose of  purchasing  or  carrying  margin  stock  (within the
meaning  of  Regulations  T, U or X of the  Board of  Governors  of the  Federal
Reserve  System),  and no  part  of the  proceeds  of any  Loan  will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.

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         Section  7.13 ERISA.  None of the Loan  Parties or any ERISA  Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan other
than the Pension Plans  identified on SCHEDULE 7.13. Each Plan of any Loan Party
is in compliance  in all material  respects  with all  applicable  provisions of
ERISA and the Code. Neither a Reportable Event nor a Prohibited  Transaction has
occurred  within  the  last 60  months  with  respect  to any  Plan  that  could
reasonably be expected to have a Material Adverse Effect. No notice of intent to
terminate  a  Pension  Plan  has  been  filed,  nor has any  Pension  Plan  been
terminated.  No circumstances  exist which constitute grounds entitling the PBGC
to institute  proceedings to terminate,  or appoint a trustee to  administer,  a
Pension Plan, nor has the PBGC instituted any such proceedings. None of the Loan
Parties or any ERISA  Affiliate  has  completely or partially  withdrawn  from a
Multiemployer  Plan.  Each Loan  Party and each ERISA  Affiliate  have met their
minimum funding  requirements under ERISA and the Code or with respect to all of
their Pension Plans  subject to such  requirements,  and, as of the Closing Date
except as specified on SCHEDULE 7.13,  the present value of all vested  benefits
under each funded Plan (exclusive of any  Multiemployer  Plan) does not and will
not exceed  the fair  market  value of all such Plan  assets  allocable  to such
benefits,  as determined on the most recent  valuation  date of such Plan and in
accordance  with  ERISA.  None of the Loan  Parties or any ERISA  Affiliate  has
incurred any liability to the PBGC under ERISA.  No litigation is pending or, to
the Borrower's knowledge, threatened concerning or involving any Plan that could
reasonably be expected to have a Material Adverse Effect.  There are no unfunded
or unreserved  liabilities (on either a going-concern  basis or a wind-up basis)
relating  to any Plan  that  could,  individually  or in the  aggregate,  have a
Material  Adverse  Effect if the Borrower  were required to fund or reserve such
liability in full. As of the Closing Date, no funding  waivers have been or will
have been requested or granted under Section 412 of the Code with respect to any
Plan. No unfunded or unreserved  liability for benefits  under any Plan or Plans
(exclusive of any  Multiemployer  Plans) exceeds  $100,000,  with respect to any
such Plan,  or $200,000  with respect to all such Plans,  in the aggregate as of
the Closing Date, on either a going-concern basis or a wind-up basis.

         Section 7.14 DISCLOSURE.  No written  statement,  information,  report,
representation  or  warranty  made by any Loan  Party in any  Loan  Document  or
furnished to the Administrative  Agent or any Lender by or on behalf of any Loan
Party in  connection  with the Loan  Documents or any  transaction  contemplated
hereby or thereby  contains any untrue  statement of a material fact or omits to
state any material fact necessary to make the statements  herein or therein,  in
light of the circumstances in which made, not misleading. There is no fact known
to the Borrower which has had a Material Adverse Effect.

         Section  7.15 LOAN  PARTIES;  CAPITALIZATION.  SCHEDULE  7.15  attached
hereto  contains,  as of the Closing  Date,  complete and  accurate  information
regarding  (a) the  identities of each of the  Subsidiaries  of the Borrower and
each of the  Subsidiaries of Holdings,  (b) the number of issued and outstanding
shares of each class of Capital  Stock  issued by the  Borrower  and each of its
Subsidiaries  and the  identities  of, and number and percentage of each of such
shares held by, the owner(s) (both of record and  beneficially)  of such Capital
Stock and (c) the jurisdiction of  incorporation  or other  organization of each
Loan Party.  Holdings owns,  beneficially  and of record,  all of the issued and
outstanding  shares of Capital  Stock of the  Borrower,  and the Borrower  owns,
beneficially and of record,  all of the issued and outstanding shares of Capital
Stock of each of PRE and PFE.

         Section  7.16  COMPLIANCE  WITH  LAWS.  None of the Loan  Parties is in
violation of any Governmental  Requirement (including,  without limitation,  the
Communications  Act, any rule or regulation of the FCC or any rule or regulation
of any  federal  or  state  public  utility  commission  or  other  Governmental
Authority),  except for instances of non-compliance that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

         Section 7.17  INVESTMENT  COMPANY  ACT.  None of the Loan Parties is an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended.

         Section  7.18 PUBLIC  UTILITY  HOLDING  COMPANY  ACT.  None of the Loan
Parties is a "holding company" or a "subsidiary  company" of a "holding company"
or an  "affiliate"  of a  "holding  company"  or a "public  utility"  within the
meaning of the Public Utility Holding Company Act of 1935, as amended.

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         Section 7.19      ENVIRONMENTAL MATTERS.

         (a) Except for instances of noncompliance  with or exceptions to any of
the following  representations and warranties that could not have,  individually
or in the aggregate, a Material Adverse Effect:

                  (i)  Each  of the  Loan  Parties  and  all  of its  respective
         Properties and operations are in full compliance with all Environmental
         Laws.  The  Borrower  is not aware of, and no Loan  Party has  received
         written  notice of, any past,  present  or future  conditions,  events,
         activities,  practices or incidents which may interfere with or prevent
         the  compliance  or  continued  compliance  by such Loan Party with all
         Environmental Laws;

                  (ii) Each of the Loan Parties has  obtained all Licenses  that
         are required under applicable Environmental Laws, and all such Licenses
         are in good standing and all such Persons are in compliance with all of
         the terms and conditions thereof;

                  (iii) No Hazardous Materials exist on, about or within or have
         been (to the knowledge of the  Borrower) or are being used,  generated,
         stored,  transported,  disposed  of on or  Released  from  any  of  the
         Properties  of any Loan  Party  except in  compliance  with  applicable
         Environmental  Laws.  The use which each of the Loan Parties  makes and
         intends  to make of its  respective  Properties  will not result in the
         use, generation,  storage,  transportation,  accumulation,  disposal or
         Release of any Hazardous Material on, in or from any of their currently
         owned  Properties  except in compliance with  applicable  Environmental
         Laws;

                  (iv) There are no conditions or circumstances  associated with
         the  currently  owned or leased  Properties  or  operations of any Loan
         Party  that  could   reasonably   be  expected  to  give  rise  to  any
         Environmental  Liabilities  or claims  resulting  in any  Environmental
         Liabilities;

                  (v) None of the  Loan  Parties  and  none of their  respective
         currently or previously  owned or leased  Properties or operations  are
         subject  to any  outstanding  or,  to the  knowledge  of the  Borrower,
         threatened order from or agreement with any  Governmental  Authority or
         other  Person or subject to any judicial or  administrative  proceeding
         with respect to (A) any failure to comply with Environmental  Laws, (B)
         any Remedial Action, or (C) any Environmental Liabilities;

                  (vi) None of the Loan  Parties is subject to, or has  received
         written notice of any claim from any Person alleging that it is or will
         be subject to, any Environmental Liabilities;

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                  (vii) None of the  Properties  of any of the Loan Parties is a
         treatment  facility  (except for the  recycling of Hazardous  Materials
         generated  on-site and the  treatment of liquid  wastes  subject to the
         Clean Water Act or other  applicable  Environmental  Law for  temporary
         storage  of  Hazardous  Materials  generated  on-site  prior  to  their
         disposal  off-site) or disposal  facility  requiring a permit under the
         Resource  Conservation  and Recovery  Act, 42 U.S.C.  ss. 6901 ET SEQ.,
         regulations  thereunder or any  comparable  provision of state law. The
         Loan  Parties  are  in  compliance   with  all   applicable   financial
         responsibility requirements of all Environmental Laws; and

                  (viii) None of the Loan  Parties has failed to file any notice
         required under applicable Environmental Law reporting a Release.

         (b) No Lien  arising  under  any  Environmental  Law that  could  have,
individually or in the aggregate,  a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.

         Section 7.20 YEAR 2000  COMPLIANCE.  Each of the Loan Parties  believes
that it is Year  2000  Compliant  as of the  Closing  Date  except  as could not
reasonably be expected to have a Material Adverse Effect.

         Section 7.21 LABOR  DISPUTES AND ACTS OF GOD.  Neither the business nor
the  Properties of any of the Loan Parties are affected by any fire,  explosion,
accident,  strike,  lockout  or  other  labor  dispute,  drought,  storm,  hail,
earthquake,  embargo,  act of  God or of the  public  enemy  or  other  casualty
(whether  or not covered by  insurance)  that is having or could  reasonably  be
expected to have a Material Adverse Effect.

         Section 7.22 MATERIAL CONTRACTS.  Attached hereto as SCHEDULE 7.22 is a
complete list, as of the Closing Date, of all Material  Contracts of each of the
Loan Parties,  other than the Loan Documents.  All of the Material Contracts are
in full force and effect  and none of the Loan  Parties is in default  under any
Material  Contract and, to the knowledge of the Borrower  after due inquiry,  no
other  Person that is a party  thereto is in default  under any of the  Material
Contracts.   None  of  the  Material   Contracts   prohibits  the   transactions
contemplated  under the Loan  Documents.  Except as may be  provided on SCHEDULE
7.22,  (a) each of the  Material  Contracts  is  currently in the name of a Loan
Party and (b) each of the Material  Contracts (other than Material  Contracts of
Holdings and other than  agreements  relating to other Debt of the Loan Parties)
is assignable to the Administrative Agent as collateral and is assignable by the
Administrative  Agent to a transferee if an Event of Default were to occur.  The
Borrower has delivered to the  Administrative  Agent a complete and current copy
of each Material Contract of the Borrower and/or any of its Subsidiaries  (other
than purchase orders entered into in the ordinary  course of business)  existing
on the Closing Date.

         Section 7.23 BANK ACCOUNTS.  As of the Closing Date, SCHEDULE 7.23 sets
forth the account numbers and location of all bank accounts  (including lock box
and special deposit accounts) of the Borrower and/or any of its Subsidiaries.

         Section 7.24  OUTSTANDING  SECURITIES.  All outstanding  securities (as
defined in the Securities Act of 1933, as amended, or any successor thereto, and
the rules and regulations of the Securities and Exchange Commission  thereunder)
of each of the Loan Parties have been  offered,  issued,  sold and  delivered in
compliance with all applicable Governmental Requirements.

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         Section 7.25 SOLVENCY.  Each of the Loan Parties, as a separate entity,
is Solvent, both before and after giving effect to the Loans.

         Section 7.26 EMPLOYEE MATTERS. Except as set forth on SCHEDULE 7.26, as
of the  Closing  Date (a)  neither  any Loan Party nor any of its  employees  is
subject  to  any  collective  bargaining  agreement,  and  (b) no  petition  for
certification  or union election is pending with respect to the employees of any
Loan  Party,  and no  union  or  collective  bargaining  unit  has  sought  such
certification  or recognition  with respect to the employees of any such Person.
There are no strikes,  slowdowns, work stoppages or controversies pending or, to
the best knowledge of the Borrower after due inquiry,  threatened  against,  any
Loan Party or its respective  employees which could have, either individually or
in the aggregate,  a Material  Adverse  Effect.  Except as set forth on SCHEDULE
7.26,  as of the  Closing  Date,  none of the  Loan  Parties  is  subject  to an
employment contract.

         Section  7.27  INSURANCE.  SCHEDULE  7.27  sets  forth a  complete  and
accurate  description  of all policies of insurance that are in effect as of the
Closing Date for the Loan Parties and their Properties.  As of the Closing Date,
all  premiums  in  respect  of such  insurance  have  been  paid.  No  notice of
cancellation  has been  received  for any of such  policies and each of the Loan
Parties and the owner and holder of each such policy are in compliance  with all
of the terms and conditions of such policies.

         Section 7.28 COMMON  ENTERPRISE.  The Borrower and its Subsidiaries are
members of an affiliated  group with each other such Person and are collectively
engaged  in a common  enterprise  with  one  another.  Each of the Loan  Parties
expects to derive substantial  benefit (and may reasonably be expected to derive
substantial  benefit),  directly and indirectly,  from the Loans contemplated by
this Agreement,  both in its separate  capacity and as a member of an affiliated
and integrated group.

         Section  7.29 NO  DEFAULT  UNDER  OTHER  AGREEMENTS.  None of the  Loan
Parties  is in  default  in  any  respect  in  the  performance,  observance  or
fulfillment of any of the obligations,  covenants or conditions contained in any
agreement,  document or instrument  binding on it or its Properties,  except for
instances of  noncompliance  that,  individually or in the aggregate,  could not
have a Material Adverse Effect.

         Section 7.30 REORGANIZATION; CONTRACT RIGHTS-OF-WAY; COLLOCATION SITES.

         (a) The  Reorganization  has been fully  consummated in accordance with
the  agreements,  documents and  contracts  relating  thereto,  true and correct
copies of which have been delivered to the Administrative Agent.

         (b)  Each  of  the  Master   Rights-of-Way   Agreements  is  valid  and
enforceable and in full force and effect.

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         (c)  Pursuant  to  the  Master   Rights-of-Way   Agreements,   Holdings
previously  acquired,  or has the  unrestricted  right  (except as expressly set
forth in the Master  Rights-of-Way  Agreements) to acquire, all interests in the
real estate  comprising the Contract  Rights-of-Way for the Network that are, or
are contemplated to be as of the Closing Date,  necessary for the  construction,
installation  and  operation  of  the  long-haul   portion  of  the  Network  as
contemplated by the Business Plan. Except for obligations expressly set forth in
the Master Rights-of-Way Agreements,  Holdings previously paid and performed, in
full,  all  indebtedness,  liabilities  and  obligations  at any time payable or
performed by Holdings under the Master  Rights-of-Way  Agreements  such that all
rights of Holdings under the Master Rights-of-Way Agreements are irrevocable.

         (d) All rights, titles and interests of Holdings pursuant to the Master
Rights-of-Way  Agreements  are fully  assignable  by Holdings to its  Affiliates
(including,  without  limitation,  PRE and the Borrower) without revocation and,
pursuant  to the  Rights-of-Way  Contribution  Agreement,  rights to 4,000 route
miles have been  irrevocably  assigned  by  Holdings  to PRE.  No  indebtedness,
liabilities  or obligations  are payable or performable by Holdings,  PRE or any
other Loan Party with  respect to the  Contract  Rights-of-Way  under the Master
Rights-of-Way  Agreements or otherwise  other than as expressly set forth in the
Master Rights-of-Way Agreements.

         (e) PNI has granted to the Borrower and its  Subsidiaries,  pursuant to
the Approved Services Agreement,  access to such rights and services held by PNI
as are appropriate for the Borrower to operate the Network in the markets served
by PNI which are  contemplated  to be served by the Borrower as specified in the
Business Plan.

         Section  7.31 PNI SENIOR  NOTES.  The  maturity  date of the PNI Senior
Notes is April 15, 2008 and no payments or  prepayments  of any principal of, or
original  issue discount with respect to, the PNI Senior Notes is due or payable
prior to April 15,  2008  other  than as  expressly  set forth in the PNI Senior
Notes Indenture.

         Section 7.32 STATUS OF NETWORK  BUILD-OUT.  As of the Closing Date, the
status of the Borrower's  build-out of the long-haul portion of the Network is a
follows:  (a) Fiber has been  installed  on all of the route  miles of the route
from Chicago,  Illinois to Omaha,  Nebraska; (b) Fiber has been installed on 432
of the 571 total  route  miles of the route  from  Omaha,  Nebraska  to  Denver,
Colorado;  (c) Fiber has been  installed  on all of the route miles of the route
from  Albuquerque,  New Mexico to  Farmington,  New  Mexico;  (d) Fiber has been
installed on 16 of the 571 total route miles of the route from  Farmington,  New
Mexico to Grand Junction,  Colorado;  and (e) no Fiber has been installed on the
route from El Paso,  Texas to  Albuquerque,  New  Mexico,  but  construction  is
scheduled to commence on September 1, 2000.

         Section 7.33 NATURE OF ASSETS  CONTRIBUTED TO THE BORROWER.  The assets
contributed  to the  Borrower  by Holdings  pursuant  to the Asset  Contribution
Agreement  consist of cash or cash  equivalents  and  Holding's  interest in the
fiber  optic  development   projects   constructed  pursuant  to  the  following
agreements:

         (a)  Construction  Agreement  dated March 31, 1999 with  Pacific  Fiber
Link, LLC;

         (b) Fiber Optic Cable Construction and Use Agreement dated June 9, 1999
with Public Service Company of New Mexico;

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         (c) Fiber Optic Cable License  Agreement  dated  December 23, 1999 with
Public Service Company of New Mexico;

         (d) Agreement with CapRock Telecommunications dated November 18, 1999;

         (e) Dark Fiber Network  Agreement  dated August 1999 between  Tri-State
Generation and  Transmission  Association,  Inc.,  Empire Electric  Association,
Inc., La Plata Electric Association,  Inc., Delta-Montrose Electric Association,
Inc. San Miguel Power Association, Inc.; and

         (f) Fiber Optic  Lease with  Burlington  Northern  and Santa Fe Railway
Company dated March 31, 2000.

                                    ARTICLE 8

                              AFFIRMATIVE COVENANTS

         The Borrower  covenants and agrees that, as long as the  Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder,  it
will perform and observe,  or cause to be performed and observed,  the following
covenants:

         Section 8.1 REPORTING REQUIREMENTS.  The Borrower will furnish (or will
cause to be furnished) to the Administrative Agent and each Lender:

         (a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any event
within 105 days after the end of each  fiscal  year of the  Borrower,  beginning
with the fiscal year ending  December  31,  2000,  either (i) a copy of the Form
10-K (including all financial statements contained therein) filed by Holdings as
of the end of and for  such  fiscal  year  then  ended,  together  with  audited
consolidating  schedules  for each of the  Borrower  and its  Subsidiaries  with
respect to the financial  statements  contained  therein,  or (ii) a copy of the
annual audit report  (including the consolidated  balance sheet) of Holdings and
its Subsidiaries (including,  without limitation, the Borrower) as of the end of
such year and the  related  consolidated  statements  of  income or  operations,
shareholders'  equity and cash flows for such fiscal year, together with audited
consolidating  schedules for the Borrower and its  Subsidiaries  with respect to
each of such  financial  statements,  in each case setting forth in  comparative
form the  figures  for the  previous  fiscal  year  (except to the extent that a
Person was not then in existence), and accompanied by the opinion of independent
certified public accountants of recognized standing reasonably acceptable to the
Administrative Agent, which opinion shall state that such consolidated financial
statements  present fairly the financial  position and results of operations for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years and which  opinion  shall not be qualified  or limited  because of a
restricted or limited  examination by such accountant of any material portion of
such Person's records;

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         (b) QUARTERLY FINANCIAL  STATEMENTS.  As soon as available,  and in any
event  within 45 days after the end of each of the  quarters of each fiscal year
of the Borrower,  beginning  with the fiscal  quarter ending March 31, 2000 with
respect to CLAUSE (I)  succeeding  and June 30, 2000 with respect to CLAUSE (II)
succeeding,  either  (i) a copy  of  the  Form  10-Q  (including  all  financial
statements  contained  therein)  filed by Holdings as of the end of and for such
fiscal quarter then ended, together with consolidating schedules for each of the
Borrower and its Subsidiaries  with respect to each of the financial  statements
contained therein, or (ii) a copy of the unaudited consolidated balance sheet of
Holdings and its Subsidiaries (including,  without limitation,  the Borrower) as
of the end of such quarter and the related consolidated  statements of income or
operations,  shareholders' equity and cash flows and quarterly operating budgets
for the  period  commencing  on the first day and ending on the last day of such
quarter,  together with unaudited  consolidating  schedules for the Borrower and
its Subsidiaries with respect to each of such financial statements and quarterly
operating  budgets,   in  each  case  setting  forth  in  comparative  form  the
information or figures and quarterly operating budget figures, respectively, for
the corresponding period of the preceding fiscal year (except to the extent that
a Person was not then in existence), and certified by an appropriate Responsible
Officer of the  Borrower as fairly  presenting,  in  accordance  with GAAP,  the
financial   position  and  the  results  of   operations  of  Holdings  and  its
Subsidiaries (including,  without limitation, the Borrower), except for year-end
adjustments and financial statement footnotes required by GAAP;

         (c) COMPLIANCE  CERTIFICATE.  Concurrently with the delivery of each of
the financial statements referred to in CLAUSES (A) and (B) of this SECTION 8.1,
a Compliance  Certificate of a Responsible Officer of the Borrower substantially
in the form of EXHIBIT L hereto,  appropriately completed,  stating that, to the
best of such officer's knowledge,  no Default has occurred and is continuing or,
if a Default has occurred and is continuing,  stating the nature thereof and the
action that has been taken and is proposed to be taken with respect thereto;

         (d) NOTICE OF ACTIONS, SUITS,  INVESTIGATIONS OR PROCEEDINGS.  Promptly
after the commencement thereof, notice of all actions, suits, investigations and
proceedings  in any court or before any  arbitrator  or mediator or before or by
any Governmental  Authority (including the FCC) (whether or not any Governmental
Authority  is a party  thereto)  affecting  any  Loan  Party or any  License  or
Contract Rights-of-Way,  which, if determined adversely to any Loan Party, could
reasonably be expected to have a Material Adverse Effect;

         (e)  NOTICE  OF  DEFAULT,  ETC.  As soon as  possible  and in any event
immediately  upon the Borrower's  knowledge of the occurrence of any Default,  a
written notice setting forth the details of such Default and the action that the
Borrower  and/or any of its  Subsidiaries  has taken  and,  if and to the extent
known, proposes to take with respect thereto;

         (f) ERISA PLAN REPORTS.  Promptly after the filing or receipt  thereof,
copies of all reports,  including annual reports, and notices which the Borrower
or any of its ERISA  Affiliates files with or receives from the PBGC or the U.S.
Department  of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential  liability;  and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent,  or that any Reportable  Event or Prohibited  Transaction has
occurred with respect to any Plan or  Multiemployer  Plan, or that the PBGC, the
Borrower or any ERISA  Affiliate has  instituted or will  institute  proceedings
under ERISA to  terminate or withdraw  from or  reorganize  any Pension  Plan, a
certificate of a Responsible  Officer of the Borrower  setting forth the details
as to such insolvency,  withdrawal,  Reportable Event, Prohibited Transaction or
termination and the action that the Borrower and/or any of its  Subsidiaries has
taken and proposes to take with respect thereto;

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         (g) PROXY STATEMENTS,  ETC. As soon as available,  one copy of each (if
any) financial statement,  report, notice or proxy statement sent by Holdings or
the Borrower to its  stockholders  or other security  holders  generally and one
copy of each (if any) regular,  periodic or special report  (including,  without
limitation,  reports on forms 10-K,  10-Q and 8-K),  registration  statement  or
prospectus filed by Holdings or the Borrower with any securities exchange or the
Securities and Exchange Commission or any successor agency;

         (h)  INSURANCE.  Within 60 days prior to the end of each fiscal year of
the Borrower,  a report in form and  substance  reasonably  satisfactory  to the
Administrative  Agent summarizing all material insurance coverage  maintained by
the Borrower and its Subsidiaries as of the date of such report and all material
insurance  coverage  planned to be maintained by such Persons in the  subsequent
fiscal year;

         (i) PLAN INFORMATION. From time to time, as reasonably requested by the
Administrative  Agent or any  Lender,  such books,  records and other  documents
relating to any Pension  Plan as the  Administrative  Agent or any Lender  shall
specify;  prior to any termination,  partial  termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets  of a  Pension  Plan  covering  employees  of the  Borrower  or any ERISA
Affiliate,  written notification  thereof;  promptly upon the Borrower's receipt
thereof,  a copy of any  determination  letter or advisory opinion regarding any
Pension Plan  received  from any  Governmental  Authority  and any  amendment or
modification thereto as may be necessary as a condition to obtaining a favorable
determination  letter or advisory  opinion;  and  promptly  upon the  occurrence
thereof,  written  notification  of any  action  requested  by any  Governmental
Authority  to be  taken  as a  condition  to any such  determination  letter  or
advisory opinion;

         (j) BUSINESS PLAN, ETC. Not later than the last Business Day of January
of each year, an update of the Business Plan for such year in reasonable  detail
generally  consistent  with the form and substance of the Business Plan provided
to the  Administrative  Agent on or before the Closing Date,  which update shall
reflect the corresponding information for the prior year; and, promptly upon any
preparation thereof,  any proposed amendment,  modification or supplement to the
Business Plan;

         (k) MANAGEMENT LETTERS.  Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to such
Loan Party by  independent  certified  public  accountants  with  respect to the
business,   condition  (financial  or  otherwise),   operations,   prospects  or
Properties of any Loan Party;

         (l) REPORTS TO OTHER CREDITORS.  Promptly after the furnishing thereof,
a copy of any financial or other material  statement or report  furnished by any
Loan Party to any other  party  pursuant  to the terms of any  indenture,  loan,
stock purchase or credit or similar  agreement and not otherwise  required to be
furnished  to the  Administrative  Agent and the  Lenders  pursuant to any other
clause of this SECTION 8.1;

         (m) NOTICE OF MATERIAL  ADVERSE EFFECT.  Within two Business Days after
any Loan Party becomes aware  thereof,  written  notice of any matter that could
reasonably be expected to have a Material Adverse Effect;

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         (n) ENVIRONMENTAL  ASSESSMENTS AND NOTICES.  Promptly after the receipt
thereof,  a copy  of  each  environmental  assessment  (including  any  analysis
relating  thereto)  prepared  with respect to any Property of any Loan Party and
each notice sent by any Governmental Authority to any Loan Party relating to any
failure or alleged failure to comply with any Environmental Law or any liability
with respect thereto;

         (o)  NOTICES  UNDER  MATERIAL  CONTRACTS.  Promptly  after the  receipt
thereof by any Loan Party and promptly  after the  delivery  thereof by any Loan
Party, a copy of each written notice  delivered  under any Material  Contract or
real Property  lease as to which the Borrower is obligated to cause a landlord's
waiver or  subordination  to be provided in accordance  with SECTION 5.4,  which
notice  (i)  relates  to any  alleged  default  under or  noncompliance  with or
proposed  termination  of such Material  Contract or real Property lease or (ii)
otherwise  relates to any matter  under any Material  Contract or real  Property
lease which could reasonably be expected to have a Material Adverse Effect;

         (p) ACCOUNTS  RECEIVABLE  AND PAYABLE.  As soon as available and in any
event within 60 days after the end of each fiscal quarter, an aged trial balance
of all  then-existing  Receivables and all then existing accounts payable of the
Borrower and its Subsidiaries;

         (q) MATERIAL  CONTRACTS AND LEASES.  Concurrently  with the delivery of
each of the  financial  statements  referred  to in CLAUSES  (A) and (B) of this
SECTION  8.1, a true and  correct  copy of each  Material  Contract to which the
Borrower  or any of its  Subsidiaries  is a party or  (directly  or  indirectly)
subject and each Contract  Rights-of-Way  or lease of real Property to which the
Borrower or any of its Subsidiaries is a party or beneficiary or is (directly or
indirectly) subject and as to which a waiver or subordination of landlord's Lien
is required to be provided in accordance with SECTION 5.4;

         (r)  QUARTERLY  REPORT  AS TO  KEY  BUSINESS  STATISTICS.  As  soon  as
available and in any event within 60 days after the end of each fiscal  quarter,
reports as to key business and  operational  statistics  of the Borrower and its
Subsidiaries,  including, without limitation,  reports as to the number of fiber
miles completed,  the total number of customers and such related  information as
the Administrative Agent may reasonably request from time to time;

         (s)      INFORMATION REGARDING COLLATERAL.

                  (i) Promptly upon any  occurrence  thereof,  written notice of
         any  change (A) in any Loan  Party's  name or in any trade name used to
         identify it in the conduct of its  business or in the  ownership of its
         Properties,  (B) in the  location of any Loan Party's  chief  executive
         office,  its  principal  place of  business  or any asset  constituting
         Collateral  (including  the  installation  of  any  asset  constituting
         Collateral  at a location  where  Collateral  has not  previously  been
         located),  (C) in any Loan Party's  identity or corporate  structure or
         (D) in any Loan Party's Federal taxpayer identification number;

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                  (ii) promptly upon any incurrence  thereof,  written notice of
         any  material  casualty  or  damage  to,  or any  destruction  of,  the
         Collateral or any Real Estate Assets or the  commencement of any action
         or proceeding for the taking of any Collateral or Real Estate Assets or
         any part thereof or interest  therein under power of eminent  domain or
         by condemnation or similar proceeding; and

                  (iii)   concurrently   with  the  delivery  of  the  financial
         statements referred to in CLAUSE (A) of SECTION 8.1, a certificate of a
         Responsible  Officer of the Borrower (A) setting forth the  information
         required pursuant to Sections 1 and 2 of the Perfection  Certificate or
         confirming that there has been no change in such information  since the
         date of the Perfection Certificate delivered on the Closing Date or the
         date  of  the  most  recent  certificate  delivered  pursuant  to  this
         Agreement  and  (B)  certifying  that  all  UCC  financing   statements
         (including  fixture  filings,   as  applicable)  or  other  appropriate
         filings,  recordings or registrations  (which are required to have been
         filed,  recorded or  registered  in  accordance  with this  Agreement),
         including all refilings, rerecordings and reregistrations, containing a
         description  of the  Collateral  have  been  filed  of  record  in each
         governmental,   municipal   or  other   appropriate   office   in  each
         jurisdiction  identified  pursuant  to CLAUSE  (A) above to the  extent
         necessary  to protect  and  perfect the  security  interests  under the
         Security  Agreement  for a period of not less than 18 months  after the
         date of such  certificate  (except as noted therein with respect to any
         continuation statements to be filed within such period);

         (t)  ACQUISITION  OF MATERIAL  ASSETS.  Promptly  upon the  acquisition
thereof, written notice of any acquisition of any material asset by the Borrower
or any  Subsidiary  of the  Borrower  after the Closing  Date (other than assets
constituting Collateral under the Pledge Agreement or the Security Agreement and
other than Real Estate Assets owned by PRE); and

         (u) GENERAL  INFORMATION.  Promptly,  such other  business,  financial,
corporate  affairs and other  similar  information  concerning  the Loan Parties
and/or the Collateral as the Administrative Agent or any Lender may from time to
time  reasonably  request  and,  in  addition  to the  foregoing,  access  (upon
reasonable  advance notice and during normal business hours) to personnel of the
Borrower  reasonably   necessary  or  appropriate  to  discuss  the  matters  or
information referred to in this SECTION 8.1.

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         Section 8.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Borrower
will,  and  will  cause  each of the  other  Loan  Parties  to,  obtain  (if not
previously obtained), preserve and maintain (a) its entity existence, (b) all of
its leases, privileges,  consents, approvals,  Licenses, Contract Rights-of-Way,
franchises,  qualifications (including, without limitation, good standing status
in such Loan Party's  jurisdiction of organization and in other jurisdictions in
which the  nature of such Loan  Party's  business  makes  qualification  therein
necessary),  Intellectual  Property,  intangible Property and contract and other
rights that are necessary or appropriate to operate the Network as then operated
in the ordinary conduct of its business except to the extent that the failure to
obtain, preserve or maintain the same could not reasonably be expected to have a
Material  Adverse  Effect,  and (c) the requisite power and authority to own its
Properties  and  carry on its  business  as now  conducted  and  proposed  to be
conducted  (including,  without  limitation,  the power and  authority and legal
right  to  execute,  deliver  and  perform  its  indebtedness,  liabilities  and
obligations  under the Loan  Documents).  Without limiting the generality of the
foregoing, each of the Loan Parties has entered into, or will timely enter into,
such Contract Rights-of-Way as are, at any time of determination, then necessary
to the operation of the Network as then  operated.  The Borrower  will, and will
cause each of the other Loan Parties to, conduct its business in accordance with
good business practices.

         Section 8.3 OWNERSHIP AND  MAINTENANCE  OF PROPERTIES  AND LICENSES AND
CONTRACT RIGHTS-OF-WAY.

         (a) The Borrower will, in a reasonably prompt and prudent fashion,  use
commercially  reasonable  efforts to obtain  competitive  local exchange carrier
Licenses  in all  jurisdictions  where it is  contemplated  to provide  services
requiring  such Licenses in  accordance  with the Business  Plan,  except to the
extent that PNI has such  Licenses and the Borrower has  contracted  with PNI to
provide  competitive  local exchange carrier services under such Licenses of PNI
pursuant to the Approved Services  Agreement.  The Borrower will, and will cause
each of the other Loan  Parties to, (i)  maintain,  keep and preserve all of its
Properties,  Licenses and Contract Rights-of-Way (including, without limitation,
all Collateral and Real Estate Assets) material to the conduct of the businesses
of the Borrower and its  Subsidiaries  as then conducted , taken as a whole,  in
good working order and condition (ordinary wear and tear excepted) and (ii) make
all repairs,  renewals and replacements  and improvements  thereof to the extent
necessary to ensure  compliance with CLAUSE (I) preceding.  Without limiting the
generality  of the  foregoing,  each of the Loan Parties will (A) own or possess
(or will be  licensed or have the full right to use) all  Intellectual  Property
which  is  necessary  or  appropriate  for the  operation  of  their  respective
businesses  as then  conducted,  without any known  conflict  with the rights of
others,  and (B) maintain and preserve  good and  marketable  title to, or, with
respect  to  leasehold  interests,  valid  leasehold  interests  in,  all of its
material  Properties  and assets,  real and  personal,  including  the  material
Properties  and  leasehold  interests  reflected  in  the  financial  statements
described  in CLAUSE (A) of SECTION 7.2,  except where  failure to have good and
marketable  title or valid leasehold  interests could not reasonably be expected
to have a Material Adverse Effect.

         (b) On and after the Closing Date,  all Real Estate Assets  relating to
the  Network  or  otherwise  owned or  acquired  by the  Borrower  or any of its
Subsidiaries  shall be owned,  acquired and held by PRE or PFE (with  respect to
the Fiber or Conduit  constituting  a part of the Real Estate Assets only),  and
Holdings  and the Borrower  will not,  and will not permit any other  Subsidiary
(other than PRE or PFE) to, own,  lease,  or otherwise hold any such Real Estate
Assets.

         Section 8.4 TAXES AND CLAIMS. The Borrower will, and will cause each of
the other Loan Parties to, pay or discharge  before becoming  delinquent (a) all
taxes, levies,  assessments and governmental charges imposed on it or its income
or profits or any of its Property and (b) all lawful claims for labor,  material
and supplies,  which, if unpaid, could result in the creation of a Lien upon any
of its  Property;  PROVIDED,  HOWEVER,  that none of the Loan  Parties  shall be
required to pay or discharge any tax, levy,  assessment or governmental  charge,
or claim for  labor,  material  or  supplies,  whose  amount,  applicability  or
validity  is being  contested  in good faith by  appropriate  proceedings  being
diligently  pursued and for which adequate  reserves have been established under
GAAP.

         Section 8.5       INSURANCE.
                           ---------

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         (a) The  Borrower  will,  and will cause each of the other Loan Parties
to, keep insured by financially  sound and reputable  insurers all Property of a
character  usually  insured  by  responsible  entities  engaged in the same or a
similar business  similarly  situated against loss or damage of the kinds and in
the amounts  customarily  insured  against by such  corporations or entities and
carry  such  other  insurance  as is usually  carried  by such  corporations  or
entities and each of the Loan  Parties  which is the owner or holder of any such
policy will comply in all material respects with all of the terms and conditions
thereof, PROVIDED that in any event the Loan Parties will maintain:

                  (i)  PROPERTY  INSURANCE.  Insurance  against  loss or  damage
         covering  substantially  all of the tangible real and personal Property
         (including, without limitation, the Nortel Networks Equipment and other
         equipment  related to the Network) and  improvements  of such Person by
         reason of any Peril (as defined below) in such amounts  (subject to any
         deductibles as shall be  satisfactory to the  Administrative  Agent) as
         shall be reasonable  and customary and  sufficient to avoid the insured
         named therein from becoming a co-insurer of any loss under such policy,
         but in any event in such  amounts as are (A)  reasonably  available  as
         determined  by the  Borrower's  independent  insurance  broker  and (B)
         reasonably acceptable to the Administrative Agent.

                  (ii)  AUTOMOBILE  LIABILITY  INSURANCE  FOR BODILY  INJURY AND
         PROPERTY DAMAGE.  Insurance in respect of all vehicles  (whether owned,
         hired or  rented by such  Person)  at any time  located  at, or used in
         connection with, its Properties or operations  against  liabilities for
         bodily injury and Property damage in such amounts as are then customary
         for vehicles used in connection with similar Properties and businesses,
         but in any event to the extent required by applicable law.

                  (iii)  COMPREHENSIVE  GENERAL LIABILITY  INSURANCE.  Insurance
         against claims for bodily injury,  death or Property  damage  occurring
         on, in or about the Property  (and  adjoining  streets,  sidewalks  and
         waterways)  of such Person,  in such amounts as are then  customary for
         Property similar in use in the jurisdictions  where such Properties are
         located.

         (iv) WORKER'S COMPENSATION  INSURANCE.  Worker's compensation insurance
(including  employers' liability insurance) to the extent required by applicable
law, which may be self-insurance to the extent permitted by applicable law.

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Without  limiting  the  generality  of the  foregoing,  the Loan  Parties  shall
purchase  and  maintain in effect  all-risk,  property  and  casualty  insurance
(including  casualty insurance covering  earthquake and flood damage) reasonably
acceptable  and in amounts  reasonably  acceptable to the  Administrative  Agent
covering  all  Nortel  Networks  Equipment  and other  equipment  related to the
Network and liability  insurance covering the operations of the Borrower and its
Subsidiaries.   All  insurance  shall  be  written  by  financially  responsible
companies  selected by the applicable  Loan Party and having an A.M. Best Rating
of "A-" or better and being in a financial  size category of "VI" or larger,  or
by other  companies  reasonably  acceptable to the  Administrative  Agent.  Each
policy referred to in this SECTION 8.5 shall name the Administrative  Agent (for
the  benefit of itself and the other  Lenders)  as loss payee  (with  respect to
casualty  insurance  policies) and additional insured (with respect to liability
insurance  policies) and shall provide that it will not be canceled,  amended or
reduced  except  after  not  less  than 30 days'  prior  written  notice  to the
Administrative   Agent  and  shall  also  provide  that  the  interests  of  the
Administrative  Agent and the Lenders shall not be invalidated or reduced by any
act, omission or negligence of any Loan Party; PROVIDED,  HOWEVER, that, so long
as any Eligible Secured Debt is outstanding, the Collateral Agent (as opposed to
the Administrative Agent) shall be so named as loss payee and additional insured
and shall  receive  such prior  written  notice of  cancellation,  amendment  or
reduction.  The Borrower will advise the  Administrative  Agent  promptly of any
policy  cancellation,  reduction or  amendment.  For purposes  hereof,  the term
"PERIL" shall mean,  collectively,  fire,  lightning,  flood,  windstorm,  hail,
explosion,  riot and civil commotion,  vandalism and malicious mischief,  damage
from  aircraft,  vehicles and smoke and other perils  covered by the  "all-risk"
endorsement  then in use in the  jurisdictions  where the Properties of the Loan
Parties are located.

         (b) The Borrower  will cause each  Insurance  Recovery  (other than any
portion of an  Insurance  Recovery  payable  to a landlord  to repair or replace
Property  leased by any Loan  Party)  payable  by any  insurance  company  to be
deposited promptly with the Administrative  Agent or the Collateral Agent if the
Collateral  Agency  Agreement shall be in effect as security for the Obligations
if a Default has then  occurred  and is  continuing,  and will  promptly pay all
Insurance  Recoveries to the  Administrative  Agent for application  against the
Obligations if and to the extent required in accordance with SECTION 2.7(A).

         (c) If a Default  shall have occurred and be  continuing,  the Borrower
will cause all proceeds of insurance paid on account of the loss of or damage to
any Property of any Loan Party and all awards of  compensation  for any Property
of any Loan Party taken by  condemnation  or eminent  domain to be promptly paid
directly to the  Administrative  Agent or the Collateral Agent if the Collateral
Agency  Agreement  shall be in effect to be applied  against or held as security
for  the  Obligations,  at the  election  of the  Administrative  Agent  and the
Required Lenders.

         Section 8.6 INSPECTION  RIGHTS.  The Borrower will, and will cause each
of  the  other  Loan  Parties  to,  permit  representatives  and  agents  of the
Administrative  Agent and the Lenders,  during  normal  business  hours and upon
reasonable notice to the Borrower,  to examine,  copy and make extracts from its
books and  records,  to visit and  inspect  its  Properties  and to discuss  its
business,  operations and financial  condition with its officers and independent
certified public accountants.  The Borrower will authorize,  and will cause each
of the other Loan Parties to authorize,  its accountants in writing (with a copy
to the Administrative Agent) to comply with this SECTION 8.6. The Administrative
Agent and/or its  representatives  may, at any time and from time to time at the
Borrower's expense,  conduct field exams for such purposes as the Administrative
Agent may reasonably  request;  PROVIDED,  however,  that,  unless a Default has
occurred and is  continuing  (in which case all such field exams shall be at the
Borrower's  expense),  no more than one such field exam during any calendar year
shall be at the Borrower's expense.

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         Section 8.7 KEEPING  BOOKS AND  RECORDS.  The Borrower  will,  and will
cause each of the other Loan Parties to,  maintain  appropriate  books of record
and account in accordance with GAAP consistently applied in which true, full and
correct  entries  will be made of all their  respective  dealings  and  business
affairs.  If any  changes  in  accounting  principles  from  those  used  in the
preparation of the financial statements  referenced in SECTION 8.1 are hereafter
required or permitted  by GAAP and are adopted by the  Borrower (as  applicable)
with the concurrence of its independent  certified  public  accountants and such
changes  in  GAAP  result  in a  change  in the  method  of  calculation  or the
interpretation  of any of the  covenants,  standards or terms  contained in this
Agreement,  the  Borrower  and the  Required  Lenders  agree to  amend  any such
affected  terms and  provisions  so as to reflect  such changes in GAAP with the
result that the criteria for evaluating  the financial  condition or performance
of the Loan  Parties  shall be the same  after  such  changes in GAAP as if such
changes in GAAP had not been made.

         Section 8.8  COMPLIANCE  WITH LAWS.  The Borrower  will, and will cause
each of the other Loan  Parties to,  comply with all  Governmental  Requirements
applicable to the operation of its business (including,  without limitation, the
Communications  Act, any rule or regulation of the FCC or any rule or regulation
of any  federal  or  state  public  utility  commission  or  other  Governmental
Authority),  except for instances of noncompliance  that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

         Section 8.9  COMPLIANCE  WITH  AGREEMENTS.  The Borrower will, and will
cause each of the other Loan Parties to, comply with all  agreements,  documents
and  instruments  binding  on  it  or  affecting  its  Properties  or  business,
including,  without limitation, all Material Contracts,  except for instances of
noncompliance that could not reasonably be expected to have,  individually or in
the aggregate, a Material Adverse Effect. With respect to each Material Contract
(other than purchase  orders entered into in the ordinary course of business) of
any Loan Party (other than  Holdings)  entered into after the Closing Date,  the
Borrower will deliver to the Administrative Agent a complete and current copy of
such  Material  Contract  in a  reasonably  prompt  fashion  after the  creation
thereof.

         Section 8.10 FURTHER ASSURANCES. The Borrower will execute and deliver,
and will cause each of the other Loan  Parties  to  execute  and  deliver,  such
further agreements,  documents and instruments  (including,  without limitation,
financing statements and amendments to financing statements specifying each item
of the Collateral and the serial number  therefor) and take such further actions
as may be  reasonably  requested  by the  Administrative  Agent to carry out the
terms  and  provisions  and  purposes  of  this  Agreement  and the  other  Loan
Documents,  to evidence the  Obligations and to create,  preserve,  maintain and
perfect the Liens of the Administrative  Agent (and/or the Collateral Agent) for
the benefit of itself and the Lenders in and to the  Collateral and the required
priority of such Liens.  Without  limiting the generality of the foregoing,  the
Borrower  will,  and will cause each of the other Loan  Parties to, (a) take all
necessary  actions to and otherwise  ensure that, at all times,  the Obligations
will rank senior in respect of priority of payment to any Subordinated  Debt (to
the extent of the  subordination  provisions in the Subordinated  Debt Documents
governing such  Subordinated  Debt) and will rank at least PARI PASSU in respect
of priority of treatment  with all other present and future Debt of the Borrower
(excluding  rights of secured  parties with respect to Permitted  Liens) and (b)
take all  necessary  actions to and  otherwise  ensure that,  at all times,  the
indebtedness,  liabilities  and obligations of each Guarantor under the Guaranty
executed by it will rank at least pari passu in respect of priority of treatment
with all other present and future Debt of such  Guarantor  (excluding  rights of
secured  parties with respect to Permitted  Liens).  The Borrower agrees that it
shall not,  and shall not  permit any other Loan Party to,  effect or permit any
change  referred to in CLAUSE (S) of SECTION  8.1 unless all  filings  have been
made  under the UCC or  otherwise  that are  required  in  accordance  with this
Agreement  in order for the  Administrative  Agent or the  Collateral  Agent (as
applicable)  to  continue  at all times  following  such change to have a valid,
legal and perfected security interest in all the Collateral.

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         Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates  to,  comply  with all  minimum  funding  requirements  and all other
material  requirements of ERISA so as not to give rise to any material liability
thereunder.

         Section 8.12 NON-CONSOLIDATION.  The Borrower will, and will cause each
of the other Loan Parties to: (a) maintain  entity  records and books of account
separate  from  those of any other  entity  which is an  Affiliate  of such Loan
Party;  (b) not  commingle  its funds or assets  with those of any other  entity
which is an  Affiliate  of such Loan Party;  and (c)  provide  that its Board of
Directors or other analogous  governing body will hold all appropriate  meetings
to authorize and approve such Person's  entity  actions,  which meetings will be
separate from those of other Loan Parties.

         Section  8.13  YEAR  2000  COMPLIANCE.  Except  for such  instances  as
individually  or in the  aggregate  could not  reasonably  be expected to have a
Material  Adverse  Effect,  all  of the  material  computer  software,  computer
hardware  (whether  general or special  purpose),  and other  similar or related
items of  automated,  computerized  or software  systems that are used or relied
upon by any Loan Party in the conduct of its business  are and will  continue to
be Year 2000  Compliant and,  without  limiting the generality of the foregoing,
will not malfunction,  will not cease to function,  will not generate  incorrect
data and will not  produce  incorrect  results  when  processing,  providing  or
receiving (a) date-related  data into and between the twentieth and twenty-first
centuries and (b)  date-related  data in  connection  with any valid date in the
twentieth and  twenty-first  centuries.  The Borrower  will promptly  notify the
Administrative  Agent in the event any Loan Party  discovers or determines  that
any computer application  (including those of its suppliers and vendors) that is
material to such Loan  Party's  business  and  operations  will not be Year 2000
Compliant on a timely basis.

         Section 8.14 TRADE ACCOUNTS PAYABLE.  The Borrower will, and will cause
each of the other Loan  Parties to, pay all trade  accounts  payable  before the
same  become  more than 90 days  past due,  except  (a) trade  accounts  payable
contested in good faith or (b) trade accounts payable in an aggregate amount not
to  exceed  $100,000  at any  time  outstanding  and  with  respect  to which no
proceeding to enforce  collection has been commenced or, to the knowledge of any
Loan Party, threatened.

         Section 8.15  DELIVERY OF CERTAIN  AMENDMENTS,  MATERIAL  CONTRACTS AND
SUBORDINATED DEBT DOCUMENTS. The Borrower will, and will cause each of the other
Loan Parties to,  promptly  deliver to the  Administrative  Agent any amendment,
modification or supplement to (a) the certificate or articles of  incorporation,
articles of organization,  bylaws, regulations or other constitutional documents
of any Loan Party,  (b) any  Material  Contract to which it is a party,  (c) any
License or Contract  Rights-of-Way which it possesses,  and (d) any Subordinated
Debt Document;  PROVIDED,  HOWEVER,  that any such  amendment,  modification  or
supplement  shall be subject to the  provisions  of SECTION  9.15.  The Borrower
will,  and  will  cause  each of the  other  Loan  Parties  to,  deliver  to the
Administrative Agent, promptly after such Material Contract or Subordinated Debt
Document  comes into  existence,  a true and correct copy of each such  Material
Contract or  Subordinated  Debt Document in existence which is not identified on
SCHEDULE 7.22.

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         Section 8.16 INTEREST RATE PROTECTION. The Borrower will, commencing on
or before the 90th day after the Closing Date, maintain in full force and effect
through the final Maturity Date one or more Interest Rate Protection Agreements,
in form and substance reasonably  satisfactory to the Administrative Agent, with
one or more  counterparties  rated in one of the three highest rating categories
of  Standard  & Poors  Corporation  or  Moody's  Investors  Services,  Inc.  and
otherwise  reasonably  acceptable to the  Administrative  Agent, that enable the
Borrower  to fix or place a limit upon a rate of  interest  with  respect to not
less than an  aggregate  notional  amount  (not less than  zero)  equal to fifty
percent  (50.0%) of the remainder of the  aggregate  amount of Total Debt of the
Borrower and its  Consolidated  Subsidiaries  MINUS the aggregate amount of such
Total  Debt of the  Borrower  and  its  Consolidated  Subsidiaries  with a fixed
interest  rate.  The maximum  amount for which  interest may be fixed or limited
under all such Interest Rate Protection  Agreements shall not exceed one hundred
percent  (100%) of the Total Debt of the Borrower and its  Subsidiaries  bearing
interest at a variable rate.

         Section 8.17 OWNERSHIP OF CERTAIN ASSETS AND  BUSINESSES.  The Borrower
shall,  at all times and  except as may be set forth on  SCHEDULE  8.17 or as is
required  with  respect  to  Fiber,  Conduit,  Contract  Rights-of-Way  and real
Property as  provided in this  SECTION  8.17 below,  own all  Telecommunications
Assets used or useful in the operation of the Telecommunications Business of the
Borrower and its Subsidiaries. Notwithstanding the foregoing, all rights, titles
and  interest  in and to all Fiber,  Conduit,  Contract  Rights-of-Way  and real
Property of the Borrower and its  Subsidiaries  shall be owned or held by PRE or
PFE (with respect to Fiber or Conduit only),  it being  acknowledged  and agreed
that the interests of PRE or PFE in Fiber, Conduit,  Contract  Rights-of-Way and
real  Property  may  not be fee  interests  and  may  consist  of a  variety  of
interests,  including  irrevocable  rights to use,  easements,  leases and other
contract rights but that all such interests shall be free and clear of all Liens
created  by PRE,  PFE and the other Loan  Parties  other  than  Permitted  Liens
subject to SECTION 9.2(B). All payments and other consideration at any time paid
or payable under any Customer  Agreement  shall be paid and payable  directly to
the Borrower.  The Borrower and its  Subsidiaries  will at all times ensure that
none of the  restrictions or other terms,  provisions or conditions  relating to
their  ownership  of or other  right to use Fiber or  Conduit  shall  materially
adversely affect or interfere with their ability to operate or otherwise use any
Fiber.

         Section  8.18  VERACITY  AND  ACCURACY  OF  FINANCIAL  STATEMENTS.  All
financial  statements to be delivered to the Administrative  Agent in accordance
with this Agreement will be, when  delivered,  true and correct  (subject to any
estimates or approximations permitted in accordance with GAAP), will be prepared
in  accordance  with GAAP  (except,  in the case of other than annual  financial
statements,  for year-end  adjustments  and the absence of  financial  statement
footnotes  required by GAAP and, in the case of the  unaudited pro forma balance
sheet,  the pro forma nature of such  financial  statement)  and will fairly and
accurately  present,  on a consolidated and consolidating basis (as applicable),
the financial condition of Holdings and its Consolidated Subsidiaries (including
without  limitation,  the Borrower) as of the respective dates indicated therein
and the results of operations for the respective periods indicated therein.

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         Section 8.19 INVESTMENT  COMPANY ACT AND PUBLIC UTILITY HOLDING COMPANY
ACT.  Each of the Loan  Parties  will take such  actions as may be  necessary or
appropriate  to ensure that it is not, and does not become,  (a) an  "investment
company"  within the meaning of the Investment  Company Act of 1940, as amended,
or (b) a "holding  company" or a "subsidiary  company" of a "holding company" or
an "affiliate" of a "holding  company" or a "public  utility" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

         Section 8.20  INSTALLMENT  SALES OR LEASES OF NORTEL NETWORKS GOODS AND
SERVICES.  Substantially  concurrently with the use of any proceeds of the Loans
by PFE to purchase Nortel Networks Goods and Services in accordance with SECTION
2.10(B),  PFE shall sell or lease all of the Nortel  Networks Goods and Services
purchased with such proceeds to the Borrower  pursuant to an  installment  sales
contract or a lease contract in form and substance  reasonably  satisfactory  to
the  Administrative  Agent, which sale or lease shall be made at or (in the case
of a lease,  rental payments thereunder shall be based upon) the same price paid
by PFE; PROVIDED, HOWEVER, that (a) the indebtedness of the Borrower owed to PFE
in  connection  with each  such  installment  sales  contract  or lease  must be
permitted in  accordance  with,  and must satisfy each of the  requirements  set
forth in,  CLAUSE  (H) of  SECTION  9.1 and (b) none of such  installment  sales
contracts or leases shall  include the grant of any Lien in the Nortel  Networks
Goods and Services or any other Property or shall constitute chattel paper.

         Section 8.21 MANAGEMENT SERVICES.  The Borrower shall not terminate the
Approved Services Agreement and, except to the extent that Professional Services
(as defined in the Approved Services Agreement) are provided by employees of the
Borrower,  shall continue to receive the  Professional  Services from PNI as set
forth therein.

         Section 8.22 POST-CLOSING  CONSENTS.  The Borrower and its Subsidiaries
shall use their commercially  reasonable efforts to obtain, within 30 days after
the  Closing  Date and  continuing  thereafter  so long as may be  necessary  or
appropriate,  consents,  from  each of the  third  parties  party to the  Master
Rights-of-Way  Agreements  and the  Material  Contracts  identified  as  items 3
through 11 and 14 on SCHEDULE 7.22 hereto,  pursuant to which each of such third
parties   consents  to  the  Liens  granted  in  the  rights  under  the  Master
Rights-of-Way  Agreements  and such  Material  Contracts  by the Loan Parties to
secure the payment and  performance of the  Obligations  and the exercise of all
rights and  remedies of a secured  party,  which  consents  shall be in form and
substance reasonably satisfactory to the Administrative Agent.

                                    ARTICLE 9

                               NEGATIVE COVENANTS

         The Borrower  covenants and agrees that, as long as the  Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder,  it
will perform and observe,  or cause to be performed and observed,  the following
covenants:

         Section  9.1 DEBT.  The  Borrower  will not,  and will not  permit  any
Subsidiary  of the Borrower  to,  incur,  create,  assume or permit to exist any
Debt, except (subject to the proviso below):

         (a)      Debt to the Lenders pursuant to the Loan Documents;

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         (b) unsecured Debt under Interest Rate  Protection  Agreements  entered
into in compliance with SECTION 8.16;  PROVIDED,  HOWEVER,  that Debt thereunder
may be secured if such Debt constitutes a part of the Obligations;

         (c) existing Debt in the principal  amounts and as otherwise  described
on SCHEDULE 7.10 hereto;

         (d)  Debt  of  the  Borrower   incurred  to  finance  the  acquisition,
construction,  installation or improvement of any capital assets;  PROVIDED that
(i) such Debt is incurred within [*] days of such  acquisition or the completion
of such construction,  installation or improvement,  (ii) any such Debt incurred
in connection  with any particular  acquisition,  construction,  installation or
improvement shall not exceed [*]% of the cost of such acquisition, construction,
installation or  improvement,  and (iii) the aggregate  principal  amount of all
Debt permitted by this CLAUSE (D) or a refinancing  thereof  permitted by CLAUSE
(I) below shall not exceed $1,000,000 at any time outstanding;

         (e)  Subordinated  Debt of the Borrower  which has been approved by the
Administrative Agent and the Required Lenders in writing;

         (f)      Eligible Secured Debt;

         (g)  liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such  liabilities will
not constitute, cause or result in a Default;

         (h)  intercompany  Debt  between or among the  Borrower  and any of its
Wholly-Owned   Subsidiaries   incurred  in  the  ordinary   course  of  business
(including,  without limitation,  Debt owed by the Wholly-Owned  Subsidiaries of
the  Borrower to the  Borrower in  connection  with loans of proceeds of (x) the
Loans made by the Borrower to such Subsidiaries, the proceeds of which loans are
used for the purposes permitted by SECTION 2.10 and (y) other loans constituting
Eligible  Secured Debt made by other lenders,  the proceeds of which are used to
purchase  assets to be used in the  construction  and operation of the Network),
subject  to the  following  requirements:  any  and  all of the  Debt  permitted
pursuant  to this  CLAUSE  (H) (i)  shall not  exceed  $1,000,000  in  aggregate
principal amount outstanding (exclusive of any loans made by the Borrower to PFE
pursuant to SECTION 2.10(B)), (ii) shall be unsecured,  (iii) shall be evidenced
by instruments satisfactory to the Administrative Agent which will be pledged to
the  Administrative  Agent (or the Collateral  Agent,  if the Collateral  Agency
Agreement  is in effect)  for the  benefit of the  Administrative  Agent and the
Lenders,  and (iv)  shall  be  subordinated  to the  Obligations  pursuant  to a
subordination agreement in form and substance satisfactory to the Administrative
Agent; PROVIDED,  HOWEVER, that temporary advances made from time to time in the
ordinary course of business not to exceed $100,000 in aggregate principal amount
at any time owing by any Wholly-Owned Subsidiary of the Borrower to the Borrower
shall not be required to meet the  requirements  of CLAUSE  (III) or CLAUSE (IV)
preceding;

         (i) purchase money Debt (including Capital Lease  Obligations)  secured
by purchase money Liens,  which Debt and Liens are permitted  under and meet all
of the  requirements of CLAUSE (G) (including  SUBCLAUSES  (I), (II),  (III) and
(IV) thereof) of the definition of Permitted Liens contained in SECTION 1.1;

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         (j) Debt of the Borrower  incurred to refinance any Debt referred to in
CLAUSE (C), (D) or (E) above; PROVIDED that (i) the principal amount of any such
Debt does not exceed the  principal  amount of, plus  accrued  interest  and any
prepayment  premiums  applicable  to,  the  Debt  refinanced  thereby  plus  any
commitment fees or any other out-of-pocket  expenses incurred in connection with
such refinancing, (ii) any such Debt has a scheduled final maturity date that is
on or after the scheduled  final maturity date of the Debt  refinanced  thereby,
(iii) any such Debt has a weighted  average life to maturity that is equal to or
longer  than  the  remaining  weighted  average  life to  maturity  of the  Debt
refinanced  thereby,  determined  immediately  prior to  giving  effect  to such
refinancing, (iv) any such Debt does not include any provisions that may require
mandatory  Repayment thereof prior to scheduled  maturity,  other than scheduled
repayments taken into consideration in determining  compliance with CLAUSE (III)
above, and does not include other provisions that are materially more burdensome
taken as a whole  than the  provisions  included  in the Debt  being  refinanced
(except that Eligible  Secured Debt that is incurred to refinance other Eligible
Secured Debt permitted by this SECTION 9.1 may have  prepayment  provisions that
are substantially the same as those applicable to the Loans hereunder),  (v) any
such Debt shall not be  Guaranteed  or secured by any Lien unless the Debt being
refinanced  was  Guaranteed  or  secured  (in which  case such Debt shall not be
Guaranteed by any Person that did not Guarantee  the Debt being  refinanced  and
shall not be  secured  by a Lien on any asset that did not secure the Debt being
refinanced),  except that  Eligible  Secured  Debt that is incurred to refinance
other  secured  Debt  permitted  by SECTION  9.1 may be secured by the  Security
Documents if the assets securing such refinanced  secured Debt become Collateral
effective  upon  such  refinancing,  and (vi) if the Debt  being  refinanced  is
Subordinated  Debt, then any Debt incurred to refinance such  Subordinated  Debt
shall be  subordinated  to the  Obligations  on terms no less  favorable  to the
Lenders than the terms of the Subordinated Debt being refinanced;

         (k) Debt consisting of Qualifying  Fiber or Conduit  Purchases  entered
into in the ordinary course of business; and

         (l) Guaranties by the Borrower of Debt of its Subsidiaries,  other than
PRE, permitted pursuant to this Agreement, and Guaranties by the Subsidiaries of
the Borrower, other than PRE, of Debt of the Borrower permitted pursuant to this
Agreement;

PROVIDED,  HOWEVER,  notwithstanding  the  foregoing or anything to the contrary
contained in this Agreement,  (i) PRE shall not incur, create,  assume or permit
to exist any Debt other than the Debt  referred to in CLAUSE (A)  preceding  and
Guarantees of Eligible  Secured Debt referred to in CLAUSE (F)  preceding,  (ii)
PFE shall not incur,  create,  assume or permit to exist any Debt other than the
Debt referred to in CLAUSE (A) preceding and Guarantees of Eligible Secured Debt
referred to in CLAUSE (F) preceding and subordinated,  intercompany Debt owed to
the Borrower  referred to in CLAUSE (H)  preceding,  and (iii) the Borrower will
not,  and will not permit any  Subsidiary  of the Borrower  to,  incur,  create,
assume  or  permit  to exist  any Debt  which is  secured  by any Lien  created,
evidenced  or  governed  by  any  of  the  Security  Documents  other  than  the
Obligations and other Eligible Secured Debt.

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         Section 9.2       LIMITATION ON LIENS.

         (a) The Borrower  will not, and will not permit any  Subsidiary  of the
Borrower to, (i) incur,  create,  assume or permit to exist any Lien upon any of
its  Property or  revenues,  whether  now owned or  hereafter  acquired,  except
Permitted Liens and (ii) enter into any negative  pledge or similar  arrangement
in  favor of other  creditors  in any way  restricting,  limiting  or  otherwise
affecting  its  power,  authority,  right or ability  (whether  by  contract  or
otherwise) to grant, create or permit to exist any Lien on any of its Properties
(other than such negative  pledge or similar  arrangement  under  purchase money
Debts and  Capital  Lease  Obligations  with  respect to the assets  financed or
secured thereby or under Eligible  Secured Debt Documents which expressly permit
the Liens  securing  the  Obligations  and Liens  required  to be granted in the
future to secure the Obligations in accordance with the Loan Documents).

         (b) Notwithstanding the foregoing or anything to the contrary contained
in this Agreement,  the Borrower will not, and will not permit any Subsidiary of
the Borrower to,  grant,  create,  assume or permit to exist any Lien (i) on any
Collateral  except as permitted to attach to such  Collateral in accordance with
the  definition of the term  "Permitted  Liens",  (ii) on any Real Estate Assets
except (A) Liens created under the Security Documents and (B) Liens described in
CLAUSE (C), (D),  (E),  (G), (H), (K), (L), (m), (N) or (O) (to the extent,  but
only to the  extent,  that such CLAUSE (O)  relates to  extensions,  renewals or
replacements  of the Liens permitted under CLAUSES (C), (D), (E), (G), (H), (K),
(L),  (M) or (N)) of the  definition  of the term  "Permitted  Liens",  or (iii)
pursuant  to any  of the  Security  Documents  other  than  Liens  securing  the
Obligations and other Eligible Secured Debt; PROVIDED, HOWEVER, that neither PRE
nor PFE may grant or create any Lien  described in CLAUSE (G) of the  definition
of the term "Permitted Liens".

         Section 9.3 MERGERS,  ETC.  The Borrower  will not, and will not permit
any  Subsidiary  of  the  Borrower  to,  (a)  become  a  party  to a  merger  or
consolidation,  (b) wind-up,  dissolve or liquidate  itself,  or (c) purchase or
acquire all or a material or  substantial  part of the business or Properties of
any Person; PROVIDED, HOWEVER, that (i) any Subsidiary of the Borrower may merge
with and into the Borrower or a  Wholly-Owned  Subsidiary of the Borrower if the
Borrower or a Wholly-Owned Subsidiary of the Borrower is the surviving entity in
such merger,  PROVIDED that no consideration is given by the surviving entity in
such merger other than the issuance of any Capital Stock of the surviving entity
and such Capital Stock is pledged to the Administrative Agent, for and on behalf
of the  Administrative  Agent and the Lenders,  as security for the  Obligations
pursuant to SECTION 9.6 and (ii) the Borrower or the PRE may purchase or acquire
Fiber or Conduit that  constitutes all or a material or substantial  part of the
business  or  properties  of a Person as  referred  to in CLAUSE  (C)  preceding
pursuant to a purchase, swap or exchange agreement.  The surviving entity in any
such  merger  shall  ratify  the  Guaranty,  the  Security  Documents  and other
indebtedness,  liabilities and obligations of the non-surviving entity under the
Loan Documents.

         Section 9.4  RESTRICTED  PAYMENTS.  The Borrower will not, and will not
permit any  Subsidiary  of the Borrower  to, make or pay, or obligate  itself to
make or pay, any Restricted Payments, except:

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         (a)  subject to the  subordination  provisions  relating  thereto,  the
Borrower may make (and may obligate itself to make) regularly scheduled payments
of interest accrued on any  Subordinated  Debt if and to the extent (but only if
and to the extent)  permitted  by the  express  terms of the  Subordinated  Debt
Documents  governing  such  Subordinated  Debt,  which  terms  shall  have  been
expressly approved in writing by the Administrative Agent;

         (b)  Subsidiaries of the Borrower may make  Restricted  Payments to the
Borrower; and

         (c) commencing on or after March 15, 2001 (but not prior  thereto),  if
and to the extent  permitted by applicable law, the Borrower may declare and pay
(and may obligate  itself to declare and pay)  dividends to Holdings  during any
fiscal year in an aggregate amount not to exceed the positive remainder, if any,
of (i) the accrued  interest on the PNI Senior Notes required to be paid in cash
in accordance  with the PNI Senior Notes  Indenture and,  subject to the proviso
below, actually paid in cash by Holdings or PNI, MINUS (ii) the aggregate amount
of cash that is  otherwise  available  to PNI or  Holdings  at such time for the
payment of such accrued  interest,  which amount referred to in this CLAUSE (II)
shall be  determined  in good  faith from time to time by PNI and  Holdings  and
shall be certified by the chief  financial  officer of each of such  entities to
the Administrative  Agent and the Borrower as being true and correct at least 30
days prior to the date upon which such  dividends are proposed to be paid by the
Borrower, PROVIDED, HOWEVER, that the entirety of the proceeds of such dividends
must be used,  substantially  concurrently with the payment of such dividends by
the Borrower,  by Holdings or PNI to pay the same amount of accrued  interest on
the PNI Senior Notes required to be paid in accordance with the PNI Senior Notes
Indenture,  and actually paid, by Holdings or PNI in cash (and no such dividends
may be paid  by the  Borrower  to  Holdings  more  than  30  days  prior  to the
applicable  date upon which such accrued  interest is required to be paid and is
actually  paid by  Holdings or PNI or in amounts  exceeding  the amounts of such
accrued interest required to be paid and actually paid by Holdings in cash);

         (d) the  Borrower  and its  Subsidiaries  may make  temporary  loans or
advances  to  employees,  officers  and  directors  of the Loan  Parties  in the
ordinary  course of business that do not exceed $[*] in aggregate  amount at any
time outstanding;

PROVIDED,  HOWEVER,  that no Restricted  Payments may be made pursuant to CLAUSE
(A),  CLAUSE (B) or CLAUSE (C) preceding if a Default exists at the time of such
Restricted Payment or would result therefrom.

         Section 9.5 INVESTMENTS. The Borrower will not, and will not permit any
Subsidiary of the Borrower to, make or permit to remain outstanding any advance,
loan,  extension  of credit or  capital  contribution  to or  investment  in any
Person,  or  purchase  or own any  stock,  bonds,  notes,  debentures  or  other
securities  of any Person,  or be or become a joint  venturer with or partner of
any Person (all such transactions being herein called "INVESTMENTS"), except:

         (a) Investments in obligations or securities  received in settlement of
debts  (created in the  ordinary  course of  business)  owing to the Borrower or
another Loan Party;

         (b) existing Investments identified on SCHEDULE 9.5 hereto;

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         (c)  Investments in securities  issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of acquisition;

         (d) Investments in certificates of deposit and Eurodollar time deposits
with  maturities  of six months or less from the date of  acquisition,  bankers'
acceptances  with  maturities  not  exceeding  six  months  and  overnight  bank
deposits,  in each case with any  Lender or with any  domestic  commercial  bank
having capital and surplus in excess of $500,000;

         (e) Investments in repurchase  obligations with a term of not more than
seven days for  securities of the types  described in CLAUSE (C) preceding  with
any Lender or with any domestic  commercial  bank having  capital and surplus in
excess of $500,000;

         (f)  Investments in commercial  paper of a domestic issuer rated A-2 or
better or P-2 or better by Standard & Poor's  Corporation  or Moody's  Investors
Services, Inc.,  respectively,  maturing not more than 270 days from the date of
acquisition;

         (g) (i) Investments (other than intercompany Debt referred to in CLAUSE
(H) below) by the Borrower in its direct Wholly-Owned  Subsidiaries  existing on
the Closing Date or required to occur in accordance  with this  Agreement,  (ii)
additional  Investments  by the  Borrower  in PFE made  after the  Closing  Date
consisting  of  capital  contributions,  investments  or  loans  to PFE with the
proceeds of (A) the Loans in accordance  with SECTION 2.10(B) or (B) other loans
constituting  Eligible  Secured Debt made by other lenders which are used by PFE
to purchase assets to be used in the  construction and operation of the Network,
(iii)  additional  Investments  by the Borrower in PFE and PRE after the Closing
Date made in the  ordinary  course of business in amounts  sufficient  to permit
(but not in excess  of the  amounts  sufficient  to  permit)  PFE and PRE to pay
reasonable  operating  expenses of PFE and PRE,  respectively,  in the  ordinary
course  of  their  businesses  relating  to the  Network,  and  (iv)  additional
Investments by the Borrower in its direct  Wholly-Owned  Subsidiaries made after
the Closing Date which,  together with  intercompany  Debt referred to in CLAUSE
(H)  below,  does  not  exceed  $1,000,000  in  aggregate  amount  at  any  time
outstanding;

         (h) intercompany Debt permitted pursuant to CLAUSE (H) of SECTION 9.1;

         (i) Interest Rate Protection Agreements entered into in compliance with
SECTION 8.16;

         (j) temporary loans or advances to employees, officers and directors of
the  Loan  Parties  in the  ordinary  course  of  business  that  do not  exceed
$1,000,000 in aggregate amount at any time outstanding; and

         (k) cash investments in one or more Permitted  Telecommunications Joint
Ventures,  PROVIDED,  HOWEVER, that the remainder of (i) the aggregate amount of
all such investments  MINUS (ii) the aggregate amount of income received in cash
as a direct result of such  investments,  exclusive of any interest  received on
the amount invested, shall not exceed $[*].

PROVIDED,  HOWEVER,  that no Investments may be made by the Borrower pursuant to
CLAUSES  (G)(II),  (H) or (K) preceding if a Default  exists at the time of such
Investment or would result therefrom.

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         Section 9.6 LIMITATION ON ISSUANCES OF CAPITAL STOCK. The Borrower will
not, and will not permit any Subsidiary of the Borrower to, at any time,  issue,
sell,  assign or  otherwise  dispose of (a) any of its  Capital  Stock,  (b) any
securities  exchangeable  for or  convertible  into or  carrying  any  rights to
acquire any of its Capital Stock,  or (c) any option,  warrant or other right to
acquire any of its Capital Stock, in each case to any Person other than Holdings
(in the case of Capital  Stock of the  Borrower) or the Borrower (in the case of
Capital  Stock  of a  Subsidiary  of the  Borrower).  All  such  Capital  Stock,
securities,  options,  warrants  and other  rights  issued,  sold,  assigned  or
disposed of shall be, and shall continue to be, subject to a first priority Lien
in favor of the Administrative Agent (or the Collateral Agent, if the Collateral
Agency  Agreement  is in effect) and the Lenders as security for the payment and
performance of the Obligations.

         Section 9.7       TRANSACTIONS WITH AFFILIATES.

         (a) The Borrower  will not, and will not permit any  Subsidiary  of the
Borrower to, enter into any  transaction,  including,  without  limitation,  the
purchase, sale or exchange of Property or the rendering of any service, with any
Affiliate of the Borrower or other Loan Party except (i) in the ordinary  course
of and  pursuant  to the  reasonable  requirements  of the  Borrower's  or  such
Subsidiary's (as applicable) business and upon fair and reasonable terms no less
favorable  to the  Borrower or such  Subsidiary  (as  applicable)  than would be
obtained in a comparable arms-length  transaction with a Person not an Affiliate
of the  Borrower  or such  Subsidiary  (as  applicable),  (ii)  pursuant  to the
Approved Services  Agreement and the Approved Tax Allocation  Agreement or (iii)
as may be approved in writing by the Required Lenders;  PROVIDED,  HOWEVER, that
transactions  between or among the Borrower and its  Affiliates  may be on terms
more  favorable  to  the  Borrower  than  would  be  obtained  in  a  comparable
arms-length  transaction  with a Person not an Affiliate of the Borrower and the
Approved Tax Allocation  Agreement and the Approved  Services  Agreement are not
prohibited by this SECTION 9.7(A).  Except as permitted  pursuant to CLAUSE (II)
or CLAUSE (III) of the preceding sentence,  no transactions between or among (A)
Affiliates of the Borrower and (B) the Borrower and its Subsidiaries relating to
the purchases of equipment  from any such Affiliate or the provision of services
by any such  Affiliate  shall be  permitted  unless  the same are  purchased  or
provided at the cost to such  Affiliate or pursuant to terms and  provisions  of
the Approved Services  Agreement or which have been disclosed to and approved by
the Administrative Agent and the Lenders.

         (b) None of the  Borrower  and its  Subsidiaries  will  make any  loan,
advance or payment to any officer, director, employee,  shareholder or member of
any Loan Party (other than a shareholder or member  consisting of a Loan Party),
except for loans or  advances in an  aggregate  amount not to exceed $[*] at any
time outstanding,  or reasonable  compensation  paid, to officers,  directors or
employees in the ordinary course of business and payments made for goods sold or
services rendered which comply with SECTION 9.7(A).

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         (c)  Neither  the  Borrower  nor any of its  Subsidiaries  may make any
payment  to  Holdings  or PNI or any of their  Affiliates  with  respect  to any
liability  of the  Borrower  or any of its  Subsidiaries  for  Taxes,  PROVIDED,
HOWEVER,  that the Borrower may make such payments to Holdings from time to time
in  amounts  which  are  based  upon the  liabilities  of the  Borrower  and its
Subsidiaries  for  Taxes  in  order  for  Holdings  to pay  Taxes as a part of a
consolidated,  combined or unitary Tax filing group, PROVIDED, FURTHER, however,
that  (i) the  amounts  of  such  payments  shall  not  exceed  the  amounts  of
liabilities for Taxes that would be payable by the Borrower and its Subsidiaries
if they were not part of a  consolidated,  combined or unitary Tax filing  group
with respect to such Taxes,  (ii) all such payments shall be required to be paid
in  accordance  with the terms and  provisions  of the Approved  Tax  Allocation
Agreement and shall not be paid substantially  prior to the dates upon which the
corresponding amounts would be required to be paid by Holdings to the applicable
tax  authorities,  and (iii) at least 10 days prior to the making of any payment
referred  to  in  this  SECTION  9.7(C),  the  Borrower  shall  have  given  the
Administrative  Agent  written  notice of its intention to make such payment and
the  amount  thereof  and  shall  have  delivered  to the  Administrative  Agent
calculations and other appropriate information, in reasonable detail, evidencing
and  certifying  that such payment is permitted in accordance  with this SECTION
9.7(C).

         (d)  Neither  the  Borrower  nor any of its  Subsidiaries  may make any
payment  or   reimbursement   to  Holdings  with  respect  to  any   management,
administrative, overhead, legal, accounting, operating, reporting, compliance or
other  costs  or  expenses,  PROVIDED,  HOWEVER,  that the  Borrower  may pay to
Holdings,  or reimburse  Holdings for Holdings'  payment of,  management fees in
accordance with SECTION 9.13 and administrative,  overhead,  legal,  accounting,
operating,  reporting and compliance  expenses,  which management fees and which
expenses shall not exceed $[*] in aggregate  amount during any calendar year, if
(but only if) all such payments or  reimbursements  shall be required to be paid
by the Borrower to Holdings in accordance  with the terms and  provisions of the
Approved Services Agreement.

         (e)  Neither  the  Borrower  nor any of its  Subsidiaries  may make any
payment (whether cash or other Property,  but excluding  Property in the form of
Capital Stock of Holdings) to or for the benefit of the  employees,  officers or
directors  of  Holdings,  the Borrower or any  Subsidiary  of the Borrower  with
respect to any stock option or other benefit plan relating to any Capital Stock,
PROVIDED,  HOWEVER,  that the Borrower may make such payments pursuant to and in
accordance  with stock option or other benefit plans for employees,  officers or
directors of  Holdings,  the  Borrower or any  Subsidiary  of the Borrower in an
aggregate amount not to exceed $[*] during any calendar year.

         Section 9.8  DISPOSITION  OF PROPERTY.  The Borrower will not, and will
not permit any Subsidiary of the Borrower to, sell, lease,  assign,  transfer or
otherwise  dispose of any of its real or personal Property  (including,  without
limitation,  the Nortel Networks  Equipment and the Nortel Networks Software and
Capital Stock of any Subsidiary  owned by such Person),  except  (subject to the
succeeding proviso):

         (a)  dispositions  of Inventory  (other than equipment) by the Borrower
and its  Subsidiaries  in the ordinary course of business,  and  expenditures of
money  (including,  without  limitation,  money  held in  deposit  accounts  and
expenditures to pay Debt and other  liabilities)  made in the ordinary course of
business or for the purpose of making Restricted Payments expressly permitted in
accordance with this Agreement or Investments  expressly permitted in accordance
with this Agreement;

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         (b) Asset  Dispositions  of  Property,  other than the  Network (or any
portion thereof), Fiber, Conduit,  accounts or Receivables,  by the Borrower and
its Subsidiaries if each of the following conditions have been satisfied: (i)(A)
the Net  Proceeds  from any such single Asset  Disposition  or series of related
Asset  Dispositions  in any fiscal year do not exceed $[*] and the Net  Proceeds
from all such Asset  Dispositions  in any fiscal year do not exceed $[*] and (B)
the Borrower or its Subsidiary (as applicable)  receives fair  consideration for
such  assets and (ii) no Default  exists at the time of or will result from such
Asset Disposition;

         (c) Asset  Dispositions of Property,  accounts and Receivables,  by the
Borrower and its Subsidiaries to any Wholly-Owned  Subsidiary of the Borrower if
each of the  following  conditions  have been  satisfied:  (i) the assets  sold,
disposed  of or  otherwise  transferred  to a  Wholly-Owned  Subsidiary  of  the
Borrower  shall  continue  to be subject to a  perfected,  first  priority  Lien
(except for Permitted  Liens, if any, which are expressly  permitted by the Loan
Documents to have priority over the Liens securing the  Obligations) in favor of
the  Administrative  Agent (or the Collateral  Agent,  if the Collateral  Agency
Agreement is in effect) and the Lenders,  and (ii) no Default exists at the time
of or will result from such Asset Disposition;

         (d) dispositions of obsolete,  uneconomic or surplus Property no longer
used  or  useful  in  the  ordinary  course  of  business,   including,  without
limitation,   dispositions   of  equipment  being  exchanged  or  replaced  with
comparable or better equipment;

         (e) subject to the proviso  below,  Fiber or Conduit Sales  pursuant to
Customer  Agreements for full and fair  consideration  in the ordinary course of
the  Borrower's  or its  Subsidiaries'  business  and in  accordance  with or as
contemplated  by the Business Plan,  PROVIDED that the Borrower will ensure that
it and its Subsidiaries retain, at all times, the ownership of or right to use a
minimum of six strands of Fiber with  respect to each  long-haul  segment of the
Network,  PROVIDED,  HOWEVER,  that,  in  connection  with any Fiber or  Conduit
Purchases, the Borrower and its Subsidiaries may acquire and retain a minimum of
two strands of Fiber installed or intended to be installed in the Network;

         (f) subject to the proviso  below and except as permitted by CLAUSE (E)
preceding, dispositions of an entire operating segment of the Network if (i) the
Borrower receives fair consideration for such segment of the Network disposed of
and (ii) no Default exists at the time of or will result from such  disposition,
PROVIDED, HOWEVER, that, as of any date of determination,  not more than [*]% of
the aggregate amount of completed  Network route miles at any time owned or then
previously  owned by the Borrower and its  Subsidiaries  (excluding  any Network
route  miles  exchanged  for other  Network  route  miles) may be, or have been,
disposed  of  after  giving  effect  to  all  previous   dispositions   and  all
dispositions being made or proposed to be made as of such date of determination;
and

         (g) sales or leases of customer  premises  equipment or other equipment
intended for resale at the time of its  acquisition  or sublicenses of software,
in each  case made in the  ordinary  course  of  business  and for full and fair
consideration;

PROVIDED,  HOWEVER,  that,  except as  permitted  in CLAUSE (B)  preceding,  the
Borrower will not, and will not permit any  Subsidiary of the Borrower to, sell,
lease,  assign,  transfer  or  otherwise  dispose of any of the Nortel  Networks
Equipment or any other equipment used in connection with the Network without the
prior written consent of the Required Lenders and Nortel Networks.

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         Section 9.9 SALE AND  LEASEBACK.  The  Borrower  will not, and will not
permit any  Subsidiary of the Borrower to, enter into any  arrangement  with any
Person  pursuant to which it leases  from such Person real or personal  Property
that,  substantially  concurrently with such lease, has been or is to be sold or
transferred, directly or indirectly, by it to such Person.

         Section 9.10      LINES OF BUSINESS.

         (a) The Borrower  will not, and will not permit any  Subsidiary  of the
Borrower  to,  (i)  engage  in  any  business  other  than  (A)  the  build-out,
development, installation, operation and ownership of the Network (including the
provision  of services  relating to the  Network)  and other  Telecommunications
Businesses in the U.S. and the conduct of related Telecommunications  Businesses
and matters incidental thereto and (B) the sale, lease, transfer, swap, exchange
or other  disposition  of Fiber or Conduit  pursuant to Customer  Agreements and
activities  relating  thereto or (ii)  discontinue any line or lines of business
which  provide  material net  revenues to the  Borrower or a  Subsidiary  of the
Borrower in which it is engaged on the Closing Date.

         (b) The Borrower will not permit Holdings to own any Real Estate Assets
other  than  rights  under  the  Master  Rights-of-Way  Agreements  that are not
contributed  to the Borrower or any  Subsidiary of the Borrower  pursuant to the
Rights-of-Way Contribution Agreement.

         (c) The Borrower  will not permit any  Subsidiary  to (i) engage in any
business other than the ownership of the Real Estate Assets (as to PRE) or Fiber
and Conduit and Nortel  Networks  Goods and Services and other  equipment (as to
PFE) and  matters  incidental  thereto,  (ii) own or acquire any  Properties  or
assets  other than the Real  Estate  Assets (as to PRE) or Fiber and Conduit and
Nortel Networks Goods and Services and other equipment (as to PFE),  (iii) incur
any  Debt  other  than  pursuant  to the  Guaranty  Agreement  and the  Security
Documents or, as to PFE,  intercompany  Debt owed to the Borrower,  or incur any
other monetary liability other than liabilities for franchise and property taxes
and similar  liabilities  incidental to its existence and those  relating to the
assets or  Properties  owned or held by it, (iv) enter into or become a party to
any  agreement,  document,  instrument  or  contract  other  than  (A) the  Loan
Documents,  (B) any Customer  Agreement,  (C) the  Rights-of-Way  Agreements and
agreements  granting to PRE the Contract  Rights-of-Way for the Network,  (D) as
set forth on SCHEDULE 9.10, and (E) the Master Purchase Agreement.

         (d) The  Borrower  will not  permit PNI to engage in, and PNI shall not
engage in, the business of  constructing  or operating a long-haul fiber network
or  route;  PROVIDED,  HOWEVER,  that  PNI is a party to the  Approved  Services
Agreement  and  provides  certain  services and shares  certain  assets with the
Borrower pursuant thereto.

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         (e) The Borrower will not, and will not permit any of its  Subsidiaries
to, own, develop,  install or operate any portion of the Network at any location
outside the continental U.S., except that a portion of the Network may be owned,
developed,  installed or operated in Canada or Mexico if (i) the total number of
miles of  individual  strands of Fiber that are owned,  developed,  installed or
operated in Canada and Mexico does not at any time exceed 5% of the total number
of miles of individual strands of Fiber that are owned, developed,  installed or
operated by the Borrower  and its  Subsidiaries  comprising  the Network at such
time and (ii) the Borrower and its Subsidiaries shall take such action as either
Agent or the  Required  Lenders  shall  reasonably  request to grant,  preserve,
protect or perfect the Liens  created or intended to be created by the  Security
Documents  or  the  validity  or  priority  thereof  in  Canada  or  Mexico,  as
applicable.

         Section 9.11 ENVIRONMENTAL PROTECTION.  The Borrower will not, and will
not permit any  Subsidiary  of the Borrower to, (a) use (or permit any tenant to
use) any of its Properties for the handling, processing, storage, transportation
or disposal of any  Hazardous  Material  except in  compliance  with  applicable
Environmental  Laws,  (b) generate any Hazardous  Material  except in compliance
with applicable  Environmental  Laws, (c) conduct any activity that is likely to
cause a Release or threatened  Release of any Hazardous Material in violation of
any  Environmental  Law, or (d) otherwise conduct any activity or use any of its
Properties   in  any  manner,   that  violates  or  is  likely  to  violate  any
Environmental  Law or create any  Environmental  Liabilities  for which any Loan
Party would be  responsible,  except for  circumstances  or events  described in
CLAUSES  (A)  through  (D)  preceding  that  could not,  individually  or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

         Section  9.12  INTERCOMPANY  TRANSACTIONS.  Except as may be  expressly
permitted or required by the Loan Documents, the Borrower will not, and will not
permit any Subsidiary of the Borrower to, create or otherwise cause or permit to
exist or become effective any consensual  encumbrance or restriction of any kind
on the ability of the  Borrower  or any  Subsidiary  of the  Borrower to (a) pay
dividends or make any other  distribution  to the Borrower or any  Subsidiary of
the Borrower in respect of the Capital  Stock of such Loan Party or with respect
to any other interest or participation in, or measured by, its profits,  (b) pay
any  indebtedness  owed to the Borrower or any  Subsidiary of the Borrower,  (c)
make  any  loan or  advance  or  capital  contribution  to the  Borrower  or any
Subsidiary of the Borrower,  (d) sell,  lease or transfer any of its Property to
the Borrower or any Subsidiary of the Borrower,  or (e) grant any Lien on any of
its Properties.

         Section  9.13  MANAGEMENT  FEES.  The  Borrower  will not, and will not
permit  any  Subsidiary  of the  Borrower  to,  pay any  management  fees to any
Affiliate of the Borrower other than management fees (if any) as may be required
to be paid by the Borrower to PNI pursuant to the Approved Services Agreement.

         Section 9.14 MASTER PURCHASE AGREEMENT. The Borrower will not, and will
not permit any  Subsidiary  of the Borrower to,  terminate  the Master  Purchase
Agreement prior to the Amortization Commencement Date.

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         Section 9.15 MODIFICATION OF CERTAIN AGREEMENTS. The Borrower will not,
and will not  permit  any other  Loan  Party to,  consent  to or  implement  any
termination,   amendment,   modification,   supplement  or  waiver  of  (a)  the
certificate  or articles of  incorporation,  articles of  organization,  bylaws,
regulations or other constitutional  documents of the Borrower or any other Loan
Party, (b) the Rights-of-Way  Contribution Agreement,  (c) any Material Contract
to which it is a party,  or any  License  with  any  Governmental  Authority  or
Contract Rights-of-Way which it possesses,  (d) any Subordinated Debt Documents,
(e) any Master Rights-of-Way Agreements,  the Approved Services Agreement or the
Approved Tax Allocation  Agreement,  or (f) any agreements or documents with any
Affiliate existing on the Closing Date; PROVIDED, HOWEVER, that the Loan Parties
may amend or modify (i) the documents referred to in CLAUSE (A) preceding if and
to the extent that such amendment or modification is not substantive or material
and could not be  adverse to any Loan  Party,  the  Administrative  Agent or any
Lender, PROVIDED, HOWEVER, that none of such documents referred to in CLAUSE (A)
preceding  may be amended or modified as they relate to, in any way, any capital
contribution  to the Borrower or any obligation or agreement  relating  thereto,
(ii) the Material Contracts,  Licenses and Contract Rights-of-Way referred to in
CLAUSE (C)  preceding if and to the extent that such  amendment or  modification
could not reasonably be expected to be materially adverse to any Loan Party, the
Administrative  Agent or any  Lender,  (iii)  the  Subordinated  Debt  Documents
referred to in CLAUSE (D) preceding if and to the extent that such  amendment or
modification  is not  material  and does not  result  in the Debt  evidenced  or
governed  thereby not being  "Subordinated  Debt" as such term is defined herein
and (iv)  the  agreements  and  documents  referred  to in  CLAUSES  (E) and (F)
preceding if and to the extent that such amendment or  modification  (taken as a
whole  as to each  such  amendment  or  modification),  in the  judgment  of the
Administrative  Agent, is not materially adverse to any Loan Party, any Agent or
the Lenders.

         Section  9.16 ERISA.  The  Borrower  will not,  and will not permit any
Subsidiary of the Borrower to:

         (a) allow,  or take (or permit any ERISA  Affiliate to take) any action
which would cause,  any unfunded or unreserved  liability for benefits under any
Plan  (exclusive  of any  Multiemployer  Plan) to exist  or to be  created  that
exceeds  $100,000  with respect to any such Plan or $200,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or

         (b) with respect to any  Multiemployer  Plan, allow, or take (or permit
any ERISA  Affiliate  to take) any action  which would  cause,  any  unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created,  either  individually as to any such Plan or in the aggregate as to all
such  Plans,  that  could,  upon any  partial  or  complete  withdrawal  from or
termination of any such  Multiemployer  Plan or Plans,  have a Material  Adverse
Effect.

         Section 9.17 NO  PREPAYMENT  OF DEBT,  ETC. The Borrower  will not, and
will not permit any Subsidiary of the Borrower to, directly or indirectly,  make
any optional prepayment or distribution on account of, or voluntarily  purchase,
acquire,  redeem or retire,  any Debt,  prior to 30 days  before its  originally
stated  maturity  (or its stated  maturity as of the Closing Date in the case of
Debt  outstanding on the Closing Date),  or in the case of interest,  its stated
due date, or directly or indirectly  become obligated to do any of the foregoing
by amending the terms thereof or otherwise, except for:

         (a)  prepayments  of the Loans or other  Obligations  pursuant to or as
permitted by the Loan Documents;

         (b) prepayments of Eligible Secured Debt permitted by and in accordance
with the terms and  provisions of the  Collateral  Agency  Agreement,  PROVIDED,
HOWEVER, that, if and to the extent required by the Collateral Agency Agreement,
such prepayments must be shared with the Administrative Agent and the Lenders in
accordance with the terms and provisions of the Collateral Agency Agreement;

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         (c)  prepayments  made with the  proceeds of new Debt  incurred for the
purpose of refinancing  the Debt being prepaid,  provided that (i) no portion of
such new Debt  matures or is  required  to be prepaid,  purchased  or  otherwise
retired  earlier  than  the  corresponding  portion  of the Debt  being  prepaid
(including as a result of any prepayment or redemption  upon the occurrence of a
condition),  (ii) such new Debt (A) is  subordinated  to the  Obligations  to at
least the same extent as the Debt being  refinanced if such Debt is subordinated
debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of  Default  then  exists  or would  result  from  such  prepayment  or
refinancing;

         (d)  prepayments  of purchase  money Debt  permitted  to be incurred in
accordance with SECTION 9.1(D); and

         (e)  prepayments of trade payables  incurred in the ordinary  course of
business.

In addition,  the Borrower  will not, and will not permit any  Subsidiary of the
Borrower to, prepay any rent or other  obligations  under any operating lease or
any other Material  Contract  prior to 90 days before the originally  stated due
date  therefor  (or the due date  therefor as of the Closing Date in the case of
operating leases or Material Contracts in existence on the Closing Date).

         Section  9.18 RIGHTS OF THIRD  PARTIES IN  INTELLECTUAL  PROPERTY.  The
Borrower  will not,  nor will it permit  any other  Loan Party to, (a) allow any
product or service of any of the Loan Parties to infringe upon any  Intellectual
Property of any other  Person or (b) violate any right of any such other  Person
with  respect  to any  Intellectual  Property  owned or used by any  such  other
Person,  except to the extent  that such  infringement  or  violation  could not
reasonably be expected to have a Material Adverse Effect.

                                   ARTICLE 10

                               FINANCIAL COVENANTS

         Section 10.1 TOTAL DEBT TO TOTAL CAPITALIZATION.  The Borrower will not
permit  the  ratio  of (a)  Total  Debt of the  Borrower  and  its  Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
SCHEDULE 10.1 to (b) Total  Capitalization  of the Borrower and its Consolidated
Subsidiaries  on such date, to exceed the ratio set forth  opposite such date on
such Schedule.

         Section 10.2 TOTAL DEBT TO  ANNUALIZED  EBITDA.  The Borrower  will not
permit  the  ratio  of (a)  Total  Debt of the  Borrower  and  its  Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
SCHEDULE  10.2 to (b)  Annualized  EBITDA of the Borrower  and its  Consolidated
Subsidiaries  for the period  ending on such date, to exceed the ratio set forth
opposite such date on such Schedule.

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<PAGE>

         Section 10.3 EBITDA TO DEBT  SERVICE  COVERAGE.  The Borrower  will not
permit the ratio of (a) EBITDA of the Borrower and its Consolidated Subsidiaries
for  any  four  consecutive  calendar  quarters  ending  on any of the  calendar
quarters set forth on SCHEDULE  10.3 to (b) Debt Service of the Borrower and its
Consolidated  Subsidiaries for such four consecutive  calendar  quarters,  to be
less than the ratio set forth opposite such date on such Schedule.

         Section 10.4 EBITDA TO CONSOLIDATED INTEREST EXPENSE. The Borrower will
not  permit  the  ratio  of (a)  EBITDA  of the  Borrower  and its  Consolidated
Subsidiaries  for any four  consecutive  calendar  quarters ending on any of the
calendar  quarters  set  forth on  SCHEDULE  10.4 to (b)  Consolidated  Interest
Expense  of the  Borrower  and  its  Consolidated  Subsidiaries  for  such  four
consecutive calendar quarters, to be less than the ratio set forth opposite such
date on such Schedule.

         Section  10.5  GROSS  REVENUES.  The  Borrower  will not  permit  Gross
Revenues  for  any  four  consecutive  calendar  quarters  ending  on any of the
calendar  quarters  set forth on  SCHEDULE  10.5 to be less than the  amount set
forth opposite such date on such Schedule.

                                   ARTICLE 11

                                     DEFAULT

         Section 11.1 EVENTS OF DEFAULT.  Each of the following  shall be deemed
an "EVENT OF DEFAULT":

         (a) (i) The Borrower  shall fail to pay,  repay or prepay when due, any
amount of principal or interest of any Loan owing to the Administrative Agent or
any Lender  pursuant to this Agreement or any other Loan  Document,  or (ii) the
Borrower or any other Loan Party shall fail to pay,  within three  Business Days
after the due date thereof, any fee, expense or other amount or other Obligation
owing to the  Administrative  Agent or any Lender  pursuant to this Agreement or
any other Loan Document.

         (b) Any  representation or warranty made or deemed made by or on behalf
of any Loan Party in any Loan Document or in any certificate,  report, notice or
financial  statement  furnished at any time in connection with this Agreement or
any other Loan Document shall be false,  misleading or erroneous in any material
respect when made or deemed to have been made.

         (c) Any Loan Party  shall fail to  perform,  observe or comply with any
covenant,  agreement  or term  contained  in Section  5.1,  5.2,  8.1(E) or 8.2,
ARTICLE 9 or ARTICLE 10; any Loan Party shall fail to perform, observe or comply
with any covenant,  agreement or term  contained in SECTION 5.3, 5.5, 8.1 (other
than 8.1(E)),  8.3, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.13, 8.15, 8.17 or 8.21, and
such  failure is not  remedied  or waived  within  ten days  after such  failure
commenced;  or any Loan Party shall fail to perform,  observe or comply with any
other covenant,  agreement or term contained in this Agreement or any other Loan
Document (other than covenants to pay the  Obligations)  and such failure is not
remedied  or waived  within the  earlier to occur of 30 days after such  failure
commenced or, if a different  grace period is expressly made  applicable in such
other Loan Documents, such applicable grace period.

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<PAGE>

         (d) Any Loan Party  ceases to be Solvent or shall  admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.

         (e) Any Loan Party  shall (i) apply for or  consent to the  appointment
of, or the taking of possession by, a receiver,  custodian,  trustee, liquidator
or administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability  to, or be generally  unable to, pay its debts as
such debts become due,  subject to any applicable  grace  periods,  (iii) make a
general  assignment for the benefit of its creditors,  (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"BANKRUPTCY  CODE"),  (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors or relating to  bankruptcy,  insolvency,
reorganization,   liquidation,   dissolution,  arrangement  or  winding  up,  or
composition  or  readjustment  of debts,  (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other  applicable  Governmental
Requirement, (vii) dissolve, or (viii) take any entity action for the purpose of
effecting any of the foregoing.

         (f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party, in any court of competent  jurisdiction,  seeking (i)
the  liquidation,  reorganization,  dissolution,  arrangement,  winding  up,  or
composition or  readjustment  of its debts,  (ii) the  appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property,  or (iii) similar relief in respect
of it,  under  any law  providing  for the  relief of  debtors  or  relating  to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall  continue  undismissed,  or an  order,  judgment  or decree  approving  or
ordering  any of the  foregoing  shall be entered and  continue  unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an  involuntary  case under the  Bankruptcy  Code  against any Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.

         (g) Any Loan Party shall fail to  discharge  within a period of 60 days
after the  commencement  thereof any  attachment,  sequestration,  forfeiture or
similar  proceeding or  proceedings  involving an aggregate  amount in excess of
$[*] against any of its Properties.

         (h) A final judgment or judgments for the payment of money in excess of
$[*] in the  aggregate  shall be rendered by a court or courts  against any Loan
Party on claims not covered by insurance  and the same shall not be  discharged,
bonded or a stay of execution thereof shall not be procured, within 60 days from
the date of entry thereof and any Loan Party shall not, within said period of 60
days, or such longer  period during which  execution of the same shall have been
stayed,  appeal  therefrom and cause the  execution  thereof to be stayed during
such appeal.

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<PAGE>

         (i) Any Loan  Party  shall  fail to pay when  due any  principal  of or
interest  on any Debt of such Loan Party  (other  than the  Obligations)  having
(either  individually  or in the  aggregate)  a  principal  amount  of at  least
$1,000,000 or the maturity of any such Debt shall have been accelerated,  or any
such Debt shall have been  required to be prepaid  prior to the stated  maturity
thereof,  or any event  shall have  occurred  (and shall not have been waived or
otherwise cured) that permits (or, with the giving of notice or lapse of time or
both,  would  permit) any holder or holders of such Debt or any Person acting on
behalf of such holder or holders to accelerate  the maturity  thereof or require
any such prepayment.

         (j) This Agreement or any other Loan Document shall cease to be in full
force  and  effect  or  shall be  declared  null  and  void or the  validity  or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further  liability or obligation  under any of
the Loan  Documents;  or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, perfected Lien
upon any of the Collateral  purported to be covered  thereby,  with the priority
required by this Agreement or the applicable Security Document.

         (k) Any of the  following  events  shall occur or exist with respect to
any Loan Party or any ERISA Affiliate:  (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable  Event with respect to any Pension Plan; (iii) the
filing  under  Section  4041 of ERISA of a notice  of intent  to  terminate  any
Pension  Plan  or the  termination  of any  Pension  Plan;  (iv)  any  event  or
circumstance  that could reasonably be expected to constitute  grounds entitling
the  PBGC  to  institute  proceedings  under  Section  4042  of  ERISA  for  the
termination of, or for the  appointment of a trustee to administer,  any Pension
Plan,  or the  institution  by  the  PBGC  of  any  such  proceedings;  (v)  any
"accumulated  funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer  Plan or the  reorganization,  insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all  other  events  or  conditions,  if any,  have  subjected  or  could  in the
reasonable  opinion  of  Required  Lenders  subject  any Loan Party or any ERISA
Affiliate to any tax,  penalty or other  liability  to a Plan,  a  Multiemployer
Plan, the PBGC or otherwise (or any combination  thereof) which in the aggregate
exceed or could reasonably be expected to exceed $100,000.

         (l) Nortel Networks shall terminate the Master Purchase  Agreement as a
result of a default by the Borrower,  PFE or any other Loan Party  thereunder or
the Borrower,  PFE or any other Loan Party shall  terminate the Master  Purchase
Agreement (other than as a result of a default by Nortel Networks thereunder).

         (m)  Any  termination,  revocation  or  non-renewal  by the  FCC or any
federal or state public utility  commission or other  Governmental  Authority of
any material License of the Borrower or any of its Subsidiaries.

         (n)      The occurrence of any Material Adverse Effect.

         (o)      The occurrence of any Change in Control.

         (p)  If,  at  any  time,  the  subordination  provisions  of any of the
Subordinated  Debt Documents shall be invalidated or shall otherwise cease to be
in full force and effect.

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         (q) If, at any time, any event or circumstance  shall occur which gives
any holder of any Subordinated Debt the right to request or require the Borrower
or any other Loan Party to redeem, purchase or prepay any Subordinated Debt.

         (r)  The  occurrence  of  (i)  a  default  under  (including,   without
limitation,  a "Default"  as such term is used or defined  in) any  Subordinated
Debt Document, unless (A) such default has been waived, cured or consented to in
accordance with such documents,  (B) such default is not a payment default,  (C)
the  maturity  of the Debt  affected  thereby  has not been  accelerated,  (D) a
blockage  under such  Subordinated  Debt Document has not been invoked,  and (E)
such waiver or consent is not made in connection with any material  amendment or
modification of any such  Subordinated  Debt Documents or in connection with any
payment to the holders of any  Subordinated  Debt,  (ii) a payment default under
(including,  without  limitation,  a payment  "Default"  as such term is used or
defined in) any  Subordinated  Debt  Document,  (iii) an event of default  under
(including,  without  limitation,  an "Event of Default" as such term is used or
defined in) any  Subordinated  Debt Document,  or (iv) any  acceleration  of the
maturity of any Subordinated Debt.

         (s) The  occurrence  of any  event of  default  as such term is used or
defined in any of the Eligible Secured Debt Documents.

         (t) The  occurrence of any "Event of Default" or "Change of Control" as
such terms are defined in the PNI Senior Notes Indenture.

         Section  11.2  REMEDIES.  If any Event of  Default  shall  occur and be
continuing,  the  Administrative  Agent may and,  if  directed  by the  Required
Lenders, the Administrative Agent shall do any one or more of the following:

         (a) ACCELERATION.  Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents  immediately  due and payable,  and the same shall  thereupon
become immediately due and payable, without notice, demand, presentment,  notice
of dishonor, notice of acceleration,  notice of intent to accelerate, protest or
other  formalities of any kind, all of which are hereby  expressly waived by the
Borrower;

         (b)  TERMINATION  OF  COMMITMENTS.  Terminate  each of the  Commitments
without notice to the Borrower or any other Loan Party;

         (c)      JUDGMENT.  Reduce any claim to judgment;

         (d) FORECLOSURE. Foreclose or otherwise enforce any Lien granted to the
Administrative  Agent  (or  the  Collateral  Agent,  if  the  Collateral  Agency
Agreement  is in effect)  for the  benefit of the  Administrative  Agent and the
Lenders to secure payment and  performance of the Obligations in accordance with
the terms of the Loan Documents; or

         (e) RIGHTS.  Exercise any and all rights and  remedies  afforded by the
laws of the  State of New  York or any  other  jurisdiction,  by any of the Loan
Documents, by equity or otherwise;

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PROVIDED, HOWEVER, that upon the occurrence of an Event of Default under SECTION
11.1(E)  or  SECTION  11.1(F),  the  Commitments  of all of  the  Lenders  shall
immediately and automatically  terminate,  and the outstanding  principal of and
accrued and unpaid  interest on the Loans and all other  amounts  payable by the
Borrower  under  the Loan  Documents  shall  thereupon  become  immediately  and
automatically due and payable,  without notice, demand,  presentment,  notice of
dishonor,  notice of  acceleration,  notice of intent to accelerate,  protest or
other  formalities of any kind, all of which are hereby  expressly waived by the
Borrower. In addition to the foregoing,  if any Event of Default shall occur and
be continuing  (i) the Collateral  Agent may foreclose or otherwise  enforce any
Lien granted to it for the benefit of the  Administrative  Agent and the Lenders
to secure payment and  performance of the  Obligations  and may exercise any and
all rights  and  remedies  afforded  by the laws of the State of New York or any
other jurisdiction,  by the Collateral Agency Agreement or any of the other Loan
Documents, by equity or otherwise,  and (ii) as between the Loan Parties (on the
one hand) and the Administrative  Agent and the Lenders (on the other hand), any
and  all  rights  or  remedies  available  to the  Administrative  Agent  or the
Collateral Agent under the Loan Documents  (including,  without limitation,  the
Security  Agreements,  the Mortgages,  the Collateral  Agency  Agreement and the
other Loan  Documents) may be exercised by the  Administrative  Agent and/or the
Collateral Agent, as the Administrative Agent and the Collateral Agent may agree
from time to time.

         Section  11.3  PERFORMANCE  BY THE  ADMINISTRATIVE  AGENT,  ETC. If the
Borrower shall fail to perform any covenant or agreement in accordance  with the
terms of the Loan Documents,  the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform,  such  covenant or agreement on behalf of the  Borrower.  In
such event,  the Borrower  shall,  at the request of the  Administrative  Agent,
promptly pay any amount expended by the  Administrative  Agent or the Lenders in
connection with such performance or attempted  performance to the Administrative
Agent at its Principal Office,  together with interest thereon at the applicable
Default Rate from and  including the date of such  expenditure  to but excluding
the date such expenditure is paid in full.  Notwithstanding the foregoing, it is
expressly agreed that neither the Administrative Agent nor any Lender shall have
any liability or  responsibility  for the  performance  of any obligation of the
Borrower,  any Loan Party or any other Person under this Agreement or any of the
other Loan Documents.

                                   ARTICLE 12

                            THE ADMINISTRATIVE AGENT

                                      101
<PAGE>

         Section 12.1  APPOINTMENT,  POWERS AND  IMMUNITIES.  Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder  and  under  the  other  Loan   Documents  with  such  powers  as  are
specifically  delegated  to the  Administrative  Agent  by  the  terms  of  this
Agreement and the other Loan  Documents,  together with such other powers as are
reasonably  incidental thereto.  Neither the Administrative Agent nor any of its
Affiliates,  officers, directors, employees, attorneys or agents shall be liable
for any  action  taken  or  omitted  to be  taken  by any of them  hereunder  or
otherwise in connection  with this  Agreement or any of the other Loan Documents
except  for its or their own gross  negligence  or willful  misconduct.  Without
limiting the generality of the preceding sentence,  the Administrative Agent (a)
may treat the payee of any Note as the holder  thereof until the  Administrative
Agent receives  written  notice of the assignment or transfer  thereof signed by
such payee and in form satisfactory to the Administrative  Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan  Documents,  and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary  for any Lender,  (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required  Lenders,
(d)  shall not be  responsible  to the  Lenders  for any  recitals,  statements,
representations  or  warranties  contained  in this  Agreement or any other Loan
Document,  or any certificate or other document  referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document,  or
for the value,  validity,  effectiveness,  enforceability or sufficiency of this
Agreement  or any other  Loan  Document  or any other  document  referred  to or
provided  for herein or therein or for any  failure by any Person to perform any
of its obligations  hereunder or thereunder,  (e) may consult with legal counsel
(including  counsel for the Borrower),  independent public accountants and other
experts  selected by it and shall not be liable for any action  taken or omitted
to be taken in good faith by it in  accordance  with the advice of such counsel,
accountants or experts,  and (f) shall incur no liability under or in respect of
any Loan  Document  by acting  upon any notice,  consent,  certificate  or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties.  As to any matters not expressly provided for by
this Agreement,  the Administrative  Agent shall in all cases be fully protected
in  acting,  or  in  refraining  from  acting,   hereunder  in  accordance  with
instructions  signed  by the  Required  Lenders,  and such  instructions  of the
Required  Lenders and any action taken or failure to act pursuant  thereto shall
be binding on all of the Lenders;  PROVIDED,  HOWEVER,  that the  Administrative
Agent shall not be required to take any action which exposes the  Administrative
Agent to  liability  or which is  contrary to this  Agreement  or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any  fiduciary  relationship  with any Lender or any Loan Party,  and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this  Agreement  with  respect to the  Administrative  Agent is not  intended to
connote any  fiduciary  or other  express or implied  obligation  arising  under
agency  doctrine of any applicable law;  instead,  such term is used merely as a
matter  of  market  custom  and  is  intended  to  create  or  reflect  only  an
administrative relationship among independent contracting parties.

         Section 12.2 RIGHTS OF ADMINISTRATIVE  AGENT AS A LENDER.  With respect
to its  Commitments,  the Loans made by it and the Note(s)  issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender  hereunder  shall have the same rights and powers  hereunder as any other
Lender  and  may  exercise  the  same  as  though  it  were  not  acting  as the
Administrative  Agent,  and the term  "Lender" or  "Lenders"  shall,  unless the
context otherwise indicates,  include the Administrative Agent in its individual
capacity.  The  Administrative  Agent and its Affiliates may (without  having to
account  therefor to any Lender)  accept  deposits  from,  lend money to, act as
trustee  under   indentures  of,  provide  merchant  banking  services  to,  own
securities  of,  and  generally  engage in any kind of  banking,  trust or other
business  with,  the Borrower or any of its  Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders.

                                      102
<PAGE>

         Section 12.3 DEFAULTS.  The Administrative Agent shall not be deemed to
have  knowledge  or  notice  of the  occurrence  of a  Default  (other  than the
non-payment  of  principal  of or interest on the Loans or of  commitment  fees)
unless  the  Administrative  Agent  has  received  notice  from a Lender  or the
Borrower  specifying  such  Default and stating that such notice is a "notice of
default".  In the event that the Administrative  Agent receives such a notice of
the occurrence of a Default,  the Administrative  Agent shall give prompt notice
thereof to the Lenders  (and shall give each Lender  prompt  notice of each such
non-payment). The Administrative Agent shall (subject to SECTION 12.1) take such
action  with  respect  to such  Default  as shall be  directed  by the  Required
Lenders,  PROVIDED  that  unless and until the  Administrative  Agent shall have
received  such  directions,  the  Administrative  Agent  may (but  shall  not be
obligated to) take such action, or refrain from taking such action, with respect
to such  Default  as it shall seem  advisable  and in the best  interest  of the
Lenders.

                                      103
<PAGE>

         Section 12.4  INDEMNIFICATION.  EACH LENDER  HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST
(TO THE EXTENT NOT  REIMBURSED  UNDER SECTION 13.1 AND SECTION 13.2, BUT WITHOUT
LIMITING THE  OBLIGATIONS  OF THE BORROWER UNDER SECTION 13.1 AND SECTION 13.2),
RATABLY IN ACCORDANCE  WITH ITS PRO RATA SHARE  (CALCULATED  ON THE BASIS OF ITS
COMMITMENT  PERCENTAGE OF THE AGGREGATE  COMMITMENTS),  ANY AND ALL  LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES,  PENALTIES,  ACTIONS, JUDGMENTS,  DEFICIENCIES,  SUITS, COSTS, EXPENSES
(INCLUDING  ATTORNEYS' FEES) AND  DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED  ON,  INCURRED BY OR  ASSERTED  AGAINST THE  ADMINISTRATIVE
AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN  DOCUMENTS OR ANY
ACTION  TAKEN OR OMITTED  TO BE TAKEN BY THE  ADMINISTRATIVE  AGENT  UNDER OR IN
RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE
LIABLE  FOR  ANY  PORTION  OF  THE   FOREGOING  TO  THE  EXTENT  CAUSED  BY  THE
ADMINISTRATIVE   AGENT'S  GROSS  NEGLIGENCE  OR  WILLFUL   MISCONDUCT.   WITHOUT
LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT THE
ADMINISTRATIVE  AGENT  SHALL BE  INDEMNIFIED  HEREUNDER  FROM AND HELD  HARMLESS
AGAINST ALL OF SUCH LIABILITIES  (INCLUDING,  WITHOUT LIMITATION,  ENVIRONMENTAL
LIABILITIES),  OBLIGATIONS,  LOSSES,  DAMAGES,  PENALTIES,  ACTIONS,  JUDGMENTS,
DEFICIENCIES,   SUITS,   COSTS,   EXPENSES   (INCLUDING   ATTORNEYS'  FEES)  AND
DISBURSEMENTS  OF ANY KIND OR NATURE  DIRECTLY OR  INDIRECTLY  ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY  NEGLIGENCE OF THE ADMINISTRATIVE  AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE  ADMINISTRATIVE  AGENT'S  GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT).  WITHOUT LIMITING ANY OTHER PROVISION OF THIS
SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE  AGENT PROMPTLY
UPON DEMAND FOR ITS PRO RATA SHARE  (CALCULATED  ON THE BASIS OF ITS  COMMITMENT
PERCENTAGE OF THE AGGREGATE  COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET  EXPENSES
(INCLUDING  ATTORNEYS' FEES) INCURRED BY THE ADMINISTRATIVE  AGENT IN CONNECTION
WITH  THE  PREPARATION,   EXECUTION,  DELIVERY,  ADMINISTRATION,   MODIFICATION,
AMENDMENT OR ENFORCEMENT  (WHETHER THROUGH  NEGOTIATIONS,  LEGAL  PROCEEDINGS OR
OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR  RESPONSIBILITIES  UNDER,
THE LOAN DOCUMENTS,  TO THE EXTENT THAT THE ADMINISTRATIVE AGENT IS NOT PROMPTLY
REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.

         Section 12.5 INDEPENDENT  CREDIT DECISIONS.  Each Lender agrees that it
has independently and without reliance on the Administrative  Agent or any other
Lender,   and  based  on  such  documents  and  information  as  it  has  deemed
appropriate,  made its own credit  analysis of the  Borrower  and the other Loan
Parties  and its own  decision  to enter into this  Agreement  and that it will,
independently  and without reliance upon the  Administrative  Agent or any other
Lender,  and  based  upon  such  documents  and  information  as it  shall  deem
appropriate  at the time,  continue to make its own  analysis  and  decisions in
taking or not  taking  action  under  this  Agreement  or any of the other  Loan
Documents.  The  Administrative  Agent  shall  not be  required  to keep  itself
informed as to the performance or observance by any Loan Party of this Agreement
or any other Loan  Document  or to inspect the  Properties  or books of any Loan
Party (or any other Person). Except for notices, reports and other documents and
information   expressly   required  to  be  furnished  to  the  Lenders  by  the
Administrative   Agent  hereunder  or  under  the  other  Loan  Documents,   the
Administrative  Agent shall not have any duty or  responsibility  to provide any
Lender with any credit or other  financial  information  concerning the affairs,
financial  condition  or  business  of any Loan  Party  which  may come into the
possession of the Administrative Agent or any of its Affiliates.

         Section 12.6 SEVERAL COMMITMENTS. The Commitments and other obligations
of the Lenders under this  Agreement  are several.  The default by any Lender in
making a Loan in accordance  with any of its  Commitments  shall not relieve the
other Lenders of their  obligations  under this  Agreement.  In the event of any
default by any Lender in making any Loan,  each  nondefaulting  Lender  shall be
obligated  to make its Loan but shall not be  obligated  to  advance  the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be  required to advance an amount or amounts  with  respect to any of
the Loans which would in the  aggregate  exceed such  Lender's  Commitment  with
respect to such Loans. No Lender shall be responsible for any act or omission of
any other Lender.

                                      104
<PAGE>

         Section 12.7 SUCCESSOR ADMINISTRATIVE AGENT. Subject to the appointment
and  acceptance  of a  successor  Administrative  Agent as provided  below,  the
Administrative  Agent may  resign at any time by giving  notice  thereof  to the
Lenders and the Borrower.  Upon any such resignation,  the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor  Administrative  Agent shall have been so appointed by the Required
Lenders  and shall  have  accepted  such  appointment  within 30 days  after the
retiring  Administrative  Agent's  giving  of notice  of  resignation,  then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative  Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign  country if acting  through its
U.S.  branch and having combined  capital and surplus of at least  $100,000,000.
Upon the acceptance of its appointment as successor  Administrative  Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all  rights,  powers,  privileges,   immunities  and  duties  of  the  resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its  duties  and  obligations  under  this  Agreement  and the  other  Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the  provisions  of this Article 12 shall  continue in effect for its benefit in
respect  of any  actions  taken  or  omitted  to be taken by it while it was the
Administrative  Agent.  Each  Administrative  Agent  (including  each  successor
Administrative  Agent)  agrees that,  so long as it is acting as  Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.

                                   ARTICLE 13

                                  MISCELLANEOUS

         Section 13.1 EXPENSES. The Borrower hereby agrees, on demand, to pay or
reimburse the  Administrative  Agent and each of the Lenders for paying: (a) all
reasonable  out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the arranging, drafting, preparation,  negotiation, execution
and/or  delivery  of the  Loan  Documents  and in  connection  with  any and all
waivers, amendments,  modifications,  renewals, extensions and supplements of or
to the Loan  Documents,  and the  syndication of the  Commitments and the Loans,
including, without limitation, the reasonable fees and expenses of legal counsel
(including  all  local   counsel)  for  the   Administrative   Agent,   (b)  all
out-of-pocket costs and expenses of the Administrative  Agent and the Lenders in
connection  with any  Default,  the  exercise  of any  right or  remedy  and the
enforcement  of  this  Agreement  or any  other  Loan  Document  or any  term or
provision  hereof  or  thereof,  including,  without  limitation,  the  fees and
expenses of all legal  counsel for the  Administrative  Agent and/or any Lender,
(c) all transfer,  stamp,  documentary  or other similar  taxes,  assessments or
charges levied by any Governmental Authority in respect of this Agreement or any
of the other Loan Documents, (d) all out-of-pocket costs, expenses,  assessments
and  other  charges  incurred  in  connection  with  any  filing,  registration,
recording or perfection of any Lien  contemplated by this Agreement or any other
Loan Document, and (e) all reasonable  out-of-pocket costs and expenses incurred
by the Administrative Agent in connection with due diligence, computer services,
copying,  appraisals,  environmental  audits,  collateral  audits,  field exams,
insurance, consultants and search reports.

                                      105
<PAGE>

         Section 13.2  INDEMNIFICATION.  THE BORROWER HEREBY AGREES TO INDEMNIFY
THE  ADMINISTRATIVE  AGENT AND EACH LENDER AND EACH AFFILIATE  THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS,  EMPLOYEES,  ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM  HARMLESS  AGAINST,  ANY AND ALL  LOSSES,  LIABILITIES  (INCLUDING,
WITHOUT LIMITATION,  ENVIRONMENTAL  LIABILITIES),  CLAIMS,  DAMAGES,  PENALTIES,
JUDGMENTS,  DISBURSEMENTS,  COSTS AND EXPENSES (INCLUDING  REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE DRAFTING,  PREPARATION,  NEGOTIATION,
EXECUTION,  DELIVERY,  PERFORMANCE,  ADMINISTRATION OR ENFORCEMENT OF ANY OF THE
LOAN DOCUMENTS,  INCLUDING,  WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE
RIGHT OR OTHER RIGHT OR REMEDY  WHETHER OR NOT SUCH  EXERCISE  IS IN  COMPLIANCE
WITH LAWS  AFFECTING  OTHER  PERSONS  OR  RESULTS  IN  DAMAGES  PAYABLE TO OTHER
PERSONS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY
BREACH BY ANY LOAN PARTY OF ANY MATERIAL REPRESENTATION,  WARRANTY,  COVENANT OR
OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS,  (D) THE USE OR PROPOSED
USE OF ANY  LOAN,  (E) THE  PRESENCE,  RELEASE,  THREATENED  RELEASE,  DISPOSAL,
REMOVAL  OR CLEANUP OF ANY  HAZARDOUS  MATERIAL  LOCATED  ON,  ABOUT,  WITHIN OR
AFFECTING  ANY OF THE  PROPERTIES  OF ANY LOAN  PARTY OR ANY OF ITS  AFFILIATES,
EXCEPT TO THE  EXTENT  THAT THE LOSS,  DAMAGE OR CLAIM IS THE  DIRECT  RESULT OF
GROSS NEGLIGENCE OR WILLFUL  MISCONDUCT OF THE PERSON TO BE INDEMNIFIED,  OR (F)
ANY   INVESTIGATION,   LITIGATION  OR  OTHER  PROCEEDING,   INCLUDING,   WITHOUT
LIMITATION,  ANY  THREATENED  INVESTIGATION,   LITIGATION  OR  OTHER  PROCEEDING
RELATING  TO ANY OF THE  FOREGOING,  WHETHER  BROUGHT  BY ANY  LOAN  PARTY,  ANY
CREDITOR OR ANY OTHER  PERSON;  BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT
CAUSED  BY THE  GROSS  NEGLIGENCE  OR  WILLFUL  MISCONDUCT  OF THE  PERSON TO BE
INDEMNIFIED.  WITHOUT  LIMITING ANY PROVISION OF THIS  AGREEMENT OR OF ANY OTHER
LOAN  DOCUMENT,  IT IS THE EXPRESS  INTENTION  OF THE  PARTIES  HERETO THAT EACH
PERSON TO BE INDEMNIFIED  UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED  FROM AND
HELD  HARMLESS  AGAINST  ANY AND ALL  LOSSES,  LIABILITIES  (INCLUDING,  WITHOUT
LIMITATION,  ENVIRONMENTAL LIABILITIES),  CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING
OUT OF OR RESULTING  FROM THE SOLE OR  CONTRIBUTORY  NEGLIGENCE  OF SUCH PERSON.
WITHOUT  PREJUDICE  TO THE  SURVIVAL  OF ANY  OTHER  TERM OR  PROVISION  OF THIS
AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE
THE  REPAYMENT  OF THE  LOANS  AND  OTHER  OBLIGATIONS  AND  TERMINATION  OF THE
COMMITMENTS.

                                      106
<PAGE>

         Section 13.3 LIMITATION OF LIABILITY. None of the Administrative Agent,
any Lender or any  Affiliate,  officer,  director,  employee,  attorney or agent
thereof shall be liable for any error of judgment or act done in good faith,  or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence),  except for such Person's gross negligence or willful
misconduct.  None of the  Administrative  Agent,  any  Lender or any  Affiliate,
officer, director,  employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives,  releases and agrees not to sue
any  of  them  upon,  any  claim  for  any  special,  indirect,   incidental  or
consequential  damages  suffered or incurred by the Borrower,  any Loan Party or
any Affiliate of the Borrower in connection  with,  arising out of or in any way
related  to this  Agreement  or any of the other Loan  Documents,  or any of the
transactions  contemplated by this Agreement or any of the other Loan Documents.
The Borrower  hereby waives,  releases and agrees not to sue the  Administrative
Agent or any Lender or any of their respective Affiliates,  officers, directors,
employees,  attorneys or agents for exemplary or punitive  damages in respect of
any claim in  connection  with,  arising  out of or in any way  related  to this
Agreement  or  any of  the  other  Loan  Documents,  or any of the  transactions
contemplated by this Agreement or any of the other Loan Documents.

         Section 13.4 NO DUTY. All attorneys, accountants,  appraisers and other
professional  Persons and consultants  retained by the Administrative  Agent and
the  Lenders  shall have the right to act  exclusively  in the  interest  of the
Administrative Agent and the Lenders and shall have no duty of disclosure,  duty
of  loyalty,  duty of care or other  duty or  obligation  of any type or  nature
whatsoever to the Borrower, any Loan Party or any of their respective Affiliates
or any other Person.

         Section 13.5 NO FIDUCIARY  RELATIONSHIP.  The relationship  between the
Borrower and each Lender is solely that of debtor and creditor,  and neither the
Administrative  Agent  nor  any  Lender  has  any  fiduciary  or  other  special
relationship  with  the  Borrower,  any Loan  Party  or any of their  respective
Affiliates,  and no term,  provision or  condition of any of the Loan  Documents
shall be construed so as to deem the  relationship  between the Borrower and any
Lender,  between  any other  Loan  Party  and any  Lender  or  between  any such
Affiliate and any Lender to be other than that of debtor and creditor.  No joint
venture or partnership  is created by this Agreement  among the Lenders or among
the  Borrower,  any Loan  Party or any of their  respective  Affiliates  and the
Lenders.

         Section 13.6 EQUITABLE  RELIEF.  The Borrower  recognizes  that, in the
event  it  fails  to  pay,  perform,  observe  or  discharge  any  or all of the
Obligations,  any  remedy  at law  may  prove  to be  inadequate  relief  to the
Administrative  Agent and the Lenders.  The Borrower  therefore  agrees that the
Administrative Agent and the Lenders, if the Administrative Agent or the Lenders
so request,  shall be entitled to temporary and permanent  injunctive  relief in
any such case without the necessity of proving actual damages.

         Section 13.7 NO WAIVER;  CUMULATIVE REMEDIES. No failure on the part of
the  Administrative  Agent or any Lender to exercise and no delay in exercising,
and no course of dealing  with respect to, any right,  power or privilege  under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement  or any other Loan  Document  preclude  any other or further  exercise
thereof or the exercise of any other right,  power or privilege.  The rights and
remedies  provided  for in this  Agreement  and the  other  Loan  Documents  are
cumulative and not exclusive of any rights and remedies provided by law.

         Section 13.8      SUCCESSORS AND ASSIGNS.

                                      107
<PAGE>

         (a) This  Agreement  shall be binding  upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Borrower may
not assign or transfer any of its rights or obligations  under this Agreement or
any other Loan Document without the prior written consent of the  Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and  obligations  under this  Agreement and the other Loan  Documents
(including,  without  limitation,  all or a portion of its  Commitments  and the
Loans owing to it); PROVIDED,  HOWEVER, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including,  without limitation, its
Commitments)  shall  remain  unchanged,  (ii) such Lender  shall  remain  solely
responsible to the Borrower for the performance of such obligations,  (iii) such
Lender shall remain the holder of its Notes for all purposes of this  Agreement,
(iv) the Borrower and the other Loan Parties  shall  continue to deal solely and
directly  with  such  Lender  in  connection   with  such  Lender's  rights  and
obligations  under  this  Agreement  and the other Loan  Documents,  and (v) the
Lenders shall not grant any participation under which the participant shall have
the right to approve  (or under  which the  consent of the  participant  must be
obtained prior to the Lenders' being able to approve) any amendment or waiver of
this  Agreement  or the other Loan  Documents,  except to the  extent  that such
amendment or waiver (A) increases any Commitment,  (B) reduces the interest rate
or the amount of principal or fees  applicable  to the Loans or  Commitments  in
which such  participant  is  participating,  (C) extends any Maturity  Date, (D)
releases  any of the  Collateral  (except as provided for herein or in any other
Loan  Document)  or any  guaranty of the  Obligations,  or (E) releases any Loan
Party from its monetary Obligations under any of the Loan Documents.

         (b) The  Borrower  and each of the  Lenders  agree that any Lender (the
"ASSIGNING  LENDER")  may at any time assign to one or more  Eligible  Assignees
(each an "ASSIGNEE") all or any part of its rights and/or obligations under this
Agreement  and the other Loan  Documents  (including,  without  limitation,  its
Commitments and/or Loans); PROVIDED,  HOWEVER, that (i) each such assignment may
be of a varying  percentage of the Assigning  Lender's rights and/or obligations
under this Agreement and the other Loan Documents and may relate to some but not
all of  such  rights  and/or  obligations,  (ii)  except  in the  case of (A) an
assignment of all of a Lender's rights and obligations  under this Agreement and
the other Loan  Documents  or (B) an  assignment  by a Lender to an Affiliate of
such  Lender,  to  another  Lender or to an  Approved  Fund,  the  amount of the
Commitment(s)  and/or Loans of the Assigning  Lender being assigned  pursuant to
each assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 calculated
based upon the aggregate amount of the  Commitment(s)  and/or Loans assigned and
(iii) the  parties to each such  assignment  shall  execute  and  deliver to the
Administrative  Agent for its  acceptance  and  recording  in the  Register  (as
defined below), an Assignment and Acceptance,  together with the Note subject to
such  assignment,  and a processing  and  recordation  fee of $3,500.  Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each  Assignment and  Acceptance,  which effective date shall be at
least five Business  Days after the execution  thereof or such other date as may
be approved by the Administrative  Agent, (1) the Assignee thereunder shall be a
party  hereto as a "Lender"  and,  to the  extent  that  rights and  obligations
hereunder have been assigned to it pursuant to such  Assignment and  Acceptance,
have the rights and  obligations of a Lender  hereunder and under the other Loan
Documents,  and (2) the Assigning  Lender  thereunder  shall, to the extent that
rights and  obligations  hereunder  have been  assigned  by it  pursuant to such
Assignment  and  Acceptance,  relinquish  its  rights and be  released  from its
obligations  under this Agreement and the other Loan Documents (and, in the case
of an  Assignment  and  Acceptance  covering all or the  remaining  portion of a
Lender's  rights and  obligations  under the Loan  Documents,  such Lender shall
cease to be a party thereto, PROVIDED that such Lender's rights under ARTICLE 4,
SECTION  13.1 and SECTION  13.2  accrued  through the date of  assignment  shall
continue).

                                      108
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         (c) By executing  and  delivering  an Assignment  and  Acceptance,  the
Assigning  Lender  thereunder and the Assignee  thereunder  confirm to and agree
with each  other and the other  parties  hereto as  follows:  (i) other  than as
provided in such  Assignment  and  Acceptance,  such  Assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution,  legality,  validity,  enforceability,  genuineness,
sufficiency or value of the Loan  Documents or any other  instrument or document
furnished  pursuant thereto;  (ii) such Assigning Lender makes no representation
or  warranty  and  assumes  no  responsibility  with  respect  to the  financial
condition or results of  operations  of the  Borrower,  any Loan Party or any of
their  respective  Affiliates or the  performance or observance by the Borrower,
any Loan Party or any of their respective  Affiliates of any of their respective
obligations  under the Loan Documents;  (iii) such Assignee confirms that it has
received a copy of the Loan  Documents,  together  with copies of the  financial
statements  referred to in SECTION 7.2 and such other  documents and information
as it has deemed  appropriate  to make its own credit  analysis  and decision to
enter  into  such   Assignment   and   Acceptance;   (iv)  such  Assignee  will,
independently  and  without  reliance  upon  the  Administrative  Agent  or such
Assigning  Lender and based on such  documents and  information as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this  Agreement and the other Loan  Documents;  (v) such
Assignee confirms that it is an Eligible  Assignee;  (vi) such Assignee appoints
and  authorizes  the  Administrative  Agent to take such  action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative  Agent by the terms  thereof,  together  with such  powers as are
reasonably  incidental  thereto;  and (vii) such  Assignee  agrees  that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.

         (d) The  Administrative  Agent shall maintain at its Principal Office a
copy of each  Assignment  and  Acceptance  delivered to and accepted by it and a
register for the  recordation  of the names and addresses of the Lenders and the
Commitments  of, and  principal  amount of the Loans  owing to, each Lender from
time to time (the  "REGISTER").  The entries in the Register shall be conclusive
and binding for all purposes,  absent  manifest  error,  and the  Borrower,  the
Administrative  Agent  and the  Lenders  may treat  each  Person  whose  name is
recorded in the Register as a Lender  hereunder for all purposes  under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender  at any  reasonable  time and from  time to time  upon  reasonable  prior
notice.

         (e) Upon its receipt of an  Assignment  and  Acceptance  executed by an
Assigning  Lender and  Assignee  representing  that it is an Eligible  Assignee,
together with the Note(s) subject to such assignment,  the Administrative  Agent
shall,  if  such  Assignment  and  Acceptance  has  been  completed  and  is  in
substantially  the form of EXHIBIT A hereto,  (i)  accept  such  Assignment  and
Acceptance,  (ii) record the information contained therein in the Register,  and
(iii) give prompt written  notice thereof to the Borrower.  Within five Business
Days after its receipt of such notice, the Borrower,  at the Borrower's expense,
shall  execute and  deliver to the  Administrative  Agent in  exchange  for each
surrendered Note evidencing the Loans assigned, a new Note evidencing such Loans
payable to the order of such Eligible  Assignee in an amount equal to such Loans
assigned to it and, if the Assigning  Lender has retained any Loans,  a new Note
evidencing  each such Loans payable to the order of the Assigning  Lender in the
amount of such Loans retained by it (each such promissory note shall  constitute
a "Note" for purposes of the Loan Documents).  Such new Notes shall be dated the
effective  date of such  Assignment  and  Acceptance  and shall  otherwise be in
substantially the form of EXHIBIT J-1 or EXHIBIT J-2 hereto, as applicable.

                                      109
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         (f) Any Lender may, in connection with any assignment or  participation
or proposed assignment or participation  pursuant to this SECTION 13.8, disclose
to  the  Assignee  or  participant  or  proposed  Assignee  or  participant  any
information relating to the Borrower,  any Loan Party or any of their respective
Affiliates  furnished to such Lender by or on behalf of the  Borrower,  any Loan
Party or any of their respective  Affiliates;  PROVIDED that each such actual or
proposed  Assignee or  participant  shall agree to be bound by the provisions of
SECTION 13.20.

         (g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral  security pursuant to Regulation
A of the Board of  Governors  of the Federal  Reserve  System and any  operating
circular  issued by such Federal  Reserve  System and/or  Federal  Reserve Bank;
PROVIDED, HOWEVER, that any payment made by the Borrower for the benefit of such
assigning  and/or  pledging  Lender  in  accordance  with the  terms of the Loan
Documents shall satisfy the Borrower's  obligations  under the Loan Documents in
respect thereof to the extent of such payment.  No such assignment and/or pledge
shall  release  the  assigning  and/or  pledging  Lender  from  its  obligations
hereunder.

         (h) The Borrower shall maintain, or cause to be maintained,  a register
(the "REGISTERED NOTE REGISTER")  (which,  at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement)  shall be kept by
the  Administrative  Agent on behalf of the  Borrower at no extra  charge to the
Borrower at the address to which notices to the  Administrative  Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note.  Notwithstanding  anything
to the contrary  contained in this SECTION 13.8, a Registered Note and the Loans
evidenced  thereby may be assigned or otherwise  transferred in whole or in part
only by  registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall  expressly so provide).  Any assignment or transfer of all or part of
such Loans and the  Registered  Note  evidencing the same shall be registered on
the Registered Note Register only upon surrender for  registration of assignment
or transfer of the Registered Note  evidencing such Loans,  duly endorsed by (or
accompanied by a written  instrument of assignment or transfer duly executed by)
the  registered  noteholder  thereof,  and thereupon one or more new  Registered
Notes in the same aggregate  principal  amount shall be issued to the designated
assignee(s) or  transferee(s).  Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the other Loan Parties and the
Administrative  Agent  shall  treat the  Person in whose name such Loans and the
Registered  Note(s)  evidencing the same are registered as the owner thereof for
the  purpose of  receiving  all  payments  thereon  and for all other  purposes,
notwithstanding  any notice to the contrary.  The Registered Note Register shall
be available  for  inspection  by the Borrower and any Lender at any  reasonable
time upon reasonable prior notice.

         (i) The Borrower will not, and will not permit any other Loan Party to,
become a party to any loan  agreement,  credit  agreement  or similar  agreement
which restricts or prohibits the right or ability of any lender which is a party
thereto to become a Lender under this Agreement.

                                      110
<PAGE>

         (j) The Borrower shall provide prompt and reasonable  assistance to the
Administrative  Agent and the  Lenders  in  connection  with  their  efforts  in
syndicating  the Loans and  Commitments.  Such  assistance  shall include making
senior officers and other  representatives  of the Borrower and their respective
Affiliates available for meetings with prospective Lenders upon reasonable prior
notice and providing,  in a timely manner,  such assistance as may be reasonably
requested  by the  Administrative  Agent  or its  advisors,  including,  without
limitation,   providing   information   to  and  responding  to  inquiries  from
prospective  Lenders with respect to the business,  operations,  Business  Plan,
results and other matters relating to the business of the Borrower and the other
Loan Parties,  PROVIDED that the foregoing requested assistance shall not unduly
interfere with the conduct of the Borrower's business.

         Section 13.9  SURVIVAL.  All  representations  and  warranties  made or
deemed made in this  Agreement  or any other Loan  Document or in any  document,
statement or  certificate  furnished in  connection  with this  Agreement  shall
survive  the  execution  and  delivery  of this  Agreement  and the  other  Loan
Documents  and  the  making  of  the  Loans,   and  no   investigation   by  the
Administrative   Agent  or  any  Lender  or  any   closing   shall   affect  the
representations  and warranties or the right of the Administrative  Agent or any
Lender  to rely  upon  them.  Without  prejudice  to the  survival  of any other
obligation of the Borrower  hereunder,  the  obligations  of the Borrower  under
ARTICLE 4, SECTION 13.1 and SECTION 13.2, and the  obligations of the Lenders to
the  Administrative  Agent under  SECTION 12.4,  shall survive  repayment of the
Loans and the Reimbursement Obligations and the other Obligations.

         SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS  REFERRED TO HEREIN EMBODY THE FINAL,  ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS  (INCLUDING,  WITHOUT
LIMITATION, ANY COMMITMENT LETTER), TERM SHEETS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS,  WHETHER WRITTEN OR ORAL,  RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS  OR
SUBSEQUENT ORAL  AGREEMENTS OR DISCUSSIONS OF THE PARTIES  HERETO.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

                                      111
<PAGE>

         Section  13.11  AMENDMENTS.  No amendment or waiver of any provision of
this Agreement,  the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom,  shall in any
event be  effective  unless  the same  shall be  agreed or  consented  to by the
Required  Lenders and the  Borrower in writing,  and each such waiver or consent
shall be effective  only in the specific  instance and for the specific  purpose
for which given; PROVIDED,  HOWEVER, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the  Borrower,  do any of
the  following:  (a) increase the  Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations;  (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts  payable  hereunder;  (c)
postpone  any date fixed for any payment  (including,  without  limitation,  any
mandatory  prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable  hereunder;  (d) change the Commitment  Percentages or the
aggregate unpaid principal amount of the Loans or the number or interests of the
Lenders  which  shall be  required  for the  Lenders  or any of them to take any
action under this Agreement;  (e) change any provision contained in SECTION 3.2,
SECTION  3.3,  SECTION 5.1 or this  SECTION  13.11 or modify the  definition  of
"Required  Lenders"  contained  in  SECTION  1.1;  or (f)  except  as  expressly
authorized  by this  Agreement,  release  any  Collateral  from any of the Liens
created by the  Security  Documents;  and  PROVIDED  FURTHER,  HOWEVER,  that no
amendment, waiver or consent relating to SECTIONS 12.1, 12.2, 12.3, 12.4 or 12.5
shall  require the agreement of the  Borrower.  Notwithstanding  anything to the
contrary  contained in this SECTION  13.11 and in addition to any other  consent
required  pursuant to this SECTION 13.11, no amendment,  waiver or consent shall
be made with respect to (i) ARTICLE 12 hereof without the prior written  consent
of the Administrative Agent, (ii) the definition of "Master Purchase Agreement",
"Nortel  Networks  Equipment",  "Nortel  Networks Goods and Services" or "Nortel
Networks  Software" or SECTION 2.10 hereof without the prior written  consent of
Nortel  Networks  (whether or not Nortel  Networks is then a Lender  hereunder),
(iii) any condition  precedent set forth in ARTICLE 6 with respect to the making
of any Loans without the prior written  consent of the Lenders that hold, at the
time of such  amendment,  waiver or consent  (A) with  respect to any  condition
precedent to the making of any Loan under the Term Loans A Commitments, at least
a majority (in Dollar amount) of the sum of the outstanding  principal amount of
the Term  Loans A PLUS the  outstanding  Term Loans A  Commitments  and (B) with
respect  to any  condition  precedent  to the  making of any Loan under the Term
Loans B  Commitments,  at least a majority (in Dollar  amount) of the sum of the
outstanding principal amount of the Term Loans B PLUS the outstanding Term Loans
B Commitments,  or (iv) the interest rate  applicable to the Term Loans A or the
Term  Loans B or the  Maturity  Date of the Term Loans A or the Term Loans B, in
each case without the prior  written  consent of the Lenders  that hold,  at the
time of such  amendment,  waiver or  consent,  at least a  majority  (in  Dollar
amount) of the sum of the outstanding  principal amount of the Term Loans A PLUS
the outstanding Term Loans A Commitments or the sum of the outstanding principal
amount  of the  Term  Loans B PLUS the  outstanding  Term  Loans B  Commitments,
respectively.

         Section 13.12     MAXIMUM INTEREST RATE.

         (a) No interest  rate  specified  in this  Agreement  or any other Loan
Document  shall at any time exceed the Maximum Rate. If at any time the interest
rate (the  "CONTRACT  RATE") for any  Obligation  shall exceed the Maximum Rate,
thereby  causing the interest  accruing on such  Obligation to be limited to the
Maximum  Rate,  then any  subsequent  reduction  in the  Contract  Rate for such
Obligation  shall not reduce the rate of interest on such  Obligation  below the
Maximum Rate until the aggregate  amount of interest  accrued on such Obligation
equals  the  aggregate  amount of  interest  which  would  have  accrued on such
Obligation  if the Contract  Rate for such  Obligation  had at all times been in
effect.

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         (b)  Notwithstanding   anything  to  the  contrary  contained  in  this
Agreement or the other Loan Documents,  none of the terms and provisions of this
Agreement  or the other  Loan  Documents  shall  ever be  construed  to create a
contract or  obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Administrative Agent nor any Lender shall ever charge,  receive,
take, collect,  reserve or apply, as interest on the Obligations,  any amount in
excess of the Maximum Rate. The parties hereto agree that any interest,  charge,
fee, expense or other obligation  provided for in this Agreement or in the other
Loan Documents which  constitutes  interest under  applicable law shall be, IPSO
FACTO and under any and all circumstances, limited or reduced to an amount equal
to the lesser of (i) the amount of such interest,  charge, fee, expense or other
obligation that would be payable in the absence of this SECTION 13.12(B) or (ii)
an amount,  which when added to all other interest  payable under this Agreement
and the other Loan Documents,  equals the Maximum Rate. If,  notwithstanding the
foregoing,  the Administrative  Agent or any Lender ever contracts for, charges,
receives, takes, collects,  reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive  interest shall
be deemed a partial  payment or prepayment of principal of the  Obligations  and
treated  hereunder  as such;  and if the  Obligations,  or  applicable  portions
thereof,  are paid in full,  any remaining  excess shall promptly be paid to the
Borrower or other  appropriate  Loan Party. In determining  whether the interest
paid or payable,  under any specific contingency,  exceeds the Maximum Rate, the
Borrower,  the Administrative Agent and the Lenders shall, to the maximum extent
permitted by applicable law, (A)  characterize  any  nonprincipal  payment as an
expense,  fee  or  premium  rather  than  as  interest,  (B)  exclude  voluntary
prepayments and the effects  thereof,  and (C) amortize,  prorate,  allocate and
spread in equal or unequal  parts the total  amount of interest  throughout  the
entire contemplated term of the Obligations,  or applicable portions thereof, so
that the  interest  rate does not exceed the Maximum Rate at any time during the
term of the Obligations;  PROVIDED THAT, if the unpaid principal balance is paid
and  performed in full prior to the end of the full  contemplated  term thereof,
and if the interest  received for the actual period of existence thereof exceeds
the Maximum Rate, the Administrative  Agent and/or the Lenders,  as appropriate,
shall refund to the Borrower or other  appropriate Loan Party the amount of such
excess and, in such event, the Administrative Agent and the Lenders shall not be
subject to any penalties  provided by any laws for  contracting  for,  charging,
receiving,  taking, collecting,  reserving or applying interest in excess of the
Maximum Rate.

         Section 13.13 NOTICES.  All notices and other  communications  provided
for in this  Agreement  and the other Loan  Documents to which the Borrower is a
party  shall be given or made in  writing  and  shall be  telecopied,  mailed by
certified mail return receipt requested or personally  delivered (via courier or
otherwise)  to the intended  recipient  at the  "Address for Notices"  specified
below its name on the signature  pages hereof (or, with respect to a Lender that
becomes a party to this Agreement  pursuant to an assignment  made in accordance
with SECTION 13.8, in the Assignment  and Acceptance  executed by it); or, as to
any party,  at such  other  address  as shall be  designated  by such party in a
notice to each other party given in accordance  with this SECTION 13.13.  Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given when transmitted by telecopy or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid;  PROVIDED, however, that notices to the Administrative Agent shall be
deemed given when received by the Administrative Agent.

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<PAGE>

         SECTION 13.14  GOVERNING LAW;  SUBMISSION TO  JURISDICTION;  SERVICE OF
PROCESS.  EXCEPT AS MAY BE  EXPRESSLY  STATED TO THE  CONTRARY  IN CERTAIN  LOAN
DOCUMENTS,  THIS  AGREEMENT,  THE NOTES AND THE OTHER  LOAN  DOCUMENTS  SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN  THIS  AGREEMENT  PURSUANT TO
N.Y. GEN. OBLIG.  LAW SECTION 5-1401  (CONSOL.  1995) AND APPLICABLE LAWS OF THE
U.S. THE BORROWER  HEREBY SUBMITS TO THE  NON-EXCLUSIVE  JURISDICTION OF EACH OF
(1) THE U.S.  DISTRICT COURT FOR THE SOUTHERN  DISTRICT OF NEW YORK, (2) ANY NEW
YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S.  DISTRICT COURT FOR
THE NORTHERN  DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS
COUNTY,  TEXAS,  FOR THE  PURPOSES  OF ALL LEGAL  PROCEEDINGS  ARISING OUT OF OR
RELATING  TO  THIS  AGREEMENT,  ANY  OTHER  LOAN  DOCUMENT  OR THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.  THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR  PROCEEDING  BY THE MAILING
OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET FORTH UNDERNEATH ITS
SIGNATURE HERETO. THE BORROWER HEREBY IRREVOCABLY  WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH  PROCEEDING  BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING  BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

         Section 13.15  COUNTERPARTS.  This  Agreement may be executed in one or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

         Section 13.16  SEVERABILITY.  Any provision of this Agreement held by a
court of competent  jurisdiction to be invalid or unenforceable shall not impair
or invalidate  the remainder of this  Agreement and the effect  thereof shall be
confined to the provision held to be invalid or illegal.

         Section 13.17 HEADINGS. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the  interpretation
of this Agreement.

         Section 13.18 CONSTRUCTION.  The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been  afforded an  opportunity  to review this  Agreement and the
other Loan  Documents  with its legal  counsel and that this  Agreement  and the
other Loan  Documents  shall be construed  as if jointly  drafted by the parties
hereto.

         Section 13.19 INDEPENDENCE OF COVENANTS.  All covenants hereunder shall
be given  independent  effect so that if a particular action or condition is not
permitted  by any of such  covenants,  the fact that it would be permitted by an
exception to, or be otherwise  within the limitations of, another covenant shall
not avoid the  occurrence of a Default if such action is taken or such condition
exists.

         Section 13.20     CONFIDENTIALITY.

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<PAGE>

         (a)  LENDERS'  OBLIGATIONS.  Each Lender  agrees to  exercise  its best
efforts to keep any  information  delivered or made available by the Borrower to
such  Lender  which  is  clearly  indicated  to  be  confidential   information,
confidential  from anyone other than Persons employed or retained by such Lender
who are or are expected to become engaged in evaluating,  approving, structuring
or administering  the Loans and whose disclosure of confidential  information is
subject to this SECTION 13.20(A); PROVIDED that nothing herein shall prevent any
Lender from  disclosing  such  information  (a) to any other Lender,  (b) to any
Person if reasonably incidental to the administration of the Loans, (c) upon the
order of any court or administrative  agency,  (d) upon the request or demand of
any regulatory  agency or authority having  jurisdiction  over such Lender,  (e)
which has been  publicly  disclosed,  (f) in connection  with any  litigation to
which the Administrative Agent, any Lender or their respective Affiliates may be
a party, (g) to the extent  reasonably  required in connection with the exercise
of any right or remedy  under the Loan  Documents,  (h) to such  Lender's  legal
counsel,  independent auditors and Affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder,  so long as such
actual or proposed  participant or Assignee agrees to be bound by the provisions
of this SECTION 13.20.

         (b) LOAN PARTIES' AND AFFILIATES' OBLIGATIONS. The Borrower agrees that
it will, and will cause the other Loan Parties and their Affiliates to, keep the
terms and provisions of this Agreement and the other Loan Documents confidential
from anyone other than  individuals  employed or retained by the  Borrower,  any
other Loan Party or any of their  Affiliates  who are or are  expected to become
engaged in financial  matters or matters  relating to  compliance  with the Loan
Documents,  PROVIDED  that  nothing  herein  shall  prevent any such Person from
disclosing such information (i) to any such other Loan Party or Affiliate,  (ii)
upon the order of any court or administrative  agency, (iii) upon the request or
demand of any regulatory agency or authority having  jurisdiction over such Loan
Party or Affiliate,  (iv) which has been publicly disclosed, or (v) to such Loan
Party's  or  Affiliate's  legal  counsel  and  independent  auditors;  PROVIDED,
HOWEVER,  that the Borrower  will deliver to the  Administrative  Agent  written
notice of any  intention or obligation of any Loan Party to deliver or provide a
copy of this  Agreement  or any other  Loan  Document  or any term or  provision
hereof or thereof to any Governmental Authority at least ten Business Days prior
to the initial  date upon which any such  delivery or  provision  occurs and the
Borrower  shall,  and shall  cause  each of the other Loan  Parties  to, use all
reasonable  efforts to redact or delete from such copy or such term or provision
such terms or  provisions  or  language  relating  to rates of  interest,  fees,
financial  covenants,  availability and other terms or provisions of a sensitive
nature as may be  requested  by the  Administrative  Agent to be so  redacted or
deleted  before the same is so  delivered  or  provided.  Without  limiting  the
generality of the foregoing,  the Borrower agrees that it will not, and will not
permit any other Loan Party or its  Affiliates  to,  without  the prior  written
consent  of the  Administrative  Agent,  and the  Administrative  Agent  and the
Lenders  agree  that they will not,  without  the prior  written  consent of the
Borrower,  issue  or  publish  a  press  release,  tombstone  or  other  similar
announcement  or  publication  relating  to this  Agreement  or any  other  Loan
Document or the transactions  contemplated hereby unless they or it are required
to do so by the order of any  court or  administrative  agency or in  accordance
with applicable law.

         SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT  PERMITTED BY
APPLICABLE  LAW,  EACH OF THE PARTIES  HERETO HEREBY  IRREVOCABLY  AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR  COUNTERCLAIM
(WHETHER BASED UPON CONTRACT,  TORT OR OTHERWISE)  ARISING OUT OF OR RELATING TO
ANY OF THE  LOAN  DOCUMENTS  OR THE  TRANSACTIONS  CONTEMPLATED  THEREBY  OR THE
ACTIONS  OF  THE  BORROWER,  THE  ADMINISTRATIVE  AGENT  OR  ANY  LENDER  IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.

                                      115
<PAGE>

         Section  13.22  APPROVALS  AND  CONSENT.  Except  as may  be  expressly
provided to the contrary in this  Agreement or in the other Loan  Documents  (as
applicable),  in any instance  under this  Agreement or the other Loan Documents
where the approval,  consent or exercise of judgment of the Administrative Agent
or any Lender is  requested  or  required,  (a) the  granting  or denial of such
approval or consent and the exercise of such  judgment  shall be within the sole
discretion of the  Administrative  Agent or such Lender,  respectively,  and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such  approval or consent or to exercise  such  judgment in
any particular  manner,  regardless of the  reasonableness of the request or the
action  or  judgment  of the  Administrative  Agent or such  Lender,  and (b) no
approval or consent of the Administrative Agent or any Lender shall in any event
be effective unless the same shall be in writing and the same shall be effective
only in the specific instance and for the specific purpose for which given.

                                      116
<PAGE>

         Section 13.23 SERVICE OF PROCESS.  The Borrower irrevocably consents to
the service of process by the mailing thereof by the Administrative Agent or the
Required  Lenders by  registered  or certified  mail,  postage  prepaid,  to the
Borrower at its address  listed on the signature  pages hereof.  Nothing in this
SECTION 13.23 shall affect the right of the Administrative  Agent or the Lenders
to serve legal process in any other manner  permitted by law or affect the right
of the  Administrative  Agent or any  Lender to bring any  action or  proceeding
against  the  Borrower or any of their  respective  Property in the court of any
jurisdiction.

                                [Remainder  of this page is  intentionally  left
blank.]

                                      117
<PAGE>

         IN  WITNESS  WHEREOF,  the  parties  hereto  have  duly  executed  this
Agreement as of the day and year first above written.

                                BORROWER:

                                PATHNET OPERATING, INC.

                                By:/s/ James M. Craig
                                   -------------------------
                                   Name:    James M. Craig
                                   Title:   Executive Vice President
                                             and Chief Financial Officer

                                ADDRESS FOR NOTICES:
                                -------------------
                                11720 Sunrise Valley Drive
                                Reston, Virginia 20191
                                Attention:   Chief Financial Officer
                                              and General Counsel
                                Telephone:   703-390-1000
                                Telecopy:    703-860-5682

                                      118
<PAGE>

                                PATHNET FIBER EQUIPMENT LLC

                                By:/s/ James M. Craig
                                   -------------------------
                                   Name:    James M. Craig
                                   Title:   Executive Vice President
                                             and Chief Financial Officer

                                ADDRESS FOR NOTICES:
                                -------------------
                                11720 Sunrise Valley Drive
                                Reston, Virginia 20191
                                Attention:   Chief Financial Officer
                                              and General Counsel
                                Telephone:   703-390-1000
                                Telecopy:    703-860-5682

                                      119
<PAGE>

                                PATHNET REAL ESTATE LLC

                                By:/s/ James M. Craig
                                   -------------------------
                                   Name:    James M. Craig
                                   Title:   Executive Vice President
                                             and Chief Financial Officer

                                ADDRESS FOR NOTICES:
                                -------------------
                                11720 Sunrise Valley Drive
                                Reston, Virginia 20191
                                Attention:   Chief Financial Officer
                                              and General Counsel
                                Telephone:   703-390-1000
                                Telecopy:    703-860-5682

                                      120
<PAGE>

                                ADMINISTRATIVE AGENT:
                                --------------------

                                NORTEL NETWORKS INC.,
                                as Administrative Agent

                                By: /s/  Mitchell L. Stone
                                     ---------------------------------------
                                Name:   Mitchell L. Stone
                                     ---------------------------------------
                                Title: Director
                                     ---------------------------------------

                                ADDRESS FOR NOTICES:
                                -------------------
                                Nortel Networks Inc.
                                Mail Stop 991 15 A40
                                2221 Lakeside Blvd.
                                Richardson, Texas 75082-4399
                                Attention: Paul D. Day
                                Vice President, Customer Finance Americas
                                Telephone: 972-684-2271
                                Telecopy: 972-684-3679

                                       and

                                Nortel Networks Inc.
                                Mail Stop 468/05/B40
                                2100 Lakeside Blvd.
                                Richardson, Texas 75082-4399
                                Attention: Kimberly Poe
                                Director, Loan Administration
                                Telephone: 972-684-7687
                                Telecopy: 972-685-3613

                                      121
<PAGE>

                                LENDERS:

                                NORTEL NETWORKS INC.
Term Loans A
Commitment:       $105,000,000  By:     /s/ Mitchell L. Stone
                                        -------------------------------
                                Name:   Mitchell L. Stone
                                        -------------------------------
                                Title:  Director
                                        --------------------------------

Term Loans B
Commitment:       $105,000,000
                   -----------
                                ADDRESS FOR NOTICES:
                                -------------------
Total                           Nortel Networks Inc.
Commitment:       $210,000,000  Mail Stop 991 15 A40
                   ===========  2221 Lakeside Blvd.
                                Richardson, Texas 75082-4399
                                Attention: Paul D. Day
                                Vice President, Customer Finance Americas
                                Telephone: 972-684-2271
                                Telecopy: 972-684-3679

                                       and

                                Nortel Networks Inc.
                                Mail Stop 468/05/B40
                                2100 Lakeside Blvd.
                                Richardson, Texas 75082-4399
                                Attention: Kimberly Poe
                                Director, Loan Administration
                                Telephone: 972-684-7687
                                Telecopy: 972-685-3613

                                LENDING OFFICE FOR BASE RATE LOANS:
                                ----------------------------------
                                Nortel Networks Inc.
                                2221 Lakeside Blvd.
                                Richardson, Texas 75082

                                LENDING OFFICE FOR EURODOLLAR LOANS:
                                -----------------------------------
                                Nortel Networks Inc.
                                2221 Lakeside Blvd.
                                Richardson, Texas 75082

                                      122
<PAGE>

                                    EXHIBIT A

                        FORM OF ASSIGNMENT AND ACCEPTANCE

                                      123
<PAGE>

                                    EXHIBIT B

                       FORM OF COLLATERAL AGENCY AGREEMENT

                                      124
<PAGE>

                                    EXHIBIT C

                           FORM OF GUARANTY AGREEMENT

                                      125
<PAGE>

                                    EXHIBIT D

                           FORM OF HOLDINGS AGREEMENT

                                      126
<PAGE>

                                    EXHIBIT E

                        FORM OF HOLDINGS PLEDGE AGREEMENT

                                      127
<PAGE>

                                    EXHIBIT F

                  FORM OF INDEMNITY AND CONTRIBUTION AGREEMENT

                                      128
<PAGE>

                                    EXHIBIT G

                         FORM OF PERFECTION CERTIFICATE

                                      129
<PAGE>

                                    EXHIBIT H

                           FORM OF SECURITY AGREEMENT

                                      130
<PAGE>

                                    EXHIBIT I

                         FORM OF SUBORDINATION AGREEMENT

                                      131
<PAGE>

                                   EXHIBIT J-1

                               FORM OF TERM NOTE A

                                      132
<PAGE>

                                   EXHIBIT J-2

                               FORM OF TERM NOTE B

                                      133
<PAGE>

                                    EXHIBIT K

                   FORM OF NOTICE OF BORROWINGS, CONVERSIONS,
                          CONTINUATIONS AND PREPAYMENTS

                                      134
<PAGE>

                                    EXHIBIT L

                         FORM OF COMPLIANCE CERTIFICATE

                                      135
<PAGE>

                                 SCHEDULE 1.1(A)

                            CERTAIN PERMITTED HOLDERS

                                      136
<PAGE>

                                 SCHEDULE 1.1(B)

                             CERTAIN PERMITTED LIENS

                                      137
<PAGE>

                                  SCHEDULE 7.4

                                    LICENSES

                                      138
<PAGE>

                                  SCHEDULE 7.5

                              INTELLECTUAL PROPERTY

                                      139
<PAGE>

                                  SCHEDULE 7.6

                                LITIGATION, ETC.

                                      140
<PAGE>

                                  SCHEDULE 7.7

                      REAL PROPERTY; CONTRACT RIGHTS-OF-WAY

                                      141
<PAGE>

                                  SCHEDULE 7.10

                                  EXISTING DEBT

                                      142
<PAGE>

                                  SCHEDULE 7.13

                                      PLANS

                                      143
<PAGE>

                                  SCHEDULE 7.15

                          LOAN PARTIES; CAPITALIZATION

                                      144
<PAGE>

                                  SCHEDULE 7.22

                               MATERIAL CONTRACTS

                                      145
<PAGE>

                                  SCHEDULE 7.23

                                  BANK ACCOUNTS

                                      146
<PAGE>

                                  SCHEDULE 7.26

                                EMPLOYEE MATTERS

                                      147
<PAGE>

                                  SCHEDULE 7.27

                                    INSURANCE

                                      148
<PAGE>

                                  SCHEDULE 8.17

                       TELECOMMUNICATIONS ASSETS NOT OWNED
                      BY THE BORROWER AND ITS SUBSIDIARIES

                                      149
<PAGE>

                                  SCHEDULE 9.5

                               CERTAIN INVESTMENTS

                                      150
<PAGE>

                                  SCHEDULE 9.10

                       CERTAIN AGREEMENTS OF SUBSIDIARIES

                                      151
<PAGE>

                                  SCHEDULE 10.1

                       TOTAL DEBT TO TOTAL CAPITALIZATION
<TABLE>
<CAPTION>

          ------------------------------------------------- ----------------------------------------
                                                                  Maximum Ratio of Total Debt
          Calendar Quarter Ending                                   to Total Capitalization
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          <S>                                                                 <C>
          June 30, 2000                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2000                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2000                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2001                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2001                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2001                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2001                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2002                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2002                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2002                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2002                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2003                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2003                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2003                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2003                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2004                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2004                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2004                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2004                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2005                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2005                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2005                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2005                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2006                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2006                                                       [*]
          ------------------------------------------------- ----------------------------------------

</TABLE>

                                      152
<PAGE>

                                  SCHEDULE 10.2

                         TOTAL DEBT TO ANNUALIZED EBITDA
<TABLE>
<CAPTION>

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

                                                                  Maximum Ratio of Total Debt
          Calendar Quarter Ending                                    to Annualized EBITDA
          <S>                                                                 <C>
          June 30, 2002                                                       [*]

          September 30, 2002                                                  [*]

          December 31, 2002                                                   [*]

          March 31, 2003                                                      [*]

          June 30, 2003                                                       [*]

          September 30, 2003                                                  [*]

          December 31, 2003                                                   [*]

          March 31, 2004                                                      [*]

          June 30, 2004                                                       [*]

          September 30, 2004                                                  [*]

          December 31, 2004                                                   [*]

          March 31, 2005                                                      [*]

          June 30, 2005                                                       [*]

          September 30, 2005                                                  [*]

          December 31, 2005                                                   [*]

          March 31, 2006                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2006                                                       [*]
          ------------------------------------------------- ----------------------------------------
</TABLE>

                                      153
<PAGE>

                                  SCHEDULE 10.3

                             EBITDA TO DEBT SERVICE
<TABLE>
<CAPTION>

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

                                                                    Minimum Ratio of EBITDA
          Calendar Quarter Ending                                       to Debt Service
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          <S>                                                                 <C>
          September 30, 2002                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2002                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2003                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2003                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2003                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2003                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2004                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2004                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2004                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2004                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2005                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2005                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2005                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2005                                                   [*]

          March 31, 2006                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2006                                                       [*]
          ------------------------------------------------- ----------------------------------------
</TABLE>

                                      154
<PAGE>

                                  SCHEDULE 10.4

                     EBITDA TO CONSOLIDATED INTEREST EXPENSE
<TABLE>
<CAPTION>

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

                                                                    Minimum Ratio of EBITDA
          Calendar Quarter Ending                              to Consolidated Interest Expense
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          <S>                                                                 <C>
          September 30, 2002                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          December 31, 2002                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          March 31, 2003                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          June 30, 2003                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          September 30, 2003                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          December 31, 2003                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          March 31, 2004                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          June 30, 2004                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          September 30, 2004                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          December 31, 2004                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          March 31, 2005                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          June 30, 2005                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          September 30, 2005                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          December 31, 2005                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          March 31, 2006                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------
          June 30, 2006                                                       [*]
          ------------------------------------------------- ----------------------------------------
</TABLE>

                                      155
<PAGE>

                                  SCHEDULE 10.5

                                 GROSS REVENUES
<TABLE>
<CAPTION>

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

          Calendar Quarter Ending                                   Minimum Gross Revenues
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          <S>                                                                 <C>
          June 30, 2000                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2000                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2000                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2001                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2001                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2001                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2001                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2002                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2002                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2002                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2002                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2003                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2003                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2003                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2003                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2004                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2004                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2004                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2004                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2005                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2005                                                       [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          September 30, 2005                                                  [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          December 31, 2005                                                   [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          March 31, 2006                                                      [*]
          ------------------------------------------------- ----------------------------------------
          ------------------------------------------------- ----------------------------------------

          June 30, 2006                                                       [*]
          ------------------------------------------------- ----------------------------------------
</TABLE>* IMPORTANT NOTE:  CERTAIN  MATERIAL,  INDICATED BY AN ASTERISK ("*"),  HAS BEEN
OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

[GRAPHIC OMITTED][GRAPHIC OMITTED]

As of September 7, 2000

Pathnet Operating, Inc.
11720 Sunrise Valley Drive
Reston, Virginia 20191
Attn:  Mr. James Craig

Ladies and Gentlemen:

                  Cisco Systems Capital Corporation, a corporation organized and
existing under the laws of the State of Nevada,  is pleased to make available to
Pathnet Operating,  Inc., a corporation organized and existing under the laws of
the State of Delaware,  a credit facility in the aggregate  principal  amount of
$50,000,000, on the following terms and conditions:

     SECTION 1. DEFINITIONS.

     1.1  DEFINITIONS.  As  used  in  this  agreement  (this  "Agreement"),  the
following terms shall have the following meanings:

     "AFFILIATE"  means,  as to any Person  (the  "SUBJECT  PERSON"),  any other
Person  (a) that  directly  or  indirectly  through  one or more  intermediaries
controls or is  controlled  by, or is under  direct or indirect  common  control
with, the subject Person,  (b) that directly or indirectly  beneficially owns or
holds 10% or more of any class of voting capital stock of the subject Person, or
(c) 10% or more of the voting  capital  stock of which is directly or indirectly
beneficially  owned or held by the  subject  Person.  For the  purposes  of this
definition,  "control"  when used with  respect to any Person means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.  Neither Lender nor any Loan Party shall be deemed to be an Affiliate
of Borrower for purposes of the Loan Documents.

     "ADDITIONAL  BORROWER"  means any  Additional  Borrower  designated  in the
Schedule or any Subsidiary of Borrower acceding hereto as an Additional Borrower
as contemplated by the Schedule.

     "APPROVED  SERVICES  AGREEMENT" means the Intercompany  Services  Agreement
dated August 9, 2000 between PNI and Borrower.

     "APPROVED TAX ALLOCATION  AGREEMENT" means the Tax Sharing  Agreement dated
August 9, 2000 between Holdings and Borrower.

     "ASSET CONTRIBUTION AGREEMENT" means the Asset Contribution Agreement dated
as of August 9, 2000 between Holdings, Borrower, PFE and PRE.

     "AVAILABILITY PERIOD" has the meaning set forth in the Schedule.

     "BANKING DAY" has the meaning set forth in the Note(s).

     "BANKRUPTCY  CODE"  means  Title  11 of the  United  States  Code  entitled
"Bankruptcy".

     "BORROWER" means Pathnet Operating, Inc. (subject to Section 7.15).

     "BORROWER SECURITY AGREEMENT" means the Pledge and Security Agreement dated
as of August 9, 2000 between  Borrower and Collateral  Agent,  as such agreement
may be amended, modified,  supplemented,  renewed, extended or restated with the
prior written consent of Lender

     "BORROWING DATE" means any date on which a Loan is made to Borrower.

     "BUSINESS PLAN" means the business plan of the Borrower in effect from time
to time, as approved by Lender.  The initial  business plan of Borrower is dated
as of August 4, 2000 and was delivered to Lender prior to the date hereof.

     "CHANGE OF CONTROL"  means (i) the  acquisition  of  beneficial  ownership,
directly  or  indirectly,  by any  Person or group  (within  the  meaning of the
Securities  Exchange  Act of 1934 and the rules of the  Securities  and Exchange
Commission  thereunder  as in effect on the date hereof) of shares  representing
more than 35% of the aggregate  ordinary voting power  represented by the issued
and  outstanding  capital stock of Holdings  other than such an  acquisition  by
Permitted Holders or a group controlled by Permitted Holders; (ii) occupation of
a majority of the seats  (other than vacant  seats) on the Board of Directors of
Holdings by Persons who were neither (A)  nominated by the Board of Directors of
Holdings nor (B) appointed by directors so nominated; (iii) Holdings shall cease
to own and control directly,  of record and beneficially,  100% of each class of
outstanding  capital  stock of Borrower  free and clear of all Liens (other than
any Liens  under the  Collateral  Documents);  or (iv) the  consummation  of any
transaction  the result of which is that any Person or group  beneficially  owns
more of the  Voting  Stock  of  Holdings  than  is  beneficially  owned,  in the
aggregate, by the Permitted Holders.

     "CISCO  SYSTEMS" means Cisco  Systems,  Inc. or any Subsidiary or affiliate
thereof.

     "CISCO  PRODUCTS"  means  networking and  telecommunications  equipment and
other goods, spare parts, accessories, software and services which Cisco Systems
manufactures, assembles, sells, licenses or provides.

     "CISCO PURCHASE AGREEMENT" has the meaning set forth in the Schedule.

     "CLOSING DATE" means the date  occurring on or before the Closing  Deadline
on which all  conditions  precedent  set forth in Section 3.1 are  satisfied (or
waived by Lender).

     "CLOSING DEADLINE" has the meaning set forth in the Schedule.

     "COLLATERAL" means the property described in the Collateral Documents,  and
all other  property now existing or hereafter  acquired which may at any time be
or become subject to a Lien in favor of Lender or, if the Collateral  Agency and
Intercreditor  Agreement  is in place,  the  Collateral  Agent  pursuant  to the
Collateral  Documents or otherwise,  securing the payment and performance of the
Obligations.

     "COLLATERAL  AGENT"  means  State  Street  Bank and  Trust  Company  in its
capacity  as  collateral  agent  under the terms of the  Collateral  Agency  and
Intercreditor Agreement and any successor thereof.

     "COLLATERAL AGENCY AND INTERCREDITOR  AGREEMENT" means that certain Amended
and Restated Collateral Agency and Intercreditor Agreement dated as of September
7,  2000  among  the  Collateral  Agent,  and  the  "Represented   Holders"  and
"Unrepresented Holders" referred to therein.

     "COLLATERAL  DOCUMENTS"  means each Collateral  Document  identified in the
Schedule,  any security agreement provided by a Subsidiary of Borrower hereunder
and any other  agreement  pursuant  to which any Loan Party or any other  Person
provides a Lien on its assets in favor of Lender  or, if the  Collateral  Agency
and  Intercreditor  Agreement is in place,  the Collateral  Agent, to secure the
Obligations and all filings, documents and agreements made or delivered pursuant
thereto.

     "COMMITMENT" means the Dollar amount set forth in the Schedule or where the
context so requires, the obligation of Lender to make Loans up to such aggregate
principal amount on the terms and conditions set forth in this Agreement.

     "COMPLIANCE  CERTIFICATE" means a certificate of Borrower, in substantially
the form of Exhibit B, with such changes thereto as Lender may from time to time
reasonably request.

     "CONDUIT"  means any conduit  capable of containing  one or more strands of
Fiber.

     "CONTRACT  RIGHTS-OF-WAY"  means  any and  all  rights-of-way  (whether  an
easement,  lease, contract or agreement in any form) or similar authorization to
use any real  property  or any  interest  therein  contractually  granted by any
Person to or in favor of any Loan Party or Holdings in connection with, and used
in connection  with, the Network,  including leases and licenses entered into in
connection with the Master Rights-of-Way Agreements.

     "CONTRIBUTED  RIGHTS-OF-WAY  CAPITALIZATION  VALUE" means,  for purposes of
Section 5.1(o) only,  $10,000 for each mile of  right-of-way  contributed to the
Borrower by Holdings  pursuant  to the terms of the  Rights-of-Way  Contribution
Agreement or any additional or future  agreement  between  Holdings and Borrower
for the contribution of rights-of-way to Borrower from Holdings as capital.

     "CREDITOR" has the meaning set forth in the Schedule.

     "CUSTOMER  AGREEMENTS"  means  an  agreement  with a  Person  who is not an
Affiliate of Borrower providing for the sale, lease, transfer, swap, exchange or
other disposition of, or the grant of any other right to use, or the grant of an
option to  purchase,  acquire,  lease or  otherwise  use, all or any part of the
Network,  whether relating to transmission  capacity,  Conduit or any individual
strand or strands of Fiber.

     "DEFAULT"  means an Event of  Default or an event or  condition  which with
notice or lapse of time or both would constitute an Event of Default.

     "DOLLARS" and the sign "$" each means lawful money of the United States.

     "ELIGIBLE  ENTITY"  means (a) a Person  that is  primarily  engaged  in the
business of banking or commercial finance with a combined capital and surplus of
at least  $500,000,000,  (b) a Person  purchasing  the  division(s)  or business
unit(s) of Cisco Systems  responsible for producing a substantial portion of the
Financed  Products,  (c) a Person  acquiring  or  merging  with  Lender or Cisco
Systems, or (d) any Affiliate of Lender or Cisco Systems.

     "ELIGIBLE  SECURED DEBT" means (a)  Indebtedness  of Borrower in respect of
the Loans, (b) any other Indebtedness for borrowed money of Borrower incurred to
finance the  acquisition,  construction,  installation or improvement of capital
assets  (including  Fiber and Conduit) that constitute part of the Collateral or
the Real Estate Assets and (c) any  Indebtedness  for borrowed money of Borrower
incurred to  refinance  Indebtedness  referred to in clause (b) above;  PROVIDED
that (i) in the case of any  Indebtedness  described  in clause (b) above,  such
Indebtedness is incurred  within 270 days of such  acquisition or the completion
of such  construction,  installation  or  improvement  and the principal  amount
thereof  does  not  exceed  100% of the  aggregate  cost  of  such  acquisition,
construction,  installation or improvement, (ii) in the case of any Indebtedness
described in clause (b) or (c) above, the holder or holders of such Indebtedness
(or a duly  authorized  representative  thereof on behalf of such holders) shall
have become a party to the  Collateral  Agency and  Intercreditor  Agreement  as
provided therein,  (iii) in the case of any Indebtedness described in clause (b)
or (c) above, at the time any such Indebtedness is incurred  (including pursuant
to any increase in the principal  amount thereof) no Default shall have occurred
and be continuing  (both before and after giving effect to such  incurrence) and
Borrower shall be in compliance  with each of the covenants set forth in Section
5.1(o)  determined  on a pro forma basis as of the last day of the most recently
ended fiscal quarter of Borrower for which financial statements are available as
though  such  Indebtedness  had been  incurred  on the  last day of such  fiscal
quarter for testing compliance with each such covenant,  and Borrower shall have
delivered  to  Lender  a  reasonably  detailed  calculation  demonstrating  such
compliance,  and (iv) in the case of any Indebtedness  referred to in clause (b)
or (c) above,  such  Indebtedness  is not  guaranteed  by any Person (other than
pursuant to a Guaranty) or secured by any Lien (other than Liens  granted  under
the Collateral Documents).

     "ELIGIBLE  SECURED DEBT  DOCUMENTS"  means the  agreements,  documents  and
instruments evidencing or governing any Eligible Secured Debt.

     "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.

     "FCC'  means  the  Federal  Communications  Commission,  or  any  successor
thereto, administering the Communications Act of 1934.

     "FIBER" means fiber optic cable that is, or is intended to be, installed in
the Network or any strand or strands of fiber included in any such cable, as the
context may provide.

     "FIBER OR CONDUIT  PURCHASE" means,  with respect to Borrower or any of its
Subsidiaries, any acquisition (by purchase, lease, exchange or otherwise) of any
Fiber or Conduit or right to use Fiber or Conduit for use in the Network.

     "FIBER OR CONDUIT  SALE" means,  with respect to the Borrower or any of its
Subsidiaries, any sale, lease, transfer or other disposition of, or any grant of
any other right to use, or any grant of an option to purchase, acquire, lease or
otherwise  use, all or part of the  Network,  whether  relating to  transmission
capacity  or any  individual  Conduit or Conduits  or any  individual  strand or
strands of Fiber.

     "FINANCED PRODUCTS" means the Cisco Products and other goods,  services and
other property the acquisition of which is financed by Lender or with respect to
which Lender is  otherwise  providing  financing  or extending  credit to enable
Borrower to acquire.

     "FINANCING DOCUMENTS" has the meaning set forth in the Schedule.

     "FUNDING  PROCEDURES AND POLICIES" means Lender's  "Funding  Procedures and
Policies" as in effect from time to time, as  communicated  to Borrower.  "GAAP"
means generally accepted accounting principles as in effect from time to time.

     "GOVERNMENTAL  AUTHORITY"  means any  national  government,  or any  state,
province or other political  subdivision thereof or therein, or any governmental
ministry,  department,  body,  commission,  board, bureau, agency, central bank,
court,  tribunal or other  instrumentality  or authority  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

     "GUARANTOR" means PFE, PRE, any Subsidiary of Borrower or Holdings becoming
a guarantor as provided under Section 5.1(n) and any other guarantor  identified
in the Schedule.

     "GUARANTOR   DOCUMENTS"   means  any  Guaranty  and  all  other  documents,
agreements  and  instruments  delivered  to the  Collateral  Agent  under  or in
connection with any Guaranty.

     "GUARANTY" means the guaranty of any Guarantor, as provided
under  Section  5.1(n),  and any  guaranty of any  Guarantor  identified  in the
Schedule.

     "HOLDINGS" means Pathnet Telecommunications,  Inc., a corporation organized
and existing under the laws of the State of Delaware.

     "HOLDINGS PLEDGE  AGREEMENT" means the Pledge and Security  Agreement dated
as of  August  9,  2000  between  Holdings  and the  Collateral  Agent,  as such
agreement may be amended, modified, supplemented,  renewed, extended or restated
with the prior written consent of Lender.

     "INDEBTEDNESS"  means,  for any  Person,  (i)  all  indebtedness  or  other
obligations  of such Person for borrowed  money,  or for the  deferred  purchase
price of property or services  (acquired or obtained  other than on normal trade
credit terms);  (ii) all obligations  evidenced by notes,  bonds,  debentures or
similar instruments,  including  obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (iii) all non-contingent
reimbursement  and other  obligations  of such  Person in  respect of letters of
credit and bankers  acceptances  and all net  obligations in respect of interest
rate swaps, caps, floors and collars, currency swaps, or other similar financial
products;  (iv) all obligations under leases which shall have been or should be,
in accordance with GAAP, recorded as capital leases; and (v) all indebtedness of
another Person of the types  referred to in clauses (i) through (iv)  guaranteed
directly  or  indirectly  in any manner by the Person for whom  Indebtedness  is
being determined.

     "INSOLVENCY PROCEEDING" means (i) any case, action or proceeding before any
court or other Governmental  Authority  relating to bankruptcy,  reorganization,
insolvency,  liquidation,  receivership,  dissolution,  winding-up  or relief of
debtors,   or  (ii)  any  general  assignment  for  the  benefit  of  creditors,
composition,  marshalling of assets for creditors, or other, similar arrangement
in  respect  of its  creditors  generally  or  any  substantial  portion  of its
creditors,  in each case undertaken  under U.S.  federal,  state or foreign law,
including the Bankruptcy Code.

     "INDEMNITY AND CONTRIBUTION AGREEMENT" means the Indemnity, Subrogation and
Contribution  Agreement  dated as of  August 9, 2000  among  the  Borrower,  the
Subsidiaries  from time to time party thereto,  and the Collateral Agent, as any
such  agreement may be amended,  modified,  supplemented,  renewed,  extended or
restated with the prior written consent of Lender.

     "INTEREST RATE  PROTECTION  AGREEMENT"  means an interest rate swap, cap or
collar agreement or similar arrangement providing for the transfer or mitigation
of interest rate risks either generally or under specified contingencies.

     "LENDER" means Cisco Systems Capital Corporation.

     "LIEN" means any mortgage, pledge, security interest,  assignment,  deposit
arrangement,   charge  or  encumbrance,  lien  or  other  type  of  preferential
arrangement (other than a financing statement filed by a lessor in respect of an
operating lease not intended as security).

     "LOAN DOCUMENTS" means this Agreement, the Notes, any Collateral Documents,
any Guaranty,  any Guarantor  Documents and all other  certificates,  documents,
agreements and instruments  delivered to Lender under or in connection with this
Agreement.

     "LOAN PARTY" means Borrower, each Additional Borrower and each Guarantor.

     "LOANS" has the meaning set forth in Section 2.1.

     "MAGTEN  LITIGATION" means the litigation  evidenced by the Complaint filed
with the Supreme Court of the State of New York,  County of New York,  Index No.
602083/00  styled as Magten  Partners,  L.P.  and others as  plaintiffs  against
Pathnet, Inc., Pathnet Telecommunications, Inc., Richard Jalkut, The Bank of New
York,  Colonial Pipeline Company,  The Burlington  Northern and Sante Fe Railway
Company and CSX Transportation, Inc., as defendants.

     "MASTER RIGHTS-OF-WAY AGREEMENTS" means that certain (a) Fiber Optic Access
Agreement  dated as of March  30,  2000,  between  Holdings  and The  Burlington
Northern  and Santa Fe Railway  Company,  (b) Fiber  Optic  Access  and  License
Agreement  dated as of March 30, 2000,  between CSX  Transportation,  Inc.,  for
itself and as operator for New York Central  Lines LLC,  and  Holdings,  and (c)
Fiber Optic Access and Purchase  Agreement  dated as of March 30, 2000,  between
Holdings and Colonial Pipeline  Company,  in each case as any such agreement may
be amended or modified from time to time in accordance with Section 5.1(r).

     "MATERIAL  ADVERSE  CHANGE"  means  (i) a  material  adverse  change in the
business,  operations  or financial  condition of Borrower and its  Subsidiaries
taken as a whole, or (ii) any event, matter, condition or circumstance which (A)
would  materially  impair the  ability of any Loan Party or any other  Person to
perform or observe its obligations under or in respect of the Loan Documents, or
(B) materially affects the legality,  validity, binding effect or enforceability
of any of the Loan Documents.

     "MATERIAL CONTRACTS" means, as to any Loan Party, any Customer Agreement or
supply,  purchase,  service,  employment,  tax, indemnity,  shareholder or other
agreement  or  contract  for which  the  aggregate  amount or value of  services
performed or to be performed for or by, or funds or other  property  transferred
or to be transferred to or by, any Loan Party to such agreement or contract,  or
by which any Loan Party or any of its properties is otherwise bound,  during any
fiscal year of such Loan Party exceeds (i) $1,000,000 (or the equivalent  amount
in any  currency)  with  respect  to  other  than  Customer  Agreements  or (ii)
$5,000,000  (or the  equivalent  amount in any  currency)  with  respect  to any
Customer  Agreement,  and any and all  amendments,  modifications,  supplements,
renewals or restatements thereof. Each Material Contract existing as of the date
of this Agreement is set forth in the Schedule.

     "NETWORK" means Borrower's  telecommunications network (including populated
or  unpopulated  Conduit),  consisting  primarily  of fiber optic cable but also
including copper lines, wireless assets and other  telecommunication  media, for
the provision of communications or related services developed,  installed and/or
operated,  or to be  developed,  installed  and/or  operated,  in each case,  as
described in or contemplated by the Business Plan.

     "NOTE" means each Promissory Note referred to in the Schedule.

     "OBLIGATIONS" means the indebtedness,  liabilities and other obligations of
any  Loan  Party  to  Lender  under or in  connection  with the Loan  Documents,
including  all Loans,  all  interest  accrued  thereon,  all fees due under this
Agreement and all other amounts  payable by any Loan Party to Lender  thereunder
or in connection therewith.

     "PFE" means  Pathnet  Fiber  Equipment  LLC, a Delaware  limited  liability
company.

     "PRE" means Pathnet Real Estate LLC, a Delaware limited liability company.

     "PERMITTED HOLDERS" means the Persons identified on Schedule 1.1(a) who are
shareholders  of Holdings as of the Closing Date together with their  respective
Affiliates and (b) any spouse,  parent,  sibling,  child or grandchild of any of
the aforesaid  individuals (in each case whether such  relationship  arises from
birth or adoption or through  marriage) or any trust established for the benefit
of any such individuals or any spouse,  parent,  sibling, child or grandchild or
any such individuals (in each case whether such  relationship  arises from birth
or adoption or through marriage).

     "PERMITTED  LIENS"  means:  (i) Liens in favor of Lender or Cisco  Systems,
(ii)  Liens  in  favor  of the  Collateral  Agent  pursuant  to  the  Collateral
Documents,  (iii) the existing Liens  disclosed in writing to Lender on Schedule
1.1; (iv) Liens for Taxes,  assessments or other  governmental  charges that are
not  delinquent  or which  are  being  contested  in good  faith by  appropriate
proceedings,  which  proceedings have the effect of preventing the forfeiture or
sale of the property  subject to such Liens or the  forfeiture  or sale of which
property  has been  prevented  by the  posting  of bonds or the  taking of other
appropriate   actions,  and  for  which  adequate  reserves  (as  determined  in
accordance  with  GAAP)  have  been  established;   (v)  Liens  of  materialmen,
mechanics,  warehousemen,  carriers or employees or other similar Liens provided
for  by  mandatory  provisions  of  law  and  securing  obligations  either  not
delinquent or being contested in good faith by appropriate proceedings and which
do not in the  aggregate  materially  impair the use or value of the property or
risk  the  loss  or  forfeiture  thereof  or for  which  adequate  reserves  (as
determined in accordance with GAAP) have been established; (vi) Liens consisting
of deposits or pledges or resulting from performance or surety bonds required to
secure the performance of bids,  trade  contracts,  leases,  public or statutory
obligations,  or other  obligations  of a like nature  incurred in the  ordinary
course of  business  (other than for  Indebtedness);  (vii) Liens upon or in any
property  acquired or held by Borrower or any of its  Subsidiaries to secure the
purchase price of such property or Indebtedness  incurred solely for the purpose
of financing the  acquisition of such property;  PROVIDED that (A) any such Lien
attaches  to such  property  concurrently  with or  within  90  days  after  the
acquisition  thereof,  (B) such Lien attaches solely to the property so acquired
in such transaction,  (C) the Indebtedness  secured by any such Lien so created,
assumed or existing shall not exceed the lesser of the cost or fair market value
at the time of acquisition  of the property  covered  thereby  (inclusive of the
cost of engineering,  furnishing and installation  services directly relating to
such  Property)  and shall not be less  than 75% of the  amortized  value of the
property  acquired  with the proceeds of such  indebtedness,  (D) the  aggregate
amount of all Indebtedness  secured by all such Liens,  when aggregated with the
Indebtedness  secured by all  purchase-money  Liens and all Liens in  connection
with any conditional  sale or other title  retention  agreement or capital lease
obligation (other than Qualifying Fiber or Conduit Purchases) existing as of the
Closing  Date or at any other  time,  shall not exceed  $30,000,000  at any time
outstanding  in the  aggregate,  and (E) no Default  would occur  hereunder as a
result of the incurrence of such Indebtedness; (viii) Liens on specific tangible
assets of Persons which become  Subsidiaries  of Borrower after the date of this
Agreement;  provided,  however,  that (A)  such  Liens  existed  at the time the
respective  Persons  became  Subsidiaries  and were not created in  anticipation
thereof, (B) any such Lien does not by its terms cover any assets after the time
such  Person  becomes a  Subsidiary  which were not  covered  immediately  prior
thereto,  (C) any such Lien does not by its terms secure any Indebtedness  other
than Indebtedness  existing  immediately prior to the time such Person becomes a
Subsidiary,  (D) the acquisition of such Person is permitted hereby,  and (E) no
Default  would  occur   hereunder  as  a  result  of  the   incurrence  of  such
Indebtedness;  (ix) Liens consisting of judgment or judicial  attachment  Liens,
PROVIDED that the enforcement of such Liens is effectively stayed, discharged or
bonded over within  sixty (60) days and all such Liens in the  aggregate  at any
time outstanding for Holdings and its Subsidiaries do not exceed $1,000,000; (x)
restrictions and other minor encumbrances on real property (including easements,
rights-of-way,  zoning  or other  restrictions)  which  do not in the  aggregate
materially  impair  the use or  value  of such  property  or  risk  the  loss or
forfeiture thereof; (xi) Liens created under the Eligible Secured Debt Documents
securing  the  Eligible  Secured  Debt  permitted  to  be  incurred  under  this
Agreement,  which  Liens must be PARI PASSU and of equal  priority  to the Liens
securing the  Obligations and must be subject to the terms and provisions of the
Collateral  Agency and  Intercreditor  Agreement;  (xii) deposits with insurance
companies to secure obligations in respect of insurance premiums other than life
insurance  premiums,  which  deposits  do not exceed the lesser of the amount of
premiums  payable in respect of such insurance within one year after the date of
deposit or $500,000 in aggregate amount at any time payable; (xiii) any interest
or title of a lessor under any lease not prohibited by this Agreement in respect
of the leased asset,  including rights of lessors under ground leases in respect
of real  property;  (xiv) rights in respect of the Network  arising  pursuant to
Customer  Agreements  relating  thereto,  PROVIDED  that none of such rights may
result in  Borrower's  failure to comply with the terms and  provisions  of this
Agreement;  (xv) Liens  attaching  to Fiber or Conduit  acquired  as a result of
Fiber or Conduit Purchases, which Liens existed at the time of such acquisition,
were not created in  contemplation  of such  acquisition and were not granted by
any Loan  Party  and which  Liens do not have a  material  adverse  effect on or
interfere with Borrower's and its Subsidiaries' ability to operate such Fiber or
Conduit; (xvi) leases,  subleases or rights-of-way granted to others by Borrower
or its  Subsidiaries  that  are  not  prohibited  by this  Agreement  and do not
materially  interfere  with the ordinary  conduct of business of the Borrower or
any of its Subsidiaries; and (xvii) any extension, renewal or replacement of any
of the  foregoing  Permitted  Liens,  PROVIDED that Liens  permitted  under this
clause  (xvii)  shall  not  be  extended  or  spread  to  cover  any  additional
Indebtedness  or property;  PROVIDED,  HOWEVER,  that (A) none of the  Permitted
Liens (except those in favor of Lender  securing  payment of the Obligations or,
if the Collateral Agency  Intercreditor  Agreement is in effect, in favor of the
Collateral  Agent securing payment of the Obligations and Eligible Secured Debt)
may attach or relate to the capital stock of or any other ownership  interest in
Borrower or any of its Subsidiaries,  (B) none of the Permitted Liens referenced
in clauses (iii),  (ix) and (xii) may attach to any Real Estate Assets,  and (C)
except  for the Liens  disclosed  in  connection  with  clause  (iii)  which are
expressly identified as constituting purchase money Liens, none of the Permitted
Liens referred to in such clause may have a priority equal or prior to the Liens
in favor of Lender or Collateral Agent as security for the Obligations.

     "PERMITTED  TELECOMMUNICATIONS  JOINT VENTURE" means a Person that is not a
Subsidiary of Borrower engaged in one or more  Telecommunications  Businesses in
which Borrower owns, directly or indirectly, an equity interest.

     "PERMITTED  TRANSACTION."  means (a) any  transaction  or series of related
transactions (the  "Transaction")  for the purpose of or resulting,  directly or
indirectly,  in (i) the acquisition of all or substantially all of the assets of
a Person,  or of any business or division of a Person,  (ii) the  acquisition of
all or any of the capital stock, partnership interests,  membership interests or
equity of any Person,  or otherwise  causing such Person to become a Subsidiary,
or (iii) a merger or consolidation or any other combination with another Person,
that in each case  conforms to the following  requirements:  (i) Borrower or the
applicable  Subsidiary is the surviving  Person or if such Loan Party is not the
surviving Person, the surviving Person takes all actions reasonably  required to
assume and  succeed to the rights and  obligations  of such Loan Party under the
Loan  Documents and to grant  Collateral  Agent or Lender (as the case may be) a
perfected  security interest in such surviving  Person's property (subject to no
Liens other than Permitted Liens); (ii) after giving effect to such Transaction,
Borrower and each of its Subsidiaries remains in compliance with Section 5.1(g),
(iii) Lender  shall have  received  promptly,  and in any event no less than ten
Banking  Days  prior to the  consummation  of such  Transaction,  (A)  financial
information regarding the assets, Person or business which is the subject of the
Transaction,  including pro forma  projected  financial  statements  showing the
effect of the Transaction on Borrower and its Subsidiaries,  and (B) a completed
worksheet in substantially the form of Schedule 1 to the Compliance  Certificate
demonstrating  PRO  FORMA  compliance  with the  financial  covenants  set forth
herein,  measured as of the last day of the fiscal  quarter  then most  recently
ended,  after giving effect to such  Transaction,  (iv) the Transaction shall be
consummated in accordance with applicable  Requirements of Law, (v) after giving
effect to such  Transaction:  (A) no  Default  or Event of  Default  shall  have
occurred and be  continuing or would result  therefrom,  (B) 100% of the capital
stock  of  any  acquired  or  newly  formed  corporation,  partnership,  limited
liability  company  or other  business  entity is owned  directly  by  Borrower,
Holdings or a Subsidiary of Borrower or Holdings,  and (C) all actions  required
to be taken with  respect to such  acquired  or newly  formed  Subsidiary  under
Section  5.1(n) or as otherwise  required  under Section  5.1(n) shall have been
taken, and (vi) such Transaction complies with either of the following:  (A) the
consideration  for such acquisition  consists of Borrower's equity securities or
(B) in the case of any such Transaction  including cash, cash equivalents and/or
the assumption of  Indebtedness,  the aggregate  amount thereof shall not exceed
$5,000,000 (or its equivalent in another currency) in the aggregate for all such
Transactions from the Closing Date to the date of repayment of the Loans; or (b)
cash  investments in one or more Permitted  Telecommunications  Joint  Ventures;
PROVIDED  that the  remainder of (i) the  aggregate  amount of such  investments
MINUS (ii) the aggregate  amount of income received on the amount invested shall
not exceed $5,000,000.

     "PERSON"  means an  individual,  corporation,  partnership,  joint venture,
trust, unincorporated organization or any other entity of whatever nature or any
Governmental Authority.

     "PNI" means Pathnet, Inc., a Delaware corporation.

     "PNI  SENIOR  NOTES"  means the  "Notes" as such term is defined in the PNI
Senior Notes Indenture.

     "PNI SENIOR NOTES INDENTURE" means that certain Indenture dated as of April
8, 1998,  between  PNI and The Bank of New York,  as  trustee,  as  amended  and
supplemented by that certain  Supplemental  Indenture dated as of March 30, 2000
between PNI and The Bank of New York, as trustee.

     "QUALIFYING  FIBER OR CONDUIT  PURCHASES" means Fiber or Conduit  Purchases
which  constitute  capital  lease  obligations  and for which all  consideration
payable therefor was paid in full by Borrower or its Subsidiaries at the time of
acquisition.

     "REAL ESTATE ASSETS" means (a) the  Rights-of-Way  Contribution  Agreement,
the  Contract  Rights-of-Way  and all  other  interests  in real  estate,  or in
contracts  relating to real  estate,  comprising  the  right-of-way  (whether an
easement, lease, contract or agreement in any form) for the Network, (b) all the
Fiber or Conduit installed in the Network,  (c) any other assets comprising part
of the Network that constitute real property or fixtures and (d) all fiber optic
cable or strands of fiber or conduit  obtained  pursuant to any swap or exchange
agreement,  but excludes any real property or interests  therein not referred to
in clauses (a), (b) or (c) preceding.

     "REQUIREMENT  OF LAW" means,  as to any Person,  any law,  treaty,  rule or
regulation or determination of an arbitrator or of a Governmental  Authority, in
each case  applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject.

     "RESPONSIBLE  OFFICER" means, as to any Person, the chief financial officer
or treasurer of such Person (or any other senior officer of such Person involved
principally in the financial  administration or controllership  function of such
Person).

     "RESTRICTED PAYMENT" means (a) any dividend or other distribution,  payment
or penalty (whether in cash, property or obligations),  direct or indirect, paid
or payable by Borrower or any of its Subsidiaries on account of, with respect to
or in  connection  with (or the  setting  apart of money for a sinking  or other
analogous  fund for) any shares of any class of capital stock of Borrower or any
of its  Subsidiaries  now or hereafter  outstanding,  except a dividend  payable
solely in shares of that class of stock to the  holders of that  class;  (b) any
redemption,  conversion,  exchange, retirement, sinking fund or similar payment,
purchase or other  acquisition for value,  direct or indirect,  of any shares of
any  class  of  capital  stock of  Borrower  or any of its  Subsidiaries  now or
hereafter  outstanding;  (c) any payment or prepayment of principal of, premium,
if any, or  interest  on, or any  redemption,  conversion,  exchange,  purchase,
retirement or defeasance of, or payment with respect to, any  subordinated  debt
(including Subordinated Debt and any Indebtedness which is subordinated pursuant
to the  Subordination  Agreement);  and (d) any  payment  made to retire,  or to
obtain the surrender of, any  outstanding  warrants,  options or other rights to
acquire  shares  of  any  class  of  capital  stock  of  Borrower  or any of its
Subsidiaries now or hereafter outstanding.

     "RIGHTS-OF-WAY  CONTRIBUTION AGREEMENT" means the Right of Way Contribution
Agreement dated as of August 9, 2000 between Holdings as assignor,  and Borrower
and PRE as  assignees  pursuant to which all  rights,  titles and  interests  of
Holdings  in and to the Master  Rights-of-Way  Agreements,  as they relate to at
least 4,000 miles of Contract Rights-of-Way to be selected by Borrower from time
to time, is assigned to Borrower and PRE.

     "SCHEDULE" means the Schedule of Information attached hereto.

     "SECURITY  AGREEMENTS"  means the Holdings Pledge  Agreement,  the Borrower
Security  Agreement,  the  Subsidiary  Security  Agreements,  any other security
agreements,   pledge   agreements,   securities   pledge  agreements  and  other
agreements,  documents or instruments  evidencing or creating a Lien as security
for the Obligations or any portion thereof,  in form and substance  satisfactory
to Lender,  executed  by any Loan  Party,  in favor of Lender or in favor of the
Collateral  Agent, and any such agreement,  document or instrument  subsequently
executed in  accordance  or  connection  with this  Agreement  or any other Loan
Document.

     "SUBSIDIARY  SECURITY AGREEMENTS" means,  collectively,  (i) the Pledge and
Security  Agreement  dated as of August 9, 2000  between PFE and the  Collateral
Agent and (ii) the  Pledge  and  Security  Agreement  dated as of August 9, 2000
between PRE and the Collateral Agent, in each case, as any such agreement may be
amended,  modified,  supplemented,  renewed, extended or restated with the prior
written consent of Lender.

     "SUBORDINATED  DEBT" means unsecured  Indebtedness  (i) subordinated to the
payment of the  Obligations on terms  satisfactory  to Lender and (ii) the other
terms and conditions of which are  satisfactory to Lender  (including  terms and
conditions  relating to the  interest  rate and  payments,  fees,  amortization,
maturity, covenants, events of default and remedies).

     "SUBORDINATED  DEBT DOCUMENTS" means any and all agreements,  documents and
instruments now or hereafter evidencing or governing any Subordinated Debt.

     "SUBORDINATION  AGREEMENT"  means the  Subordination  Agreement dated as of
August 9, 2000 among the Loan  Parties  and the  Collateral  Agent,  as any such
agreement may be amended, modified, supplemented,  renewed, extended or restated
with the prior written consent of Lender.

     "SUBSIDIARY" means any corporation, association, partnership, joint venture
or other  business  entity of which more than 50% of the  voting  stock or other
equity  interest is owned directly or indirectly by any Person or one or more of
the other Subsidiaries of such Person or a combination thereof.

     "TAXES" means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

     "UNITED STATES" and "U.S." each means the United States of America.

     "VENDOR"  means Cisco  Systems,  or any  distributor  or other  reseller or
provider of Cisco Products.

     "VOTING  STOCK" of any Person means the capital  stock of such Person which
ordinarily  has voting power for the election of directors,  managers or general
partners (or persons performing  similar  functions) of such Person,  whether at
all times or only for so long as no senior class of  securities  has such voting
power by reason of any contingency.

     1.2  INTERPRETATION.  (a) In the Loan  Documents,  except to the extent the
context  otherwise  requires:  (i) any  reference  to an Article,  a Section,  a
Schedule or an Exhibit is a  reference  to an article or section  thereof,  or a
schedule or an exhibit  thereto,  respectively,  and to a subsection or a clause
is,  unless  otherwise  stated,  a reference to a subsection  or a clause of the
Section or subsection in which the reference  appears;  (ii) the words "hereof,"
"herein," "hereto," "hereunder" and the like mean and refer to this Agreement or
any other  Loan  Document  as a whole and not  merely to the  specific  Article,
Section,  subsection,  paragraph or clause in which the respective word appears;
(iii) the  meaning of defined  terms  shall be  equally  applicable  to both the
singular  and plural  forms of the terms  defined;  (iv) the words  "including,"
"includes"  and "include"  shall be deemed to be followed by the words  "without
limitation;"  (v)  references to agreements  and other  contractual  instruments
shall be deemed to include all  subsequent  amendments  and other  modifications
thereto;  (vi)  references  to statutes or  regulations  are to be  construed as
including all statutory and  regulatory  provisions  consolidating,  amending or
replacing  the statute or  regulation  referred to; (vii) any table of contents,
captions and headings are for convenience of reference only and shall not affect
the construction of this Agreement or any other Loan Document; and (viii) in the
computation of periods of time from a specified date to a later  specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding";  and the word "through" means "to and including." (b) Unless
Lender has consented in writing to an amendment, waiver or other modification of
the Financing  Documents,  or an amendment,  waiver or other modification of the
Financing  Documents  is  otherwise  permitted  under this  Agreement,  the term
"Financing  Documents"  as used herein  shall not be deemed to refer to any such
Financing  Document  as  modified  by  any  such  amendment,   waiver  or  other
modification  to such  Financing  Document  and shall  instead  mean and be such
Financing  Document  without  giving effect to such  amendment,  waiver or other
modification.  If any provision of any Financing Document is incorporated herein
by reference and such Financing Document shall terminate, the provisions thereof
referred to herein shall continue to be incorporated by reference herein, as and
to the extent applicable,  MUTATIS MUTANDIS, in each case in the form thereof on
the date of such termination.

     SECTION 2. THE LOAN FACILITY.

     2.1 THE LOANS.  Subject to  compliance  with the  conditions  precedent set
forth in  Sections  3.1 and 3.2,  Lender  agrees,  on the terms  and  conditions
hereinafter  set forth,  to make loans  (each a "Loan"  and,  collectively,  the
"Loans") to Borrower during the Availability  Period, in an aggregate  principal
amount up to but not  exceeding the  Commitment.  Any amount of the Loans repaid
may not be reborrowed.

     2.2 USE OF PROCEEDS.  Borrower agrees to use the proceeds of any Loans made
hereunder solely for the purposes described in the Schedule.

     2.3 BORROWING PROCEDURE. Each  Loan to be made  hereunder shall  be in such
minimum  principal  amount  and  subject  to such  advance  written  notice,  or
telephonic notice (confirmed  immediately in writing),  as shall be specified in
the Schedule.  Each such written notice of borrowing  shall be in  substantially
the form of EXHIBIT A (with  appropriate  completions).  Upon fulfillment of the
applicable  conditions  set forth in  Section  3.1 and 3.2,  and  subject to the
Funding  Procedures  and  Policies,  Lender  shall make the proceeds of the Loan
available in accordance with Borrower's payment  instructions.  Without limiting
the generality of the foregoing,  in the case of any Loan made hereunder for the
purpose of paying the purchase  price of Cisco  Products,  (i) Lender shall make
the Loan  available  directly  to the  Vendor,  and (ii) if the  Vendor is Cisco
Systems,  each such Loan shall be deemed to be  outstanding  hereunder and under
the Note evidencing such Loan effective as of the date 30 days after the invoice
date of the Cisco  Products  which are being  financed  by such Loan (or on such
date  thereafter as Cisco Systems  shall agree to in its sole  discretion),  and
Lender is hereby authorized to make such Loans without being required to receive
a notice of borrowing with respect thereto,  PROVIDED that if Borrower  provides
written  notice to Lender  within 25 days after the invoice date that payment or
performance  due Cisco Systems is not then due because one or more conditions of
payment or performance  has or have not been  satisfied by Cisco  Systems,  then
clause (ii) of this section shall not apply and no such Loan shall be made until
Borrower  provides a notice of borrowing with respect to such invoice.  Borrower
hereby  authorizes  and directs  Lender to make direct payment to any Vendor and
any other intended recipient, if any, of Loan proceeds. Notwithstanding anything
in the Funding  Procedures  and Policies to the contrary,  Lender will make Loan
proceeds available to any Vendor or other recipient thereof on or not later than
five Banking Days following the requested Borrowing Date.

     2.4 EVIDENCE OF INDEBTEDNESS. As additional evidence of the Indebtedness of
Borrower  to Lender  resulting  from the Loans  made by Lender,  Borrower  shall
execute and deliver the Note (or Notes) required pursuant to the Schedule.

     2.5 INTEREST AND FEES.

     (a) INTEREST. Borrower shall pay interest on the unpaid principal amount of
each Loan at the interest rate and on the dates set forth in the Note evidencing
such Loan.

     (b) FEES. Borrower agrees to pay to Lender such fees as may be specified in
the Schedule,  payable on the dates set forth in the Schedule.  All fees payable
under this Section 2.5 shall be nonrefundable.

     (c) DETERMINATIONS.  Each determination by Lender of any applicable rate of
interest,  and of any change therein,  in the absence of manifest error shall be
conclusive and binding on the parties hereto.

     2.6 COMPUTATIONS.  All computations of fees and interest hereunder shall be
made on the basis of a year of 360 days for the actual number of days  occurring
in the period for which any such interest or fee is payable.

     2.7 HIGHEST LAWFUL RATE.  Anything herein to the contrary  notwithstanding,
if during any period for which  interest is computed  hereunder,  the applicable
interest  rate,  together with all fees,  charges and other  payments  which are
treated as interest under applicable law, as provided for herein or in any other
Loan  Document,  would exceed the maximum rate of interest which may be charged,
contracted  for,  reserved,  received or collected by Lender in connection  with
this Agreement under applicable law (the "Maximum Rate"),  Borrower shall not be
obligated to pay, and Lender shall not be entitled to charge, collect,  receive,
reserve or take,  interest  in excess of the Maximum  Rate,  and during any such
period the interest payable hereunder shall be limited to the Maximum Rate.

     2.8  REPAYMENT OF THE LOANS.  Borrower  shall repay to Lender the principal
amount of each Loan in  accordance  with the  terms and  conditions  of the Note
evidencing such Loan.

     2.9 PREPAYMENTS. Borrower may prepay the outstanding amount of the Loans in
whole or in part,  in a principal  amount of at least  $100,000 or any amount in
excess  thereof.  If any mandatory  prepayments are required under the Schedule,
Borrower  shall  prepay the  outstanding  Loans in the  amounts and at the times
specified in the Schedule. Any such prepayments shall not be subject to any fee,
premium,  penalty or other charges except as provided in Section 2.12 and except
to the extent a prepayment  fee is required  under the Schedule.  Borrower shall
give prior notice to Lender of any such  prepayment  identifying  the Loan to be
prepaid  and  specifying  the  date  and  amount  of  the  prepayment.   Partial
prepayments  of any  amortizing  Loan shall be applied  to the  installments  of
principal thereof in the inverse order of maturity. Accrued interest on any such
Loan prepaid shall be due on the prepayment  date as to the principal  amount of
such Loan prepaid.

     2.10 REDUCTION OR TERMINATION OF THE  COMMITMENT.  Borrower may, upon prior
notice to Lender, terminate in whole or reduce in part, as of the date specified
by Borrower in such notice, any then unused portion of the Commitment.  From the
effective  date of any  reduction or  termination,  any  commitment  fee payable
pursuant to the Schedule  shall be computed on the basis of the Commitment as so
reduced or  terminated.  Once reduced or  terminated,  the Commitment may not be
increased or otherwise reinstated.

     2.11 INCREASED  COSTS. If, due to either (i) the adoption of, or any change
in, any applicable law, rule or regulation,  or any change in the interpretation
or  administration  thereof  by any  Governmental  Authority  charged  with  the
interpretation  or  administration  thereof  (a  "Regulatory  Change"),  or (ii)
compliance  by Lender with any request,  guideline or directive  (whether or not
having the force of law) of any such Governmental Authority,  there shall be any
increase  in the cost to Lender of  agreeing  to make or  making,  or funding or
maintaining,  any Loan, or any reduction of any amount received or receivable by
Lender under this Agreement or the Note with respect thereto,  then from time to
time,  within 15 days after demand by Lender,  Borrower shall pay to Lender such
additional  amounts  as  shall  compensate  Lender  for such  increased  cost or
reduction.  Any such request for  compensation by Lender under this Section 2.11
shall set forth the basis of  calculation  thereof and shall,  in the absence of
manifest error,  be conclusive and binding for all purposes.  In determining the
amount  of  such  compensation,  Lender  may use any  reasonable  averaging  and
attribution methods.

     2.12 FUNDING LOSSES. In addition to such amounts as are required to be paid
by Borrower pursuant to the Schedule, Borrower shall compensate Lender, promptly
upon receipt of Lender's  written  request,  for all losses,  costs and expenses
(including  any  reasonable  loss or expense  incurred  by Lender in  obtaining,
liquidating  or  re-employing  deposits or other  funds to fund or maintain  the
Loans),  if any,  which Lender  sustains if: (i) Borrower  repays or prepays any
Loan on a date  other  than the last day of an  Interest  Period  for such  Loan
(whether  as a result of an  optional  prepayment,  a  mandatory  prepayment,  a
payment  as a result of  acceleration  or  otherwise)  (except  in the case of a
scheduled  payment of an  installment  of principal on a principal  payment date
which does not fall on the last day of an Interest Period);  (ii) Borrower fails
to borrow a Loan after  giving its notice of  borrowing  under  Section  2.3; or
(iii) Borrower fails to prepay a Loan after giving its notice thereof.  Any such
request  for  compensation  shall  set  forth  the  basis  for  requesting  such
compensation  and shall,  in the absence of manifest  error,  be conclusive  and
binding for all purposes. As used herein,  "Interest Period" has the meaning set
forth in the Note(s).

     2.13 RIGHTS OF CSCC/ASSIGNEE   Notwithstanding  anything to the contrary in
Sections 2.11 and 2.12, such Sections shall not apply to any Loans held by Cisco
Systems Capital Corporation (or an Affiliate  thereof),  as Lender, but shall be
in full force and effect with  respect to any Loans held by a Lender  other than
Cisco Systems Capital  Corporation (or an Affiliate  thereof) and shall inure to
the benefit of any assignee  receiving the  assignment of a Loan (or any portion
thereof) under the terms of this Agreement.

     2.14  PAYMENTS.  Borrower  shall make each payment under the Loan Documents
unconditionally  in full and free and clear of, and without  reduction for or on
account of, any present and future Taxes or  withholdings,  and all  liabilities
with  respect  thereto.  Each  such  payment  shall  be  made  without  set-off,
counterclaim  or, to the extent  permitted by  applicable  law,  other  defense,
including  without any deduction or setoff arising out of or in connection  with
the  purchase of the  Financed  Products,  all of which  rights of Borrower  are
hereby  expressly  waived  by  Borrower;  provided,  however,  that  no  payment
hereunder shall be deemed to be a waiver of any right or claim that Borrower may
have against Cisco  Systems or other Vendor with respect to the Cisco  Products.
Each such payment  shall be made on the day when due to Lender in Dollars and in
immediately available funds, to Lender's account specified in the Schedule or to
such other bank and/or account of Lender as it from time to time shall designate
in a written notice to Borrower.  Whenever any payment hereunder shall be stated
to be due, or whenever any other date specified hereunder would otherwise occur,
on a day other than a Banking Day, then, except to the extent otherwise provided
hereunder,  such payment shall be made, and such other date shall occur,  on the
next succeeding  Banking Day. Each payment by or on behalf of Borrower hereunder
shall,  unless a specific  determination is made by Lender with respect thereto,
be applied (i) first, to any fees, costs, expenses and other amounts (other than
principal and interest) due Lender;  (ii) second, to accrued and unpaid interest
due Lender; and (iii) third, to principal due Lender.

     SECTION 3. CONDITIONS PRECEDENT.

     3.1  CONDITIONS  PRECEDENT TO THE INITIAL LOAN. The obligation of Lender to
make its Loan on the initial Borrowing Date shall be subject to the satisfaction
of each of the following  conditions  precedent before or concurrently  with the
making of such initial Loan:

     (a)  DOCUMENTS.  Lender  shall have  received  the  following,  in form and
substance  satisfactory  to it:  (i) the  Note (or  Notes)  required  under  the
Schedule,  executed by Borrower;  (ii) any required  Guaranty and any additional
Loan  Documents  specified in the Schedule,  executed by each of the  respective
parties thereto, and (iii) any other documents and information  specified in the
Schedule.

     (b) ADDITIONAL CLOSING DOCUMENTS. Lender shall have received the following,
in form and  substance  satisfactory  to it: (i) evidence  that all approvals or
consents  of any  other  Person,  required  in  connection  with the  execution,
delivery and  performance  of the Loan Documents  shall have been obtained;  and
(ii) a certificate  of the Secretary or other  appropriate  officer of each Loan
Party,  dated the Closing  Date, or a date not more than five Banking Days prior
to the Closing Date,  certifying  (A) copies of the  certificate  or articles of
incorporation and bylaws of such Loan Party and the resolutions  adopted by such
Loan Party and other actions taken or adopted by such Loan Party authorizing the
execution,  delivery  and  performance  of  the  Loan  Documents,  and  (B)  the
incumbency,  authority  and  signatures  of  each  officer  of such  Loan  Party
authorized  to execute  and  deliver  the Loan  Documents  and act with  respect
thereto.

     (c) LEGAL  OPINION.  Lender  shall have  received a legal  opinion of legal
counsel to the Loan  Parties,  dated the Closing  Date,  or a date not more than
five Banking Days prior to the Closing Date, in form and substance  satisfactory
to Lender.

     (d)  COLLATERAL.  If  any  Collateral  Documents  are  referred  to in  the
Schedule,  Lender  shall have  received  the  following,  in form and  substance
satisfactory  to it:  (i)  executed  copies  of all UCC-1  financing  statements
necessary or  appropriate  in the  reasonable  opinion of Lender and  Collateral
Agent to perfect the security interests created under the Collateral  Documents;
(ii) written  advice  relating to such Lien and judgment  searches as Lender and
Collateral Agent shall have requested,  and such termination statements or other
documents,  as may be necessary to confirm that the Collateral  described in the
Collateral Documents is subject to no other Liens in favor of any Persons (other
than  Permitted  Liens);  (iii)  evidence  that all other  actions  necessary or
appropriate in the reasonable  opinion of Lender and Collateral Agent to perfect
and protect the security interest created by the Collateral  Documents have been
taken;  and (iv)  evidence of insurance  coverage,  together  with evidence that
Collateral  Agent has been named as loss payee  under all  policies  of property
insurance and as additional  insured under all policies of liability  insurance,
in each case as required by the Collateral Documents.

     (e) FEES,  COSTS AND EXPENSES.  Borrower  shall have paid (i) all fees then
due in accordance  with the Schedule,  and (ii) all invoiced  costs and expenses
then due in accordance with Section 7.4.

     (f)  COMPLIANCE  CERTIFICATE.   Lender  shall  have  received  a  completed
Compliance  Certificate of a Responsible  Officer of Borrower,  as of the end of
the fiscal quarter  immediately  preceding the Closing Date, with respect to any
of the financial covenants set forth in Section 5.1 in effect as of such date.

     (g)  MATERIAL  CONTRACTS.  If  requested  by  Lender,  Borrower  shall have
delivered  to Lender a complete and current  copy of each  Material  Contract in
existence  as of the  Closing  Date,  except  that  Borrower  shall not have any
obligation to deliver such  Material  Contract if such delivery is prohibited by
the terms of such Material  Contract and if such  prohibition  was required by a
party other than Borrower or any of its Subsidiaries.

     3.2  CONDITIONS  PRECEDENT TO ALL LOANS.  The  obligation of Lender to make
each  Loan  shall  be  subject  to the  satisfaction  of each  of the  following
conditions precedent:

     (a) USE OF PROCEEDS. Lender shall have received details with respect to the
use of proceeds  of the Loan at least five  Banking  Days prior to the  proposed
funding  date  (in the  form of a  schedule  or other  listing  of the  Financed
Products  or  otherwise  in a form as shall be  specified  by  Lender  or in the
Funding Procedures and Policies),  and the foregoing (including the proposed use
of proceeds) shall be satisfactory to Lender.

     (b)  REPRESENTATIONS  AND WARRANTIES;  NO DEFAULT. On and as of the date of
such Loan, both before and after giving effect thereto and to the application of
proceeds therefrom:  (i) the representations and warranties contained in Section
4.1 and in the other Loan  Documents  shall be true,  correct  and  complete  as
though made on and as of such date  (unless they  expressly  refer to an earlier
date, in which case they shall be true,  complete and correct as of such earlier
date); and (ii) no Default shall have occurred and be continuing or shall result
from the making of such Loan. For purposes of this Section 3.2, clause (i) shall
take into account any amendments to any disclosures  made in writing by any Loan
Party to Lender after the Closing Date and approved by Lender. The giving of any
notice of borrowing and the  acceptance by Borrower of the proceeds of each Loan
made following the Closing Date shall each be deemed a  certification  to Lender
that on and as of the date of such Loan such statements are true.

     (c)  MATERIAL  ADVERSE  CHANGE.  On and as of the date of such Loan,  there
shall have occurred no Material  Adverse  Change since the date of the financial
statements furnished to Lender prior to the Closing Date.

     (d) CLOSING DATE. The Closing Date has occurred.

     (e) ADDITIONAL  DOCUMENTS AND  CONDITIONS.  Lender shall have received,  in
form and substance  satisfactory  to it, such  additional  approvals,  opinions,
documents and other information as Lender may reasonably request,  including any
specified in the Schedule;  and any additional conditions precedent set forth in
the Schedule shall have been satisfied.

     SECTION 4. REPRESENTATIONS AND WARRANTIES.

     4.1  REPRESENTATIONS  AND  WARRANTIES  OF HOLDINGS AND  BORROWER.  Borrower
represents and warrants to Lender that:

     (a) ORGANIZATION AND POWERS.  Borrower (i) is a corporation duly organized,
validly  existing and in good standing under the laws of the jurisdiction of its
incorporation,  (ii) has all requisite power and authority to own its assets and
carry on its business and to execute,  deliver and perform its obligations under
the Loan Documents to which it is a party, (iii) is qualified to do business and
is in good standing in each  jurisdiction  in which the failure so to qualify or
be in good standing would result in a Material  Adverse  Change,  and (iv) is in
compliance  with  all  Requirements  of Law,  except  to the  extent  that  such
noncompliance  could not reasonably be expected to result in a Material  Adverse
Change.

     (b) AUTHORIZATION;  NO CONFLICT. The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party have been duly  authorized
by all  necessary  corporate  action  of  Borrower  and do not and  will not (i)
contravene the terms of the articles or certificate of incorporation, or bylaws,
of Borrower or result in a breach of or  constitute a default under any Material
Contract or any material lease, instrument, contract or other agreement to which
Borrower is a party or by which it or its  properties  may be bound or affected;
or (ii) violate any provision of any law,  rule,  regulation,  order,  judgment,
decree or the like binding on or affecting Borrower.

     (c) BINDING  OBLIGATIONS.  The Loan  Documents to which Borrower is a party
constitute, or when delivered under this Agreement will constitute, legal, valid
and binding obligations of Borrower,  enforceable against Borrower in accordance
with  their  respective  terms,  except as limited  by  bankruptcy,  insolvency,
reorganization,  moratorium  and other  similar  laws  relating to or  affecting
creditors' rights generally and by general equity principles.

     (d) CONSENTS. No authorization,  consent, approval,  license, exemption of,
or filing or  registration  with,  any  Governmental  Authority,  or approval or
consent of any other  Person,  is required  for the due  execution,  delivery or
performance  by any Loan Party of any of the Loan  Documents  or the purchase of
the Financed Products, except as may be set forth in the Schedule and except for
any filings necessary to perfect any Liens on any Collateral.

     (e)  LITIGATION.  Except for the Magten  Litigation,  there are no actions,
suits or proceedings pending or, to the best of Borrower's knowledge, threatened
against or affecting Borrower or any of its Subsidiaries before any Governmental
Authority or arbitrator  which if  determined  adversely to Borrower or any such
Subsidiary would result in a Material Adverse Change.

     (f)  FINANCIAL  STATEMENTS.  All  financial  statements of Borrower and its
Subsidiaries delivered to Lender are complete and correct and fairly present the
financial condition of Borrower and its Subsidiaries as at the times and for the
periods  covered  by such  statements,  in each case in  accordance  with  GAAP,
consistently   applied,   subject,  in  the  case  of  any  unaudited  financial
statements,  to normal year-end  adjustments and any absence of notes. Since the
date of the most recent  financial  statements  furnished to Lender prior to the
Closing Date, there has not been any Material Adverse Change.

     (g) PURCHASE TRANSACTION. Each purchase transaction to be financed with any
Loan represents a bona fide and undisputed  transaction between Borrower and the
Vendor  (or  other  applicable  vendor of  Financed  Products)  entered  into in
compliance with all applicable laws and regulations.

     (h) SUBSIDIARIES.  Except as set forth in the Schedule, on the date of this
Agreement Borrower has no Subsidiaries.

     (i) LICENSES,  PATENTS,  TRADEMARKS AND OTHER RIGHTS.  Each of Borrower and
its  Subsidiaries  possesses all material  approvals,  authorizations,  permits,
franchises,   licenses,  patents,   trademarks,   trade  names,  service  marks,
copyrights,  leases and all rights with respect  thereto,  free from  burdensome
restrictions,  that are reasonably necessary for the ownership,  maintenance and
operation of its business,  and neither  Borrower nor any such  Subsidiary is in
material  violation  of any  rights of others  with  respect  to the  foregoing.
Without  limiting the generality of the  foregoing,  the Schedule sets forth all
material authorizations,  permits,  licenses and approvals of or from the FCC or
any other Governmental  Authority  ("Permits and Licenses") held by Borrower and
each Subsidiary  existing on the date of this Agreement  (other than Permits and
Licenses  pertaining to  construction or rights of way); each Permit and License
is in full force and effect and has not been revoked,  suspended,  canceled,  or
modified in any  materially  adverse way and,  except as may be set forth in the
Schedule,  is not subject to any materially  adverse conditions or requirements;
and  Borrower has no knowledge of the  occurrence  of any event  (including  any
investigation, proceeding, notice, violation, or other order or complaint issued
by or before and  Governmental  Authority) which (i) results in, or after notice
or  lapse of time or both  would  result  in,  revocation,  suspension,  adverse
modifications,  non-renewal, impairment, restriction, loss or termination of, or
order of  forfeiture  with respect to, any Permit or License in any respect that
could  reasonably be expected to result in a Material  Adverse  Change,  or (ii)
affects  or could  reasonably  be  expected  in the  future to affect any of the
rights of Borrower or any of its Subsidiaries under any Permit or License in any
respect  that could  reasonably  be  expected  to result in a  Material  Adverse
Change.

     (j) INSURANCE. The properties of Borrower and its Subsidiaries are insured,
with financially sound and reputable insurance companies,  in such amounts, with
such deductibles and covering such risks as is customarily  carried by companies
engaged in similar  businesses and owning  similar  properties in the localities
where Borrower or such Subsidiary operates.

     (k) TAXES.  Borrower and its Subsidiaries  have filed all federal and other
material  tax  returns  and  reports  required  to be filed,  have  made  timely
remittance of all material amounts as required by any Governmental Authority and
have paid all  federal and other  material  Taxes,  assessments,  fees and other
governmental charges levied or imposed upon them or their properties,  income or
assets  otherwise  due and  payable,  except  those  which  are being or will be
contested  in good  faith by  appropriate  proceedings  and for  which  adequate
reserves have been provided in accordance  with GAAP.  Borrower has not received
any notice of any proposed tax assessment  against Holdings,  Borrower or any of
Borrower's  Subsidiaries  that  would,  if made,  result in a  Material  Adverse
Change.

     (l) LIENS.  There are no Liens upon or with respect to any of properties or
assets of Borrower and its Subsidiaries, including any of the Collateral, except
for Permitted Liens.

     (m) REGULATED ENTITIES. None of Holdings,  Borrower, any Person controlling
Holdings,  or any Subsidiary of Borrower or Holdings, is an "Investment Company"
within  the  meaning of the  Investment  Company  Act of 1940.  No Loan Party is
subject to regulation  under the Public Utility Holding Company Act of 1935, the
Federal  Power Act, the  Interstate  Commerce Act, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.

     (n) MATERIAL CONTRACTS. All of the Material Contracts are in full force and
effect and, to the best  knowledge of Borrower,  (i) no Loan Party is in default
in any material respect under the terms of a Material Contract and (ii) no other
Person who is a party to a  Material  Contract  is in  default  in any  material
respect under the terms of such Material  Contract except such defaults as would
not reasonably be expected to result in a Material Adverse Change.

     (o) DISCLOSURE.  (i) Borrower has disclosed to Lender the existence,  as of
the date of this Agreement, of each credit agreement, loan agreement, indenture,
purchase agreement,  guarantee,  letter of credit or other arrangement providing
for or otherwise  relating to any  Indebtedness  or any  extension of credit (or
commitment for any extension of credit) to, or guarantee by,  Borrower or any of
its  Subsidiaries  the  aggregate  principal  or face amount of which  equals or
exceeds (or may equal or exceed)  $100,000 and any Liens with  respect  thereto.
(ii) None of the  representations  or  warranties  made by any Loan Party in the
Loan Documents as of the date of such  representations and warranties,  and none
of the statements  contained in any other  information  with respect to Borrower
and its  Subsidiaries,  including  each  exhibit or report,  furnished  by or on
behalf of Borrower to Lender in connection with the Loan Documents, contains any
untrue  statement of a material  fact or omits any material  fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they are made, not misleading.

     4.2  REPRESENTATIONS  AND  WARRANTIES  OF  LENDER.  Lender  represents  and
warrants to Borrower that Lender: (i) will acquire each Note for its own account
for  investment  and (subject to the  disposition  of its property  being at all
times within its control) not with a view to any resale or other distribution of
such Note in a transaction constituting a public offering or otherwise requiring
registration  under the  Securities Act of 1933 (the  "Securities  Act") or in a
transaction that would result in noncompliance  with applicable state securities
laws;  (ii) has such knowledge and experience in financial and business  matters
as to be capable of evaluating  the merits and the risks of its  acquisition  of
any Note and credit extensions to Borrower,  (iii) is an accredited  investor as
such term is defined in Rule 501 of Regulation D under the  Securities  Act, and
(iv) understands that such Note has not been, and will not be,  registered under
the Securities Act or any state securities laws.

     SECTION 5. COVENANTS.

     5.1  COVENANTS.  So long as any of the  Obligations  shall remain unpaid or
Lender shall have any Commitment, Borrower agrees that:

     (a) FINANCIAL  STATEMENTS AND OTHER INFORMATION.  Borrower shall furnish to
Lender:  (i) as soon as available  and in any event within 45 days after the end
of the  first  three  fiscal  quarters  of each  fiscal  year of  Borrower,  its
quarterly consolidated  financial statements,  prepared in accordance with GAAP,
and, if requested by Lender, its quarterly  consolidating  financial statements,
accompanied by a certificate of a Responsible  Officer of Borrower  stating that
such financial statements fairly present the financial condition of Borrower and
its  Subsidiaries  as at such date and the results of operations of Borrower and
its  Subsidiaries  for the period  ended on such date and have been  prepared in
accordance  with GAAP  consistently  applied,  subject to changes  from  normal,
year-end  adjustments  and  except  for the  absence  of notes,  (ii) as soon as
available  and in any event within 105 days after the end of each fiscal year of
Borrower,  its consolidated annual financial statements,  prepared in accordance
with  GAAP  and,  if  requested  by  Lender,   consolidating   annual  financial
statements, and in the case of consolidated financial statements, accompanied by
an unqualified  report thereon of independent  certified  public  accountants of
recognized  standing;  (iii) as soon as available and in any event not more than
105 days after the  commencement  of each fiscal  year,  the  business  plan and
financial  projections of Borrower and its  Subsidiaries,  for such fiscal year;
(iv) promptly after  Borrower has knowledge or becomes aware thereof,  notice of
(A) the  occurrence  of any Default  hereunder,  and (B) any default or event of
default  under  any  Financing  Documents;  (v)  prompt  written  notice  of any
condition or event which has resulted,  or that could  reasonably be expected to
result,  in  a  Material  Adverse  Change;  (vi)  together  with  the  financial
statements  required pursuant to clauses (i) and (ii), a Compliance  Certificate
of a Responsible Officer of Borrower as of the end of the applicable  accounting
period; and (vii) such other information respecting the operations,  properties,
business or financial condition of Borrower and their Subsidiaries as Lender may
from time to time reasonably request or as may be specified in the Schedule.

     (b) PRESERVATION OF EXISTENCE, ETC. Borrower shall, and shall cause each of
its Subsidiaries to, maintain and preserve (i) its corporate existence, and (ii)
all material copyrights,  patents, trademarks, trade names and service marks and
other   intellectual   property   rights,   and  all  other   material   rights,
qualifications,  permits,  licenses,  franchises  and  privileges,  necessary or
desirable in the normal course of its business and  operations and the ownership
of its properties, except for the dissolution of any shell or dormant Subsidiary
and except in  connection  with any  transactions  expressly  permitted  by this
Section 5.1.

     (c) LICENSES.  Borrower shall, and shall cause each of its Subsidiaries to,
obtain and maintain all licenses, authorizations, consents, filings, exemptions,
registrations  and other  governmental  approvals  of any  Government  Authority
necessary  or  desirable  (i) in  connection  with the  execution,  delivery and
performance of the Loan Documents,  the purchase of the Financed Products or the
consummation of the  transactions  therein  contemplated,  or (ii) in the normal
course of its  business and  operations  and the  ownership  of its  properties,
except, in the case of this clause (ii), to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Change.

     (d) COMPLIANCE  WITH LAWS.  Borrower shall comply,  and shall cause each of
its  Subsidiaries to comply,  in all material  respects with all Requirements of
Law of any Governmental  Authority having  jurisdiction over it or its business,
except such as may be contested in good faith or as to which a bona fide dispute
may exist or where noncompliance could not reasonably be expected to result in a
Material Adverse Change.

     (e) PAYMENT OF  OBLIGATIONS.  Borrower  shall,  and shall cause each of its
Subsidiaries  to, pay and  discharge (i) all federal and other  material  Taxes,
fees, assessments and governmental charges or levies imposed upon it or upon its
properties or assets prior to the date on which penalties  attach  thereto,  and
all lawful claims for labor,  materials  and supplies  which,  if unpaid,  might
become  a  Lien  upon  any  properties  or  assets  of  Borrower  or  any of its
Subsidiaries, except to the extent such Taxes, fees, assessments or governmental
charges  or  levies,  or such  claims,  are  being  contested  in good  faith by
appropriate  proceedings and are adequately  reserved against in accordance with
GAAP; (ii) all lawful claims which,  if unpaid,  would by law become a Lien upon
its property not constituting a Permitted Lien; and (iii) all  Indebtedness,  as
and when due and payable, but subject to any subordination  provisions contained
in any  instrument  or agreement  evidencing  such  Indebtedness  (except  where
failure to do so would not  otherwise  constitute  a Default or Event of Default
hereunder).

     (f) INSURANCE. Borrower shall, and shall cause each of its Subsidiaries to,
carry  and  maintain  in full  force and  effect,  at its own  expense  and with
financially sound and reputable insurance companies,  insurance in such amounts,
with such  deductibles  and  covering  such risks as is  customarily  carried by
companies  engaged  in  the  same  or  similar  businesses  and  owning  similar
properties in the localities where Borrower or such Subsidiary operates. Without
limiting the generality of the foregoing,  Borrower shall,  and shall cause each
of its Subsidiaries to, comply with all requirements of the Collateral Documents
pertaining to maintenance of insurance.

     (g) CHANGE IN NATURE OF BUSINESS.  Borrower shall not, and shall not permit
any of its  Subsidiaries  to, engage in any material line of business other than
that of being a telecommunications services provider through the Network.

     (h) RESTRICTIONS ON FUNDAMENTAL CHANGES.  Borrower shall not, and shall not
permit any of its  Subsidiaries  to, merge with or consolidate  into, or acquire
all or substantially all of the assets of, any Person, or sell, transfer,  lease
or  otherwise  dispose  of  (whether  in  one  transaction  or  in a  series  of
transactions)  all or  substantially  all of its assets,  except that (i) any of
Borrower's  wholly  owned  Subsidiaries  may  merge  with,  consolidate  into or
transfer all or substantially  all of its assets to another of Borrower's wholly
owned  Subsidiaries  or to Borrower and in connection  therewith such Subsidiary
may be liquidated or dissolved  (provided that if any such transaction  shall be
between  an  Additional  Borrower  and  another  Subsidiary  not  an  Additional
Borrower,  or a Subsidiary  which is a Guarantor and a Subsidiary which is not a
Guarantor,  and such  Additional  Borrower or  Subsidiary  Guarantor  is not the
continuing or surviving  Person,  then the continuing or surviving  Person shall
have assumed all of the  obligations of such  Additional  Borrower or Subsidiary
Guarantor, as the case may be, under the Loan Documents to which it is a party);
(ii) Borrower or any of its Subsidiaries may enter into a Permitted Transaction;
(iii)  Borrower  or any of its  Subsidiaries  may sell or  dispose  of assets in
accordance with the provisions of subsection (i) below;  and (iv) subject to any
restrictions set forth in subsection (i) below regarding Fiber or Conduit Sales,
the  Borrower or PRE may purchase or acquire  Fiber or Conduit that  constitutes
all or a material or substantial  part of the business or properties of a Person
pursuant to a purchase, swap or exchange agreement.

     (i) SALES OF ASSETS.  Borrower  shall not,  and shall not permit any of its
respective  Subsidiaries  to, sell,  lease,  transfer,  or otherwise  dispose of
(whether in one transaction or a series of transactions)  any assets  (including
any shares of stock in any  Subsidiary  or other  Person)  outside the  ordinary
course of business (each a "Transfer"), or enter into or consummate any Transfer
(i) to be  made  by  Borrower  or any  Subsidiary  to  Holdings  (other  than as
permitted by Section 5.1((m)),  (ii) involving  Financed Products (other than in
the ordinary course of business to a wholly owned Subsidiary that is a Guarantor
hereunder  and that has granted to Lender a perfected,  first  priority  Lien on
such  Financed  Products  under  a  security  agreement  in form  and  substance
satisfactory to Lender (except as permitted by Clause (b) to this Section 5.1(i)
below)), (iii) that could reasonably be expected to result in a Material Adverse
Change or (iv) that would violate the terms of any other Loan Document; provided
that as a condition  to  consummating  any  Transfer to any such  Subsidiary  of
Financed Products other than PFE, Borrower shall provide ten Banking Days' prior
written  notice to Lender of the  proposed  Transfer and obtain  Lender's  prior
written consent thereto.  For purposes of this Section 5.1(i), the term ordinary
course of  business  shall  include,  without  limitation,  (a)  sales,  leases,
transfers,  assignments,  or other  dispositions  of  property,  other  than the
Network (or any portion thereof),  Fiber, Conduit,  accounts or receivables,  by
the Borrower or its  Subsidiaries if each of the following  conditions have been
satisfied:  (i)(A) the net proceeds from any such single sale, lease,  transfer,
assignment or other disposition or series of related sales,  leases,  transfers,
assignments or other  dispositions  shall not exceed $5,000,000 in the aggregate
at any time and (B) the Borrower or any Subsidiary (as applicable) receives fair
consideration  for such assets;  and (ii) no Default exists at the time thereof;
(b) sales,  leases,  transfers,  assignments or other  dispositions of property,
accounts and  receivables,  by any Loan Party to any other Loan Party; (c) Fiber
or Conduit Sales pursuant to Customer Agreements for full and fair consideration
in the  ordinary  course of  Borrower's  business and in  accordance  with or as
contemplated  by the Business  Plan,  PROVIDED that Borrower will ensure that it
and its  Subsidiaries  retain,  at all times, the ownership of or right to use a
minimum of six strands of Fiber with  respect to each  long-haul  segment of the
Network,  PROVIDED,  HOWEVER,  that,  in  connection  with any Fiber or  Conduit
Purchases, Borrower and its Subsidiaries may acquire and retain a minimum of two
strands of Fiber  installed  or intended to be  installed  in the  Network;  (d)
dispositions  of an entire  operating  segment of the  Network  if (i)  Borrower
receives fair consideration for such segment of the Network disposed of and (ii)
no Default exists at the time of or will result from such disposition, PROVIDED,
HOWEVER,  that,  as of any  date of  determination,  not  more  than  20% of the
aggregate  amount of  completed  Network  route  miles at any time owned or then
previously owned by Borrower and its  Subsidiaries  (excluding any Network route
miles exchanged for other Network route miles) may be, or have been, disposed of
after giving effect to all previous dispositions and all dispositions being made
or proposed to be made as of such date of determination; and (e) sales or leases
of customer  premises  equipment or sublicenses of software,  or other equipment
purchased by Borrower and  intended for resale,  made in the ordinary  course of
business;  PROVIDED  that any such  equipment  or software  shall not consist of
Cisco Products.

     (j) NEGATIVE  PLEDGE.  Borrower  shall not, and shall not permit any of its
respective  Subsidiaries to, create,  incur,  assume or suffer to exist any Lien
upon or with respect to any of its properties,  revenues or assets,  whether now
owned or hereafter acquired, other than Permitted Liens.

     (k)  INDEBTEDNESS.  Borrower  shall  not,  and shall not  permit any of its
Subsidiaries to, create,  incur, assume or otherwise become liable for or suffer
to exist any  Indebtedness,  other than: (i) Indebtedness of Borrower to Lender;
(ii)  Indebtedness of Borrower and its Subsidiaries  existing on the date hereof
and disclosed to Lender, or incurred pursuant to subsection  5.1(k)(xiv)  below,
or extensions, renewals and refinancings of such Indebtedness, provided that the
principal amount of such Indebtedness being extended, renewed or refinanced does
not increase;  (iii)  Indebtedness  of Borrower and its  Subsidiaries  under the
Financing  Documents (if any) or any  refinancings,  extensions  and renewals of
such Indebtedness, provided that the principal amount of such Indebtedness being
extended,   renewed  or  refinanced   does  not  increase;   (iv)   Indebtedness
constituting  Eligible Secured Debt; (v) accounts payable to trade creditors for
goods and  services  and current  operating  liabilities  (not the result of the
borrowing of money)  incurred in the ordinary course of Borrower's or any of its
Subsidiary's  business in accordance  with  customary  terms and paid within the
specified time,  unless  contested in good faith by appropriate  proceedings and
reserved for in accordance with GAAP; (vi)  Indebtedness of Borrower incurred to
finance  the  acquisition,  construction,  installation  or  improvement  of any
capital assets;  PROVIDED that (A) such Indebtedness is incurred within 270 days
of such  acquisition or the  completion of such  construction,  installation  or
improvement,   (B)  any  such  Indebtedness  incurred  in  connection  with  any
particular  acquisition,  construction,  installation  or improvement  shall not
exceed  100% of the  cost of such  acquisition,  construction,  installation  or
improvement,  and  (C)  the  aggregate  principal  amount  of  all  Indebtedness
permitted by this  subsection  5.1(k)(vi)  or a  refinancing  thereof  shall not
exceed  $1,000,000 at any time  outstanding,  (vii)  Indebtedness  consisting of
guarantees  resulting from endorsement of negotiable  instruments for collection
by Borrower or any such  Subsidiary in the ordinary  course of business;  (viii)
purchase money Indebtedness of Borrower and its Subsidiaries  (including capital
leases)  secured by  purchase  money  Liens,  which  Indebtedness  and Liens are
permitted  under  and  meet  all of the  requirements  of  clause  (vii)  of the
definition  of Permitted  Liens in Section 1.1; (ix)  Indebtedness  constituting
Subordinated Debt of Borrower or a refinancing  thereof (as permitted under this
Agreement);  (x)  Indebtedness  between or among  Borrower or any of  Borrower's
wholly  owned   Subsidiaries   to  Borrower  or  another  of  its  wholly  owned
Subsidiaries   (subordinated   to  the  payment  of  the  Obligations  on  terms
satisfactory  to Lender);  (xi)  Indebtedness  of Borrower and its  Subsidiaries
consisting of Qualifying Fiber or Conduit Purchases entered into in the ordinary
course of business;  (xii) unsecured Indebtedness under Interest Rate Protection
Agreements  permitted  under  the  Financing   Documents;   (xiii)  Indebtedness
constituting  of guaranties  by Borrower of  Indebtedness  of its  Subsidiaries,
other than PRE,  permitted  pursuant to this  Agreement and Guaranties by any of
Borrower's  Subsidiaries,  other than PRE, of Indebtedness of Borrower permitted
pursuant to this Agreement;  and (xiv) additional Indebtedness of Borrower in an
aggregate  principal  amount not to exceed  $1,000,000 at any time  outstanding.
Notwithstanding  the  foregoing  or anything to the  contrary  contained in this
Agreement,  Borrower  shall not, and shall not permit any Subsidiary of Borrower
to, incur,  create,  assume or permit to exist any Indebtedness which is secured
by any Lien created,  evidenced or governed by any of the  Collateral  Documents
other than the Obligations and other Eligible Secured Debt.

     (l) LOANS AND INVESTMENTS. Except as otherwise permitted in Sections 5.1(h)
or 5.1(i),  Borrower shall not, and shall not permit any of its Subsidiaries to,
purchase or otherwise acquire the capital stock, assets (constituting a business
unit),  obligations  or other  securities  of or any interest in any Person,  or
otherwise extend any credit to or make any additional investments in any Person,
other  than in  connection  with:  (i)  extensions  of credit  in the  nature of
accounts  receivable  or notes  receivable  arising  from the  sales of goods or
services in the ordinary  course of business;  (ii) (A)  extensions of credit by
Holdings to, and other  investments by Holdings in, Borrower,  provided that any
such  Indebtedness  is  subordinated  to the payment of the Obligations on terms
satisfactory  to Lender,  (B)  extensions  of credit by  Borrower  to, and other
investments  by  Borrower  in,  any  of its  wholly  owned  Subsidiaries  or (C)
extensions of credit by any of Borrower's  wholly owned  Subsidiaries to another
of  its  wholly  owned  Subsidiaries  or  Borrower;  (iii)  employee  loans  and
guarantees in the ordinary  course of business in accordance  with Borrower's or
any of its Subsidiary's usual and customary  practices with respect thereto that
do not exceed $1,000,000 in aggregate amount at any one time  outstanding;  (iv)
short term,  investment grade  instruments,  in accordance with Borrower's usual
and  customary  treasury  management  policies;  (v)  Interest  Rate  Protection
Agreements  permitted  by  the  Financing  Documents;  and  (vi)  any  Permitted
Transaction.

     (m) DISTRIBUTIONS. Borrower shall not, and shall not permit any of its
Subsidiaries  to, make or pay, or obligate itself to make or pay, any Restricted
Payments,  except: (i) subject to the subordination provisions relating thereto,
Borrower may make (and may obligate itself to make) regularly scheduled payments
of interest accrued on any  Subordinated  Debt if and to the extent (but only if
and to the extent)  permitted  by the  express  terms of the  Subordinated  Debt
Documents  governing  such  Subordinated  Debt,  which  terms  shall  have  been
expressly approved in writing by Lender;  (ii) Subsidiaries of Borrower may make
Restricted  Payments to Borrower;  (iii)  commencing  on or after March 15, 2001
(but not prior  thereto),  if and to the extent  permitted  by  applicable  law,
Borrower  may  declare  and pay (and may  obligate  itself to  declare  and pay)
dividends  to  Holdings  during any fiscal  year in an  aggregate  amount not to
exceed the positive  remainder,  if any, of (A) the accrued  interest on the PNI
Senior Notes required to be paid in cash in accordance with the PNI Senior Notes
Indenture and,  subject to the proviso below,  actually paid in cash by Holdings
or PNI,  MINUS (B) the aggregate  amount of cash that is otherwise  available to
PNI or  Holdings at such time for the payment of such  accrued  interest,  which
amount  referred  to in this clause (B) shall be  determined  in good faith from
time to time by PNI and Holdings  and shall be certified by the chief  financial
officer  of each of such  entities  to Lender  and  Borrower  as being  true and
correct  at  least 30 days  prior to the date  upon  which  such  dividends  are
proposed to be paid by  Borrower,  provided,  HOWEVER,  that the entirety of the
proceeds of such dividends  must be used,  substantially  concurrently  with the
payment of such dividends by Borrower, by Holdings or PNI to pay the same amount
of accrued  interest on the PNI Senior Notes  required to be paid in  accordance
with the PNI Senior Notes  Indenture,  and actually  paid, by Holdings or PNI in
cash (and no such  dividends  may be paid by Borrower  to Holdings  more than 30
days prior to the applicable  date upon which such accrued  interest is required
to be paid and is actually  paid by Holdings or PNI or in amounts  exceeding the
amounts  of such  accrued  interest  required  to be paid and  actually  paid by
Holdings in cash);  and (iv)  Borrower  and its  Subsidiaries  may make loans or
advances to  employees,  officers and directors of the Loan Parties as set forth
in Section 5.1(l);  PROVIDED that no Restricted Payments may be made pursuant to
clause (i),  clause (ii) or clause (iii)  preceding  if a Default  exists at the
time of such Restricted Payment or would result therefrom.

     (n)  ADDITIONAL  SUBSIDIARIES.  (i) If Borrower  proposes  to  incorporate,
create or acquire  any  additional  Subsidiary,  Borrower  shall  notify  Lender
thereof.   After  the  incorporation,   creation  or  acquisition  of  any  such
Subsidiary,  within  five  Banking  Days  following  receipt  by  Borrower  from
Collateral  Agent of a security  agreement and stock pledge  agreement,  each in
form and substance  satisfactory to Lender and Collateral  Agent, and a guaranty
of the  Obligations in form and substance  satisfactory to Lender and Collateral
Agent,  Borrower  shall (A) cause such  Subsidiary  to execute and deliver  such
guaranty and security  agreement to Collateral Agent and (B) pledge (or cause to
be pledged) the capital stock or other ownership interests of such Subsidiary to
Collateral  Agent pursuant to such stock pledge  agreement.  Lender may elect in
its sole  discretion to waive any such  requirement for any Subsidiary that will
remain a dormant  or shell  Subsidiary.  (ii)  Within  five  Banking  Days after
receipt from Collateral  Agent of any request to do so, Borrower shall, or shall
cause such Subsidiary to, have executed and filed any UCC-1 financing statements
furnished  by  Collateral  Agent in each  jurisdiction  in which such  filing is
necessary to perfect the security interest of Collateral Agent in the Collateral
of such  Subsidiary and in which  Collateral  Agent requests that such filing be
made. (iii) Additionally, Borrower and such Subsidiary shall execute and deliver
to Collateral Agent such other items as reasonably requested by Collateral Agent
in  connection  with  the  foregoing,  including  resolutions,   incumbency  and
officers'   certificates,   opinions  of  counsel,   search  reports  and  other
certificates and documents.

     (o) FINANCIAL  COVENANTS(i) . (i) LEVERAGE RATIO. On a consolidated  basis,
Borrower  and its  Subsidiaries  shall  not,  as of the last  day of any  fiscal
quarter, permit its ratio of Consolidated Funded Debt to Annualized EBITDA to be
greater than the ratios indicated below:
<TABLE>
<CAPTION>

                     QUARTERLY PERIOD ENDING                                 REQUIRED RATIO
                     <S>                                                        <C>
                     June 30, 2002                                              28.5 to 1
                     September 30, 2002                                          8.1 to 1
                     December 31, 2002                                           4.7 to 1
                     March 31, 2003                                              3.3 to 1
                     June 30, 2003                                               2.7 to 1
                     September 30, 2003                                          2.1 to 1
                     December 31, 2003                                           1.7 to 1
                     March 31, 2004                                              1.4 to 1
                     June 30, 2004                                               1.1 to 1
                     September 30, 2004                                           .9 to 1
                     December 31, 2004                                            .8 to 1
                     March 31, 2005                                               .7 to 1
                     June 30, 2005                                                .6 to 1
                     September 30, 2005                                           .4 to 1
                     Last day of each calendar quarter                            .4 to 1
                     thereafter
</TABLE>
     (ii) MINIMUM TOTAL  REVENUES.  On a  consolidated  basis,  Borrower and its
Subsidiaries  shall not fail to maintain  total  revenues  of  Borrower  and its
Subsidiaries  for each  quarterly  period  set forth  below of not less than the
correlative amount indicated:
<TABLE>
<CAPTION>

                     QUARTERLY PERIOD ENDING                                REQUIRED AMOUNT
                     <S>                                                         <C>
                     June 30, 2000                                                 $2,000
                     September 30, 2000                                            $3,000
                     December 31, 2000                                             $6,000
                     March 31, 2001                                                $9,000
                     June 30, 2001                                                $14,000
                     September 30, 2001                                           $20,000
                     December 31, 2001                                            $31,000
                     March 31, 2002                                               $47,000
                     June 30, 2002                                                $70,000
                     September 30, 2002                                          $102,000
                     December 31, 2002                                           $146,000
                     March 31, 2003                                              $196,000
                     June 30, 2003                                               $248,000
                     September 30, 2003                                          $300,000
                     December 31, 2003                                           $349,000
                     March 31, 2004                                              $385,000
                     June 30, 2004                                               $428,000
                     September 30, 2004                                          $477,000
                     December 31, 2004                                           $533,000
                     March 31, 2005                                              $586,000
                     June 30, 2005                                               $645,000
                     September 30, 2005                                          $712,000
                     December 31, 2005                                           $785,000
                     March 31, 2006                                              $853,000
                     June 30, 2006                                               $927,000
                     September 30, 2006                                        $1,004,000
                     December 31, 2006                                         $1,086,000
                     March 31, 2007                                            $1,159,000
                     June 30, 2007                                             $1,226,000
                     September 30, 2007                                        $1,289,000
                     December 31, 2007                                         $1,349,000
                     March 31, 2008                                            $1,414,000
                     June 30, 2008                                             $1,478,000
                     September 30, 2008                                        $1,541,000
</TABLE>
     (iii) INTEREST  COVERAGE RATIO. On a consolidated  basis,  Borrower and its
Subsidiaries shall not permit the ratio of Annualized EBITDA to Interest Expense
(Interest  Expense to be measured on a rolling  four  quarter  basis) to be less
than the ratio set forth below (determined as of the end of the quarterly period
set forth below):
<TABLE>
<CAPTION>

                     QUARTERLY PERIOD ENDING                                    REQUIRED RATIO
                     <S>                                                        <C>
                     September 30, 2002                                           .5 to 1
                     December 31, 2002                                           1.2 to 1
                     March 31, 2003                                              1.9 to 1
                     June 30, 2003                                               2.5 to 1
                     September 30, 2003                                          3.2 to 1
                     December 31, 2003                                           3.9 to 1
                     March 31, 2004                                              4.5 to 1
                     June 30, 2004                                               5.2 to 1
                     September 30, 2004                                          6.1 to 1
                     December 31, 2004                                           7.2 to 1
                     March 31, 2005                                              8.5 to 1
                     June 30, 2005                                              10.0 to 1
                     September 30, 2005                                         11.9 to 1
                     December 31, 2005                                          14.2 to 1
                     March 31, 2006                                             16.9 to 1
                     June 30, 2006                                              20.0 to 1
                     Last day of each calendar quarter                          20.0 to 1
                     thereafter
</TABLE>
     (iv) DEBT SERVICE COVERAGE RATIO. On a consolidated basis, Borrower and its
Subsidiaries  shall not permit the ratio of  Annualized  EBITDA to Debt  Service
(Debt  Service to be measured on a rolling four  quarter  basis) to be less than
the ratio set forth below  (determined as of the end of the quarterly period set
forth below):
<TABLE>
<CAPTION>

                     QUARTERLY PERIOD ENDING                   REQUIRED RATIO
                     <S>                                                         <C>
                     September 30, 2002                                           .5 to 1
                     December 31, 2002                                           1.2 to 1
                     March 31, 2003                                              1.9 to 1
                     June 30, 2003                                               2.5 to 1
                     September 30, 2003                                          2.2 to 1
                     December 31, 2003                                           2.1 to 1
                     March 31, 2004                                              1.9 to 1
                     June 30, 2004                                               1.8 to 1
                     September 30, 2004                                          2.0 to 1
                     December 31, 2004                                           2.3 to 1
                     March 31, 2005                                              2.6 to 1
                     June 30, 2005                                               2.9 to 1
                     September 30, 2005                                          3.2 to 1
                     December 31, 2005                                           3.6 to 1
                     March 31, 2006                                              4.0 to 1
                     June 30, 2006                                               4.5 to 1
                     September 30, 2006                                          5.0 to 1
                     Last day of each calendar quarter                           5.0 to 1
                     thereafter
</TABLE>

     (v)  MAXIMUM  FUNDED  DEBT  TO  CAPITALIZATION.  On a  consolidated  basis,
Borrower and its Subsidiaries shall not permit the ratio of Consolidated  Funded
Debt  to  Capitalization  to  exceed  the  percentage  amount  set  forth  below
(determined as of the end of the quarterly period set forth below):
<TABLE>
<CAPTION>

                    QUARTERLY PERIOD ENDING                                     PERCENTAGE
                    <S>                                                              <C>
                    June 30, 2000                                                    65%
                    Last day of each calendar quarter                                65%
                    thereafter
</TABLE>

     As used in  this  subsection  (o),  the  following  terms  shall  have  the
following  meanings:  "Annualized EBITDA" means EBITDA for the two most recently
completed  fiscal  quarters  multiplied by two;  "Capitalization"  means, on any
date, the sum of (i) Consolidated Funded Debt, and (ii) the sum of capital stock
plus paid in capital of Borrower  (including  the  Rights-of-Way  Capitalization
Value of any  rights-of-way  contributed to Borrower by Holdings as capital) and
its  Subsidiaries  on such date,  on a  consolidated  basis and as determined in
accordance  with  GAAP;  "Consolidated  Funded  Debt"  means,  as of any date of
determination,  all  Indebtedness of Borrower and its Subsidiaries on such date,
on a  consolidated  basis and as  determined  in  accordance  with  GAAP;  "Debt
Service"  means,  for any period with respect to Borrower and its  Subsidiaries,
(i) the amount of interest expense, both expensed and capitalized (including the
portion of any payments in respect of any capital  leases  allocable to interest
expense but excluding Qualifying Fiber or Conduit Purchases),  on a consolidated
basis and as  determined in accordance  with GAAP,  paid or payable  during such
period in respect of any  Indebtedness  of Borrower and its  Subsidiaries,  PLUS
(ii) all  scheduled  payments of principal on  Indebtedness  of Borrower and its
Subsidiaries  (including  the  principal  component  of any  capital  leases but
excluding any Qualifying Fiber or Conduit  Purchases),  on a consolidated  basis
and as determined  in accordance  with GAAP,  for the period  involved,  whether
expensed or capitalized; "EBITDA" means, for any period with respect to Borrower
and its Subsidiaries,  net income (excluding  extraordinary items), PLUS (except
to the extent  attributable to extraordinary  items) the amount of any interest,
Taxes,  depreciation,  and amortization deducted in determining such net income,
all of the foregoing as determined on a consolidated  basis for Borrower and its
Subsidiaries  in conformity  with GAAP; and "Interest  Expense"  means,  for any
period with  respect to Borrower  and its  Subsidiaries,  the amount of interest
expense, both expensed and capitalized (including the portion of any payments in
respect of any  capital  leases  allocable  to interest  expense  but  excluding
Qualifying  Fiber  or  Conduit  Purchases),  on  a  consolidated  basis  and  as
determined  in  accordance  with GAAP,  paid or payable  during  such  period in
respect of any Indebtedness of Borrower and its Subsidiaries.

     (p)  AMENDMENTS OF FINANCING  DOCUMENTS.  Borrower shall not, and shall not
permit  any  of  its   Subsidiaries  to,  agree  to  or  permit  any  amendment,
modification  or waiver of any  provision  of the  Financing  Documents  if such
amendment,  modification or waiver would materially  adversely affect the rights
of Lender hereunder.

     (q) SUBORDINATED DEBT.  Borrower shall not, and shall not permit any of its
Subsidiaries  to, agree to or permit any  material  amendment,  modification  or
waiver of any  provision of any document or  instrument  governing or evidencing
Subordinated Debt.

     (r)  MATERIAL  CONTRACTS.  Borrower  shall not, and shall not permit any of
their Subsidiaries to, agree to or permit any amendment,  modification or waiver
of any material provision of any Material Contract,  if the effect thereof could
reasonably be expected to result in a Material  Adverse  Change.  If Borrower or
any of their  Subsidiaries  enters  into a Material  Contract  after the Closing
Date,  if requested by Lender,  Borrower  shall deliver to Lender a complete and
current copy of such Material  Contract in a reasonably prompt fashion after the
creation thereof,  except that Borrower shall not have any obligation to deliver
such  Material  Contract  if such  delivery is  prohibited  by the terms of such
Material  Contract  and if such  prohibition  was required by a party other than
Borrower or any of its  Subsidiaries.  Borrower  shall not  terminate  the Cisco
Purchase  Agreement (as defined in the Schedule) during the Availability  Period
(as defined in the Schedule).

     (s) ACCOUNTING CHANGES.  Borrower shall not, and shall not suffer or permit
any of its Subsidiaries to, make any significant change in accounting  treatment
or reporting practices, except as required by GAAP, or change the fiscal year of
Borrower  or of any of its  Subsidiaries,  except to change the fiscal year of a
Subsidiary to conform its fiscal year to Borrower's.

     (t) BOOKS AND RECORDS; INSPECTIONS.  Holdings and Borrower shall, and shall
cause each of its  Subsidiaries  to, keep adequate records and books of account,
in which  complete  entries will be made in accordance  with GAAP.  Holdings and
Borrower  shall provide  Lender and its agents access to their  premises and the
premises of their  Subsidiaries at any time and from time to time, during normal
business hours and upon reasonable  notice under the  circumstances,  and at any
time on and  after the  occurrence  of a Default  or Event of  Default,  for the
purposes of (i) inspecting  and verifying the  Collateral,  (ii)  inspecting and
copying (at  Borrower's  expense) any and all records  pertaining  thereto,  and
(iii)  discussing  the  affairs,  finances  and  business  of  Holdings  and its
Subsidiaries with any officer,  employee or director of Holdings and Borrower or
with their  accountants.  Borrower  shall  reimburse  Lender for the  reasonable
travel and related  expenses of Lender's  employees or, at Lender's  option,  of
such outside  accountants or examiners as may be retained by Lender to verify or
inspect  Collateral,  records or documents of Holdings and Borrower on a regular
basis or for a special  inspection  if Lender  deems  the same  appropriate.  If
outside  examiners or accountants are used,  Borrower shall also pay Lender such
sum as Lender may be obligated to pay as fees  therefor;  PROVIDED that prior to
the  occurrence  of a Default  or an Event of  Default,  Borrower  shall only be
liable to Lender for one such inspection during any twelve month period.

     (u)  TRANSACTIONS  WITH  AFFILIATES.  (i) Borrower shall not, and shall not
permit  any of its  Subsidiaries  to,  enter  into any  transaction,  including,
without limitation,  the purchase, sale or exchange of property or the rendering
of any service, with any Affiliate of Borrower or other Loan Party except (A) in
the ordinary course of and pursuant to the reasonable requirements of Borrower's
or such Subsidiary's (as applicable) business and upon fair and reasonable terms
no less favorable to Borrower or such Subsidiary (as  applicable)  than would be
obtained in a comparable arms-length  transaction with a Person not an Affiliate
of Borrower or such  Subsidiary  (as  applicable),  (B) pursuant to the Approved
Services  Agreement and the Approved Tax  Allocation  Agreement or (C) as may be
approved  in writing by Lender;  PROVIDED,  that  transactions  between or among
Borrower and its  Affiliates  may be on terms more  favorable  to Borrower  than
would be obtained in a comparable  arms-length  transaction with a Person not an
Affiliate of Borrower and the Approved Tax Allocation Agreement and the Approved
Services  Agreement  are not  prohibited  by this Section  5.1(u);  (ii) None of
Borrower  and its  Subsidiaries  will make any loan,  advance  or payment to any
officer,  director,  shareholder  or  member  of any Loan  Party  (other  than a
shareholder or member consisting of a Loan Party),  except for loans or advances
permitted  under  Section  5.1(n)(iii),   or  reasonable  compensation  paid  to
officers, directors or employees in the ordinary course of business and payments
made for goods sold or  services  rendered  which  comply with clause (i) above;
(iii)  Neither  Borrower nor any of its  Subsidiaries  shall make any payment to
Holdings or PNI or any of their  Affiliates with respect to any federal or state
income tax liability of Borrower or any of its Subsidiaries,  PROVIDED, HOWEVER,
that  Borrower may make such  payments to Holdings  from time to time in amounts
which are based upon the federal and state  income tax  liabilities  of Borrower
and  its  Subsidiaries  in  order  for  Holdings  to pay  Taxes  as a part  of a
consolidated,  combined or unitary Tax filing group, PROVIDED, FURTHER, that (A)
the amounts of such  payments  shall not exceed the amounts of  liabilities  for
Taxes that would be payable by Borrower  and its  Subsidiaries  if they were not
part of a  consolidated,  combined or unitary Tax filing  group with  respect to
such Taxes,  (B) all such  payments  shall be required to be paid in  accordance
with the terms and provisions of the Approved Tax Allocation Agreement and shall
not be paid  substantially  prior to the  dates  upon  which  the  corresponding
amounts  would  be  required  to be  paid  by  Holdings  to the  applicable  tax
authorities,  and (C) at  least  10 days  prior  to the  making  of any  payment
referred  to in this  Section  5.1(u)(iii),  Borrower  shall have  given  Lender
written  notice of its intention to make such payment and the amount thereof and
shall have delivered to Lender  calculations and other appropriate  information,
in reasonable  detail,  evidencing and certifying that such payment is permitted
in accordance with this Section  5.1(u)(iii);  (iv) Neither  Borrower nor any of
its  Subsidiaries  shall make any  payment or  reimbursement  to  Holdings  with
respect  to  any  management,   administrative,   overhead,  legal,  accounting,
operating,  reporting, compliance or other costs or expenses, PROVIDED, HOWEVER,
that Borrower may pay to Holdings,  or reimburse  Holdings for Holdings' payment
of,  management  fees in  accordance  with  Section  5.1(v) and  administrative,
overhead, legal, accounting, operating, reporting, compliance and other costs or
expenses in an aggregate  amount not to exceed $500,000 during any calendar year
if (but only if) all such  payments  or  reimbursements  shall be required to be
paid by Borrower to Holdings in accordance  with the terms and provisions of the
Approved  Services  Agreement;  (v) Neither Borrower nor any of its Subsidiaries
shall make any payment (whether cash or other property,  but excluding  property
in the  form  of  capital  stock  of  Holdings)  to or for  the  benefit  of the
employees,  officers or  directors of Holdings,  Borrower or any  Subsidiary  of
Borrower  with respect to any stock option or other benefit plan relating to any
capital stock, PROVIDED,  HOWEVER, that Borrower may make such payments pursuant
to and in accordance  with stock option or other  benefit  plans for  employees,
officers or directors of Holdings,  Borrower or any Subsidiary of Borrower in an
aggregate amount not to exceed $500,000 during any calendar year.

     (v)  MANAGEMENT  FEES.  Borrower  shall  not,  and  shall  not  permit  any
Subsidiary of Borrower to, pay any management  fees to any Affiliate of Borrower
other than management fees (if any) as may be required to be paid by Borrower to
PNI pursuant to the Approved Services Agreement.

     (w) CERTAIN AGREEMENTS. Borrower shall not, and shall not permit any of its
Subsidiaries  to, agree to or permit any  material  amendment,  modification  or
waiver  of any  provision  of the  Approved  Services  Agreement,  the  Approved
Allocation  Agreement,  the Asset  Contribution  Agreement,  the  Indemnity  and
Contribution  Agreement  or  the  Subordination  Agreement  if  such  amendment,
modification or waiver taken as a whole as to each such amendment,  modification
or waiver would adversely  affect the rights of Lender  hereunder (as determined
by Lender in its sole discretion).

     (x)  FURTHER  ASSURANCES  AND  ADDITIONAL  ACTS.  Borrower  shall  execute,
acknowledge,  deliver,  file,  notarize and register at its own expense all such
further  agreements,  instruments,  certificates,  documents and  assurances and
perform such acts as Lender shall deem  necessary or  appropriate  to effectuate
the purposes of the Loan Documents, and promptly provide Lender with evidence of
the foregoing satisfactory in form and substance to Lender.

     SECTION 6. EVENTS OF DEFAULT.

     6.1 EVENTS OF DEFAULT.  Any of the following events which shall occur shall
constitute an "Event of Default":

     (a)  PAYMENTS.  (i)  Borrower  shall  fail to pay  when due any  amount  of
principal of any Loan or Note; or (ii)  Borrower  shall fail to pay when due any
amount of interest on any Loan or Note, or any fee or other amount payable under
any of the Loan Documents, or Holdings or any other Loan Party shall fail to pay
when due any amount payable under any of the Loan Documents,  and in the case of
this clause (ii) any such default shall remain unremedied for five days.

     (b) REPRESENTATIONS  AND WARRANTIES.  Any representation or warranty by any
Loan Party under or in connection  with the Loan  Documents  shall prove to have
been incorrect in any material respect when made or deemed made.

     (c) FAILURE BY BORROWER TO PERFORM CERTAIN  COVENANTS.  Borrower shall fail
to perform or observe any term,  covenant or agreement  contained in subsections
(b)(i) or (g) through (w) of Section 5.1.

     (d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS.  Borrower shall fail to
perform or observe any other term,  covenant or agreement  contained in any Loan
Document on its part to be  performed  or observed  and any such  failure  shall
remain  unremedied for a period of 30 days from the occurrence  thereof  (unless
Lender reasonably determines that such failure is not capable of remedy).

     (e)  INSOLVENCY.  (i)  Holdings,   Borrower  or  any  of  their  respective
Subsidiaries  shall be  dissolved,  liquidated,  wound up or cease its corporate
existence,  except to the extent  expressly  permitted  by Section  5.1; or (ii)
Holdings,  Borrower or any such  Subsidiary (A) shall make a general  assignment
for the  benefit  of  creditors,  or shall  generally  fail to pay,  or admit in
writing  its  inability  to pay,  its  debts  as they  become  due,  subject  to
applicable grace periods,  if any, whether at stated maturity or otherwise;  (B)
shall voluntarily  cease to conduct its business in the ordinary course,  except
to the  extent  expressly  permitted  by Section  5.1;  (C) shall  commence  any
Insolvency  Proceeding  with respect to itself;  or (D) shall take any action to
effectuate or authorize any of the foregoing.

     (f) INVOLUNTARY  PROCEEDINGS.  (i) Any involuntary Insolvency Proceeding is
commenced  or  filed  against  Holdings,  Borrower  or any or  their  respective
Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of Holdings', Borrower's
or any such Subsidiary's  properties,  and any such proceeding or petition shall
not be dismissed,  or such writ, judgment,  warrant of attachment,  execution or
similar  process  shall not be released,  vacated or fully bonded within 60 days
after  commencement,  filing  or  levy;  (ii)  Holdings,  Borrower  or any  such
Subsidiary  admits the  material  allegations  of a  petition  against it in any
Insolvency  Proceeding,  or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) Holdings, Borrower or any
such Subsidiary acquiesces in the appointment of a receiver, trustee, custodian,
conservator,  liquidator,  mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its property or business.

     (g) DEFAULTS UNDER OTHER INDEBTEDNESS.  Holdings,  Borrower or any of their
respective  Subsidiaries  shall fail (i) to make any payment of any Indebtedness
evidenced by or arising under any Financing Document, or any amount of any other
Indebtedness  in an aggregate  principal  amount of at least  $1,000,000 (or its
equivalent  in  another  currency)  when due  (whether  by  scheduled  maturity,
required prepayment,  acceleration, demand or otherwise), and such failure shall
continue after the applicable grace or notice period,  if any,  specified in the
agreement or  instrument  relating to such  Indebtedness  as of the date of such
failure,  or (ii) to perform or observe any term,  covenant or  condition on its
part to be  performed or observed  under any  Financing  Document,  or any other
agreement,  note or instrument relating to any such Indebtedness,  when required
to be performed or observed,  or any other event shall occur or condition  shall
exist thereunder,  and such failure, event or condition shall continue after the
applicable grace or notice period, if any, specified in such agreement,  note or
instrument,  if the effect of such failure, event or condition is to accelerate,
or to permit the acceleration of, the maturity of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable,  or required to be prepaid
(other than by a regularly scheduled required  prepayment),  prior to the stated
maturity  thereof;  or (without  limiting the  generality of the  foregoing) any
defined  "Event of Default" (as defined in any  Financing  Document)  shall have
occurred and be continuing.

     (h) CISCO DEFAULTS.  Any Loan  Party (i) shall fail to pay any Indebtedness
or other obligations owing under any other agreement with Cisco Systems,  Lender
or any of their respective Subsidiaries or under any note or instrument in favor
of Cisco  Systems,  Lender  or any of their  respective  Subsidiaries,  when due
(whether at scheduled maturity or by required prepayment,  acceleration,  demand
or otherwise),  or (ii) shall  otherwise be in breach of or material  default in
any of its obligations  under any such agreement,  note or instrument,  and such
failure,  breach or default shall continue after the applicable grace period, if
any, specified in such agreement, note or instrument. .

     (i) MATERIAL  ADVERSE CHANGE.  Any Material Adverse Change shall occur that
gives Lender  grounds to conclude that any Loan Party may not, or will be unable
to,  perform  or observe in the  normal  course its  obligations  under the Loan
Documents.

     (j) FAILURE BY GUARANTOR TO PERFORM COVENANTS;  INVALIDITY OF GUARANTY. Any
Guarantor  shall  fail to perform or observe  any term,  covenant  or  agreement
contained  in any  Guaranty  on its part to be  performed  or  observed,  or any
default  shall occur under any  Guaranty,  and any such failure or default shall
continue after the applicable grace period, if any, specified in any Guaranty as
of the date of such failure,  or any defined  "Event of Default" or "Default" as
defined in any Guaranty shall have occurred and is  continuing;  or any Guaranty
or any other Guarantor  Document shall for any reason be revoked or invalidated,
or otherwise cease to be in full force and effect, or any Guarantor or any other
Person  shall  contest in any manner the validity or  enforceability  thereof or
deny that it has any further liability or obligation thereunder.

     (k) DEFAULT  UNDER OTHER  DOCUMENTS.  Any  defined  "Event of Default"  (as
defined in any other Loan Document)  shall have occurred;  or Borrower or any of
its  Subsidiaries  shall  be in  breach  of or  default  in any of its  material
obligations  under any Material  Contract,  and such failure,  breach or default
shall  continue  after the applicable  grace period,  if any,  specified in such
Material  Contract  and could  reasonably  be  expected  to result in a Material
Adverse Change.

     (l)  CONSENTS,  ETC.  Any law,  decree,  license,  consent,  authorization,
registration or approval now or hereafter  necessary to enable any Loan Party to
comply  in all  material  respects  with its  obligations  incurred  in the Loan
Documents  or in  connection  with the  purchase of Financed  Products  shall be
modified in a  materially  adverse  manner,  or shall be revoked,  withdrawn  or
withheld or shall cease to remain in full force and effect.

     (m) JUDGMENTS. A final judgment or order for the payment of money in excess
of $1,000,000 (or its equivalent in another currency) which is not fully covered
by third-party insurance shall be rendered against Holdings,  Borrower or any of
their respective Subsidiaries and the same shall not be discharged,  bonded or a
stay of execution  thereof not be procured  within sixty (60) days from the date
of  the  entry  thereof  and  Holdings,  Borrower  or any  of  their  respective
Subsidiaries  (as the case may be) shall not,  within said sixty day period,  or
such longer  period  during which  execution of the same shall have been stayed,
appeal  therefrom  and cause the  execution  thereof  to be stayed  during  such
appeal;  or (ii) any  non-monetary  judgment or order shall be rendered  against
Holdings,  Borrower  or any  such  Subsidiary  which  has  resulted  in or would
reasonably be expected to result in a Material Adverse Change;  and in each case
there  shall be any period of 30  consecutive  days during  which such  judgment
continues  unsatisfied or during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect.

     (n) CHANGE OF CONTROL.  Any Change of Control  shall occur and Lender shall
have notified Borrower that such Change of Control is an Event of Default within
30 days of  Lender  having  received  notice  from  Borrower  of such  Change of
Control;  PROVIDED that any Change of Control shall automatically  constitute an
Event of Default if  Borrower  fails to notify  Lender of such Change of Control
within ten days of the occurrence of such Change of Control.

     (o) COLLATERAL  DOCUMENTS.  Any of the Collateral  Documents after delivery
thereof shall for any reason be revoked or invalidated, or otherwise cease to be
in full force and effect, or any Loan Party or any other Person shall contest in
any manner the  validity  or  enforceability  thereof,  or any Loan Party or any
other  Person  shall  deny  that  it has any  further  liability  or  obligation
thereunder;  or any of the  Collateral  Documents for any reason,  except to the
extent  permitted  by the  terms  thereof,  shall  cease to  create a valid  and
perfected  Lien  subject  only  to  Permitted  Liens  in any  of the  Collateral
purported to be covered  thereby;  or any of the Financed  Products shall at any
time be located outside of the United States.

     6.2 EFFECT OF EVENT OF DEFAULT.  If any Event of Default shall occur and is
continuing,  Lender may by notice to Borrower,  (i) declare its Commitment to be
terminated,  whereupon the same shall forthwith terminate,  and (ii) declare the
entire  unpaid  principal  amount  of the Loans and the  Note(s),  all  interest
accrued and unpaid  thereon and all other  Obligations  to be forthwith  due and
payable,  whereupon the Loans and the Note(s), all such accrued interest and all
such other  Obligations  shall become and be forthwith due and payable,  without
presentment,  demand,  protest or further  notice of any kind,  all of which are
hereby  expressly  waived by Borrower,  provided  that if an event  described in
Section  6.1(e) or 6.1(f) shall occur,  the result which would  otherwise  occur
only upon giving of notice by Lender to Borrower as  specified  in this  Section
6.2  shall  occur  automatically,   without  the  giving  of  any  such  notice.
Additionally,  Lender may exercise  any or all of its rights and remedies  under
the Collateral  Documents,  and proceed to enforce all other rights and remedies
available to it under the Loan Documents and applicable law.

     SECTION 7. MISCELLANEOUS.

     7.1  AMENDMENTS.  No amendment to any provision of this Agreement  shall be
effective  unless it is in writing and has been  signed by Lender and  Borrower,
and no waiver of any provision of this Agreement, or consent to any departure by
Borrower  therefrom,  shall be  effective  unless it is in writing  and has been
signed by Lender. Any such amendment,  waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.

     7.2 NOTICES.  All notices and other  communications  provided for hereunder
and under the other Loan Documents shall,  unless otherwise stated herein, be in
writing (including by facsimile  transmission) and mailed,  sent or delivered to
the respective  parties hereto at or to their respective  addresses or facsimile
numbers set forth in the  Schedule,  or at or to such other address or facsimile
number as shall be  designated  by any  party in a  written  notice to the other
party  hereto.  All such notices and  communications  shall be effective  (i) if
delivered  by  hand,  when  delivered;  (ii) if sent by  courier  service,  when
delivered;  (iii) if sent by mail,  upon the  earlier  of the date of receipt or
five  Banking  Days after  deposit in the mail,  first class (or air mail,  with
respect  to  communications  to be sent to or from the United  States),  postage
prepaid;  and  (iv) if sent by  facsimile  transmission,  when  sent;  provided,
however,  that notices and  communications to Lender pursuant to Section 2 shall
not be effective until received.

     7.3 NO  WAIVER;  CUMULATIVE  REMEDIES.  No failure on the part of Lender to
exercise,  and no delay in  exercising,  any right,  remedy,  power or privilege
under any Loan Document shall operate as a waiver thereof,  nor shall any single
or partial exercise of any such right,  remedy,  power or privilege preclude any
other or further  exercise  thereof or the exercise of any other right,  remedy,
power or  privilege.  The  rights  and  remedies  under the Loan  Documents  are
cumulative and not exclusive of any rights, remedies, powers and privileges that
may otherwise be available to Lender.

     7.4 COSTS AND EXPENSES;  INDEMNIFICATION.  Borrower agrees to pay on demand
(i) the  reasonable  out-of-pocket  costs and  expenses of Lender and any of its
affiliates,  and the  reasonable  fees and  disbursements  of  counsel to Lender
(excluding  allocated  costs and  expenses  for  internal  legal  services),  in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents;  and (ii) all costs and  expenses of Lender and its  affiliates,  and
fees and  disbursements of counsel  (excluding  allocated costs and expenses for
internal legal  services),  in connection with any amendments,  modifications or
waivers of the terms of any Loan  Documents,  any Default,  the  enforcement  or
attempted enforcement of, and preservation of any rights or interests under, the
Loan  Documents,   and  any  out-of-court   workout  or  other   refinancing  or
restructuring  or any bankruptcy or insolvency case or proceeding.  In addition,
whether  or not the  transactions  contemplated  hereby  shall  be  consummated,
Borrower  hereby agrees to indemnify  Lender,  any  affiliate  thereof and their
respective directors,  officers,  employees,  agents, counsel and other advisors
(each an "Indemnified Person") against, and hold each of them harmless from, any
and all liabilities,  obligations,  losses, claims, damages, penalties, actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any  kind or  nature
whatsoever,  including the reasonable  fees and  disbursements  of counsel to an
Indemnified  Person  (excluding  allocated costs and expenses for internal legal
services),  which may be  imposed  on,  incurred  by, or  asserted  against  any
Indemnified  Person,  in any way  relating  to or arising out of any of the Loan
Documents,  the  use or  intended  use  of the  proceeds  of  the  Loans  or the
transactions  contemplated  hereby or  thereby,  including  with  respect to any
investigation,  litigation or other proceeding relating to any of the foregoing,
irrespective  of whether the  Indemnified  Person  shall be  designated  a party
thereto (the  "Indemnified  Liabilities");  provided that Borrower  shall not be
liable to any Indemnified Person for any portion of such Indemnified Liabilities
to the  extent  they are  found  by a final  decision  of a court  of  competent
jurisdiction to have resulted from such Indemnified Person's gross negligence or
willful misconduct.  If and to the extent that the foregoing  indemnification is
for  any  reason  held  unenforceable,  Borrower  agrees  to  make  the  maximum
contribution  to the  payment  and  satisfaction  of  each  of  the  Indemnified
Liabilities which is permissible under applicable law.

     7.5 SURVIVAL.  All covenants,  agreements,  representations  and warranties
made in any Loan  Documents  shall,  except  to the  extent  otherwise  provided
therein, survive the execution and delivery of this Agreement, the making of the
Loans and the  execution  and delivery of any Note,  and shall  continue in full
force  and  effect  so long as  Lender  has any  Commitment,  any  Loans  remain
outstanding or any other Obligations  remain unpaid or any obligation to perform
any other act  hereunder or under any other Loan Document  remains  unsatisfied.
Without  limiting the generality of the foregoing,  the  obligations of Borrower
under Section 7.4, and all similar  obligations  under the other Loan  Documents
(including  all  obligations  to  pay  costs  and  expenses  and  all  indemnity
obligations),  shall survive the repayment of the Loans and the  termination  of
the Commitment.

     7.6 BENEFITS OF AGREEMENT. The Loan Documents are entered into for the sole
protection  and benefit of the parties  hereto and their  successors and assigns
and the  Indemnified  Persons  referred to in Section  7.4,  and no other Person
(other  than Cisco  Systems)  shall be a direct or indirect  beneficiary  of, or
shall have any direct or indirect  cause of action or claim in connection  with,
any Loan Document.

     7.7 BINDING  EFFECT;  SUCCESSORS AND ASSIGNS.  This Agreement  shall become
effective when it shall have been executed by Borrower and Lender and thereafter
shall be binding  upon and shall inure to the benefit of Lender and Borrower and
their respective successors and permitted assigns,  except as otherwise provided
herein. Borrower may not assign,  transfer,  hypothecate or otherwise convey its
rights,  benefits,  obligations  or duties  hereunder  or under  any other  Loan
Document without the prior express written consent of Lender. Any such purported
assignment,  transfer, hypothecation or other conveyance by Borrower without the
prior express written consent of Lender shall be void. Borrower acknowledges and
agrees that Lender may assign, or grant  participations  in, all or a portion of
its  rights  and  obligations  hereunder  and under the  other  Loan  Documents,
including the benefit of Section 7.4;  PROVIDED,  that Lender may not assign any
of its  rights  or  obligations  hereunder  to an  assignee  with a  substantial
presence  as a  telecommunications  service  provider or with a line of business
that competes in any  significant or material way with the business of Borrower.
Upon any  assignment  of  Lender's  rights  hereunder  and under the other  Loan
Documents,  such  assignee  shall have,  to the extent of such  assignment,  all
rights of Lender  hereunder and  thereunder  and may in turn assign such rights.
Upon any assignment and delegation of Lender's  obligations  hereunder and under
the other  Loan  Documents,  such  assignee  shall  have,  to the extent of such
assignment,  all obligations of Lender  hereunder and thereunder and may in turn
assign such obligations. If any such assignee (i) has expressly assumed Lender's
obligations  hereunder and  thereunder  and (ii) is an Eligible  Entity,  Lender
shall be relieved of its  obligations  hereunder and thereunder to the extent of
such assignment and assumption.  Borrower agrees that, upon any such assignment,
such assignee may enforce  directly,  without  joinder of Lender,  the rights of
Lender set forth in this  Agreement  and in the other Loan  Documents.  Any such
assignee  shall be entitled to enforce  Lender's  rights and remedies under this
Agreement and under any other Loan Document to the same extent as if it were the
"Lender"  party  hereto  or  thereto.  In the event of any  partial  assignment,
Lender,  Borrower and such  assignee  shall enter into such  amendments  to this
Agreement  and the other Loan  Documents  as shall be  necessary  to effect such
assignment. Additionally, Borrower shall execute and deliver substitute Notes to
the  assignee,  or to  Lender  and  the  assignee  (in  the  case  of a  partial
assignment),  dated the effective date of such assignment,  and containing other
appropriate insertions as to the payee, principal amount and place for payments.

     7.8  CONFIDENTIALITY.  (a)  Lender  agrees to take  normal  and  reasonable
precautions  and  exercise  due  care to  maintain  the  confidentiality  of all
information  respecting  Borrower  and its  business  ("Customer  Information").
Borrower  agrees  that  Lender  may  disclose  from  time to time  all  Customer
Information  in its  possession  to  Lender's  legal  counsel,  agents and other
professional advisors, and to its Subsidiaries and affiliates,  to any potential
assignees or participants of the rights and/or  obligations of Lender hereunder,
to any  underwriters  or  placement  agents for any  securities  to be issued by
Lender or any of its  Subsidiaries  or affiliates (or any transferee of any such
Subsidiaries  or affiliates) and to any rating agency rating such securities and
to their  respective  legal  counsel,  agents and other  professional  advisors;
PROVIDED that such  recipients  agree not to disclose such Customer  Information
for any purposes other than as  contemplated  herein.  Borrower also consents to
the disclosure of Customer  Information by Lender, or any of its Subsidiaries or
affiliates, (i) at the request of any Governmental Authority having jurisdiction
over Lender or such Subsidiary or affiliate,  (ii) pursuant to subpoena or other
court process,  (iii) to the extent  reasonably  required in connection with any
litigation to which Lender or any of its  Subsidiaries or affiliates is a party,
(iv) to the extent  reasonably  required in connection  with the exercise of any
remedy hereunder or under any other Loan Document,  (iv) when otherwise required
to do so in  accordance  with  applicable  law,  and (v)(A) to the  extent  such
information is made available by Borrower or was or becomes generally  available
to the public  other  than as a result of  disclosure  by Lender,  or (B) was or
becomes available on a non-confidential basis from a source other than Borrower,
provided  that  such  source is not bound by a  confidentiality  agreement  with
Borrower known to Lender.

     (b) Borrower agrees to take normal and reasonable  precautions and exercise
due care to maintain the  confidentiality  of this  Agreement  and the terms and
provisions  hereof.  Lender  agrees that Borrower may disclose from time to time
the  existence  of this  Agreement  and  the  terms  and  provisions  hereof  to
Borrower's  legal  counsel,  agents and other  professional  advisors,  to their
Subsidiaries  and  affiliates,   as  reasonably   required  in  connection  with
negotiations  with a prospective  acquirer of Borrower or  substantially  all of
Borrower's  assets or a prospective  merger partner,  to any prospective  equity
investor in Borrower, to any co-development partner permitted hereunder,  to any
bank or other financial  institution  providing  financing to Borrower or any of
its Subsidiaries or affiliates,  to any underwriters or placement agents for any
securities to be issued by Borrower or any of its Subsidiaries or affiliates and
to any rating  agency  rating  such  securities  and to their  respective  legal
counsel,  agents and other  professional  advisors.  Lender also consents to the
disclosure of this Agreement and the terms and provisions hereof by Borrower, or
any of their Subsidiaries or affiliates,  (i) at the request of any Governmental
Authority  having  jurisdiction  over  Borrower  or any of its  Subsidiaries  or
affiliates,  (ii)  pursuant to subpoena  or other  court  process,  (iii) to the
extent  reasonably  required in connection with any litigation to which Borrower
or any of its  Subsidiaries  or affiliates is a party,  and (iv) when  otherwise
required to do so in accordance  with  applicable  law. THE FOREGOING  PERMITTED
DISCLOSURE  DOES NOT INCLUDE  DISCLOSURE  TO ANY OTHER VENDOR  PROVIDING  VENDOR
FINANCING  TO  BORROWER  OR ANY  OF  THEIR  SUBSIDIARIES  (WHETHER  DIRECTLY  OR
INDIRECTLY);  PROVIDED  THAT  BORROWER  MAY PROVIDE A COPY OF THIS  AGREEMENT TO
NORTEL NETWORKS,  INC.  ("NORTEL") IN CONNECTION WITH THE FINANCING DOCUMENTS OR
TO LUCENT TECHNOLOGIES, INC. (OR ITS AFFILIATES) ("LUCENT") IN CONNECTION WITH A
PROSPECTIVE  FINANCING CONSISTENT WITH THE TERMS HEREOF IF SUCH COPY PROVIDED TO
NORTEL IN  CONNECTION  WITH THE  FINANCING  DOCUMENTS OR TO LUCENT IN CONNECTION
WITH A PROSPECTIVE  FINANCING HAS BEEN REDACTED TO EXCLUDE ALL REFERENCES TO THE
FEES,  INTEREST RATE AND OTHER PRICING  INFORMATION  SET FORTH HEREIN.  BORROWER
SHALL PROVIDE  PRIOR NOTICE TO LENDER OF ANY PROPOSED  PUBLIC  ANNOUNCEMENTS  OR
OTHER  PUBLIC  DISCLOSURE  OR FILINGS OF OR RELATING TO THIS  AGREEMENT  AND THE
TERMS AND  PROVISIONS  HEREOF  AS  PERMITTED  BY THIS  SUBSECTION  (B)  ("PUBLIC
DISCLOSURE"),  AND NO  PUBLIC  DISCLOSURE  MAY BE MADE IN  RESPECT  OF THE FEES,
INTEREST RATE AND OTHER PRICING INFORMATION WITH RESPECT HERETO WITHOUT LENDER'S
PRIOR CONSENT (SUCH CONSENT NOT TO BE  UNREASONABLY  WITHHELD).  PRIOR TO MAKING
ANY REQUIRED  FILING WITH THE U.S.  SECURITIES  AND EXCHANGE  COMMISSION  OR ANY
OTHER FEDERAL,  STATE,  PROVINCIAL OR FOREIGN GOVERNMENTAL  AUTHORITY AS PART OF
ANY PUBLIC  DISCLOSURE,  BORROWER  SHALL REQUEST  CONFIDENTIAL  TREATMENT OF THE
FEES,  INTEREST RATE AND OTHER PRICING  INFORMATION  WITH RESPECT  HERETO TO THE
EXTENT PERMITTED BY APPLICABLE LAW.

     7.9 GOVERNING  LAW. THIS  AGREEMENT  SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     7.10  SUBMISSION TO  JURISDICTION.  (a) Borrower  hereby (i) submits to the
non-exclusive  jurisdiction  of the  courts  of the  State  of New  York and the
Federal  courts  of the  United  States  sitting  in the  Borough  of  Manhattan
(collectively,  the  "New  York  Courts"),  for the  purpose  of any  action  or
proceeding  arising out of or relating to the Loan Documents,  (ii)  irrevocably
waives (to the extent permitted by applicable law) any objection which it now or
hereafter  may have to the  laying  of venue of any such  action  or  proceeding
brought in any of the New York Courts,  and any objection on the ground that any
such  action  or  proceeding  in any New  York  Court  has  been  brought  in an
inconvenient forum, and (iii) agrees that (to the extent permitted by applicable
law) a final  judgment  in any such action or  proceeding  brought in a New York
Court shall be conclusive and may be enforced in other  jurisdictions by suit on
the judgment or in any other manner permitted by law.

     (b) If a process agent (the "Process  Agent") is specified in the Schedule,
Borrower hereby  irrevocably  appoints the Process Agent as its authorized agent
with all powers  necessary  to  receive  on its behalf  service of copies of the
summons and complaint and any other process which may be served in any action or
proceeding  arising out of or relating to the Loan  Documents  in any of the New
York Courts.  Such  service may be made by mailing or  delivering a copy of such
process to Borrower in care of the Process  Agent at the Process  Agent's  above
address and Borrower hereby irrevocably authorizes and directs the Process Agent
to accept such  service on its behalf and agrees that the failure of the Process
Agent to give any  notice of any such  service to  Borrower  shall not impair or
affect the validity of such service or of any judgment rendered in any action or
proceeding  based thereon.  As an alternative  method of service,  Borrower also
irrevocably consents to the service of any and all process in any such action or
proceeding  by the mailing of copies of such  process to Borrower at its address
specified in the Schedule.  If for any reason the Process Agent specified in the
Schedule shall cease to act as such,  Borrower shall appoint  forthwith,  in the
manner  provided for herein,  a successor  Process Agent  qualified to act as an
agent for service of process with respect to all New York Courts and  acceptable
to Lender.

     (c) NO  LIMITATION.  Nothing in this Section 7.10 shall affect the right of
Lender to serve legal process in any other manner  permitted by law or limit the
right of Lender  to bring  any  action or  proceeding  against  Borrower  or its
property in the courts of other jurisdictions.

     7.11 WAIVER OF JURY TRIAL.  EACH OF LENDER AND BORROWER  HEREBY  KNOWINGLY,
VOLUNTARILY AND  INTENTIONALLY  WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION IN CONNECTION WITH ANY LOAN DOCUMENT.

     7.12 ENTIRE  AGREEMENT.  The Loan  Documents  reflect the entire  agreement
among  Borrower  and Lender with  respect to the  matters set forth  therein and
supersede any prior agreements, commitments, drafts, communication,  discussions
and understandings, oral or written, with respect thereto.

     7.13 SEVERABILITY.  Whenever possible, each provision of the Loan Documents
shall be  interpreted  in such  manner as to be  effective  and valid  under all
applicable laws and regulations.  If, however,  any provision of any of the Loan
Documents  shall be prohibited by or invalid under any such law or regulation in
any  jurisdiction,  it shall,  as to such  jurisdiction,  be deemed  modified to
conform to the minimum  requirements  of such law or regulation,  or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such  prohibition  or invalidity  without  affecting the remaining
provisions  of such Loan  Document,  or the  validity or  effectiveness  of such
provision in any other jurisdiction.

     7.14  COUNTERPARTS.  This  Agreement  may  be  executed  in any  number  of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.

     7.15  JOINT  AND  SEVERAL  LIABILITY.   If  any  Additional  Borrowers  are
designated  in the  Schedule,  the  liability  of Borrower  and such  Additional
Borrowers  shall be joint and  several,  and,  except as the  context  otherwise
requires,  each reference  herein to "Borrower" shall mean and be a reference to
each Borrower and such  Additional  Borrowers.  Borrower and any such Additional
Borrowers  agree  that any and all of the  Obligations  shall be the  joint  and
several  responsibility of each of them notwithstanding any absence herein or in
any other Loan  Document of a reference  such as "jointly  and  severally"  with
respect to such Obligation. The compromise of any claim with, or the release of,
Borrower shall not constitute a compromise with, or a release of, any Additional
Borrower,  and  the  compromise  of any  claim  with,  or the  release  of,  any
Additional  Borrower  shall not  constitute a compromise  with, or a release of,
Borrower or any other Additional Borrower.

     7.16  NON-DISTURBANCE  AND ATTORNMENT.  *

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

     Please  indicate  Borrower's  and any Additional  Borrower's  agreement and
acceptance  below  and  return  a copy of this  Agreement  to  Lender.  Upon the
signature of Borrower and any Additional  Borrower  below,  this Agreement shall
become a binding agreement of Lender and Borrower (and any Additional  Borrower)
as of the date first written above.

                                Very truly yours,

                                Cisco Systems Capital Corporation

                                By:/s/ Brian P. Fukuhara
                                   -------------------------
                                   Title: Chief Credit Officer

ACKNOWLEDGED AND AGREED:
-----------------------

Pathnet Operating, Inc.

By: /s/  James M. Craig
    -------------------------------------
    Title:  Vice President and Treasurer

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

As of September 7, 2000

                             SCHEDULE OF INFORMATION

     This Schedule of Information  (this  "Schedule") is an integral part of the
Agreement  dated as of  September  7, 2000 (as  amended,  modified,  renewed  or
extended   from  time  to  time,   the   "Credit   Agreement")   among   Pathnet
Telecommunications,  Inc.,  Pathnet  Operating,  Inc. and Cisco Systems  Capital
Corporation.  Capitalized  terms used herein shall have the respective  meanings
assigned to them in the Credit Agreement.

     1. INFORMATION RELATING TO THE LOANS, HOLDINGS AND BORROWER:

     (A)  AVAILABILITY   PERIOD:  From  the  Closing  Date  through  the  second
anniversary  of the  Closing  Date  (the  last day of such  availability  period
hereinafter referred to as the "Commitment Expiry Date").

     (B) NOTICE OF BORROWING,  MINIMUM AMOUNTS AND OTHER  LIMITATIONS:  Borrower
shall  provide  five Banking  Days'  advance  notice of any proposed  borrowing.
Except to the extent otherwise  permitted by Lender in its sole  discretion,  no
more than two Loan drawdowns under any Tranche will be permitted in any month.

     (C) COMMITMENT: $50,000,000.

     (D) FEES:

     (i) CLOSING FEE: * of the  Commitment  as of the Closing  Date,  payable on
such date.

     (ii) COMMITMENT FEE: * per annum on the average daily unused portion of the
Commitment,  computed on a quarterly basis in arrears on the last Banking Day of
each quarter  based on the daily  utilization  for that quarter as calculated by
Lender. Such Commitment Fee shall accrue from the Closing Date to the Commitment
Expiry  Date and  shall be due and  payable  quarterly  in  arrears  on the last
Banking Day of each calendar  quarter,  with the final payment to be made on the
Commitment  Expiry Date;  PROVIDED  that,  in  connection  with any reduction or
termination  of the  Commitment,  the accrued  Commitment Fee calculated for the
period ending on such  reduction or  termination  date shall also be paid on the
date thereof.  The  Commitment Fee provided for herein shall accrue at all times
after the abovementioned  commencement date,  including at any time during which
one or more conditions precedent in Section 3.2 are not satisfied.

     (iii)  FACILITY  FEE:  * per  quarter  in which any  amount  of  principal,
interest or fees is payable.  Such  Facility  Fee shall  accrue from the Closing
Date until the date upon which all  Obligations  due under the Credit  Agreement
shall have been paid in full and shall be due and payable  quarterly  in arrears
on the last Banking Day of each  calendar  quarter,  with a final  payment to be
made on the date upon which  such final  payment  of  Obligations  is made.  Any
payment of Facility Fee for a partial  quarter shall be calculated on a prorated
basis.

     (iv) PREPAYMENT FEE: None.

     (E) CLOSING DEADLINE: September 11, 2000.

     (F) ADDITIONAL CLOSING DOCUMENTS AND INFORMATION:  Completion of additional
due diligence  satisfactory to Lender including satisfactory analysis validating
underlying  industry and market  assumptions with regard to Borrower's  business
plan and pro forma financials.

     (G) OTHER CONDITIONS:

     (i)  CONDITIONS  PRECEDENT  TO CLOSING  DATE:  The  following  condition(s)
precedent  shall be satisfied on or prior to the Closing Date:  (A) Creditor and
Lender shall have entered into an intercreditor  agreement in form and substance
satisfactory to Lender;  (B) Financing  Documents shall be in form and substance
satisfactory to Lender;  (C) Borrower shall have executed an equipment  purchase
agreement  with Cisco  Systems  (the "Cisco  Purchase  Agreement"),  in form and
substance  satisfactory to Lender, and (D) Borrower shall have provided evidence
reasonably  satisfactory  to Lender that Borrower has received  total  aggregate
capital contributions in cash from Holdings of not less than $35,000,000.

     (ii)  CONDITIONS  PRECEDENT  TO  EACH  BORROWING  DATE:  Additionally,  the
following  condition(s)  precedent  shall  be  satisfied  on or  prior  to  each
Borrowing  Date:  After giving effect to any  borrowing of Tranche B Loans,  the
aggregate  principal amount of outstanding Tranche B Loans shall not exceed * of
the aggregate principal amount of Tranche A Loans then outstanding.

     (H) MULTIPLE BORROWER PROVISIONS: No Additional Borrowers.

     (I) SUBSIDIARIES:  Pathnet Fiber Equipment LLC, a limited liability company
organized and existing  under the laws of the State of Delaware and Pathnet Real
Estate LLC, a limited liability company organized and existing under the laws of
the State of Delaware.

     2. ADDITIONAL TERMS AND CONDITIONS:

     (A) USE OF PROCEEDS:  Up to  $40,000,000  for the  financing of  Borrower's
purchase  of Cisco  Systems  networking  and  telecommunications  equipment  and
services  from the Vendor  thereof  ("Tranche  A");  PROVIDED that proceeds from
Loans  made  under  Tranche  A may be used for the  financing  of Cisco  Systems
networking and  telecommunications  equipment and services purchased by Borrower
on or after April 24, 2000; and up to $10,000,000 for the financing of any costs
incurred by the Borrower  for  hardware or other goods and  services  associated
with  the  integration  and   installation  of  Cisco  Systems   networking  and
telecommunications  equipment,  but excluding any such costs for hardware, goods
or services payable to direct competitors of Cisco Systems ("Tranche B").

     (B)  NOTE(S):  Promissory  Note in  substantially  the  form of  EXHIBIT  C
evidencing  the Loans under  Tranche A (the "Tranche A Loans");  and  Promissory
Note in the form of  EXHIBIT  D,  evidencing  the  Loans  under  Tranche  B (the
"Tranche B Loans").

     (C)  MANDATORY  PREPAYMENT:(i)  (i)  Promptly  after the end of each fiscal
year,  Borrower shall calculate  Excess Cash Flow for the fiscal year then ended
and shall,  not later than 90 days after the end of such fiscal year,  prepay to
the  holders  of  Eligible  Secured  Debt on a PRO RATA  basis  the  outstanding
principal  amount of the Loans in an amount equal to 50% of the Excess Cash Flow
for such fiscal year; provided,  however,  that any such prepayment shall not be
required if the amount of Excess Cash Flow for such year is less than $500,000.

     (ii) The  Loans  shall  be  subject  to  mandatory  prepayment  on any date
Borrower makes any voluntary prepayments on any term loans or other Indebtedness
for  borrowed  money  (other than  revolving  working  capital  loans,  unless a
permanent  commitment   reduction  occurs   simultaneously  with  the  principal
payment),  on a PRO RATA basis with the principal  payment made to the holder(s)
of such Indebtedness.

     Notwithstanding the foregoing, Borrower shall not be required to prepay any
such  Indebtedness in connection  with any of the following:  (a) prepayments of
Eligible  Secured  Debt  permitted  by and in  accordance  with  the  terms  and
provisions  of the  Collateral  Agency and  Intercreditor  Agreement,  provided,
however,  that,  if and to the  extent  required  by the  Collateral  Agency and
Intercreditor  Agreement,  such  prepayments  shall be shared with the Lender in
accordance  with  the  terms  and  provisions  of  the  Collateral   Agency  and
Intercreditor   Agreement;  (b)  prepayments  made  with  the  proceeds  of  new
Indebtedness  incurred for the purpose of  refinancing  the  Indebtedness  being
prepaid,  provided  that (i) no portion of such new  Indebtedness  matures or is
required  to be  prepaid,  purchased  or  otherwise  retired  earlier  than  the
corresponding  portion of the Indebtedness  being prepaid (including as a result
of any prepayment or redemption  upon the occurrence of a condition),  (ii) such
new  Indebtedness  (A) is  subordinated  to the Obligations to at least the same
extent as the Indebtedness being refinanced if such Indebtedness is Subordinated
Debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of  Default  then  exists  or would  result  from  such  prepayment  or
refinancing;  (c)  prepayments  of purchase money  Indebtedness  permitted to be
incurred in accordance  with the Credit  Agreement;  or (d) prepayments of trade
payables incurred in the ordinary course of business.

     (iii) Borrower shall, within two Banking Days after it receives (A) any net
proceeds from the sale,  transfer or other  disposition  of Borrower's or any of
its Subsidiary's assets,  other than (i) sales,  transfers or other dispositions
constituting Fiber or Conduit Sales expressly permitted to be consummated by the
Credit  Agreement,  (ii) sales of inventory in the ordinary  course of business,
and (iii) the grant of a Lien as security expressly permitted under the terms of
the Credit  Agreement,  or (B) proceeds from insurance  relating to any Casualty
Event  aggregating  in excess of $500,000,  during any period of 12  consecutive
months  or less  (the  aggregate  amount of all such net  proceeds  or  proceeds
exceeding $500,000 received during any such period are herein called the "Excess
Proceeds Amount"), pay to Lender, as a prepayment of the Loans (which prepayment
shall be without  premium or penalty),  an aggregate  amount equal to the Excess
Proceeds Amount; provided, however, that (1) no such prepayment will be required
if and to the extent that the Excess Proceeds  Amount is under binding  contract
to be re-invested in productive assets used in the ordinary course of Borrower's
or its Subsidiary's  (as applicable)  business within 180 days of the receipt of
such Excess Proceeds  Amount and is, in fact, so re-invested  within 360 days of
the receipt of such Excess Proceeds Amount, (2) the Excess Proceeds Amount shall
be  deposited  into a cash  collateral  account  held by Lender  pursuant  to an
agreement in form and substance  satisfactory  to Lender until such time as such
amount (exclusive of any interest accrued thereon) is either  re-invested within
such 360 day period or applied to the Loans or other  Obligations as provided in
this  subsection  2(c)(iii),  and  (3) if,  at the  time  of any  such  required
prepayment,  any Eligible Secured Debt is outstanding,  then the Excess Proceeds
Amount may be paid to the  Collateral  Agent (as  opposed to the  Administrative
Agent)  and  distributed  pro rata to Lender  and the  holders  of the  Eligible
Secured Debt (or their  representatives)  for  application to the Loans or other
Obligations and to such Eligible  Secured Debt in accordance with the Collateral
Agency and Intercreditor Agreement.

     Except to the extent that any such  prepayment is required to be applied to
a particular tranche, any such amounts received as a mandatory prepayment of the
Loans shall be applied  first to the Tranche B Loans and second to the Tranche A
Loans.

     As used herein, "Casualty Event" means, with respect to any property of any
Person,  any loss of or damage to, or any  condemnation or other taking of, such
property  for which such Person or any of its  Subsidiaries  receives  insurance
proceeds,  or proceeds of a condemnation  award or other  compensation;  "Excess
Cash Flow" means,  with respect to the  Borrower and its  Subsidiaries,  for any
fiscal year,  and without  duplication,  the positive  remainder (if any) of (a)
EBITDA for such fiscal  year MINUS (b) the sum of (i) Taxes  payable in cash for
such  fiscal  year,  PLUS  (ii) all  principal  and cash  interest  payments  on
Indebtedness (including the principal component of any capital lease obligations
but excluding  Qualifying  Fiber or Conduit  Purchases)  made during such fiscal
year,  whether  optional,  mandatory or scheduled  payments,  PLUS (iii) Capital
Expenditures  (but only to the extent paid in cash and not financed) made during
such fiscal year; and "Capital Expenditures" means, with respect to Borrower and
its  Subsidiaries,  amounts  paid or  Indebtedness  incurred by such  Persons in
connection  with the purchase or lease by such Persons of property that would be
required to be  capitalized  and shown on the balance  sheet of such  Persons in
accordance with GAAP.

     (D)  COLLATERAL  DOCUMENTS:.  The Security  Agreements,  The  Subordination
Agreement,  the Indemnity and Contribution  Agreement and the Collateral  Agency
and  Intercreditor  Agreement,  as any such agreement may be amended,  modified,
supplemented,  renewed,  extended or  restated  from time to time with the prior
written  consent of Lender,  and any and all other  agreements,  deeds of trust,
mortgages,   chattel  mortgages,   security  agreements,   pledges,  guaranties,
assignments of proceeds,  assignments of income, assignments of contract rights,
assignments  of  partnership   interests,   assignments  of  royalty  interests,
assignments  of  performance  or  other  collateral  assignments,  subordination
agreements,  undertakings  and  other  agreements,  documents,  instruments  and
financing statements now or hereafter executed and/or delivered by any Person as
security or assurance for the payment or performance  of the  Obligations or any
part thereof.

     (E)  GUARANTY:  Guaranty  dated as of  August  9,  2000  made by PRE,  as a
guarantor,  in favor of Collateral  Agent;  Guaranty  dated as of August 9, 2000
made by PFE, as a guarantor, in favor of Collateral Agent.

          (F) ADDITIONAL LOAN DOCUMENTS: None.

          (G) FINANCING DOCUMENTS:  Credit Agreement dated as of August 9, 2000,
     between Borrower and Nortel Networks,  Inc. as the administrative Agent and
     Lenders named therein.  The parties to the Financing Documents are referred
     to herein collectively as the "Creditor".

          (H) GOVERNMENTAL LICENSES AND PERMITS: None.

          (I) REQUIRED CONSENTS: None.

          (J) ADDITIONAL PERMITTED LIENS: None.

          (K) ADDITIONAL REPORTING REQUIREMENTS: None.

          (L) MATERIAL CONTRACTS: See Schedule 2(l).

          3. ADDRESSES FOR NOTICES:

          (A) BORROWER:

          Pathnet  Operating,  Inc. 11720 Sunrise Valley Drive Reston,  Virginia
     20191 Attn: Mr. James Craig Fax No.: (703) 860-5682

                  (B)    LENDER:

                         Cisco Systems Capital Corporation
                         Mailstop SJ-Linc 1/2
                         170 West Tasman Drive
                         San Jose, California 95134-1706
                         Attn: Loan Administration, Worldwide Financial Services
                         Fax No.: (408) 527-3993

4.       LENDER'S ACCOUNT FOR PAYMENTS:

                  Account no.: 1233124070
                  Ref. "Pathnet Operating, Inc."
                  ABA no.: 121000358

                  Account maintained with:

                  Bank of America, N.A.
                  Concord, California

5.       PROCESS AGENT:

                  CT Corporation System
                  111 Eighth Avenue
                  New York, NY 10011

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

ACKNOWLEDGED AND AGREED:
-----------------------

Cisco Systems Capital Corporation

By: /s/    Brian P. Fukuhara
    -------------------------------------------------
    Title: Chief Credit Officer

Pathnet Operating, Inc.

By: /s/   James M. Craig
    -------------------------------------------------
    Title: Vice President and Treasurer

<PAGE>

                                    EXHIBIT A

                               NOTICE OF BORROWING

<PAGE>

                                    EXHIBIT B

                             COMPLIANCE CERTIFICATE

<PAGE>

                                    EXHIBIT C

                        FORM OF TRANCHE A PROMISSORY NOTE

         THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE SOLD OR
         OTHERWISE  TRANSFERRED  UNDER  CIRCUMSTANCES  THAT  WOULD  RESULT  IN A
         VIOLATION OF THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES ACT OF
         1933 OR SUCH OTHER LAWS.

U.S.$40,000,000

                  FOR VALUE RECEIVED, the undersigned,  Pathnet Operating,  Inc.
("Borrower"),  a limited liability company organized and existing under the laws
of the State of Delaware, HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of
Cisco  Systems  Capital  Corporation  ("Lender"),  a  corporation  organized and
existing  under  the laws of the State of  Nevada,  the  principal  sum of FORTY
MILLION  United  States  Dollars  (U.S.$40,000,000),  or such  greater or lesser
amount as represents the aggregate  principal amount of the Tranche A loans (the
"Loans") made by Lender to Borrower pursuant to the Credit Agreement referred to
below,  quarterly in arrears,  payable on the dates and in the amounts indicated
in the  amortization  schedules set forth in the Annex attached hereto (the last
such date being hereinafter referred to as the "Maturity Date").

                  Borrower  further  promises to pay  interest on the  principal
amount of each Loan  outstanding  hereunder  on each  Interest  Payment Date (as
defined  below) until the Maturity  Date, at a rate per annum equal at all times
during each Interest Period for such Loan to LIBOR for such Interest Period plus
* per annum.

                  The period  between the date of a Loan and the  Maturity  Date
shall be divided into  successive  periods,  each such period being an "Interest
Period" for purposes of this Promissory  Note. The initial Interest Period for a
Loan  shall  begin on the date such  Loan is made and end on the next  Quarterly
Date.  Each  subsequent  Interest  Period  shall  begin  on the  last day of the
immediately  preceding  Interest  Period  and shall  end on the next  succeeding
Quarterly Date (with the last Interest  Period to end on the Maturity  Date). As
used  herein,  "LIBOR"  means for any  Interest  Period the rate of interest per
annum determined by Lender to be the rate of interest per annum (rounded upward,
if  necessary,  to the  nearest  1/100 of 1%) for  deposits in Dollars for three
months  appearing  on the  display  page  designated  as "3750" in the Dow Jones
Market Service (formerly known as the Telerate Service), or any replacement page
thereof in the Dow Jones Market  Service  displaying  London  interbank  offered
rates of major banks for Dollar  deposits,  at or about 11:00 a.m. (London time)
on the second  Banking Day  preceding the first day of the  applicable  calendar
quarter in which such Interest Period occurs,  provided that if no, or only one,
such offered  quotation  appears on such display page (or such other replacement
page),  "LIBOR" shall be determined by reference to the Reuters Screen LIBO Page
of the Reuters Monitor Money Rates Service (or any  replacement  page thereof or
other applicable  Reuters display page) or other  comparable  source of interest
quotations for such interbank  rates  selected by Lender;  and "Quarterly  Date"
means the last day of each calendar quarter.

                  Interest on each Loan shall be payable in arrears to Lender on
the last day of each calendar  quarter and on the Maturity Date (each such date,
an "Interest Payment Date");  provided that if any prepayment hereof is effected
other than on an Interest Payment Date,  accrued interest hereon shall be due on
such prepayment date as to the principal amount prepaid.

                  In the event that any amount of  principal  hereof or interest
thereon,  or any other amount payable  hereunder or under the Credit  Agreement,
shall not be paid in full when due (whether at stated maturity,  by acceleration
or  otherwise),  Borrower  shall pay interest  (after as well as before entry of
judgment  thereon  to the  extent  permitted  by law) on such  unpaid  amount to
Lender, from the date such amount becomes due until the date such amount is paid
in full,  payable on demand of Lender,  at a fluctuating rate per annum equal at
all times to the Prime Rate (as defined below)  plus * per annum  (the  "Default
Rate").  Additionally,   and  without  limiting  the  foregoing,  following  the
occurrence and during the continuance of any Event of Default,  at the option of
Lender,  the  interest  rate on all  Loans  outstanding  hereunder  shall be the
Default Rate.

                  As used  herein,  "Prime  Rate"  means for any day the rate of
interest in effect for such day as publicly  announced from time to time by Bank
of America,  N.A.,  as its prime rate.  Each change in the interest  rate hereon
based on a change  in the  prime  rate  shall be  effective  at the  opening  of
business on the day specified in the public announcement of such change.

                  All  computations  of interest  hereunder shall be made on the
basis of a year of 360 days  for the  actual  number  of days  occurring  in the
period for which any such interest or fee is payable.

                  Whenever any payment  hereunder  shall be stated to be due, or
whenever any Interest  Payment Date or any other date specified  hereunder would
otherwise  occur, on a day other than a Banking Day, then,  except to the extent
otherwise  provided  hereunder,  such payment  shall be made,  and such Interest
Payment Date or other date shall occur, on the next succeeding  Banking Day, and
such  extension  of time shall in such case be  included in the  computation  of
payment of interest hereunder;  PROVIDED,  HOWEVER, that if such extension would
cause such payment to be made,  or such  Interest  Payment Date or other date to
occur, in the next following calendar month, such payment shall be made and such
Interest  Payment Date or other date shall occur on the next  preceding  Banking
Day. As used herein,  "Banking  Day" means a day other than a Saturday or Sunday
on which  commercial banks are not required or authorized by law to close in San
Jose,  California,  except  that if the  applicable  Banking  Day relates to any
determination  of LIBOR,  "Banking  Day" means such a day on which  dealings are
carried out in the applicable offshore U.S. Dollar interbank market.

                  Each  such  payment  shall be made on the date  when  due,  in
immediately  available  funds,  to Lender's  account at Bank of  America,  N.A.,
Concord,  California,  ABA no.  12100358,  to account  number  1233124070,  ref.
"Pathnet Operating, Inc.," or to such other account of Lender as it from time to
time shall designate in a written notice to Borrower.

                  All payments of principal,  interest and other amounts made on
or in respect to this Promissory Note shall be made in United States Dollars for
value received on the date of payment,  without setoff,  counterclaim or, to the
extent permitted by applicable law,  defense,  and free and clear of and without
deduction for any present and future Taxes or charges whatsoever.

                  Lender  shall  record the date and amount of each Loan made to
Borrower, the amount of principal and interest due and payable from time to time
hereunder,  each payment thereof,  and the resulting  unpaid  principal  balance
hereof, in Lender's  internal records,  and any such records shall be conclusive
evidence absent manifest error of the amount of the Loans made by Lender and the
interest and payments thereon;  PROVIDED,  however,  that Lender's failure so to
record shall not limit or otherwise affect the obligations of Borrower hereunder
and under the Credit  Agreement  to repay the  principal  of and interest on the
Loans.

                  This  Promissory Note is a Note referred to in, and is subject
to and entitled to the benefits of, the Agreement  dated as of September 7, 2000
(as  amended,  modified,  renewed or  extended  from time to time,  the  "Credit
Agreement") among Pathnet  Telecommunications,  Inc. ("Holdings"),  Borrower and
Lender.  Capitalized  terms  used  herein  shall  have the  respective  meanings
assigned to them in the Credit Agreement.

                  The  Credit  Agreement  provides,   among  other  things,  for
acceleration  (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of certain stated events, in each case without  presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived.

                  This  Promissory  Note is subject to prepayment in whole or in
part as provided in the Credit Agreement.

                  Borrower  hereby  waives  diligence,  presentment,  protest or
notice  of  total  or  partial  nonpayment  or  dishonor  with  respect  to this
Promissory Note.

                  Failure by the  holder  hereof to  exercise  any of its rights
hereunder in any instance  shall not  constitute a waiver thereof in that or any
other instance.

                  Borrower  agrees to pay on demand  all costs and  expenses  of
Lender and its  affiliates,  and fees and  disbursements  of counsel  (excluding
allocated  costs and expenses for internal legal  services),  in connection with
the enforcement or attempted  enforcement of, and  preservation of any rights or
interests under, (i) this Promissory Note, and (ii) any out-of-court  workout or
other  refinancing  or  restructuring  or any  bankruptcy or insolvency  case or
proceeding,  including any losses,  costs and expenses  sustained by Lender as a
result of any  failure  by  Borrower  to  perform  or  observe  its  obligations
contained herein.

                  THIS  PROMISSORY  NOTE SHALL BE GOVERNED BY, AND  CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  Borrower hereby (a) submits to the non-exclusive  jurisdiction
of the  courts of the  State of New York and the  Federal  courts of the  United
States  sitting  in the  Borough  of  Manhattan  (collectively,  the  "New  York
Courts"), for the purpose of any action or proceeding arising out of or relating
to this  Promissory  Note, (b)  irrevocably  waives (to the extent  permitted by
applicable  law) any objection  which it now or hereafter may have to the laying
of venue of any such action or proceeding brought in any of the New York Courts,
and any  objection on the ground that any such action or  proceeding  in any New
York Court has been brought in an  inconvenient  forum,  and (c) agrees that (to
the extent  permitted by applicable  law) a final judgment in any such action or
proceeding  brought in a New York Court shall be conclusive  and may be enforced
in other  jurisdictions by suit on the judgment or in any other manner permitted
by law.

                  IN WITNESS  WHEREOF,  Borrower  by its duly  authorized  legal
representatives  has executed this  Promissory  Note on the date and in the year
first above mentioned.

                                BORROWER

                                Pathnet Operating, Inc.

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

<PAGE>

                       ANNEX TO TRANCHE A PROMISSORY NOTE

         AMORTIZATION

         Payments  shall  commence  on the last day of the  quarter in which the
Commitment Expiry Date occurs and shall amortize quarterly in arrears. The first
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the aggregate  draw downs made by Borrower  under Tranche A. The next
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the aggregate  draw downs made by Borrower  under Tranche A. The next
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the  aggregate  draw  downs  made by  Borrower  under  Tranche A. The
remaining four payments shall be in substantially  equal amounts and shall total
* of the  aggregate  draw  downs  made by  Borrower  with  respect to Tranche A;
PROVIDED that the final installment shall be in the amount necessary to repay in
full the unpaid principal balance of this Tranche A Note.

<PAGE>

                                      EXHIBIT D

                        FORM OF TRANCHE B PROMISSORY NOTE

         THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE SOLD OR
         OTHERWISE  TRANSFERRED  UNDER  CIRCUMSTANCES  THAT  WOULD  RESULT  IN A
         VIOLATION OF THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES ACT OF
         1933 OR SUCH OTHER LAWS.

U.S.$10,000,000

                  FOR VALUE RECEIVED, the undersigned,  Pathnet Operating,  Inc.
("Borrower"),  a limited liability company organized and existing under the laws
of the State of Delaware, HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of
Cisco  Systems  Capital  Corporation  ("Lender"),  a  corporation  organized and
existing under the laws of the State of Nevada, the principal sum of TEN MILLION
United  States  Dollars  (U.S.$10,000,000),  or such greater or lesser amount as
represents the aggregate  principal  amount of the Tranche B loans (the "Loans")
made by Lender to Borrower  pursuant to the Credit Agreement  referred to below,
quarterly in arrears,  payable on the dates and in the amounts  indicated in the
amortization  schedules  set forth in the Annex  attached  hereto (the last such
date being hereinafter referred to as the "Maturity Date").

                  Borrower  further  promises to pay  interest on the  principal
amount of each Loan  outstanding  hereunder  on each  Interest  Payment Date (as
defined  below) until the Maturity  Date, at a rate per annum equal at all times
during each Interest Period for such Loan to LIBOR for such Interest Period plus
* per annum.

                  The period  between the date of a Loan and the  Maturity  Date
shall be divided into  successive  periods,  each such period being an "Interest
Period" for purposes of this Promissory  Note. The initial Interest Period for a
Loan  shall  begin on the date such  Loan is made and end on the next  Quarterly
Date.  Each  subsequent  Interest  Period  shall  begin  on the  last day of the
immediately  preceding  Interest  Period  and shall  end on the next  succeeding
Quarterly Date (with the last Interest  Period to end on the Maturity  Date). As
used  herein,  "LIBOR"  means for any  Interest  Period the rate of interest per
annum determined by Lender to be the rate of interest per annum (rounded upward,
if  necessary,  to the  nearest  1/100 of 1%) for  deposits in Dollars for three
months  appearing  on the  display  page  designated  as "3750" in the Dow Jones
Market Service (formerly known as the Telerate Service), or any replacement page
thereof in the Dow Jones Market  Service  displaying  London  interbank  offered
rates of major banks for Dollar  deposits,  at or about 11:00 a.m. (London time)
on the second  Banking Day  preceding the first day of the  applicable  calendar
quarter in which such Interest Period occurs,  provided that if no, or only one,
such offered  quotation  appears on such display page (or such other replacement
page),  "LIBOR" shall be determined by reference to the Reuters Screen LIBO Page
of the Reuters Monitor Money Rates Service (or any  replacement  page thereof or
other applicable  Reuters display page) or other  comparable  source of interest
quotations for such interbank  rates  selected by Lender;  and "Quarterly  Date"
means the last day of each calendar quarter.

                  Interest on each Loan shall be payable in arrears to Lender on
the last day of each calendar  quarter and on the Maturity Date (each such date,
an "Interest Payment Date");  provided that if any prepayment hereof is effected
other than on an Interest Payment Date,  accrued interest hereon shall be due on
such prepayment date as to the principal amount prepaid.

                  In the event that any amount of  principal  hereof or interest
thereon,  or any other amount payable  hereunder or under the Credit  Agreement,
shall not be paid in full when due (whether at stated maturity,  by acceleration
or  otherwise),  Borrower  shall pay interest  (after as well as before entry of
judgment  thereon  to the  extent  permitted  by law) on such  unpaid  amount to
Lender, from the date such amount becomes due until the date such amount is paid
in full,  payable on demand of Lender,  at a fluctuating rate per annum equal at
all times to the Prime Rate (as  defined  below) plus * per annum  (the "Default
Rate").  Additionally,   and  without  limiting  the  foregoing,  following  the
occurrence and during the continuance of any Event of Default,  at the option of
Lender,  the  interest  rate on all  Loans  outstanding  hereunder  shall be the
Default Rate.

                  As used  herein,  "Prime  Rate"  means for any day the rate of
interest in effect for such day as publicly  announced from time to time by Bank
of America,  N.A.,  as its prime rate.  Each change in the interest  rate hereon
based on a change  in the  prime  rate  shall be  effective  at the  opening  of
business on the day specified in the public announcement of such change.

                  All  computations  of interest  hereunder shall be made on the
basis of a year of 360 days  for the  actual  number  of days  occurring  in the
period for which any such interest or fee is payable.

                  Whenever any payment  hereunder  shall be stated to be due, or
whenever any Interest  Payment Date or any other date specified  hereunder would
otherwise  occur, on a day other than a Banking Day, then,  except to the extent
otherwise  provided  hereunder,  such payment  shall be made,  and such Interest
Payment Date or other date shall occur, on the next succeeding  Banking Day, and
such  extension  of time shall in such case be  included in the  computation  of
payment of interest hereunder;  PROVIDED,  HOWEVER, that if such extension would
cause such payment to be made,  or such  Interest  Payment Date or other date to
occur, in the next following calendar month, such payment shall be made and such
Interest  Payment Date or other date shall occur on the next  preceding  Banking
Day. As used herein,  "Banking  Day" means a day other than a Saturday or Sunday
on which  commercial banks are not required or authorized by law to close in San
Jose,  California,  except  that if the  applicable  Banking  Day relates to any
determination  of LIBOR,  "Banking  Day" means such a day on which  dealings are
carried out in the applicable offshore U.S. Dollar interbank market.

                  Each  such  payment  shall be made on the date  when  due,  in
immediately  available  funds,  to Lender's  account at Bank of  America,  N.A.,
Concord,  California,  ABA no.  12100358,  to account  number  1233124070,  ref.
"Pathnet Operating, Inc.," or to such other account of Lender as it from time to
time shall designate in a written notice to Borrower.

                  All payments of principal,  interest and other amounts made on
or in respect to this Promissory Note shall be made in United States Dollars for
value received on the date of payment,  without setoff,  counterclaim or, to the
extent permitted by applicable law,  defense,  and free and clear of and without
deduction for any present and future Taxes or charges whatsoever.

                  Lender  shall  record the date and amount of each Loan made to
Borrower, the amount of principal and interest due and payable from time to time
hereunder,  each payment thereof,  and the resulting  unpaid  principal  balance
hereof, in Lender's  internal records,  and any such records shall be conclusive
evidence absent manifest error of the amount of the Loans made by Lender and the
interest and payments thereon;  PROVIDED,  however,  that Lender's failure so to
record shall not limit or otherwise affect the obligations of Borrower hereunder
and under the Credit  Agreement  to repay the  principal  of and interest on the
Loans.

                  This  Promissory Note is a Note referred to in, and is subject
to and entitled to the benefits of, the Agreement  dated as of September 7, 2000
(as  amended,  modified,  renewed or  extended  from time to time,  the  "Credit
Agreement") among Pathnet  Telecommunications,  Inc. ("Holdings"),  Borrower and
Lender.  Capitalized  terms  used  herein  shall  have the  respective  meanings
assigned to them in the Credit Agreement.

                  The  Credit  Agreement  provides,   among  other  things,  for
acceleration  (which in certain cases shall be automatic) of the maturity hereof
upon the occurrence of certain stated events, in each case without  presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived.

                  This  Promissory  Note is subject to prepayment in whole or in
part as provided in the Credit Agreement.

                  Borrower  hereby  waives  diligence,  presentment,  protest or
notice  of  total  or  partial  nonpayment  or  dishonor  with  respect  to this
Promissory Note.

                  Failure by the  holder  hereof to  exercise  any of its rights
hereunder in any instance  shall not  constitute a waiver thereof in that or any
other instance.

                  Borrower  agrees to pay on demand  all costs and  expenses  of
Lender and its  affiliates,  and fees and  disbursements  of counsel  (excluding
allocated  costs and expenses for internal legal  services),  in connection with
the enforcement or attempted  enforcement of, and  preservation of any rights or
interests under, (i) this Promissory Note, and (ii) any out-of-court  workout or
other  refinancing  or  restructuring  or any  bankruptcy or insolvency  case or
proceeding,  including any losses,  costs and expenses  sustained by Lender as a
result of any  failure  by  Borrower  to  perform  or  observe  its  obligations
contained herein.

                  THIS  PROMISSORY  NOTE SHALL BE GOVERNED BY, AND  CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  Borrower hereby (a) submits to the non-exclusive  jurisdiction
of the  courts of the  State of New York and the  Federal  courts of the  United
States  sitting  in the  Borough  of  Manhattan  (collectively,  the  "New  York
Courts"), for the purpose of any action or proceeding arising out of or relating
to this  Promissory  Note, (b)  irrevocably  waives (to the extent  permitted by
applicable  law) any objection  which it now or hereafter may have to the laying
of venue of any such action or proceeding brought in any of the New York Courts,
and any  objection on the ground that any such action or  proceeding  in any New
York Court has been brought in an  inconvenient  forum,  and (c) agrees that (to
the extent  permitted by applicable  law) a final judgment in any such action or
proceeding  brought in a New York Court shall be conclusive  and may be enforced
in other  jurisdictions by suit on the judgment or in any other manner permitted
by law.

                  IN WITNESS  WHEREOF,  Borrower  by its duly  authorized  legal
representatives  has executed this  Promissory  Note on the date and in the year
first above mentioned.

                                BORROWER

                                Pathnet Operating, Inc.

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

<PAGE>

                       ANNEX TO TRANCHE B PROMISSORY NOTE

         AMORTIZATION

         Payments  shall  commence  on the last day of the  quarter in which the
Commitment Expiry Date occurs and shall amortize quarterly in arrears. The first
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the aggregate  draw downs made by Borrower  under Tranche B. The next
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the aggregate  draw downs made by Borrower  under Tranche B. The next
four  payments of principal  shall be in  substantially  equal amounts and shall
total * of the  aggregate  draw  downs  made by  Borrower  under  Tranche B. The
remaining four payments shall be in substantially  equal amounts and shall total
* of the  aggregate  draw  downs  made by  Borrower  with  respect to Tranche B;
PROVIDED that the final installment shall be in the amount necessary to repay in
full the unpaid principal balance of this Tranche B Note.

<PAGE>

                                  SCHEDULE 1.1

                                 EXISTING LIENS

None.

<PAGE>

                                  SCHEDULE 2(L)

                               MATERIAL CONTRACTS

1.       Master Service Agreement between I-Link Communications,  Inc., Pathnet,
         Inc. and Pathnet Operating, Inc. dated May 19, 2000

2.       Master Service  Agreement  between DSL Internet  Corporation,  Pathnet,
         Inc. and Pathnet Operating, Inc. dated May 24, 2000

3.       Service  Agreement  between Henkels and McCoy,  Inc. and Pathnet,  Inc.
         dated  March 6,  2000  concerning  certain  construction  services,  as
         assigned to Borrower (consent to assignment required)

4.       Fiber Optic Cable Engineering and Construction  Agreement dated January
         31, 2000 between Pathnet,  Inc., and Alcoa Fujikura,  Ltd., as assigned
         to Borrower

5.       Statement  of  Work  designated   Pathnet_Staging_TSOW_2000.v6  between
         Pathnet Operating, Inc. and Cisco Systems, Inc., executed by Pathnet on
         May 26, 2000 (pending execution - consent to assignment required)

6.       Construction Agreement dated March 31, 1999 between Pacific Fiber Link,
         LLC and Pathnet, Inc., as amended and assigned to Borrower

7.       Fiber Optic Cable Construction and Use Agreement between Public Service
         Company of New Mexico and Pathnet,  Inc., dated 6/9/99,  as assigned to
         Borrower (consent to assignment required)

8.       Fiber Optic Cable License  Agreement  between Pathnet,  Inc. and Public
         Service Company of New Mexico, dated 12/23/99,  as assigned to Borrower
         (consent to assignment required)

9.       Agreement between Pathnet,  Inc and CapRock  Telecommunications,  dated
         11/18/99 as assigned to Borrower

10.      Dark Fiber  Network  Agreement  dated  August  1999  between  Tri-State
         Generation  and  Transmission   Association,   Inc.,   Empire  Electric
         Association,  Inc., La Plata Electric Association, Inc., Delta-Montrose
         Electric  Association,  Inc.  San Miguel  Power  Association,  Inc. and
         Pathnet, Inc., as assigned to Borrower

11.      Fiber  Optic Lease  between  Burlington  Northern  and Santa Fe Railway
         Company and Pathnet Telecommunications,  Inc., dated March 31, 2000, as
         assigned to Borrower and PRE pursuant to the Right of Way  Contribution
         Agreement (consent to assignment required)

12.      Goldman Sachs engagement letter dated May 2, 2000

13.      Master  Software  License and Services  Agreement  dated  December 1999
         between  MetaSolv  Software,  Inc. and Pathnet,  Inc.,  and executed by
         Pathnet, Inc. on December 29, 2000, as assigned to Borrower (consent to
         assignment required)

14.      Intercompany  Services  Agreement  dated  on or about  the date  hereof
         between Pathnet Operating, Inc. and Pathnet, Inc.

15.      Tax Sharing Agreement dated on or about the date hereof between Pathnet
         Operating,  Inc.  and  Pathnet  Telecommunications,  Inc.  (consent  to
         assignment required)

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