Document:

<PAGE>

Exhibit 10.22

================================================================================

                               RIGHTS AGREEMENT

                                    between

                             DIGITALWORK.COM, INC.

                                      and

                    CHASE MELLON SHAREHOLDER SERVICES, LLC,

                                As Rights Agent

                        Dated as of ____________, 2000

================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        Page
                                                                        ----
<S>                                                                     <C>
Section 1.   Certain Definitions.......................................   1

Section 2.   Appointment of Rights Agent...............................   6

Section 3.   Issue of Right Certificates...............................   6

Section 4.   Form of Right Certificates................................   8

Section 5.   Countersignature and Registration.........................   9

Section 6.   Transfer, Split Up, Combination and
              Exchange of Right Certificates;
              Mutilated, Destroyed, Lost or
              Stolen Right Certificates................................   9

Section 7.   Exercise of Rights; Purchase Price;
              Expiration Date of Rights................................  10

Section 8.   Cancellation and Destruction of
              Right Certificates.......................................  12

Section 9.   Availability of Preferred Shares..........................  13

Section 10.  Preferred Shares Record Date..............................  13

Section 11.  Adjustment of Purchase Price, Number of
              Shares or Number of Rights...............................  13

Section 12.  Certificate of Adjusted Purchase Price
              or Number of Shares......................................  20

Section 13.  Consolidation, Merger or Sale or Transfer
              of Assets or Earning Power...............................  20

Section 14.  Fractional Rights and Fractional Shares...................  23

Section 15.  Rights of Action..........................................  24

Section 16   Agreement of Right Holders................................  24
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<CAPTION>
                                                                        Page
                                                                        ----
<S>                                                                     <C>
Section 17.  Right Certificate Holder Not Deemed a
              Stockholder.............................................. 25

Section 18.  Concerning the Rights Agent...............................  25

Section 19.  Merger or Consolidation or Change of
              Name of Rights Agent.....................................  26

Section 20.  Duties of Rights Agent....................................  26

Section 21.  Change of Rights Agent....................................  29

Section 22.  Issuance of New Right Certificates........................  29

Section 23.  Redemption................................................  30

Section 24.  Exchange..................................................  31

Section 25.  Notice of Certain Events..................................  32

Section 26.  Notices...................................................  33

Section 27.  Supplements and Amendments................................  33

Section 28.  Successors................................................  34

Section 29.  Benefits of This Agreement................................  34

Section 30.  Severability..............................................  34

Section 31.  Governing Law.............................................  34

Section 32.  Counterparts..............................................  34

Section 33.  Descriptive Headings......................................  34
</TABLE>

                                     -ii-
<PAGE>

                                                                        Page
                                                                        ----
Section 34.  Determinations and Actions by the
              Board of Directors..................................       34

Exhibit A - Form of Certificate of Designation, Preferences and
             Rights

Exhibit B - Form of Right Certificate

Exhibit C - Summary of Rights Plan

                                     -iii-
<PAGE>

                               RIGHTS AGREEMENT
                               ----------------

     This Rights Agreement, dated as of _________________, 2000 ("Agreement"),
between DIGITALWORK.COM, INC., a Delaware corporation (the "Company"), and CHASE
MELLON SHAREHOLDER SERVICES, LLC (the "Rights Agent").

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

     WHEREAS, the Board of Directors of the Company authorized and declared a
dividend distribution of one Right (as hereinafter defined) for each Common
Share (as such term is hereinafter defined) of the Company outstanding as of the
Close of Business on _____________, 2000 (the "Record Date"), each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
such term is hereinafter defined) having the rights, powers and preferences set
forth in the form of Certificate of Designations attached hereto as Exhibit A,
                                                                    ---------
upon the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earlier of
the Distribution Date and the Expiration Date (as such terms are hereinafter
defined) or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

     Section 1.  Certain Definitions.  For purposes of this Agreement, the
                 -------------------
following terms have the meanings indicated:

          "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 15% or more of the Common Shares of the
Company then outstanding, but shall not include the Company, any Subsidiary (as
such term is hereinafter defined) of the Company, any employee benefit plan of
the Company or any Subsidiary of the Company, any Person holding Common Shares
for or pursuant to the terms of any such plan, or any Grandfathered Person.
Notwithstanding the foregoing, no Person (including, without limitation, any
Grandfathered Person) shall become an "Acquiring Person" as the result of (a) an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding or (b) the acquisition by such Person of newly

                                      -1-
<PAGE>

issued Common Shares directly from the Company (it being understood that a
purchase from an underwriter or other intermediary is not directly from the
Company); provided, however, that if a Person shall become the Beneficial Owner
          --------  -------
of 15% or more of the Common Shares of the Company then outstanding by reason of
share purchases by the Company or the receipt of newly issued Common Shares
directly from the Company and shall, after such share purchases or direct
issuance by the Company, become the Beneficial Owner of any additional Common
Shares of the Company, then such Person shall be deemed to be an "Acquiring
Person"; provided, further, that any transferee from such Person who becomes the
         --------  -------
Beneficial Owner of 15% or more of the Common Shares of the Company then
outstanding shall nevertheless be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph, has
become such inadvertently, and such Person divests as promptly as practicable
(and in any event within ten business days after notification by the Company) a
sufficient number of Common Shares so that such Person would no longer be an
Acquiring Person, as defined pursuant to the foregoing provisions of this
paragraph, then such Person shall not be deemed to be an "Acquiring Person" for
any purposes of this Agreement.

          "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (as such term is hereinafter defined), as in effect on the date
of this Agreement.

          A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to have "beneficial ownership" of or "beneficially own" any securities which:

          (a) such Person or any of such Person's Affiliates or Associates
     beneficially owns, directly or indirectly;

          (b) such Person or any of such Person's Affiliates or Associates,
     directly or indirectly, has (A) the right to acquire (whether such right is
     exercisable immediately or only after the passage of time) pursuant to any
     agreement, arrangement or understanding, whether written or oral (other
     than customary agreements with and between underwriters and selling group
     members with respect to a bona fide public offering of securities), or upon
     the exercise of conversion rights, exchange rights, rights (other than
     these Rights), warrants or options, or otherwise; provided, however, that a
                                                       --------  -------
     Person shall not be deemed the Beneficial Owner of, or to beneficially own,
     securities tendered pursuant to a tender or exchange offer made by or on
     behalf of such Person or any of such Person's Affiliates or Associates
     until such tendered securities are accepted for purchase or exchange; (B)
     the sole or shared right to vote or dispose of (including any such right
     pursuant to any agreement, arrangement or understanding, whether written or
     oral); provided, however, that a Person shall not be deemed the Beneficial
            --------  -------
     Owner of, or to beneficially own, any

                                      -2-
<PAGE>

     security if the agreement, arrangement or understanding to vote such
     security (1) arises solely from a revocable proxy or consent given to such
     Person in response to a public proxy or consent solicitation made pursuant
     to, and in accordance with, the applicable rules and regulations
     promulgated under the Exchange Act and (2) is not also then reportable on
     Schedule 13D under the Exchange Act (or any comparable or successor
     report); or (c) "beneficial ownership" of (as determined pursuant to Rule
     13d-3 (or any successor rule) of the General Rules and Regulations under
     the Exchange Act); or

          (c) are beneficially owned, directly or indirectly, by any other
     Person (or any Affiliate or Associate thereof) with which such Person or
     any of such Person's Affiliates or Associates has any agreement,
     arrangement or understanding, whether written or oral (other than customary
     agreements with and between underwriters and selling group members with
     respect to a bona fide public offering of securities) for the purpose of
     acquiring, holding, voting (except to the extent contemplated by the
     proviso to clause (B) of subparagraph (b) of this definition) or disposing
     of any securities of the Company.

          Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.

          "Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in Illinois are authorized or obligated by law
or executive order to close.

          "Close of Business" on any given date shall mean 5:00 P.M., Chicago
time, on such date; provided, however, that if such date is not a Business Day
                    --------  -------
it shall mean 5:00 P.M., Chicago time, on the next succeeding Business Day.

          "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $.005 per share (as such shares may be
constituted or designated, or as such par value may be changed, from time to
time during the term of this Agreement), of the Company.  "Common Shares" when
used with reference to any Person other than the Company shall mean the capital
stock (or equity interest) with the greatest voting power of such other Person
or the equity securities or other equity interest having power to control or
direct the management of such other Person.

          "Distribution Date" shall have the meaning set forth in Section 3
hereof.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

                                      -3-
<PAGE>

          "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.

          "Expiration Date" shall have the meaning set forth in Section 7
hereof.

          "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.

          "Grandfathered Person" shall mean:

          (a) Draper Fisher Jurvetson and/or TL Ventures;

          (b) Any former or future spouse of any Person described in
     subparagraph (a) of this definition;

          (c) Any child, grandchild or great-grandchild, whether by birth or
     adoption, whether now living or hereafter born, of any Person described in
     subparagraph (a) or (b) of this definition;

          (d) Any spouse (including any former or future spouse) of any Person
     described in subparagraph (c) of this definition;

          (e) Any estate of, or the executor or administrator of any estate of,
     or any guardian or custodian for, any Person described in subparagraphs (a)
     through (d) of this definition (so long as such executor, administrator,
     guardian or custodian is acting in his or her capacity as such);

          (f) Any legal advisor of any Person described in subparagraphs (a)
     through (e), (g) or (h) of this definition who is given a revocable proxy
     by such Person with respect to voting securities of the Company of which
     such Person is the Beneficial Owner or who is or becomes an attorney-in-
     fact or agent of such Person;

          (g) any organization (whether now existing or hereafter formed)
     described in Section 501(c)(3) of the Internal Revenue Code of 1986, as
     amended;

          (h) Any corporation, limited liability company, trust (including any
     voting trust), general partnership, limited partnership, organization or
     other entity (whether now existing or hereafter formed) of which
     substantially all of the outstanding beneficial, voting or equity interests
     are beneficially owned, directly or indirectly, either (A) by one or more
     of the Persons described in subparagraphs (a) through (e) of this
     definition, or (B) by any combination of one or more of the Persons
     described in subparagraphs (a)

                                      -4-
<PAGE>

     through (e) of this definition and one or more organizations described in
     subparagraph (g) of this definition; and

          (i) Any other Person (A) who or which is or becomes an Affiliate or
     Associate of any Person described in subparagraphs (a) through (h) of this
     definition, or (B) of which any Person described in subparagraphs (a)
     through (h) of this definition is or becomes an Affiliate or Associate;
     provided, in either case (A) or case (B), such other Person is not the
     Beneficial Owner of 5% or more of the Common Shares then outstanding (for
     purposes of determining the number of Common Shares of which such other
     Person is the Beneficial Owner under this subparagraph (i), such other
     Person shall not be deemed to beneficially own Common Shares solely by
     reason of an Affiliate or Associate relationship of the kind described in
     (A) or (B) above in this subparagraph (i)).

     Notwithstanding the foregoing, a Grandfathered Person shall cease to be
deemed a Grandfathered Person if, without the prior approval of the Company, in
the case of Draper Fisher Jurvetson, it becomes the Beneficial Owners of 25% or
more of the Common Shares outstanding or in the case of TL Ventures, it becomes
the Beneficial Owners of 18% or more of the Common Shares outstanding, other
than (i) pursuant to dividends or rights (including the Rights) paid or offered
to stockholders of the Company generally (other than an Acquiring Person or
Persons), or (ii) options or grants of shares by the Company pursuant to an
employment agreement or other compensatory arrangement including, without
limitation, the Company's employee stock ownership plan and stock option plans.

          "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.

          "Preferred Shares" shall mean shares of Series A Participating
Preferred Stock, par value $0.005 per share, of the Company having the rights
and preferences set forth in the Form of Certificate of Designation, Preferences
and Rights attached to this Agreement as Exhibit A.
                                         ---------

          "Principal Party" shall have the meaning set forth in Section 13
hereof.

          "Purchase Price" shall have the meaning set forth in Section 4 hereof.

          "Redemption Date" shall have the meaning set forth in Section 7
hereof.

          "Right Certificate" shall have the meaning set forth in Section 3
hereof.

          "Securities Act" shall mean the Securities Act of 1933, as amended.

                                      -5-
<PAGE>

          "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) promulgated under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.

          "Subsidiary" shall mean, with reference to any Person, any corporation
or other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.

          "Trading Day" shall have the meaning set forth in Section 11(d)(I)
hereof.

          "Triggering Event" shall mean any event described in Section 11(a)(ii)
or Section 13(a) hereof.

     Any determination or interpretation required in connection with any of the
definitions contained in this Section 1 shall be made by the Board of Directors
of the Company in their good faith judgment, which determination shall be final
and binding on the Rights Agent.

     Section 2.  Appointment of Rights Agent.  The Company hereby appoints the
                 ---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment.  The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable upon ten (10) days' prior written notice to the Rights Agent;
provided, however, that the Rights Agent shall have no duty to supervise, and
--------  -------
shall in no event be liable for, the acts or omissions of any such co-Rights
Agent.

     Section 3.  Issue of Right Certificates.
                 ---------------------------

     (a) Until the earlier of (i) the Close of Business on the tenth day after
the Shares Acquisition Date or (ii) the Close of Business on the tenth Business
Day (or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date
that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan, or any Grandfathered Person) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, of which tender or exchange offer would
result in any Person becoming the Beneficial Owner of Common Shares aggregating
15% or more of the then outstanding Common Shares (including any such date which
is after the date of this Agreement and prior to the issuance of the Rights; the
earlier of (i) or (ii) being herein referred to as the "Distribution Date"), (x)
the Rights will be

                                      -6-
<PAGE>

evidenced (subject to the provisions of Section 3(b) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Company). The Company shall give the Rights Agent prompt written
notice of the Distribution Date. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will cause to be sent (and the Rights Agent will, if requested
and at the expense of the Company, send) by first-class, insured, postage-
prepaid mail, to each record holder of Common Shares as of the close of business
on the Distribution Date, at the address of such holder shown on the records of
the Company, a Right Certificate, in substantially the form of Exhibit B hereto
                                                               ---------
(a "Right Certificate"), evidencing one Right for each Common Share so held. In
the event that an adjustment in the number of Rights per Common share has been
made pursuant to Section 11(n) hereof, at the time of distribution of Rights
Certificates, the Company shall make the necessary and appropriate rounding
adjustments (in accordance with Section 14 (a) hereof) so that Rights
Certificates only representing whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.

     (b) With respect to certificates for Common Shares outstanding as of the
Record Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof together with the
Summary of Rights Plan, and registered holders of Common Shares shall also be
the registered holders of the associated Rights.  Until the Distribution Date
(or the earlier of the Redemption Date or the Final Expiration Date), the
transfer of any certificate for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights Plan, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.

     (c) Rights shall be issued in respect of all Common Shares which are issued
(whether originally issued or delivered from the Company's treasury) after the
Record Date but prior to the earliest of the Distribution Date, the Redemption
Date, the Final Expiration Date or, in certain circumstances provided in Section
22 hereof, after the Distribution Date.  Certificates representing such Common
Shares shall also be deemed to be certificates for Rights.  Certificates
representing both Common Shares and Rights in accordance with this Section 3
which are executed and delivered (whether the Common Shares represented thereby
are originally issued, delivered from the Company's treasury or are presented
for transfer) by the Company (including, without limitation, certificates
representing reacquired Common Shares referred to in the last sentence of this
paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date or, in
certain circumstances provided in Section 22 hereof, after the Distribution
Date, shall have impressed on, printed on, written on or otherwise affixed to
them a legend substantially equivalent to the following:

                                      -7-
<PAGE>

     This certificate also evidences and entitles the holder hereof to certain
     rights as set forth in the Rights Agreement between Quotesmith.com, Inc.
     (the "Company") and Chase Mellon Shareholder Services, LLC, as Rights
     Agent, dated as of _____________ (the "Rights Agreement"), the terms of
     which are hereby incorporated herein by reference and a copy of which is on
     file at the principal offices of the Company.  Under certain circumstances,
     as set forth in the Rights Agreement, such Rights will be evidenced by
     separate certificates and will no longer be evidenced by this certificate.
     The Company will mail to the holder of this certificate a copy of the
     Rights Agreement, as in effect on the date of mailing, without charge
     promptly after receipt of a written request therefor.  Under certain
     circumstances set forth in the Rights Agreement, Rights issued to, or held
     by, any Person who is, was or becomes an Acquiring Person or an Affiliate
     or Associate thereof (as such terms are defined in the Rights Agreement),
     whether currently held by or on behalf of such Person or by any subsequent
     holder, shall become null and void.

With respect to such certificates bearing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Final Expiration Date, the
Rights associated with the Common Shares shall be evidenced by the certificates
representing the associated Common Shares alone, and the transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.  In the event that the Company purchases or
acquires any Common Shares after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.

     Section 4.  Form of Right Certificates.
                 --------------------------

     (a) The Right Certificates (and the forms of election to purchase Preferred
Shares and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
                                       ---------
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Right Certificates shall entitle the holders thereof
to purchase such number of one one-hundredths of a Preferred Share as shall be
set forth therein at the price per one one-hundredth of a Preferred Share set
forth therein (the "Purchase Price"), but the amount and type of securities
purchasable upon the exercise of each Right and the Purchase Price thereof shall
be subject to adjustment as provided herein.

                                      -8-
<PAGE>

     (b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by:  (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes an Acquiring Person, or (iii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding, whether written or oral, regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or understanding,
whether written or oral, which has as a primary purpose or effect avoidance of
Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible and otherwise reasonably identifiable as such) the following
legend:

     The Rights represented by this Right Certificate are or were beneficially
     owned by a Person who was or became an Acquiring Person or an Affiliate or
     Associate of an Acquiring Person (as such terms are defined in the Rights
     Agreement).  Accordingly, this Right Certificate and the Rights represented
     hereby may become void in the circumstances specified in Section 7(e) of
     such Agreement.

The provisions of Section 7(e) shall apply whether or not any Right Certificate
actually contains the foregoing legend.

     Section 5.  Countersignature and Registration.  The Right Certificates
                 ---------------------------------
shall be executed on behalf of the Company by any of its Chairman of the Board,
its Chief Executive Officer, its President, its Executive Vice President, or its
Chief Financial Officer, either manually or by facsimile signature, shall have
affixed thereto the Company's seal or a facsimile thereof, and shall be attested
by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature.  The Right Certificates shall be countersigned by the
Rights Agent either manually or by facsimile signature and shall not be valid
for any purpose unless countersigned.  In case any officer of the Company who
shall have signed any of the Right Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper

                                      -9-
<PAGE>

officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such person was not such an officer.

     Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder.  Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.

     Section 6.  Transfer, Split Up, Combination and Exchange of Right
                 -----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
---------------------------------------------------------------------

     (a) Subject to the provisions of Sections 4(b), 7(e), 14 and 24 hereof, at
any time after the close of business on the Distribution Date, and at or prior
to the close of business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of
Preferred Shares (or, following a Triggering Event, Common Shares, other
securities or property, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose.  Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Right Certificate accompanied by such documents as the Rights Agent
may deem appropriate and the Company shall have been provided with such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.  Thereupon the Rights Agent shall, subject to Sections 4 and
7 hereof, countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested.  The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.

     (b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor

                                      -10-
<PAGE>

to the Rights Agent for countersignature and delivery to the registered holder
in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

     Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.
                 -------------------------------------------------------------

     (a)   Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Purchase Price with respect to each surrendered Right for the total number of
Preferred Shares (or other securities or property, as the case may be) as to
which the Rights are exercised, at or prior to the earliest of (i) the close of
business on the tenth anniversary of the effective date of this Agreement (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date") (the earlier of (i) and
(ii) being herein referred to as the "Expiration Date") and (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof.
Notwithstanding anything herein to the contrary, the Rights will lapse and be of
no further effect if there is not on file with the Securities and Exchange
Commission prior to August 31, 1999 an effective Form S-1 Registration Statement
relating to the initial public offering of the Company's Common Shares.

     (b) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be five times the initial
offering price of one share of the Company's common stock pursuant to an
effective S-1 Registration Statement and shall be subject to adjustment from
time to time as provided in Sections 11 and 13 hereof and shall be payable in
lawful money of the United States of America in accordance with paragraph (c)
below.

     (c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate on the reverse side of
the Right Certificate duly executed, accompanied by such documents as the Rights
Agent may deem appropriate, payment of the Purchase Price for the shares (or
other securities or property, as the case may be) to be purchased and an amount
equal to any applicable transfer tax required to be paid by the holder of such
Right Certificate in accordance with Section 9 hereof by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares (or make available, if the Rights Agent is the transfer
agent of the Preferred Shares) certificates for the number of Preferred Shares
to be purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) if the Company shall have elected to
deposit the Preferred Shares issuable upon exercise of the Rights with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a

                                      -11-
<PAGE>

Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company will direct the depositary
agent to comply with such request; (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof; (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder; and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue other
securities (including Common Shares) of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or property are
available for distribution by the Rights Agent, if and when appropriate.

     (d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.

     (e) Notwithstanding anything in this Agreement to the contrary, from and
after the occurrence of a Triggering Event, any Rights beneficially owned by (i)
an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes an Acquiring Person, or
(iii) a transferee of an Acquiring Person (or such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
an Acquiring Person and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding,
whether written or oral, regarding the transferred Rights or (B) a transfer
which the Board of Directors otherwise concludes in good faith is part of a
plan, arrangement or understanding (whether written or oral) which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action, and any holder of such Rights shall
thereupon have no rights whatsoever with respect to such Rights, whether under
any provision of this Agreement or otherwise, from and after the occurrence of a
Triggering Event.  The Company shall use all reasonable efforts to ensure that
the provisions of this Section 7(e) hereof are complied with, but shall have no
liability to any holder of Rights for the inability to make any determinations
with respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.

                                      -12-
<PAGE>

     (f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise shall have been completed and signed by the
registered holder thereof and the Company shall have been provided with such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.

     (g) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Preferred Shares (and,
following the occurrence of a Triggering Event, Common Shares and/or other
securities) or any Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) held in its treasury,
the number of Preferred Shares (and, following the occurrence of a Triggering
Event, Common Shares and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.

     (h) Notwithstanding any statement to the contrary contained in this
Agreement or in any Right Certificate, if the Distribution Date or the Shares
Acquisition Date shall occur prior to the Record Date, the provisions of this
Agreement, including (without limitation) Sections 3 and 11(a)(ii), shall be
applicable to the Rights upon their issuance to the same extent such provisions
would have been applicable if the Record Date were the date of this Agreement.

     Section 8.  Cancellation and Destruction of Right Certificates.  All Right
                 --------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement.  The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof.  The Rights Agent shall
deliver all canceled Right Certificates to the Company, or shall, at the written
request of the Company, cause such canceled Right Certificates to be destroyed,
and in such case cause a certificate of destruction to be delivered to the
Company.

     Section 9.  Reservation and Availability of Preferred Shares.  The Company
                 ------------------------------------------------
covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares (and, following the occurrence of a Triggering
Event, Common Shares and/or other securities) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or

                                      -13-
<PAGE>

other securities), subject to payment of the Purchase Price, be duly and validly
authorized and issued and fully paid and nonassessable shares.

     The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case may
be) upon the exercise of Rights.  The Company shall not, however, be required to
pay any transfer tax which may be payable in respect of any transfer or delivery
of Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares (or Common Shares
and/or other securities, as the case may be) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares (or Common Shares and/or other securities, as the case may be)
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.

     Section 10.  Preferred Shares Record Date.  Each person in whose name any
                  ----------------------------
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the shares or securities
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
                                                                 --------
however, that if the date of such surrender and payment is a date upon which the
-------
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares or securities on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Shares
(or Common Shares and/or other securities, as the case may be) transfer books of
the Company are open.  Prior to the exercise of the Rights evidenced thereby,
the holder of a Right Certificate shall not be entitled to any rights of a
holder of Preferred Shares (or Common Shares and/or other securities, as the
case may be) for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.

     Section 11.  Adjustment of Purchase Price, Number and Kind of Shares or
                  ----------------------------------------------------------
Number of Rights.  The Purchase Price, the number of Preferred Shares covered by
----------------
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

                                      -14-
<PAGE>

          (a) (i) In the event the Company shall at any time after the date of
     this Agreement (A) declare a dividend on the Preferred Shares payable in
     Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
     combine the outstanding Preferred Shares into a smaller number of Preferred
     Shares or (D) issue any shares of its capital stock in a reclassification
     of the Preferred Shares (including any such reclassification in connection
     with a consolidation or merger in which the Company is the continuing or
     surviving corporation), except as otherwise provided in this Section 11(a)
     and Section 7(e) hereof, the Purchase Price in effect at the time of the
     record date for such dividend or of the effective date of such subdivision,
     combination or reclassification, and the number and kind of shares of
     capital stock issuable on such date, shall be proportionately adjusted so
     that the holder of any Right exercised after such time shall be entitled to
     receive the aggregate number and kind of shares of capital stock which, if
     such Right had been exercised immediately prior to such date and at a time
     when the Preferred Shares transfer books of the Company were open, he would
     have owned upon such exercise and been entitled to receive by virtue of
     such dividend, subdivision, combination or reclassification; provided,
                                                                  --------
     however, that in no event shall the consideration to be paid upon the
     -------
     exercise of one Right be less than the aggregate par value of the shares of
     capital stock of the Company issuable upon exercise of one Right.  If an
     event occurs which would require an adjustment under both Section 11(a)(i)
     and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i)
     shall be in addition to, and shall be made prior to, any adjustment
     required pursuant to Section 11(a)(ii).

          (ii)    Subject to Section 24 of this Agreement, in the event any
     Person becomes an Acquiring Person, each holder of a Right, except as
     provided below and in Section 7(e) hereof, shall thereafter have a right to
     receive, upon exercise thereof at a price equal to the then current
     Purchase Price multiplied by the number of one one-hundredths of a
     Preferred Share for which a Right is then exercisable, in accordance with
     the terms of this Agreement and in lieu of Preferred Shares, such number of
     Common Shares of the Company as shall equal the result obtained by (x)
     multiplying the then current Purchase Price by the number of one one-
     hundredths of a Preferred Share for which a Right is then exercisable and
     dividing that product by (y) 50% of the then current per share market price
     of the Company's Common Shares (determined pursuant to Section 11(d)
     hereof) on the date of the occurrence of such event. In the event that any
     Person shall become an Acquiring Person and the Rights shall then be
     outstanding, the Company shall not take any action which would eliminate or
     diminish the benefits intended to be afforded by the Rights.

          (iii)   In lieu of issuing Common Shares of the Company in accordance
     with Section 11(a)(ii) hereof, the Company may, in the sole discretion of
     the Board of Directors, elect to (and, in the event that the Board of
     Directors has not exercised the exchange right contained in Section 24
     hereof and there are not sufficient issued but not

                                      -15-
<PAGE>

     outstanding and authorized but unissued Common Shares to permit the
     exercise in full of the Rights in accordance with the foregoing
     subparagraph (ii), the Company shall) take all such action as may be
     necessary to authorize, issue or pay, upon the exercise of the Rights, cash
     (including by way of a reduction of the Purchase Price), property, other
     securities or any combination thereof having an aggregate value equal to
     the value of the Common Shares of the Company which otherwise would have
     been issuable pursuant to Section 11(a)(ii), which aggregate value shall be
     determined by a majority of the Board of Directors. For purposes of the
     preceding sentence, the value of the Common Shares shall be determined
     pursuant to Section 11(d) hereof and the value of any equity securities
     which a majority of the Board of Directors determines to be a "common stock
     equivalent" (including the Preferred Shares, in such ratio as the Board of
     Directors shall determine) shall be deemed to have the same value as the
     Common Shares. Any such election by the Board of Directors must be made and
     publicly announced within 60 days following the date on which the event
     described in Section 11(a)(ii) shall have occurred. Following the
     occurrence of the event described in Section 11(a)(ii), a majority of the
     Board of Directors then in office may suspend the exercisability of the
     Rights for a period of up to 60 days following the date on which the event
     described in Section 11(a)(ii) shall have occurred to the extent that such
     directors have not determined whether to exercise the company's right of
     election under this Section 11(a)(iii). In the event of any such
     suspension, the Company shall issue a public announcement stating that the
     exercisability of the Rights has been temporarily suspended.

     (b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares")) or
securities convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then current per share market price of the
Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
                                    --------  -------
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital

                                      -16-
<PAGE>

stock of the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

     (c)  In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share, and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
                                                        --------  -------
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right.  Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.

          (d)  (i)  For the purpose of any computation hereunder, other than
     under Section 11(a)(iii) hereof, the "current per share market price" of
     any security (a "Security" for the purpose of this Section 11(d)(i)) on any
     date shall be deemed to be the average of the daily closing prices per
     share of such Security for the 30 consecutive Trading Days (as such term is
     hereinafter defined) immediately prior to such date, and for the purpose of
     any computation under Section 11(a)(iii) hereof, the "current per share
     market price" of a Security on any date shall be deemed to be the average
     of the daily closing prices per share of such Security for thirty (30)
     consecutive Trading Days immediately following such date; provided,
                                                               --------
     however, that in the event that the current per share market price of the
     -------
     Security is determined during a period following the announcement by the
     issuer of such Security of (A) a dividend or distribution on such Security
     payable in shares of such

                                      -17-
<PAGE>

     Security or securities convertible into such shares (other than the
     Rights), or (B) any subdivision, combination or reclassification of such
     Security and prior to the expiration of 30 Trading Days after the ex-
     dividend date for such dividend or distribution, or the record date for
     such subdivision, combination or reclassification, then, and in each such
     case, the "current per share market price" shall be appropriately adjusted
     to reflect the current market price per share equivalent (ex-dividend) of
     such Security. The closing price for each day shall be the last sale price,
     regular way, or, in case no such sale takes place on such day, the average
     of the closing bid and asked prices, regular way, in either case as
     reported in the principal consolidated transaction reporting system with
     respect to securities listed or admitted to trading on the New York Stock
     Exchange or, if the Security is not listed or admitted to trading on the
     New York Stock Exchange, as reported in the principal consolidated
     transaction reporting system with respect to securities listed on the
     principal national securities exchange on which the Security is listed or
     admitted to trading or, if the Security is not listed or admitted to
     trading on any national securities exchange, the last quoted price or, if
     not so quoted, the average of the high bid and low asked prices in the
     over-the-counter market, as reported by the National Association of
     Securities Dealers, Inc. Automated Quotation System ("Nasdaq") or such
     other system then in use, or, if on any such date the Security is not
     quoted by any such organization, the average of the closing bid and asked
     prices as furnished by a professional market maker making a market in the
     Security selected by the Board of Directors of the Company. If on any such
     date no market maker is making a market in the Security, the fair value of
     such Security on such date (as determined in good faith by the Board of
     Directors of the Company) shall be used. The term "Trading Day" shall mean
     a day on which the principal national securities exchange on which the
     Security is listed or admitted to trading is open for the transaction of
     business or, if the Security is not listed or admitted to trading on any
     national securities exchange, a Business Day.

          (ii) For the purpose of any computation hereunder, the "current per
     share market price" of the Preferred Shares shall be determined in
     accordance with the method set forth in Section 11(d)(i).  If the Preferred
     Shares are not publicly traded, the "current per share market price" of the
     Preferred Shares shall be conclusively deemed to be the current per share
     market price of the Common Shares of the Company as determined pursuant to
     Section 11(d)(i) (appropriately adjusted to reflect any stock split or
     similar transaction, other than a stock dividend, occurring after the date
     hereof), multiplied by one hundred.  If neither the Common Shares of the
     Company nor the Preferred Shares are publicly held or so listed or traded,
     "current per share market price" shall mean the fair value per share as
     determined in good faith by the Board of Directors of the Company, whose
     determination shall be described in a statement filed with the Rights
     Agent.

     (e)  Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least

                                      -18-
<PAGE>

1% in the Purchase Price; provided, however, that any adjustments which by
                          --------  -------
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest one
one-millionth of a Preferred Share or one ten-thousandth of any other share or
security, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right to exercise any
Rights.

     (f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in this Section 11, and the provisions
of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall apply
on like terms to any such other shares.

     (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

     (h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.

     (i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right.  Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment.  Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Company

                                      -19-
<PAGE>

shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

     (j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.

     (k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.

     (l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
                                                                       --------
however, that the Company shall deliver to such holder a due bill or other
-------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

     (m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly

                                      -20-
<PAGE>

required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any consolidation or subdivision
of the Preferred Shares, issuance wholly for cash of any Preferred Shares at
less than the current market price, issuance wholly for cash of Preferred Shares
or securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Shares shall
not be taxable to such stockholders.

     (n)  In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise, other than by payment of dividends in Common Shares) into a greater
or lesser number of Common Shares, then in any such case (i) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one one-
hundredths of a Preferred Share so purchasable immediately prior to such event
by a fraction, the numerator of which is the number of Common Shares outstanding
immediately before such event, and the denominator of which is the number of
Common Shares outstanding immediately after such event, and (ii) each Common
Share outstanding immediately after such event shall have issued with respect to
it that number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided for in
this Section 11(n) shall be made successively whenever such a subdivision,
combination or consolidation is effected.

     (o)  So long as the shares issuable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.

     (p)  The Company shall use its best efforts to (i) file, as soon as
practicable following the first occurrence of a Triggering Event, a registration
statement under the Securities Act with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing and (iii)
cause such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the date of the
expiration of the Rights.  The Company will also take such action as may be
appropriate under the blue sky laws of the various states.  The Company may
temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file such registration
statement or in order to comply with such blue sky laws. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.

                                      -21-
<PAGE>

     Section 12.  Certificate of Adjusted Purchase Price or Number of Shares.
                  ----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Common Shares or the Preferred Shares a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Right Certificate in accordance with
Section 25 hereof. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein contained and shall not be
obligated or responsible for calculating any adjustment and may assume that no
adjustment has been made unless and until it shall have received such
certificate.

     Notwithstanding the foregoing sentence, the failure of the Company to make
such certificate or give such notice shall not affect the validity or the force
or effect of the requirement for such adjustment.  Any adjustment to be made
pursuant to Section 11 or Section 13 shall be effective as of the date of the
event giving rise to such adjustment.

     Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earning
                  --------------------------------------------------------------
Power.
-----

     (a)  If after the Shares Acquisition Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any other Person, (y)
any Person shall consolidate with the Company, or merge with and into the
Company and the Company shall be the continuing or surviving corporation of such
merger and, in connection with such merger, all or part of the Common Shares
shall be changed into or exchanged for stock or other securities of any other
Person (or the Company) or cash or any other property, or (z) the Company shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons other than the Company
or one or more of its wholly-owned Subsidiaries, then, and in each such case,
proper provision shall be made so that (i) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of validly authorized and issued, fully paid,
nonassessable and freely tradeable Common Shares of the Principal Party (as
hereinafter defined), free and clear of all liens, rights of call or first
refusal, encumbrances or other adverse claims, as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable (or,
if such Right is not then exercisable for a number of one one-hundredths of a
Preferred Share, the number of such fractional shares for which it was
exercisable immediately prior to an event described under Section 11(a)(ii)
hereof) and dividing that product by (B) 50% of the then current per share

                                      -22-
<PAGE>

market price of the Common Shares of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, or otherwise, all the obligations and duties of the Company pursuant
to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the Rights.

     (b)  "Principal Party" shall mean:

          (i)  In the case of any transaction described in (x) or (y) of the
     first sentence of Section 13(a), the Person that is the issuer of any
     securities into which Common Shares of the Company are converted in such
     merger or consolidation, and if no securities are so issued, the Person
     that is the surviving entity of such merger or consolidation (including the
     Company if applicable); and

          (ii) in the case of any transaction described in (z) of the first
     sentence in Section 13(a), the Person that is the party receiving the
     greatest portion of the assets or earning power transferred pursuant to
     such transaction or transactions;

provided, however, that in any such case described in clauses (b)(i) and
--------  -------
(b)(ii):  (1) if the Common Shares of such Person are not at such time and have
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which is and has been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.

                                      -23-
<PAGE>

     (c)  The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have sufficient Common Shares
authorized to permit the full exercise of the Rights and prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing for the terms set forth in paragraphs
(a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will:

          (i)   prepare and file a registration statement under the Securities
     Act, with respect to the Rights and the securities purchasable upon
     exercise of the Rights on an appropriate form, and will use its best
     efforts to cause such registration statement to (A) become effective as
     soon as practicable after such filing and (B) remain effective (with a
     prospectus at all times meeting the requirements of the Securities Act)
     until the Expiration Date;

          (ii)  deliver to holders of the Rights historical financial statements
     for the Principal Party and each of its Affiliates which comply in all
     respects with the requirements for registration on Form 10 under the
     Exchange Act (whether or not the Principal Party would otherwise be
     required to file such form);

          (iii) take such actions as may be necessary or appropriate under the
     blue sky laws of the various states;

          (iv)  use its best efforts, if the Common Stock of the Principal party
     shall be listed or admitted to trading on the Nasdaq National Market or on
     a national securities exchange, to list or admit to trading the Rights and
     the securities purchasable upon exercise of the Rights on the Nasdaq
     National Market or such securities exchange; and

          (v)   obtain waivers of any rights of first refusal or preemptive
     rights in respect of Common Stock of the Principal Party subject to
     purchase upon exercise of outstanding rights.

     (d)  The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.  In the event that one of
the transactions described in Section 13(a) shall occur at any time after the
occurrence of a transaction described in Section 11(a)(ii) hereof, the Rights
which have not theretofore been exercised shall thereafter become exercisable in
the manner described in Section 13(a).

     (e)  In no event shall the Rights Agent have liability in respect of any
such Principal Party transactions, including, without limitation, the propriety
thereof.  The Rights Agent may rely and be fully protected in relying upon a
certificate of the Company stating that the

                                      -24-
<PAGE>

provisions of this Section 13 have been fulfilled. The Rights Agent shall not be
obligated to enter into any supplemental agreement referenced in Section 13(c)
if such supplemental agreement would change or increase the duties, liabilities
or obligations of the Rights Agent hereunder.

     Section 14.  Fractional Rights and Fractional Shares.
                  ---------------------------------------

     (a)  The Company shall not be required to issue fractional Rights or to
distribute Right Certificates which evidence fractional Rights.  In lieu of such
fractional Rights, there may be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right.  For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable.  The closing price of the Rights for any day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading, or if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company.  If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.

     (b)  The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share).  Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
                --------
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts.  In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Company may pay to the

                                      -25-
<PAGE>

registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one one-hundredth of a Preferred Share. For the purposes of this
Section 14(b), the current market value of one one-hundredth of a Preferred
Share shall be one one-hundredth of the closing price of a Preferred Share (as
determined pursuant to the second sentence of Section 11(d)(I) hereof) for the
Trading Day immediately prior to the date of such exercise.

     (c)  Following the occurrence of a Triggering Event, the Company shall not
be required to issue fractions of Common Shares upon exercise of the Rights or
to distribute certificates which evidence fractional Common Shares.  In lieu of
fractional Common Shares, the Company may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Common
Share.  For purposes of this Section 14(c), the current market value of one
Common Share shall be the closing price of one Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.

     (d)  The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).

     Section 15.  Rights of Action.  All rights of action in respect of this
                  ----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.

     Section 16.  Agreement of Right Holders.  Every holder of a Right, by
                  --------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

                                      -26-
<PAGE>

     (a)  prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;

     (b)  after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office of
the Rights Agent designated for such purposes, duly endorsed or accompanied by a
proper instrument of transfer and with appropriate forms and certificates fully
executed;

     (c)  the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and

     (d)  notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or any other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligation.

     Section 17.  Right Certificate Holder Not Deemed a Stockholder.  No holder,
                  -------------------------------------------------
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.

     Section 18.  Concerning the Rights Agent.  The Company agrees to pay to the
                  ---------------------------
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements (including any taxes other than income
taxes) incurred in the administration and execution of this Agreement and the
exercise and performance of its duties hereunder.  The

                                      -27-
<PAGE>

Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense, incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and administration
of this Agreement, including the costs and expenses of defending against any
claim of liability arising, directly or indirectly, therefrom. The reasonable
costs and expenses incurred in enforcing this indemnity shall be paid by the
Company. The indemnification provided for hereunder shall survive the expiration
of the Rights and termination of the Agreement.

     The Rights Agent may conclusively rely upon and shall be protected and
shall incur no liability for, or in respect of any action taken, suffered or
omitted by it in connection with, its administration of this Agreement in
reliance upon any Right Certificate or certificate for the Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.

     Notwithstanding anything in this Agreement to the contrary, in no event
shall the Rights Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but limited to lost profits), even if
the Rights Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.

     Section 19.  Merger or Consolidation or Change of Name of Rights Agent.
                  ---------------------------------------------------------
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, that such corporation would be eligible for
                --------
appointment as a successor Rights Agent under the provisions of Section 21
hereof.  In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

                                      -28-
<PAGE>

     In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

     Section 20.  Duties of Rights Agent.  The Rights Agent undertakes the
                  ----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

     (a)  Before the Rights Agent acts or refrains from acting, the Rights Agent
may consult with legal counsel satisfactory to it (who may be legal counsel for
the Company), and the opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent, and the Rights Agent shall
incur no liability or responsibility to the Company or to any holder of any
Right Certificate in respect of any action taken or omitted by it in good faith
and in accordance with such opinion.

     (b)  Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering or omitting
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken, suffered
or omitted in good faith by it under the provisions of this Agreement in
reliance upon such certificate.

     (c)  The Rights Agent shall be liable hereunder to the Company only for,
and shall indemnify and hold harmless the Company from and against, any and all
losses, liabilities, costs, damages and expenses (including attorneys' fees)
arising out of or in connection with, the Rights Agent's negligence, bad faith
or willful misconduct.

     (d)  The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.

     (e)  The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by

                                      -29-
<PAGE>

the Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 7(e) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3, 11,
13, 23 or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of a certificate furnished
pursuant to Section 12 describing a change or adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares or Common Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares or Common Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.

     (f)  The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.

     (g)  The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.  Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on and/or after which such action shall
be taken or such omission shall be effective.  The Rights Agent shall not be
liable for any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any such application on or after the date specified
in such application (which date shall not be less than five Business Days after
the date such application is given, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instructions in response to such application specifying the action to be
taken or omitted.

     (h)  The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or its Subsidiaries or become pecuniarily interested in any
transaction in which the Company or its Subsidiaries may be interested, or
contract with or lend money to the Company or its Subsidiaries or otherwise act
as fully and freely as though it were not Rights Agent under this

                                      -30-
<PAGE>

Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or its Subsidiaries or for any other legal
entity.

     (i)  The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.

     (j)  No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

     (j)  If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise, transfer, split up, combination or exchange, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise, transfer, split up, combination or
exchange without first consulting with the Company.

     (k)  The Rights Agent shall not be under any duty or responsibility to
ensure compliance with any applicable federal or state securities laws in
connection with the issuance, transfer or exchange of Right Certificates.

     (l)  The Rights Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expense
unless the Company or one or more holders of Right Certificates shall furnish
the Rights Agent with security and indemnity to its satisfaction for any costs
and expenses which may be incurred.

     (m)  The Rights Agent shall not be liable for failure to perform any duties
except as specifically set forth herein, and no implied covenants or obligations
shall be read into this Agreement against the Rights Agent whose duties and
obligations are ministerial and shall be determined solely by the express
provisions hereof.

     Section 21.  Change of Rights Agent.  The Rights Agent or any successor
                  ----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class

                                      -31-
<PAGE>
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and, at the expense of the
Company, to the holders of the Right Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation or bank organized and
doing business under the laws of the United States or of any other state of the
United States, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $150 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.

     Section 22.  Issuance of New Right Certificates.  Notwithstanding any of
                  ----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.  In addition, in connection
with the issuance or sale of its Common Shares following the Distribution Date
and prior to the redemption or expiration of the Rights, the Company (a) shall,
with respect to Common Shares so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement, granted or awarded
prior to the Distribution Date, or upon the exercise, conversion or exchange of
securities hereinafter issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing an appropriate number of Rights in connection
with such issuance or sale; provided, however, that
                            --------  -------

                                      -32-
<PAGE>

(i) no such Rights Certificate shall be issued if, and to the extent that, the
Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.

     Section 23.  Redemption.
                  ----------

     (a)  The Board of Directors of the Company may, at its option, at any time
prior to such time as any Person becomes an Acquiring Person, redeem all but not
less than all of the then outstanding Rights at a redemption price of $.01 per
Right, appropriately adjusted to reflect any stock split or similar transaction
(other than a stock dividend) occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price").  Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of an event specified in Section
11(a)(ii) until such time as the Company's right of redemption hereunder has
expired.  The redemption of the Rights by the Board of Directors may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.  If redemption of the Rights is
to be effective as of a future date, the Rights shall continue to be
exercisable, subject to Section 7 hereof, until the effective date of the
redemption, provided that nothing contained herein shall preclude the Board of
Directors from subsequently causing the Rights to be redeemed at a date earlier
than the previously scheduled effective date of the redemption.  The Company
may, at its option, pay the Redemption Price in cash, Common Shares (based on
the current per share market price of the Common Shares at the time of
redemption) or any other form of consideration deemed appropriate by the Board
of Directors.

     (b)  Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights (or at the effective time of such
redemption established by the Board of Directors of the Company pursuant to
paragraph (a) of this Section 23), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
                                                                      --------
however, that the failure to give, or any defect in, any such notice shall not
-------
affect the validity of such redemption.  Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights or, if later, the
effectiveness of the redemption of the Rights pursuant to paragraph (a) of this
Section 23, the Company shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares.  Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice.  Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.  The Company
may, at

                                      -33-
<PAGE>

its option, discharge all of its obligations with respect to the Rights by (i)
issuing a press release announcing the manner of redemption of the Rights, (ii)
depositing with a bank or trust company having a capital and surplus of at least
$100,000,000, funds necessary for such redemption, in trust, to be applied to
the redemption of the Rights so called for redemption and (iii) arranging for
the mailing of the Redemption Price to the registered holders of the Rights;
then, and upon such action, all outstanding Rights Certificates shall be null
and void without further action by the Company. Neither the Company nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23, in Section 24 hereof, or in connection with the purchase of Common
Shares prior to the Distribution Date.

     Section 24.  Exchange.
                  --------

     (a)  The Board of Directors of the Company may, at its option, at any time
after a Triggering Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to reflect
any stock split or similar transaction (other than a stock dividend) occurring
after the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio").  Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any such Subsidiary, or any entity holding Common Shares for or
pursuant to the terms of any such plan, or any Grandfathered Person), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.

     (b)  Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio.  The Company
shall promptly give public notice of any such exchange; provided, however, that
                                                        --------  -------
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange.  The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent.  Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice.  Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged.  Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.

                                      -34-
<PAGE>

     (c)  In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as such
term is defined in Section 11(b) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-hundredth of a Preferred Share (or
equivalent preferred share) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares pursuant to the
terms thereof, so that the fraction of a Preferred Share delivered in lieu of
each Common Share shall have the same voting rights as one Common Share.

     (d)  In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares or Preferred Shares for issuance upon exchange of the Rights.

     (e)  The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares.  In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share.  For the purposes of this
paragraph (e), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.

     Section 25.  Notice of Certain Events.
                  ------------------------

     (a)  In case the Company shall propose at any time after the Distribution
Date (i) to pay any dividend payable in stock of any class to the holders of its
Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise, other than by payment of dividends in Common
Shares), then, in each such case, the Company shall give to each holder of a
Right Certificate, in accordance with Section 26

                                      -35-
<PAGE>

hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given, in
the case of any action covered by clause (i) or (ii) above, at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.

     (b)  In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall, as soon as practicable thereafter, give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

     Section 26.  Notices.  Notices or demands authorized by this Agreement to
                  -------
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:

               DigitalWork.com, Inc.
               230 West Monroe, Suite 1950
               Chicago, Illinois 60606
               Attn:  David P. Aniol, Chief Financial Officer

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sent by registered or
certified mail, and shall be deemed given upon receipt, addressed (until another
address is filed in writing with the Company) as follows:

               Chase Mellon Shareholder Services, LLC
               ________________________
               ________________________
               Attention:  Shareholder Services Department

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown

                                      -36-
<PAGE>

on the registry books of the Company. Notices or demands sent by mail shall be
deemed given or made three Business Days after the date they are sent.

     Section 27.  Supplements and Amendments.  The Company may from time to time
                  --------------------------
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
       --------  -------
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights.  Notwithstanding
anything in this Agreement to the contrary, no supplement or amendment that
changes the rights and duties of the Rights Agent under this Agreement will be
effective against the Rights Agent without the execution of such supplement or
amendment by the Rights Agent.

     Section 28.  Successors.  All the covenants and provisions of this
                  ----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

     Section 29.  Benefits of This Agreement.  Nothing in this Agreement shall
                  --------------------------
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).

     Section 30.  Severability.  If any term, provision, covenant or restriction
                  ------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
--------  -------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors of
the Company.

     Section 31.  Governing Law.  This Agreement and each Right Certificate
                  -------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for

                                      -37-
<PAGE>

all purposes shall be governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed entirely within such
State.

     Section 32.  Counterparts.  This Agreement may be executed in any number of
                  ------------
counterparts, and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

     Section 33.  Descriptive Headings.  Descriptive headings of the several
                  --------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

     Section 34.  Determinations and Actions by the Board of Directors.  The
                  ----------------------------------------------------
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board or the Company or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement).  All such actions, interpretations and determinations
(including, for purpose of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Right Certificates and all other parties, and (y) not subject the Board of
Directors to any liability to the holders of the Right Certificates.

                   [Signatures appear on the following page]

                                      -38-
<PAGE>

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

Attest:                                 DIGITALWORK.COM, INC.

By:                                     By: /s/
   -------------------------------         -------------------------------
   Title: Corporate Secretary              Name:
                                           Title:

Attest:                                 CHASE MELLON SHAREHOLDER SERVICES,
                                        LLC, as Rights Agent

By:                                     By: /s/
   -------------------------------         -------------------------------
   Title:                                  Name:
                                           Title:
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                    FORM OF
              CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
                   OF SERIES A PARTICIPATING PREFERRED STOCK

                                      of

                             DIGITALWORK.COM, INC.

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

     We, Craig A. Terrill, President and Chief Operating Officer, and Robert A.
Schultz, Chairman of the Board, Chief Executive Officer and Secretary, of
DigitalWork.com, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance with
the provisions of Section 103 thereof, DO HEREBY CERTIFY:

     That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation, the Board of Directors on March
____, 2000 adopted the following resolution creating a series of 300,000 shares
of preferred stock designated as Series A Participating Preferred Stock:

     RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Certificate of
Incorporation, as amended, a series of preferred stock, par value $.005 per
share, of the Corporation (such preferred stock being herein referred to as
"Preferred Stock," which term shall include any additional shares of preferred
stock of the same class heretofore or hereafter authorized to be issued by the
Corporation), consisting of 300,000 shares is hereby created, and the voting
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, are as
follows:

     Section 1.  Designation and Amount.  There shall be a series of Preferred
                 ----------------------
Stock of the Corporation which shall be designated as "Series A Participating
Preferred Stock," par value $.005 per share (hereinafter called "Series A
Preferred Stock"), and the number of shares constituting such series shall be
300,000.  Such number of shares may be increased or decreased by resolution of
the Board of Directors and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware stating that
such increase or reduction has been so authorized; provided, however, that no
                                                   --------  -------
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares
of Series A Preferred Stock issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by the
Corporation.
<PAGE>

     Section 2.  Dividends and Distributions.
                 ---------------------------

     (A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash to holders of record on the last business
day of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock (hereinafter defined) or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.005 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock.  In the event the Corporation shall at any time following April
__, 2000 effect a subdivision, split, combination or consolidation of the Common
Stock (by reclassification or otherwise than by payment of dividends in Common
Stock), then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying each such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

     (B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) above at the time it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock).

     (C) No dividend or distribution (other than a dividend payable in shares of
Common Stock) shall be paid or payable to the holders of shares of Common Stock
unless, prior thereto, all accrued but unpaid dividends to the date of such
dividend or distribution shall have been paid to the holders of shares of Series
A Preferred Stock.
<PAGE>

     (D) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall
not bear interest.  Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.  The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.

     Section 3.  Voting Rights.  The holders of shares of Series A Preferred
                 -------------
Stock shall have the following voting rights:

     (A) Subject to the provision for adjustment hereinafter set forth, each one
one-hundredth of a share of Series A Preferred Stock shall entitle the holder
thereof to one vote on all matters submitted to a vote of the stockholders of
the Corporation.  In the event the Corporation shall at any time following April
__, 2000 effect a subdivision, split, combination or consolidation of the Common
Stock (by reclassification or otherwise than by payment of dividends in Common
Stock), then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

     (B) Except as otherwise provided herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock and any other
capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.

     (C) (i)  Whenever, at any time or times, dividends payable on any share or
     shares of Series A Preferred Stock shall be in arrears in an amount equal
     to at least six full quarterly dividends (whether or not declared and
     whether or not consecutive), the holders of record of the outstanding
     Preferred Stock shall have the exclusive right, voting separately as a
     single class, to elect two directors of the Corporation at a special
     meeting of stockholders of the Corporation or at the Corporation's next
     annual meeting of stockholders, and at each subsequent annual meeting of
     stockholders, as provided below.  At elections for such
<PAGE>

     directors, the holders of shares of Series A Preferred Stock shall be
     entitled to cast one vote for each one one-hundredth of a share of Series A
     Preferred Stock held.

          (ii)  Upon the vesting of such right of the holders of the Preferred
     Stock, the maximum authorized number of members of the Board of Directors
     shall automatically be increased by two and the two vacancies so created
     shall be filled by vote of the holders of the outstanding Preferred Stock
     as hereinafter set forth.  A special meeting of the stockholders of the
     Corporation then entitled to vote shall be called by the Chief Executive
     Officer or the Board of Directors of the Corporation, if requested in
     writing by the holders of record of not less than 10% of the Preferred
     Stock then outstanding.  At such special meeting, or, if no such special
     meeting shall have been called, then at the next annual meeting of
     stockholders of the Corporation, the holders of the shares of the Preferred
     Stock shall elect, voting as above provided, two directors of the
     Corporation to fill the aforesaid vacancies created by the automatic
     increase in the number of members of the Board of Directors.  At any and
     all such meetings for such election, the holders of a majority of the
     outstanding shares of the Preferred Stock shall be necessary to constitute
     a quorum for such election, whether present in person or by proxy, and such
     two directors shall be elected by the vote of at least a plurality of
     shares held by such stockholders present or represented at the meeting.
     Any director elected by holders of shares of the Preferred Stock pursuant
     to this Section may be removed at any annual or special meeting, by vote of
     a majority of the stockholders voting as a class who elected such director,
     with or without cause.  In case any vacancy shall occur among the directors
     elected by the holders of the Preferred Stock pursuant to this Section,
     such vacancy may be filled by the remaining director so elected, or his
     successor then in office, and the director so elected to fill such vacancy
     shall serve until the next meeting of stockholders for the election of
     directors.  After the holders of the Preferred Stock shall have exercised
     their right to elect Directors in any default period and during the
     continuance of such period, the number of Directors shall not be further
     increased or decreased except by vote of the holders of Preferred Stock as
     herein provided or pursuant to the rights of any equity securities ranking
     senior to or pari passu with the Series A Preferred Stock.
                  ---- -----
<PAGE>

          (iii)  The right of the holders of the Preferred Stock, voting
     separately as a class, to elect two members of the Board of Directors of
     the Corporation as aforesaid shall continue until, and only until, such
     time as all arrears in dividends (whether or not declared) on the Preferred
     Stock shall have been paid or declared and set apart for payment, at which
     time such right shall terminate, except as herein or by law expressly
     provided, subject to revesting in the event of each and every subsequent
     default of the character above-mentioned.  Upon any termination of the
     right of the holders of the shares of the Preferred Stock as a class to
     vote for directors as herein provided, the term of office of all directors
     then in office elected by the holders of Preferred Stock pursuant to this
     Section shall terminate immediately.  Whenever the term of office of the
     directors elected by the holders of the Preferred Stock pursuant to this
     Section shall terminate and the special voting powers vested in the holders
     of the Preferred Stock pursuant to this Section shall have expired, the
     maximum number of members of the Board of Directors of the Corporation
     shall be such number as may be provided for in the By-Laws of the
     Corporation irrespective of any increase made pursuant to the provisions of
     this Section.
     (D) Except as set forth herein, holders of Series A Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.

     Section 4. Certain Restrictions.
                --------------------

     (A)  Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:

          (i)    declare or pay dividends on, make any other distributions on,
     or redeem or purchase or otherwise acquire for consideration any shares of
     stock ranking junior (either as to dividends or upon liquidation,
     dissolution or winding up) to the Series A Preferred Stock;

          (ii)   declare or pay dividends on or make any other distributions on
     any shares of stock ranking on a parity (either as to dividends or upon
     liquidation, dissolution or winding up) with the Series A Preferred Stock,
     except dividends paid ratably on the Series A Preferred Stock and all such
     parity stock on which dividends are payable or in arrears in proportion to
     the total amounts to which the holders of all such shares are then
     entitled;

          (iii)  redeem or purchase or otherwise acquire for consideration
     shares of any stock ranking on a parity (either as to dividends or upon
     liquidation, dissolution or winding up) with the Series A Preferred Stock,
     provided that the Corporation may at any time redeem, purchase or otherwise
     acquire shares of any such parity stock in exchange for shares of any stock
     of the Corporation ranking junior (either as to dividends or upon
     dissolution, liquidation or winding up) to the Series A Preferred Stock; or
<PAGE>

          (iv)  purchase or otherwise acquire for consideration any shares of
     Series A Preferred Stock, except in accordance with a purchase offer made
     in writing or by publication (as determined by the Board of Directors) to
     all holders of such shares upon such terms as the Board of Directors, after
     consideration of the respective annual dividend rates and other relative
     rights and preferences of the respective series and classes, shall
     determine in good faith will result in fair and equitable treatment among
     the respective series or classes.

     (B)  The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section,
purchase or otherwise acquire such shares at such time and in such manner.

     Section 5.  Reacquired Shares.  Any shares of Series A Preferred Stock
                 -----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.  All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.

     Section 6.  Liquidation, Dissolution or Winding Up.  (A)  Upon any
                 --------------------------------------
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference").  Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
100 (as appropriately adjusted as set forth in subparagraph C below to reflect
such events (other than stock dividends) as stock splits and recapitalizations
with respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number").  Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Preferred Stock and Common Stock, respectively, holders of Series A
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio, on a per share basis, of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.

     (B)  In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Preferred Stock, then such
<PAGE>

remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.

     (C) In the event the Corporation shall at any time following April __, 2000
effect a subdivision, split, combination or consolidation of the Common Stock
(by reclassification or otherwise than by payment of dividends in Common Stock),
then in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
<PAGE>

     Section 7.  Consolidation, Merger, etc.  In case the Corporation shall
                 ---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time effect a subdivision, split,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of dividends in Common Stock), then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

     Section 8.  Redemption.  The shares of a Series A Preferred Stock shall not
                 ----------
be redeemable by the Corporation.  The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares of stock
to the extent permitted by law.

     Section 9.  Ranking.  The Series A Preferred Stock shall rank junior to all
                 -------
other series of the Corporation's preferred stock (whether with or without par
value) as to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.

     Section 10. Amendment.  The Certificate of Incorporation of the
                 ---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.

     Section 11. Fractional Shares.  Series A Preferred Stock may be issued in
                 -----------------
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
<PAGE>

     IN WITNESS WHEREOF, DigitalWork.com has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Craig A. Terrill, its
Chairman, President and Chief Operating Officer, and the same to be attested by
Robert A. Schultz, its Secretary, this ____ day of ____________, 2000.

                                              DIGITALWORK.COM, INC.

                                              By:_______________________________
                                                 Craig A. Terrill, President and
                                                 Chief Operating Officer

Attest:

By:__________________________
   Robert A. Schultz
   Secretary

                [Signature Page to Certificate of Designation]
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                          [Form of Right Certificate]

Certificate No. R-                                        ____________ Rights

     NOT EXERCISABLE AFTER APRIL __, 2010 OR EARLIER IF THE RIGHTS EXPIRE UNDER
     CERTAIN CIRCUMSTANCES OR ARE REDEEMED BY THE COMPANY. THE RIGHTS ARE
     SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.001 PER RIGHT ON
     THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
     RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED
     IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
     BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE OR
     WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON
     OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
     DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT CERTIFICATE AND
     THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES
     SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*/
                                                  -

                               Right Certificate
                             DigitalWork.com, Inc.

     This certifies that __________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of April __, 2000 (the "Rights Agreement"),
between DigitalWork.com, Inc., a Delaware corporation (the "Company"), and Chase
Mellon Shareholder Services, LLC, a New Jersey limited liability company (the
ARights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 p.m.
(Chicago time) on April __, 2000, or notice of redemption or exchange at the
office of the Rights Agent (or its successors as Rights Agent) designated for
such purpose, one one-hundredth of a fully paid non-assessable share of Series A
Participating Preferred Stock, par value $.005 per share (the "Preferred
Shares") of the Company at a purchase price five times the initial offering
price of one share of the Common Stock of the Company (the "Purchase Price")
upon presentation and surrender of this Right Certificate with the appropriate
Form of Election to Purchase and related Certificate duly executed.  The number

______________________
*/  The portion of the legend in brackets shall be inserted only if applicable
-
    and shall replace the preceding sentence.
<PAGE>

Rights evidenced by this Right Certificate (and the number of shares which may
be purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of April __, 2000,
based on the Preferred Shares as constituted at such date. Capitalized terms not
defined in this Right Certificate that are defined in the Rights Agreement shall
have the meanings ascribed to them in the Rights Agreement.

     Upon the occurrence of a Triggering Event, if the Rights evidenced by this
Right Certificate are beneficially owned by (I) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) under certain circumstances specified in the
Rights Agreement, a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of any such Triggering
Event.

     As provided in the Rights Agreement, the Purchase Price and the number and
kind of Preferred Shares or other securities, which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.

     This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under certain circumstances specified in such Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.

     This Right Certificate, with or without other Right Certificates, upon
surrender at the principal corporate trust office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.005 per Right at any time prior to the earlier of the close of
business on (I) the tenth day following the Shares Acquisition Date and (ii) the
Final Expiration Date.
<PAGE>

     No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may at the election
of the Company be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

     No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Shares or
of any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or, to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

     This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
<PAGE>

     WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.

Dated as of __________, 20__

ATTEST:                             DIGITALWORK.COM, INC.

_________________________           By: _______________________
Name:         Name:
Title:                                  Title:

Countersigned:

_________________________

By: _____________________
   Authorized Signature
<PAGE>

                  [Form of Reverse Side of Right Certificate]

                              FORM OF ASSIGNMENT
                              ------------------

     (To be executed by the registered holder if such holder desires to transfer
     the Right Certificate.)

FOR VALUE RECEIVED ___________________________________________________
hereby sells, assigns and transfers unto _____________________________

______________________________________________________________________
            (Please print name and address of transferee)

______________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.

Date: ___________________, 20__

                                          _____________________________
                                                   Signature

Signature Guaranteed:

                                  CERTIFICATE
                                  -----------

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1)  this Right Certificate [ ] is [ ] is not being sold, assigned and
     transferred by or on behalf of a Person who is or was an Acquiring Person
     or an Affiliate or Associate of any such Acquiring Person (as such terms
     are defined pursuant to the Rights Agreement)

     (2)  after due inquiry and to the best knowledge of the undersigned, it [ ]
     did [ ] did not acquire the Rights evidenced by this Right Certificate from
     any Person who is, was or subsequently became an Acquiring Person or an
     Affiliate or Associate of an Acquiring Person.

Dated:  _____________, 20__                        _______________________
                                                   Signature
<PAGE>

                                    NOTICE
                                    ------

     The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>

                         FORM OF ELECTION TO PURCHASE
                         ----------------------------

                     (To be executed if holder desires to
                      exercise Rights represented by the
                              Right Certificate.)

To: DIGITALWORK.COM, INC.

     The undersigned hereby irrevocably elects to exercise ____ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of the Rights (or such other securities of the Company or of
any other person which may be issuable upon the exercise of the Rights) and
requests that certificates for such shares be issued in the name of:

Please insert social security or other identifying number:_________________
______________________________________________________________________
            (Please print name and address)
______________________________________________________________________

     If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:

Please insert social security or other identifying number:_________________
______________________________________________________________________
            (Please print name and address)
______________________________________________________________________

Dated:  ________, 20__                             ________________________
                                                   Signature

Signature Guaranteed:
<PAGE>

                                  CERTIFICATE
                                  -----------

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1)  the Rights evidenced by this Right Certificate [_] are  [_] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);

     (2)  after due inquiry and to the best knowledge of the undersigned, it [_]
did [_] did not acquire the Rights evidenced by this Right Certificate from any
Person who is, was or became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person.

Dated:  _______, 20__                              _______________________
                                                   Signature

                                    NOTICE
                                    ------

     The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>

                                                                       Exhibit C
                                                                       ---------

          UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
          RIGHTS AGREEMENT, RIGHTS OWNED BY OR
          TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN
          ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
          AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
          BECOME NULL AND VOID AND WILL NO LONGER BE
          TRANSFERABLE

                            SUMMARY OF RIGHTS PLAN
                            ----------------------

     On April __, 2000, the Board of Directors of DigitalWork.com, Inc. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of common stock, par value $.005 per share (the "Common Stock"), of the
Company to stockholders of record at the close of business on April __, 2000
(the "Record Date"). Except as described below, each Right, when exercisable,
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Participating Preferred Stock, par value $.005 per share
(the "Preferred Stock"), at a price equal to five times the initial public
offering price of one share of the Common Stock of the Company (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
Chase Mellon Shareholder Services, LLC, as Rights Agent.

     Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Right certificates will be
distributed.  Until the earlier to occur of (I) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Common Stock (the "Shares
Acquisition Date") or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors of the Company (the "Board of
Directors") prior to the time that any person becomes an Acquiring Person)
following the commencement of (or a public announcement of an intention to make)
a tender or exchange offer if, upon consummation thereof, such person or group
would be the  beneficial owner of 15% or more of such outstanding shares of
Common Stock (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced by the Common Stock certificates together with a
copy of the Summary of Rights Plan and not by separate certificates.  Draper
Fisher Jurvetson and TL Ventures and certain other affiliates and associates
will not be deemed to be an Acquiring Person as long as such entities
beneficially own less than 28% and 18% of the outstanding Common Stock,
respectively.
<PAGE>

     The Rights Agreement also provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock.  Until the
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the transfer of any certificates for Common Stock, with or without a
copy of this Summary of Rights Plan, will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificates.  As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Stock as of the close of business on the Distribution Date and,
thereafter, such separate Right Certificates alone will evidence the Rights.

     The Rights are not exercisable until the Distribution Date and will expire
at the earliest of (I) the tenth anniversary of the effective date of the Rights
Agreement (the "Final Expiration Date"), (ii) the redemption of the Rights by
the Company as described below and (iii) the exchange of all Rights for Common
Stock as described below.  The Rights will lapse and be of no further effect if
there is not on file with the Securities and Exchange Commission prior to May
31, 2000 an effective S-1 Registration Statement relating to the initial public
offering of the Company's common stock.

     In the event that any person (other than the Company, its affiliates or any
person receiving newly-issued shares of Common Stock directly from the Company)
becomes the beneficial owner of 15% or more of the then outstanding shares of
Common Stock, each holder of a Right will thereafter have the right to receive,
upon exercise at the then current exercise price of the Right, Common Stock (or,
in certain circumstances, cash, property or other securities of the Company)
having a value equal to two times the exercise price of the Right.  The Rights
Agreement contains an exemption for any issuance of Common Stock by the Company
directly to any person (for example, in a private placement or an acquisition by
the Company in which Common Stock is used as consideration), even if that person
would become the beneficial owner of 15% or more of the Common Stock, provided
that such person does not acquire any additional shares of Common Stock.

     In the event that, at any time following the Shares Acquisition Date, the
Company is acquired in a merger or other business combination transaction or 50%
or more of the Company's assets or earning power are sold, proper provision will
be made so that each holder of a Right will thereafter have the right to
receive, upon exercise at the then current exercise price of the Right, common
stock of the acquiring or surviving company having a value equal to two times
the exercise price of the Right.

     Notwithstanding the foregoing, following the occurrence of any of the
events set forth in the preceding two paragraphs (the "Triggering Events"), any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will immediately
become null and void.
<PAGE>

     The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights, are subject
to adjustment from time to time to prevent dilution, among other circumstances,
in the event of a subdivision, split (other than a stock dividend on the Common
Stock payable in shares of Common Stock), combination, consolidation or
reclassification of, the Preferred Stock or the Common Stock, or a reverse split
of the outstanding shares of Preferred Stock or the Common Stock.

     At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock and prior to the acquisition by such person or group of 50% or more
of the outstanding Common Stock, the Board of Directors may exchange the Rights
(other than Rights owned by such person or group, which have become void), in
whole or in part, at an exchange ratio of one share of Common Stock per Right
(subject to adjustment).

     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
the Purchase Price. The Company will not be required to issue fractional shares
of Preferred Stock or Common Stock (other than fractions in multiples of one
one-hundredths of a share of Preferred Stock) and, in lieu thereof, an
adjustment in cash may be made based on the market price of the Preferred Stock
or Common Stock on the last trading date prior to the date of exercise.

     At any time after the date of the Rights Agreement until the time that a
person becomes an Acquiring Person, the Board of Directors may redeem the Rights
in whole, but not in part, at a price of $.005 per Right (the "Redemption
Price"), which may (at the option of the Company) be paid in cash, shares of
Common Stock or other consideration deemed appropriate by the Board of
Directors. Upon the effectiveness of any action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price.

     Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.

     The provisions of the Rights Agreement may be amended by the Company,
except that any amendment adopted after the time that a person becomes an
Acquiring Person may not adversely affect the interests of holders of Rights.

     As of the Record Date, there were __________ shares of Common Stock
outstanding and __________ shares of Common Stock reserved for issuance under
employee benefit plans.  Each outstanding share of Common Stock on the Record
Date will receive one Right.  A total of 300,000 shares of Preferred Stock will
be reserved for issuance in the event of exercise of the Rights.
<PAGE>

     The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired, and under certain circumstances the Rights
beneficially owned by such a person or group may become void. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors because, if the Rights would become exercisable as a result
of such merger or business combination, the Board of Directors may, at its
option, at any time prior to the time that any Person becomes an Acquiring
Person, redeem all (but not less than all) of the then outstanding Rights at the
Redemption Price.

     A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.<PAGE>   1
                                  PATHNET, INC.

                        PATHNET TELECOMMUNICATIONS, INC.

                              THE BANK OF NEW YORK

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

                         FORM OF SUPPLEMENTAL INDENTURE

                              Dated as of [ ], 2000

                                       To

                      Indenture, Dated as of April 8, 1998,

                                     Between

                                  Pathnet, Inc.

                                       and

                        The Bank of New York, as Trustee

                         ------------------------------
<PAGE>   2
                           TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----
<S>                                                                           <C>
RECITALS....................................................................   1

AMENDMENTS TO "DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION".....   2

  Section 101. Introduction.................................................   2
  Section 102. Revised Definitions..........................................   3
    "Accounts Receivable Subsidiary"........................................   3
    "Amended and Restated Pledge Agreement..................................   3
    "Amendment Date.........................................................   3
    "Asset Sale.............................................................   3
    "Board of Directors.....................................................   4
    "Board Resolution.......................................................   4
    "Cash Equivalents.......................................................   4
    "Change of Control......................................................   5
    "Consolidated Adjusted Net Income.......................................   6
    "Consolidated Indebtedness..............................................   6
    "Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio....   6
    "Consolidated Interest Expense..........................................   7
    "Consolidated Operating Cash Flow.......................................   7
    "Consolidated Tax Expense...............................................   8
    "Credit Facilities......................................................   8
    "Currency Agreements....................................................   8
    "Debt Securities........................................................   8
    "Disinterested Director.................................................   8
    "Escrow Account.........................................................   9
    "Event of Default.......................................................   9
    "Fair Market Value......................................................  10
    "Guarantee..............................................................  10
    "Incumbent..............................................................  10
    "Incumbent Agreement....................................................  10
    "Incur..................................................................  10
    "Indebtedness...........................................................  11
    "Invested Capital.......................................................  12
    "Investment.............................................................  12
    "Net Cash Proceeds......................................................  12
    "New Pledged Securities.................................................  13
    "Officers' Certificate..................................................  13
    "Parent.................................................................  13
    "Permitted Holder.......................................................  13
    "Permitted Indebtedness.................................................  13
    "Permitted Investment...................................................  15
    "Permitted Liens........................................................  17
    "Permitted Telecommunications Asset Sale................................  19
    "Permitted Telecommunications Joint Venture.............................  19
    "Pledged Securities.....................................................  19
    "Redeemable Capital Stock...............................................  19
    "Restricted Company Subsidiary..........................................  19
    "Restricted Entity......................................................  19
    "Restricted Parent Subsidiary...........................................  19
</TABLE>

                                      -i-
<PAGE>   3
<TABLE>
<S>                                                                           <C>
    "Restricted Subsidiary..................................................  19
    "Sale-Leaseback Transaction.............................................  19
    "Significant Subsidiary.................................................  20
    "Subsidiary.............................................................  20
    "Telecommunications Assets..............................................  20
    "Telecommunications Business............................................  20
    "Telecommunications Indebtedness........................................  21
    "Unrestricted Subsidiary................................................  21
  Section 103. Definitions for Purposes of Section 1017(a)..................  22
    "Accounts Receivable Subsidiary.........................................  22
    "Allowable Company Indebtedness.........................................  22
    "Asset Sale.............................................................  22
    "Board of Directors.....................................................  23
    "Board Resolution.......................................................  23
    "Cash Equivalents.......................................................  23
    "Consolidated Adjusted Net Income.......................................  23
    "Consolidated Indebtedness..............................................  24
    "Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio....  24
    "Consolidated Interest Expense..........................................  24
    "Consolidated Operating Cash Flow.......................................  25
    "Consolidated Tax Expense...............................................  25
    "Event of Default.......................................................  25
    "Fair Market Value......................................................  27
    "Incumbent..............................................................  27
    "Incumbent Agreement....................................................  27
    "Incur..................................................................  27
    "Indebtedness...........................................................  27
    "Invested Capital.......................................................  29
    "Investment.............................................................  29
    "Net Cash Proceeds......................................................  29
    "Permitted Indebtedness.................................................  30
    "Permitted Investment...................................................  32
    "Permitted Liens........................................................  33
    "Permitted Restriction..................................................  35
    "Permitted Telecommunications Asset Sale................................  35
    "Permitted Telecommunications Joint Venture.............................  35
    "Permitted Transaction..................................................  35
    "Restricted Payment.....................................................  37
    "Restricted Subsidiary..................................................  40
    "Sale-Leaseback Transaction.............................................  40
    "Significant Subsidiary.................................................  41
    "Telecommunications Assets..............................................  41
    "Telecommunications Business............................................  41
    "Telecommunications Indebtedness........................................  41
    "Unrestricted Company Subsidiary........................................  42
</TABLE>

                                      -ii-
<PAGE>   4
<TABLE>
<S>                                                                           <C>
  Section 104. Amendment to Section 103.....................................  42

AMENDMENTS TO "NOTE FORMS"..................................................  43

  Section 105.  Amendment to Section 202....................................  43
  Section 106. Amendment to Section 203.....................................  46
  Section 107. Addition of Section 203A.....................................  48
  Section 108. Amendment to Section 501.....................................  53

AMENDMENTS TO "CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE"........  53

  Section 109. Amendment to Article Eight...................................  53

AMENDMENTS TO "SUPPLEMENTAL INDENTURES".....................................  55

  Section 110. Amendment to Section 901.....................................  55
  Section 111. Amendment to Section 902.....................................  56

AMENDMENTS TO "COVENANTS"...................................................  57

  Section 112. Amendment to Section 1002....................................  57
  Section 113. Amendment to Section 1003....................................  58
  Section 114. Amendment to Section 1004....................................  59
  Section 115. Amendment to Section 1005....................................  59
  Section 116. Amendment to Section 1006....................................  60
  Section 117. Amendment to Section 1007....................................  60
  Section 118. Amendment to Section 1008....................................  61
  Section 119. Amendment to Section 1009....................................  61
  Section 120. Amendment to Section 1010....................................  62
  Section 121. Amendment to Section 1011....................................  63
  Section 122. Amendment to Section 1012....................................  63
  Section 123. Amendment to Section 1013....................................  66
  Section 124. Amendment to Section 1014....................................  67
  Section 125. Amendment to Section 1015....................................  68
  Section 126. Amendment to Section 1016....................................  68
  Section 127. Amendment to Section 1017....................................  69
  Section 128. Amendment to Section 1018....................................  71

AMENDMENTS TO "SECURITY"....................................................  72

  Section 129. Amendments to Article 12.....................................  72

AMENDMENTS TO "DEFEASANCE AND COVENANT DEFEASANCE"..........................  72

  Section 130. Amendments to Article 13.....................................  72

PARENT GUARANTEE............................................................  77

  Section 131. Guarantee....................................................  77

MISCELLANEOUS...............................................................  77

  Section 132. Waiver.......................................................  77
  Section 133. Acts of Holders..............................................  77
  Section 134. Notice of Holders; Waiver....................................  78
  Section 135. Counterparts.................................................  79
  Section 136. Governing Law................................................  79
  Section 137. Separability Clause..........................................  79
  Section 138. Headings.....................................................  79
</TABLE>

                                     -iii-
<PAGE>   5
<TABLE>
<S>                                                                           <C>
  Section 139. Effect of Supplemental Indenture.............................  79
  Section 140. Indenture in Full Force and Effect as Supplemented...........  79
</TABLE>

                                      -iv-
<PAGE>   6
            SUPPLEMENTAL INDENTURE, dated as of [ ], 2000 (the "Supplemental
Indenture"), among PATHNET, INC., a Delaware corporation (herein called the
"Company") having its principal office at 1015 31st Street, N.W., Washington
D.C. 20007, PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation (herein
called the "Parent") having its principal office at 1015 31st Street, N.W.,
Washington D.C. 20007, and THE BANK OF NEW YORK, a New York banking corporation,
as Trustee (herein called the "Trustee") to the Indenture, dated as of April 8,
1998, between the Company and the Trustee (the "Original Indenture").

                                    RECITALS

            The Company and the Trustee have entered into the Original
Indenture. The Company has issued $350,000,000 in aggregate principal amount of
12-1/4% Senior Notes due 2008. The Company originally issued the notes in a
so-called A/B private placement transaction pursuant to which, in September 1998
(as required by the terms of the Original Indenture), the Company exchanged the
privately placed notes for substantially identical series notes (the "Notes") in
an offering registered under the Securities Act. The Notes, which were
registered with the SEC in the "B" portion of the "A/B" exchange offering,
continue to be governed by the terms of the Original Indenture;

            The Company and the Parent are proposing to enter into a
contribution and re-organization transaction (the "Transaction"). In connection
with the Transaction, the Parent and the Company have entered into a series of
Contribution Agreements with the parties to the Transaction pursuant to which
the Parent will (i) issue shares of Series D Convertible Preferred Stock, with a
par value of $0.01 per share and Series E Convertible Preferred Stock, with a
liquidation preference of $0.01 per share in exchange for the contribution of
leasehold interests in rights of way owned by the several counterparties to the
Contribution Agreements, and (ii) exchange shares of Common Stock, par value
$0.01 per share and Series A, B and C Convertible Preferred Stock, each with a
par value of $0.01 per share, for shares of Common Stock, par value $0.01 per
share, and Series A, B and C Preferred Stock, each with a liquidation preference
of $0.01 per share, of the Company held by existing holders of such securities
of the Company;

            In connection with the Transaction, the Parent will deliver an
irrevocable and unconditional guarantee of the Company's obligations under the
Notes;

            In addition, the Parent has agreed to accept covenant obligations
similar to the covenant obligations that are currently imposed on the Company
under the Original Indenture and the Parent and the Company wish to ensure that
transactions between the Company and the Parent or the Company and certain other
subsidiaries of the Parent are permitted to the same extent that such
transactions were permitted between the Company and its Restricted Subsidiaries
under the Original Indenture;

            Pursuant to Section 902 of the Original Indenture, the parties
hereto desire to enter into this Supplemental Indenture and the holders of at
least a majority in aggregate principal amount of the Outstanding Notes have
consented to the amendments to the Original
<PAGE>   7
Indenture set forth in this Supplemental Indenture as required by Section 902 of
the Original Indenture;

            Any references herein to the "Indenture" shall be deemed to be a
reference to the Original Indenture as amended by this Supplemental Indenture,
and unmodified references to Sections or Subsections are to such Sections or
Subsections of the Indenture;

            It is the intent of the parties that this Supplemental
Indenture be effective as of the date set forth above;

            NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

            For and in consideration of the foregoing premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged, it
is mutually covenanted and agreed for the equal and proportionate benefit of all
Holders of the Notes as follows:

                           AMENDMENTS TO "DEFINITIONS
                  AND OTHER PROVISIONS OF GENERAL APPLICATION"

SECTION 101. INTRODUCTION.

            (a) The definitions in the Original Indenture are amended in this
Supplemental Indenture to the extent necessary (1) to impose covenant
obligations upon the Parent that are substantively equivalent to those imposed
on the Company under the Original Indenture, and (2) to permit transactions
between the Parent and the Company or any other Restricted Subsidiaries of the
Parent that may be created in the future to the extent that such transactions
are permitted between the Company and its Restricted Subsidiaries under the
Original Indenture. These amended definitions are contained in Section 102 of
this Supplemental Indenture.

            (b) It is the intent of the parties to this Supplemental Indenture
to preserve unmodified the substance of the covenant and other obligations
imposed upon the Company under the Original Indenture.

            (c) Section 902(2) of the Original Indenture provides that the
obligation of the Company (1) to make and consummate an Excess Proceeds Offer
with respect to any Asset Sale by the Company or any of its Restricted
Subsidiaries in accordance with Section 1017 of the Original Indenture, and (2)
to make and consummate a Change of Control Offer in the event of a Change of
Control of the Company in accordance with Section 1010 of the Original Indenture
(together, the "Specified Obligations") cannot be amended, changed or modified
without the consent of the Holder of each Outstanding Note affected thereby.
Section 902(2) of the Original Indenture further provides that the definitions
relating to the Specified Obligations cannot be amended, changed or modified so
as to amend, change or modify the obligations of the Company with respect to the
Specified Obligations without the consent of the Holder of each Outstanding Note
affected thereby.

            (d) In order to effect the amendments described in paragraph (a)
above, it is necessary to amend certain defined terms that are otherwise used in
Section 1017 of the Original Indenture. In order to comply with the provisions
of Section 902(2) of the Original Indenture, as

                                      -2-
<PAGE>   8
described in paragraph (c) above, the obligations on the Company and the
Restricted Company Subsidiaries pursuant to Section 1017 of the Original
Indenture have been reproduced without the inclusion of references to the Parent
in Section 122(a) of this Supplemental Indenture, and will be incorporated as
Section 1017(a) of the Indenture. The definitions from Section 102 of this
Supplemental Indenture used in Section 1017(a) of the Indenture are also
reproduced without the inclusion of references to the Parent. Certain technical
modifications to these definitions are necessary to preserve the economic
substance of these Company-specific covenants and obligations. These "Section
1017(a) only" definitions are set forth in Section 103 of this Supplemental
Indenture.

            (e) It is not necessary to reproduce the obligations of the Company
and the Restricted Company Subsidiaries pursuant to Section 1010 without the
inclusion of reference to the Parent in order to comply with Section 902(2).
This is because the proposed amendment does not modify or amend the obligation
of the Company and its Restricted Company Subsidiaries to make and consummate a
Change of Control Offer, but rather provides that such obligation is also
triggered by a Change of Control of the Parent. The definition of "Change of
Control" is modified accordingly and the revised definition is contained in
Section 102 of this Supplemental Indenture. All other capitalized terms used in
Section 1010 are defined within that Section or have the meaning given to them
in the Original Indenture.

            (f) Defined terms set forth in Section 101 of the Original Indenture
that do not need to be amended for the purposes of this Supplemental Indenture,
and are not included in the revised definitions in Section 102 or 103 of this
Supplemental Indenture, retain the meaning given to them in the Original
Indenture.

            (g) Wherever used in this Supplemental Indenture, "including" shall
be deemed to mean "including without limitation".

SECTION 102. REVISED DEFINITIONS.

            For all purposes of this Supplemental Indenture, except as otherwise
expressly provided herein and subject to Section 103 of this Supplemental
Indenture, the defined terms listed below shall have the meanings ascribed
thereto below. For the avoidance of doubt, any capitalized terms used in Section
1017(a) shall have the meanings ascribed thereto in Section 103 of this
Supplemental Indenture, and to the extent any such term is also defined in this
Section 102, the definition contained in this Section 102 shall not apply to
such term as used in Section 1017(a);

            "ACCOUNTS RECEIVABLE SUBSIDIARY" means any Restricted Company
Subsidiary or Restricted Parent Subsidiary that is, directly or indirectly,
wholly owned by the Company or the Parent (as the case may be) (other than
directors qualifying shares) and organized for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable obligations of
customers of any Restricted Entity, (ii) the sale or financing of accounts
receivable or interests therein and (iii) other activities directly related
thereto.

            "AMENDED AND RESTATED PLEDGE AGREEMENT" means the amended and
restated pledge agreement dated as of the date hereof, by and between the
Trustee and the Company, governing the disbursement of funds in the Escrow
Account.

            "AMENDMENT DATE" means the date as of which this Supplemental
Indenture is executed by the parties hereto.

            "ASSET SALE" means any sale, issuance, conveyance, transfer, lease
or other disposition (including by way of merger, consolidation or
Sale-Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i)

                                      -3-
<PAGE>   9
any Capital Stock of any Subsidiary; (ii) all or substantially all of the
properties and assets of the Parent or any Subsidiary; or (iii) any other
properties or assets of the Parent or any Subsidiary, other than in the ordinary
course of business (it being understood that the ordinary course of business
includes, but is not restricted to, any transfer or sale of, or the grant of a
right to use, an asset to an Incumbent pursuant to (x) an Incumbent Agreement,
(y) applicable law or (z) an agreement to which such Incumbent is a party which
exists on the date of, and is not entered into in contemplation of, such
Incumbent Agreement). For the purposes of this definition, the term "Asset Sale"
shall not include any transfer of properties or assets (A) that is governed by
the provisions of Article Eight of this Indenture (B) of the Parent to any
Restricted Parent Subsidiary, or of any Restricted Parent Subsidiary to the
Parent or any other Restricted Parent Subsidiary in accordance with the terms of
this Indenture, (C) having an aggregate Fair Market Value of less than
$2,000,000 (or the equivalent thereof in any other currency) in any given fiscal
year, (D) by the Parent or a Restricted Parent Subsidiary to a Person who is not
an Affiliate of the Parent in exchange for Telecommunications Assets (or not
less than 66 2/3% of the outstanding Voting Stock of a Person that becomes a
Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets) or related telecommunications services where, in the
good faith judgment of the board of directors of the Parent evidenced by a board
resolution, the Fair Market Value of such Telecommunications Assets (or such
Voting Stock) or services so received is at least equal to the Fair Market Value
of the properties or assets disposed of or, if less, the difference is received
by the Parent in cash in an amount at least equal to such difference, (E)
constituting Capital Stock of an Unrestricted Subsidiary or other Investment
that was permitted under Section 1012 of the Indenture when made, (F)
constituting accounts receivable of the Parent or a Restricted Parent Subsidiary
to an Accounts Receivable Subsidiary or, in consideration of Fair Market Value
thereof, to Persons that are not Affiliates of the Parent or any Subsidiary of
the Parent in the ordinary course of business, including in connection with
financing transactions, (G) in connection with a Sale-Leaseback Transaction
otherwise permitted to be incurred under Section 1011 of the Indenture, (H) to a
Permitted Telecommunications Joint Venture if such transfer of properties or
assets is permitted under the definition of "Permitted Investments", (I) in
connection with a Permitted Telecommunications Asset Sale or (J) to an
Unrestricted Subsidiary if permitted under Section 1012 of the Indenture.

            "BOARD OF DIRECTORS" means (i) either the board of directors of the
Company or any duly authorized committee of that board, when used with respect
to the Company, or (ii) either the board of directors of the Parent or any duly
authorized committee of that board, when used with respect to the Parent.

            "BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Parent to have been duly adopted by
the Board of Directors of the Parent and to be in full force and effect on the
day of such certification and delivered to the Trustee; unless used with respect
to the Company when references to the "Parent" in the preceding sentence shall
be replaced by references to the "Company".

            "CASH EQUIVALENTS" means:

            (a) any evidence of Indebtedness with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof);

                                      -4-
<PAGE>   10
            (b) certificates of deposit or acceptances with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits of not less than $500,000,000;

            (c) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an affiliate of the Parent and is organized under the
laws of any state of the United States and rated at least A-1 by S&P or at least
P-1 by Moody's; and

            (d) money market mutual funds that invest substantially all of their
assets in securities of the type described in the preceding clauses.

            "CHANGE OF CONTROL" means any of the following events:

            (a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the Company or of the Parent.

            (b) the Company or the Parent consolidates with, or merges with or
into, another Person or conveys, transfers, leases or otherwise disposes of all
or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company or the Parent, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
or the Parent (as the case may be) is converted into or exchanged for cash,
securities or other property, other than any such transaction (i) where the
outstanding Voting Stock of the Company or the Parent (as the case may be) is
not converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company or the Parent (as the
case may be)) or is converted into or exchanged for (A) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (B)
cash, securities and other property (other than Capital Stock of the Surviving
Entity) in an amount that could be paid by the Parent as a Restricted Payment as
described in Section 1012 of the Indenture in the event of a conversion or
exchange by the Parent or that could be paid by the Company as a Restricted
Payment as described in Section 1012 of the Indenture in the event of a
conversion or exchange by the Company and (ii) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total outstanding Voting Stock of the surviving or transferee
corporation;

            (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
the Board of Directors of the Parent (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company or the Parent (as the case may be) was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company or the Parent (as the case may be) then in
office; or

                                      -5-
<PAGE>   11
            (d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which constitutes a
Permitted Transaction, or the Parent is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions of Article 8 of the Indenture.

            "CONSOLIDATED ADJUSTED NET INCOME" means, with respect to any
period, the consolidated net income (or loss) of all Restricted Entities for
such period as determined in accordance with GAAP, adjusted by excluding,
without duplication:

            (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto);

            (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the ordinary
course of business;

            (c) the portion of net income (or loss) of any Person (other than a
Restricted Entity), including Unrestricted Subsidiaries, in which any Restricted
Entity has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to any Restricted Entity in cash
dividends or distributions during such period;

            (d) the net income (or loss) of any Person combined with any
Restricted Entity on a "pooling of interests" basis attributable to any period
prior to the date of combination;

            (e) the net income of the Company or any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by the Company or such Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to the Company or such Restricted Subsidiary
or its stockholders (except, for purposes of determining compliance with Section
1011 of the Indenture, any restriction permitted under clause (vii) or (viii) of
Section 1018 of the Indenture; and

            (f) any net income (or loss) from the Company or any Restricted
Subsidiary that was an Unrestricted Subsidiary at any time during such period
other than any amounts actually received from the Company or such Restricted
Subsidiary.

            "CONSOLIDATED INDEBTEDNESS" means, with respect to any period, the
aggregate amount of Indebtedness of all Restricted Entities outstanding at the
date of determination as determined on a consolidated basis in accordance with
GAAP.

            "CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED OPERATING CASH FLOW
RATIO" means, at any date of determination, the ratio of (i) Consolidated
Indebtedness of all Restricted Entities to (ii) Consolidated Operating Cash Flow
of all Restricted Entities for the two preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination, multiplied by two; provided further that any Indebtedness
incurred or retired by any Restricted Entity during the fiscal quarter in which
the transaction date occurs shall be calculated as if such Indebtedness were so
incurred or retired on the first day of the fiscal quarter in which the date of
determination occurs (provided further that, in making any such computation, the
aggregate amount of Indebtedness under any revolving credit or similar facility
shall be deemed to include an amount of funds equal to the average daily balance
of such Indebtedness during such two fiscal quarter period); and provided
further that (x) if the transaction giving rise to the need to calculate the
Consolidated Indebtedness to Consolidated

                                      -6-
<PAGE>   12
Operating Cash Flow Ratio would have the effect of increasing or decreasing
Consolidated Indebtedness or Consolidated Operating Cash Flow in the future,
Consolidated Indebtedness and Consolidated Operating Cash Flow shall be
calculated on a pro forma basis as if such transaction had occurred on the first
day of such two fiscal quarter period preceding the date of determination; (y)
if during such two fiscal quarter period, any Restricted Entity shall have
engaged in any Asset Sale in respect of any company, entity or business,
Consolidated Operating Cash Flow for such period shall be reduced by an amount
equal to the Consolidated Operating Cash Flow (if positive), or increased by an
amount equal to the Consolidated Operating Cash Flow (if negative), directly
attributable to the company, entity or business that is the subject of such
Asset Sale and any related retirement of Indebtedness as if such Asset Sale and
any related retirement of Indebtedness had occurred on the first day of such
period; or (z) if during such two fiscal quarter period any Restricted Entity
shall have acquired any company, entity or business, Consolidated Operating Cash
Flow shall be calculated on a pro forma basis as if such acquisition and any
related financing had occurred on the first day of such period.

            "CONSOLIDATED INTEREST EXPENSE" means, for any period, without
duplication, the sum of:

            (a) the consolidated interest expense of all Restricted Entities for
such period, including (i) amortization of debt discount, (ii) the net cost of
Interest Rate Agreements (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) accrued interest, (v)
the consolidated amount of any interest capitalized by the Company or the Parent
and (vi) amortization of debt issuance costs; plus

            (b) the consolidated interest component of Capitalized Lease
Obligations of all Restricted Entities paid, accrued and/or scheduled to be paid
or accrued during such period; excluding, however, any amount of such interest
of any Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated Adjusted Net Income pursuant to
clause (e) of the definition thereof (but only in the same proportion as the net
income of such Restricted Subsidiary is excluded from the calculation of
Consolidated Adjusted Net Income pursuant to clause (e) of the definition
thereof); provided that in making such computation, (x) the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a pro
forma basis and (A) bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Parent, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Parent, either the fixed or floating rate, (y) the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period and (z) the
interest rate with respect to any Indebtedness covered by an Interest Rate
Agreement shall be deemed to be the effective interest rate with respect to such
Indebtedness after taking into account such Interest Rate Agreement.

            "CONSOLIDATED OPERATING CASH FLOW" means, with respect to any
period, the Consolidated Adjusted Net Income of all Restricted Entities for such
period:

            (a) increased by (to the extent deducted in computing Consolidated
Adjusted Net Income) the sum of (i) the Consolidated Tax Expense of such
Restricted Subsidiaries as are subject to the immediately preceding
parenthetical clause for such period (other than taxes

                                      -7-
<PAGE>   13

attributable to extraordinary, unusual or non-recurring gains or losses); (ii)
Consolidated Interest Expense of all Restricted Entities for such period; (iii)
depreciation of all Restricted Entities for such period, determined on a
consolidated basis in accordance with GAAP; (iv) amortization of all Restricted
Entities for such period, determined on a consolidated basis in accordance with
GAAP; and (v) any other non-cash charges that were deducted in computing
Consolidated Adjusted Net Income (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Restricted
Entities for such period in accordance with GAAP; and

            (b) decreased by any non-cash gains of the Restricted Entities that
were included in computing Consolidated Adjusted Net Income.

            "CONSOLIDATED TAX EXPENSE" means, for any period, the provision for
U.S. federal, state, provincial, local and foreign income taxes of all
Restricted Entities for such period as determined on a consolidated basis in
accordance with GAAP.

            "CREDIT FACILITIES" means, with respect to a Restricted Entity, one
or more debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, terms loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.

            "CURRENCY AGREEMENTS" means any spot or forward exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the any Restricted Entity.

            "DEBT SECURITIES" means any debt securities (including any
Guarantee of such securities) issued by any Restricted Entity in connection
with a public offering (whether or not underwritten) or a private placement
(provided that such private placement is underwritten for resale pursuant to
Rule 144A, Regulation S or otherwise under the Securities Act or sold on an
agency basis by a broker-dealer or one of its Affiliates to 10 or more
non-affiliates beneficial holders); it being understood that the term "Debt
Securities" shall not include any evidence of indebtedness under the Vendor
Credit Facility, any financing by the Company or a Restricted Subsidiary
similar to the Vendor Credit Facility or any Credit Facility or other
commercial bank borrowings, any vendor equipment financing facility or any
similar financings, recourse transfers of financial assets, capital leases or
other types of borrowings incurred in a manner not customarily viewed as a
"securities offering".

            "DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of transactions in respect of which the board of directors of the
Company is required to deliver a resolution thereof under this Indenture, a
member of the board of directors of the Company who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of transactions, and with respect to any transaction or series of
transactions in respect of which the board of directors of the Parent is
required to deliver a resolution thereof under this Indenture, a member of the
board of directors of the Parent who does not have any material direct or
indirect financial interest in or with respect to such transaction or series of
transactions. For purposes of this definition, no Person shall be deemed not to
be a Disinterested Director solely because such Person or an Affiliate of such
Person holds or beneficially owns Capital Stock of the Company, the Parent or
any of their Restricted Subsidiaries.

                                      -8-
<PAGE>   14
            "ESCROW ACCOUNT" means the account established with the Trustee in
its name pursuant to the terms of the Original Pledge Agreement for the deposit
of Pledged Securities.

            "EVENT OF DEFAULT", means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

            (a) default in the payment of any interest on any Note when it
becomes due and payable, and continuance of such default for a period of 30 days
or more (provided that such 30-day grace period shall not be applicable to the
first four interest payments due on the Notes);

            (b) default in the payment of the principal of (or premium, if any,
on) any Note at its Maturity (upon acceleration, optional redemption, required
purchase or otherwise);

            (c) default in the performance, or breach, of any covenant or
agreement of the Company or of the Parent contained in this Indenture (other
than a default in the performance, or breach, of a covenant or agreement which
is specifically dealt with in the immediately preceding clause (a) or (b) or in
clause (B), (C) or (D) of this clause (c)) and continuance of such default or
breach for a period of 30 days after written notice shall have been given to the
Company or the Parent (as the case may be) by the Trustee or to the Company or
the Parent and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Notes then Outstanding; (B) default in the performance or breach
of the provisions of Section 1017; (C) default in the performance or breach of
the provisions of Article Eight; and (D) default in the performance or breach of
Section 1010;

            (d) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of the Company or the Parent or any
Significant Subsidiary aggregating $7,500,000 or more, when the same becomes due
and payable at the Stated Maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been cured
or waived or (B) Indebtedness of the Company or the Parent or any Significant
Subsidiary aggregating $7,500,000 or more shall have been accelerated or
otherwise declared due and payable, or required to be prepaid or repurchased
(other than by regularly scheduled required prepayment), prior to the Stated
Maturity thereof;

            (e) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or the Parent or any
Significant Subsidiary or their respective properties for the payment of money,
either individually or in an aggregate amount, in excess of $7,500,000 and
either (A) an enforcement proceeding shall have been commenced by any creditor
upon such judgment or order or (B) there shall have been a period of 30 days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, was not in effect;

            (f) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or the Parent or any Significant Subsidiary
as bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or the Parent or any Significant Subsidiary under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or the Parent or any Significant Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a period
of 90 consecutive days;

                                      -9-
<PAGE>   15
            (g) the institution by the Company or the Parent or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or the Parent or any
Significant Subsidiary or of any substantial part of its property, or the making
by it of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due;

            (h) the Amended and Restated Pledge Agreement ceases to be in full
force and effect before payment in full of the obligations thereunder; or

            the Guarantee ceases to be in full force and effect before payment
in full of the obligations thereunder.

            "FAIR MARKET VALUE" means, with respect to any asset or property,
the sale value that would be obtained in an arms' length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by the Board of Directors of
the Parent acting in good faith and as of the date on which such determination
is made.

            "GUARANTEE" means the guarantee dated as of [     ], 2000 by the
Parent for the benefit of each of the Holders of the outstanding Notes, a copy
of which is attached to this Supplemental Indenture as Exhibit 1.

            "INCUMBENT" means any railroad, utility, governmental entity,
pipeline or other licensed owner (which ownership is determined immediately
prior to any transaction with a Restricted Entity) of Telecommunications Assets
to be used in the network of the Company or the Parent pursuant to an Incumbent
Agreement (and any subsidiary or affiliate of such Person that is a party to an
Incumbent Agreement for the sole purpose of receiving payments from a Restricted
Entity pursuant to such agreement).

            "INCUMBENT AGREEMENT" means an agreement between an Incumbent and a
Restricted Entity pursuant to which, among other things, such Incumbent receives
a payment equal to such Restricted Entity's revenues, if any, attributable, in
whole or in part, to Telecommunications Assets transferred or leased, or with
respect to which a right of use has been granted, by such Incumbent such
Restricted Entity and upon or with respect to which such Restricted Entity has
constructed or intends to construct a portion of its network.

            "INCUR" OR "INCUR" means, with respect to any Indebtedness, to
incur, create, issue, assume, guarantee or otherwise become directly or
indirectly liable or responsible for the payment of, or otherwise incur, such
Indebtedness, contingently or otherwise; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
incurrence of Indebtedness. With respect to Indebtedness to be borrowed under a
binding commitment previously entered into that provides for the Company or the
Parent to Incur Indebtedness on a revolving basis, the Company or the Parent (as
the case may be) shall be deemed to have Incurred the greater of:

            (a) the Indebtedness actually Incurred; or

                                      -10-
<PAGE>   16
            (b) all or a portion of the amount of such unborrowed commitment
that the Company or the Parent (as the case may be) shall have so designated to
be Incurred in an Officer's Certificate delivered to the Trustee (in which case
the Company or the Parent (as the case may be) shall not be deemed to incur such
unborrowed amount at the time or times it is actually borrowed).

            "INDEBTEDNESS" means, with respect to any Person at any date of
determination, without duplication:

            (a) all liabilities, contingent or otherwise, of such Person: (i)
for borrowed money (including overdrafts), (ii) in connection with any letters
of credit and acceptances issued under letter of credit facilities, acceptance
facilities or other similar facilities (including reimbursement obligations with
respect thereto), (iii) evidenced by bonds, notes, debentures or other similar
instruments, (iv) for the deferred and unpaid purchase price of property or
services or created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person or (v) for
Capitalized Lease Obligations (including any Sale-Leaseback Transaction);

            (b) all obligations of such Person under or in respect of Interest
Rate Agreements and Currency Agreements;

            (c) all Indebtedness referred to in (but not excluded from) the
preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
with respect to any property (including accounts and contract rights) owned by
such Person, whether or not such Person has assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of (i) the Fair Market Value of such property or asset and (ii) the
amount of such obligation so secured);

            (d) all guarantees by such Person of Indebtedness referred to in
this definition of any other Person; and

            (e) all Redeemable Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid
dividends.

            The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding and/or designated as
incurred and certified by an officer of the Parent to have been Incurred on such
date pursuant to clause (b) of the last sentence of the definition of "Incur")
of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation; provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
equals the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) that Indebtedness shall not include
any liability for U.S. federal, state, local or other taxes owed by such Person.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which

                                      -11-
<PAGE>   17
Indebtedness shall be required to be determined pursuant to this Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Redeemable Capital Stock, such Fair Market Value will be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
Notwithstanding the foregoing, trade accounts and accrued liabilities arising in
the ordinary course of business will not be considered Indebtedness for purposes
of this definition.

            "INVESTED CAPITAL" means the sum of:

            (a) 75% of the aggregate net cash proceeds received by the Company
from the issuance of (or capital contributions with respect to) any Qualified
Capital Stock of the Company subsequent to the Issue Date, or received by the
Parent from the issuance of (or capital contribution with respect to) Qualified
Capital Stock of the Parent subsequent to the Amendment Date, other than the
Issuance of Qualified Capital Stock to the Company or to a Restricted
Subsidiary; and

            (b) 75% of the aggregate net proceeds from sales of Redeemable
Capital Stock of the Company or the Parent or Indebtedness of the Company or the
Parent convertible into Qualified Capital Stock of the Company or the Parent (as
the case may be), in each case upon such redemption or conversion thereof into
Qualified Capital Stock.

            "INVESTMENT" means, with respect to the Parent's or the Company's
investment with any Person, any direct or indirect advance, loan or other
extension of credit or capital contribution to (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others) or any purchase, acquisition or ownership by such
Person of any Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued or owned by, any other Person and all other
items that would be classified as investments on a balance sheet prepared in
accordance with GAAP. In addition, the portion (proportionate to the Company's
or the Parent's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary at the time that such Subsidiary is designated
an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company or the Parent (as the case may be) in such Unrestricted Subsidiary at
such time and the portion (proportionate to the Company's or the Parent's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary at the time that such Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments.
"Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.

            "NET CASH PROCEEDS" means:

            (a) with respect to any Asset Sale, the proceeds thereof in the form
of cash or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to any Restricted Entity), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties which are the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than any Restricted Entity) owning a beneficial

                                      -12-
<PAGE>   18
interest in the assets subject to the Asset Sale and (v) appropriate amounts to
be provided by any Restricted Entity, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by any Restricted Entity after such Asset Sale, including pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate of
the Parent or the Company, as the case may be, delivered to the Trustee; and

            (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Redeemable Capital Stock that has been converted into or exchanged for Qualified
Capital Stock, as referred to in Section 1012(b)(3), the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Parent or
any Subsidiary of the Parent), net of fees, commissions and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.

            "NEW PLEDGED SECURITIES" means the securities purchased by the
Company to be deposited in the Escrow Account as security for the fifth
scheduled interest payment on the Notes pursuant to the Indenture.

            "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman,
the CEO, the President or any executive vice president or vice president, and by
the Treasurer, an assistant treasurer, the Secretary or an assistant secretary
of the Company (when used with respect to the Company) or of the Parent (when
used with respect to the Parent), and, in each case, delivered to the Trustee.

            "PARENT" means Pathnet Telecommunications, Inc. a corporation
organized and existing under the laws of the state of Delaware.

            "PARENT REQUEST" or "PARENT ORDER" means a written request or order
signed in the name of the Parent by its Chairman, its Chief Executive Officer
("CEO"), its President, any executive vice president or vice president or the
Treasurer and delivered to the Trustee.

            "PERMITTED HOLDER" means, when used with respect to the Company,
Spectrum Equity Investors, L.P., New Enterprise Associates VI, Limited
Partnership, Onset Enterprise Associates II, L.P., FBR Technology Venture
Partners L.P., Toronto Dominion Capital (USA), Inc. and Grotech Partners IV,
L.P, any general partner of any such Person on the Issue Date, and any Person
controlled by any such general partner, David Schaeffer or Richard A. Jalkult
and, when used with respect to the Parent or any other Affiliate of the Parent
other than the Company, means [ ].

            "PERMITTED INDEBTEDNESS" means:

            (a) Indebtedness of the Company pursuant to the Notes or of the
Parent pursuant to the Guarantee;

            (b) Indebtedness of the Company or any Restricted Company Subsidiary
outstanding on the Issue Date or Indebtedness of the Parent or any Restricted
Parent Subsidiary outstanding on the Amendment Date;

            (c) Indebtedness of the Company or the Parent owing to any
Restricted Subsidiary or of the Parent owing to the Company (but only so long as
such Indebtedness is held by such Restricted Subsidiary) or by the Company, as
the case may be; provided that any Indebtedness of the Company or the Parent (as
the case may be) owing to any such Restricted

                                      -13-
<PAGE>   19
Subsidiary or the Company is subordinated in right of payment from and after
such time as the Notes shall become due and payable (whether at Stated Maturity,
by acceleration or otherwise) to the payment and performance by the Company or
the Parent (as the case may be) of its obligations under the Notes or the
Guarantee; and provided further that any transaction pursuant to which any
Restricted Subsidiary or the Company to which such Indebtedness is owed ceases
to be a Restricted Subsidiary or, in the case of the Company, a Subsidiary of
the Parent, shall be deemed to be an incurrence of Indebtedness by the Parent or
the Company that is not permitted by this clause (c);

            (d) Indebtedness of any Restricted Subsidiary owing to the Company
or the Parent, of the Company owing to the Parent or of any Restricted
Subsidiary owing to another Restricted Subsidiary;

            (e) Indebtedness of any Restricted Entity in respect of performance,
surety or appeal bonds or under letter of credit facilities provided in the
ordinary course of business and, in the case of letters of credit, under which
recourse to the Company or the Parent is limited to the cash securing such
letters of credit;

            (f) Indebtedness of any Restricted Entity under Currency Agreements
and Interest Rate Agreements entered into in the ordinary course of business;
provided that such agreements are designed to protect any Restricted Entity
against, or manage exposure to, fluctuations in currency exchange rates and
interest rates, respectively, and that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder;

            (g) Telecommunications Indebtedness and any Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund, such
Telecommunications Indebtedness in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, and reasonable fees and
expenses);

            (h) Indebtedness of any Restricted Entity consisting of guarantees,
indemnities or obligations in connection with (1) Telecommunications
Indebtedness, (2) Indebtedness permitted under clause (j) or (m) of this
"Permitted Indebtedness" definition or (3) in respect of purchase price
adjustments in connection with the acquisition of or disposition of assets,
including shares of Capital Stock;

            (i) Indebtedness of the Company or the Parent (or consolidated
Indebtedness of the Company and the Parent) not to exceed, at any time
outstanding, 2.0 times the Net Cash Proceeds from the issuance and sale after
the Issue Date, other than an issuance and sale by the Company to a Restricted
Subsidiary or issuance and sale by the Parent to the Company or to any
Restricted Subsidiary, of Qualified Capital Stock of the Company or the Parent,
to the extent such Net Cash Proceeds have not been used to make Restricted
Payments pursuant to clause (a)(3)(B) or clauses (b)(ii) and (iii) of Section
1012 or to make any Permitted Investments under clause (h) of the definition of
Permitted Investments; provided that such Indebtedness does not mature prior to
the Stated Maturity of the Notes and has an Average Life longer than the Notes;

            (j) Indebtedness of any Restricted Entity under one or more Credit
Facilities; provided that the aggregate principal amount of any Indebtedness
incurred pursuant to this clause (j) (including any amounts refinanced or
refunded under this clause (j)) does not exceed at any

                                      -14-
<PAGE>   20
time outstanding the greater of (x) 80% of eligible consolidated accounts
receivable of the Company and the Parent as of the last fiscal quarter for which
financial statements are prepared or (y) $50,000,000 (or the equivalent thereof
in one or more foreign currencies); and any Indebtedness issued in exchange for,
or the net proceeds of which are used to refinance or refund, Indebtedness
incurred under this clause (j) in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, and reasonable fees and
expenses);

            (k) Indebtedness of any Restricted Entity issued in exchange for, or
the net proceeds of which are used to refinance or refund, then-outstanding
Indebtedness of any Restricted Entity incurred under the ratio test set forth in
clause (i) or (ii) of Section 1011 or under clauses (b) through (f), (h), (i)
and (m) of this definition of "Permitted Indebtedness," and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, and reasonable fees and expenses); provided that
such new Indebtedness shall only be permitted under this clause (k) if (A) in
case the Notes are refinanced in part, or the Indebtedness to be refinanced
ranks equally with the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding is expressly made to rank equally with, or
subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding is expressly made subordinate in right of payment to the Notes at
least to the same extent that the Indebtedness to be refinanced is subordinated
to the Notes and (C) such new Indebtedness, determined as of the date of
incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness being refinanced or refunded; provided further that no Indebtedness
incurred under this clause (k) in exchange for, or the proceeds of which
refinance or refund, any Indebtedness incurred under the ratio test set forth
under clause (i) or (ii) of Section 1011 will mature prior to the Stated
Maturity of the Notes or have an Average Life shorter than the Notes; provided
further that in no event may Indebtedness of the Company or the Parent be
refinanced by means of any Indebtedness of any Restricted Subsidiary (in the
case of the Company) or of the Company or any Restricted Subsidiary (in the case
of the Parent) issued pursuant to this clause (k);

            (l) Indebtedness arising by reason of the recharacterization of a
sale of accounts receivable to an Accounts Receivable Subsidiary; and

            (m) Indebtedness of any Restricted Entity in addition to that
permitted to be incurred pursuant to clauses (a) through (l) above in an
aggregate principal amount not in excess of $30,000,000 (or the equivalent
thereof in one or more foreign currencies) at any time outstanding.

            "PERMITTED INVESTMENT" means any of the following:

            (a) Investments in Cash Equivalents; provided that the term "with a
maturity of 180 days or less" in clauses (a), (b) and (c) of the definition of
"Cash Equivalents" is changed to "with a maturity of one year or less" for the
purposes of this definition of "Permitted Investments" only;

            (b) Investments in any Restricted Entity;

                                      -15-
<PAGE>   21
            (c) Investments by any Restricted Entity in another Person if, as a
result of such Investment, (i) such other Person becomes a Restricted Entity or
(ii) such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to a Restricted Entity;

            (d) Investments in the form of intercompany Indebtedness to the
extent permitted under clauses (c) and (d) of the definition of "Permitted
Indebtedness;"

            (e) Investments by the Company or any Restricted Company Subsidiary
in existence on the Issue Date and Investments by the Parent or any Restricted
Parent Subsidiary in existence on the Amendment Date;

            (f) Investments in the Pledged Securities to the extent required by
the Amended and Restated Pledge Agreement;

            (g) Investments in an amount not to exceed $1,000,000 (or the
equivalent thereof in one or more foreign currencies) at any one time
outstanding;

            (h) Investments in an aggregate amount not to exceed the sum of (1)
Invested Capital, (2) the Fair Market Value of Qualified Capital Stock of the
Company and the Parent, Redeemable Capital Stock of the Company and the Parent
convertible into Qualified Capital Stock of the Company or the Parent (as the
case may be), and Indebtedness of the Company and the Parent convertible into
Qualified Capital Stock of the Company or the Parent (as the case may be), in
the latter two cases upon such redemption or conversion thereof into Qualified
Capital Stock of the Company or the Parent (as the case may be), issued by any
Restricted Entity as consideration for any such Investments made pursuant to
this clause (h), and (3) in the case of the disposition or repayment of any
Investment made pursuant to this clause (h) after the Issue Date (including by
redesignation of an Unrestricted Subsidiary to a Restricted Subsidiary), an
amount equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case, less the
cost of the disposition of such Investment; provided, however, that the amount
of any Permitted Investments under this clause (h) shall be excluded from the
computation of the amount of any Restricted Payment under Section 1012;

            (i) Investments in trade receivables, prepaid expenses, negotiable
instruments held for collection and lease, utility and worker's compensation,
performance and other similar deposits or escrow;

            (j) Loans, advances and extensions of credit to employees made in
the ordinary course of business of the Company or the Parent not in excess of
$500,000 (or the equivalent thereof in one or more foreign currencies) in any
fiscal year;

            (k) Bonds, notes, debentures or other securities evidencing
indebtedness received as a result of Asset Sales permitted under Section 1017;

            (l) Endorsements for collection or deposit in the ordinary course of
business by any Restricted Entity of bank drafts and similar negotiable
instruments of any other person received as payment for ordinary course of
business trade receivables;

            (m) Investments deemed to have been made as a result of the
acquisition of a Person that at the time of such acquisition held instruments
constituting Investments that were not acquired in contemplation of, or in
connection with, the acquisition of such Person;

                                      -16-
<PAGE>   22
            (n) Investments in or acquisitions of Capital Stock, indebtedness,
securities or other property of Persons (other than Affiliates of the Company or
the Parent) received by the any Restricted Entity in the bankruptcy or
reorganization of or by such Person or any exchange of such Investment with the
issuer thereof or taken in settlement of or other resolution of claim or
disputes, and, in each case, extensions, modifications and renewals thereof;

            (o) Investments in any Person to which Telecommunications Assets
used in an Initial System have been transferred and which person has provided to
a Restricted Entity the right to use such assets pursuant to an Incumbent
Agreement; provided that, in the good faith determination of the Board of
Directors of the Parent or the Company, as the case may be, the present value of
the future payments expected to be received by the Company or the Parent in
respect of any such Investment plus the Fair Market Value of any capital stock
or other securities received in connection therewith shall be at least equal to
the Fair Market Value of such Investment; and

            (p) Investments in one or more Permitted Telecommunications Joint
Ventures; provided that the total original cost of all such Permitted
Telecommunications Joint Ventures plus the cost or Fair Market Value, as
applicable, of all additions thereto less the sum of all amounts received as
returns thereon shall not exceed $20,000,000 (or the equivalent thereof in one
or more foreign currencies).

            "PERMITTED LIENS" means:

            (a) Liens existing on the Issue Date, when used with respect to the
Company or any Restricted Company Subsidiary, or Liens existing on the Amendment
Date, when used with respect to the Parent or any Restricted Parent Subsidiary;

            (b) Liens on any property or assets of the Company or any Restricted
Subsidiary granted in favor of any Restricted Entity;

            (c) Liens on any property or assets of the Company or any Restricted
Subsidiary securing the Notes or the Guarantee;

            (d) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease permitted by this Indenture;

            (e) Liens securing Indebtedness incurred under clauses (g), (j) or
(m) of the definition of "Permitted Indebtedness";

            (f) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of any Restricted Entity and, with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceeding, if a reserve or other appropriate provision, if any, as required in
conformity with GAAP shall have been made therefor;

            (g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made therefor;

            (h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds,

                                      -17-
<PAGE>   23
escrows and other obligations of a like nature incurred in the ordinary course
of business (other than contracts for the payment of money);

            (i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business of any
Restricted Entity incurred in the ordinary course of business;

            (j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;

            (k) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such Indebtedness
by any Restricted Entity; provided that such Lien does not extend to any
property or assets of any Restricted Entity other than the assets acquired in
connection with the incurrence of such Acquired Indebtedness;

            (l) Liens securing obligations of the Company or the Parent under
Interest Rate Agreements or Currency Agreements permitted to be incurred under
clause (f) of the definition of "Permitted Indebtedness" or any collateral for
the Indebtedness to which such Interest Rate Agreements or Currency Agreements
relate;

            (m) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;

            (n) Liens securing reimbursement obligations of any Restricted
Entity with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof;

            (o) Liens arising from purchase money mortgages and purchase money
security interests; provided that (i) the related Indebtedness shall not be
secured by any property or assets of any Restricted Entity other than the
property and assets so acquired and (ii) the Lien securing such Indebtedness
shall be created within 60 days of such acquisition;

            (p) Liens securing the Escrow Account, the Pledged Securities and
the proceeds thereof and the security interest created by the Amended and
Restated Pledge Agreement;

            (q) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (a) through (o); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall not
extend to any additional property or assets;

            (r) Liens with respect to the equipment and related assets of the
Company or the Parent installed on their respective networks in favor of Persons
that have licensed, leased, transferred or granted to any Restricted Entity a
right to use Telecommunications Assets or financed the purchase of
Telecommunications Assets or securing the obligations of such Restricted Entity
under an Incumbent Agreement; provided that such Liens will (1) be created on
terms that the Company or the Parent (as the case may be) reasonably believes to
be no less favorable to the Company or the Parent than Liens granted under
clause (e) of this definition and (2) not secure any Indebtedness in excess of
the Fair Market Value of the equipment and assets so secured;

                                      -18-
<PAGE>   24
            (s) Liens relating to revenues of any Restricted Entity arising as a
result of obligations under an Incumbent Agreement; and

            (t) Liens on the property or assets or Capital Stock of Accounts
Receivable Subsidiaries and Liens arising out of any sale of Accounts Receivable
in the ordinary course of business (including in connection with a financing
transaction) to or by an Accounts Receivable Subsidiary or to Persons that are
not Affiliates of the Company or the Parent.

            "PERMITTED TELECOMMUNICATIONS ASSET SALE" means any transfer,
conveyance, sale, lease or other disposition of a capital asset that is a
Telecommunications Asset, the proceeds of which are treated as revenues
(including deferred revenues) by the Parent or the Company in accordance with
GAAP.

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

            "PLEDGED SECURITIES" means the securities, consisting of Government
Securities, deposited in the Escrow Account pursuant to the Original Pledge
Agreement together with the New Pledged Securities.

            "REDEEMABLE CAPITAL STOCK" means any class or series of Capital
Stock that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is or, upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity of the Notes or
is redeemable at the option of the holder thereof at any time prior to such
final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity; provided that any
Capital Stock that would not otherwise constitute Redeemable Capital Stock but
for provisions giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes shall
not constitute Redeemable Capital Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable in
any material respect to holders of such Capital Stock that then provisions
contained in Section 1017 and Section 1010 are to holders of the Notes and the
Guarantees, and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such Capital Stock pursuant to any provision prior
to the repurchase by the Company or the Parent of such Notes and Guarantees as
are required to be repurchased pursuant to Section 1017 and Section 1010.

            "RESTRICTED COMPANY SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.

            "RESTRICTED ENTITY" means (i) any Restricted Subsidiary, (ii) the
Parent, and (iii) the Company.

            "RESTRICTED PARENT SUBSIDIARY" means any Subsidiary of the Parent
other than (i) the Company, (ii) a Restricted Company Subsidiary, and (iii) an
Unrestricted Subsidiary.

            "RESTRICTED SUBSIDIARY" means any Restricted Company Subsidiary and
any Restricted Parent Subsidiary.

            "SALE-LEASEBACK TRANSACTION" means any direct or indirect
arrangement, or series of related arrangements, with any Person (other than a
Restricted Entity) or to which any Person (other than a Restricted Entity) is a
party, providing for the leasing to a Restricted Entity of any property for an
aggregate term exceeding three years, whether owned by the Company,

                                      -19-
<PAGE>   25
the Parent or by any Subsidiary of either of them at the Issue Date or later
acquired, which has been or is to be sold or transferred by such Restricted
Entity to such Person or to any other Person from whom funds have been or are to
be advanced by such Person on the security of such property; provided that the
transfer by any Restricted Entity of Telecommunications Assets to, and the
leasing by any Restricted Entity of such assets from, a Permitted
Telecommunications Joint Venture shall not constitute a Sale-Leaseback
Transaction.

            "SIGNIFICANT SUBSIDIARY" means at any date of determination, the
Company and any Restricted Subsidiary that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Parent accounted for more than 10% of the
consolidated revenues of the Parent and the Restricted Parent Subsidiaries, (ii)
as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Parent and the Restricted Parent Subsidiaries, or
(iii) owns one or more FCC licenses the aggregate cost or Fair Market Value of
which represents 5% or more of the net asset value of the Parent and the
Restricted Parent Subsidiaries on a consolidated basis as of the end of such
fiscal year, in the case of (i), (ii) or (iii) as set forth on the most recently
available consolidated financial statements of the Parent for such fiscal year.

            "SUBSIDIARY" means, any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Parent or by one or more other Subsidiaries or by the Parent and one or more
other Subsidiaries, unless used with respect to the Company, in which event as
shall mean any Person a majority of the equity ownership or Voting Stock of
which is at the time owned, directly or indirectly, by the Company or by one or
more other of its Subsidiaries or by the Company and one or more other its
Subsidiaries.

            "TELECOMMUNICATIONS ASSETS" means, with respect to any Person,
assets (including rights of way, trademarks and licenses) other than current
assets that are utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration or provision of the
Company's or the Parent's network, including, without limitation, any businesses
or services in which the Company or the Parent is currently engaged and
including any computer systems used in a Telecommunications Business.
Telecommunications Assets also include 66 2/3% of the Voting Stock of another
Person, provided that substantially all of the assets of such other Person
consist of Telecommunications Assets, and provided further such Voting Stock
shall be held by a Restricted Entity, such other Person either is, or
immediately following the relevant transaction shall become, a Restricted
Subsidiary pursuant to this Indenture or a Permitted Telecommunications Joint
Venture subject to the limitations set forth under clause (p) of the definition
of "Permitted Investment" contained in Section 102 of this Supplemental
Indenture. The determination of what constitutes Telecommunications Assets shall
be made by the Board of Directors of the Parent and evidenced by a Board
Resolution delivered to the Trustee.

            "TELECOMMUNICATIONS BUSINESS" means, the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii)
constructing, creating, developing, acquiring or marketing Telecommunication
Assets or other communications related network equipment, software and other
devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the Board of Directors of the Parent or the Company, as the case
may be.

                                      -20-
<PAGE>   26
            "TELECOMMUNICATIONS INDEBTEDNESS" means Indebtedness of any
Restricted Entity incurred at any time within 315 days of, and for the purpose
of financing all or any part of the cost of, the construction, expansion,
installation, acquisition or improvement by any Restricted Entity of any new
Telecommunications Assets; provided that the proceeds of such Indebtedness are
expended for such purposes within such 315-day period; and provided further that
the Net Cash Proceeds from the issuance of such Indebtedness does not exceed, as
of the date of incurrence thereof, 100% of the lesser of the cost or Fair Market
Value of such Telecommunications Assets; provided further that, to the extent an
Incumbent Agreement is characterized as a Capitalized Lease Obligation, it shall
be considered Telecommunications Indebtedness.

            "UNRESTRICTED SUBSIDIARY" means:

            (a)   any Subsidiary that at the time of determination shall be an
                  Unrestricted Subsidiary (as designated by the Board of
                  Directors of the Parent as provided below); and

            (b)   any Subsidiary of an Unrestricted Subsidiary.

            The Board of Directors of the Parent may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company, the Parent nor any other
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or the Parent or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity, (iii) any Investment in
such Subsidiary made as a result of designating such Subsidiary an Unrestricted
Subsidiary will not violate the provisions of Section 1012, (iv) no Restricted
Entity has a contract, agreement, arrangement, understanding or obligation of
any kind, whether written or oral, with such Subsidiary other than those that
might be obtained at the time from persons who are not Affiliates of the Parent,
and (v) none of the Company, the Parent, nor any other Subsidiary of either of
them has any obligation (1) to subscribe for additional shares of Capital Stock
or other equity interest in such Subsidiary, or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Parent shall be evidenced to the Trustee by filing a Board Resolution with
the Trustee giving effect to such designation. The Board of Directors may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately
after giving effect to such designation, there would be no Default or Event of
Default under this Indenture and the Company or the Parent (as the case may be)
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1011.

                                      -21-
<PAGE>   27
SECTION 103. DEFINITIONS FOR PURPOSES OF SECTION 1017(a).

            The following definitions will apply for the purposes of
interpretation of Section 1017(a) and the defined terms contained in this
Section 103. Capitalized terms used in Section 1017(a) or in this Section 103
which are not defined in this Section 103 shall be given the meaning ascribed to
them in Section 102 of this Supplemental Indenture, or, if such term is not
defined in such Section 102, in Section 101 of the Indenture.

            "ACCOUNTS RECEIVABLE SUBSIDIARY" means any Restricted Company
Subsidiary that is, directly or indirectly, wholly owned by the Company (other
than directors qualifying shares) and organized for the purpose of and engaged
in (i) purchasing, financing and collecting accounts receivable obligations of
customers of any Restricted Company Subsidiary, (ii) the sale or financing of
accounts receivable or interests therein and (iii) other activities directly
related thereto.

            "ALLOWABLE COMPANY INDEBTEDNESS" means Indebtedness incurred by the
Company if, at the time of such incurrence, the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio would have been less than or equal to (i)
6.0 to 1.0 but greater than zero, for Indebtedness incurred on or prior to
December 31, 2001, or (ii) 5.0 to 1.0 but greater than zero for Indebtedness
incurred thereafter.

            "ASSET SALE" means any sale, issuance, conveyance, transfer, lease
or other disposition (including by way of merger, consolidation or
Sale-Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary of the Company; (ii) all or substantially all of the
properties and assets of the Company or any Subsidiary of the Company; or (iii)
any other properties or assets of the Company or any Subsidiary of the Company,
other than in the ordinary course of business (it being understood that the
ordinary course of business includes, but is not restricted to, any transfer or
sale of, or the grant of a right to use, an asset to an Incumbent pursuant to
(x) an Incumbent Agreement, (y) applicable law or (z) an agreement to which such
Incumbent is a party which exists on the date of, and is not entered into in
contemplation of, such Incumbent Agreement). For the purposes of this
definition, the term "Asset Sale" shall not include any transfer of properties
or assets (A) that constitutes a Permitted Transaction, (B) of the Company to
any Restricted Company Subsidiary, or of any Restricted Company Subsidiary to
the Company or any other Restricted Company Subsidiary in accordance with the
terms of this Indenture, (C) having an aggregate Fair Market Value of less than
$2,000,000 (or the equivalent thereof in any other currency) in any given fiscal
year, (D) by the Company or a Restricted Company Subsidiary to a Person who is
not an Affiliate of the Company in exchange for Telecommunications Assets (or
not less than 66 2/3% of the outstanding Voting Stock of a Person that becomes a
Restricted Company Subsidiary, the assets of which consist primarily of
Telecommunications Assets) or related telecommunications services where, in the
good faith Judgment of the Board of Directors of the Company evidenced by a
Board Resolution, the Fair Market Value of such Telecommunications Assets (or
such Voting Stock) or services so received is at least equal to the Fair Market
Value of the properties or assets disposed of or, if less, the difference is
received by the Company in cash in an amount at least equal to such difference,
(E) constituting Capital Stock of an Unrestricted Company Subsidiary or other
Investment that was not a Restricted Payment when made, (F) constituting
accounts receivable of the Company or a Restricted Company Subsidiary to an
Accounts Receivable Subsidiary or in consideration of Fair Market Value thereof,
to Persons that are not Affiliates of the Company or any Subsidiary of the

                                      -22-
<PAGE>   28
Company in the ordinary course of business, including in connection with
financing transactions, (G) in connection with a Sale-Leaseback Transaction
otherwise permitted to be incurred as Permitted Indebtedness or as Allowable
Company Indebtedness, (H) to a Permitted Telecommunications Joint Venture if
such transfer of properties or assets is permitted under the definition of
"Permitted Investments", (I) in connection with a Permitted Telecommunications
Asset Sale or (J) to an Unrestricted Company Subsidiary if not a Restricted
Payment.

            "BOARD OF DIRECTORS" means, either the board of directors of the
Company or any duly authorized committee of that board.

            "BOARD RESOLUTION" means, a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors of the Company and to be in full force and effect on the
date of such certification, and delivered to the Trustee.

            "CASH EQUIVALENTS" means:

            (a) any evidence of Indebtedness with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof);

            (b) certificates of deposit or acceptance with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits of not less than $500,000,000;

            (c) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States and rated at least A-1 by S&P or at least
P-1 by Moody's; and

            (d) money market mutual funds that invest substantially all of their
assets in securities of the type described in the preceding clauses.

            "CONSOLIDATED ADJUSTED NET INCOME" means, with respect to any
period, the consolidated net income (or loss) of the Company and all Restricted
Company Subsidiaries for such period as determined in accordance with GAAP,
adjusted by excluding, without duplication:

            (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto);

            (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the ordinary
course of business;

            (c) the portion of net income (or loss) of any Person (other than
the Company or a Restricted Company Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Company Subsidiary has an
ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Company Subsidiary
in cash dividends or distributions during such period;

            (d) the net income (or loss) of any Person combined with the Company
or any Restricted Company Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination;

                                      -23-
<PAGE>   29
            (e) the net income of any Restricted Company Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Company Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Company Subsidiary or its
stockholders (except, for purposes of determining whether any Indebtedness is
Allowable Company Indebtedness, any Permitted Restriction); and

            (f) any net income (or loss) from any Restricted Company Subsidiary
that was an Unrestricted Company Subsidiary at any time during such period other
than any amounts actually received from such Restricted Company Subsidiary.

            "CONSOLIDATED INDEBTEDNESS" means, with respect to any period, the
aggregate amount of Indebtedness of the Company and its Restricted Company
Subsidiaries outstanding at the date of determination as determined on a
consolidated basis in accordance with GAAP.

            "CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED OPERATING CASH FLOW
RATIO" means, at any date of determination, the ratio of (i) Consolidated
Indebtedness to (ii) Consolidated Operating Cash Flow for the two preceding
fiscal quarters for which financial information is available immediately prior
to the date of determination, multiplied by two; provided that any Indebtedness
incurred or retired by the Company or any of its Restricted Company Subsidiaries
during the fiscal quarter in which the transaction date occurs shall be
calculated as if such Indebtedness were so incurred or retired on the first day
of the fiscal quarter in which the date of determination occurs (provided
further that, in making any such computation, the aggregate amount of
Indebtedness under any revolving credit or similar facility shall be deemed to
include an amount of funds equal to the average daily balance of such
Indebtedness during such two fiscal quarter period); and provided further that
(x) if the transaction giving rise to the need to calculate the Consolidated
Indebtedness to Consolidated Operating Cash Flow Ratio would have the effect of
increasing or decreasing Consolidated Indebtedness or Consolidated Operating
Cash Flow in the future, Consolidated Indebtedness and Consolidated Operating
Cash Flow shall be calculated on a pro forma basis as if such transaction had
occurred on the first day of such two fiscal quarter period preceding the date
of determination; (y) if during such two fiscal quarter period, the Company or
any of its Restricted Company Subsidiaries shall have engaged in any Asset Sale
in respect of any company, entity or business, Consolidated Operating Cash Flow
for such period shall be reduced by an amount equal to the Consolidated
Operating Cash Flow (if positive), or increased by an amount equal to the
Consolidated Operating Cash Flow (if negative), directly attributable to the
company, entity or business that is the subject of such Asset Sale and any
related retirement of Indebtedness as if such Asset Sale and any related
retirement of Indebtedness had occurred on the first day of such period; or (z)
if during such two fiscal quarter period the Company or any of its Restricted
Company Subsidiaries shall have acquired any company, entity or business,
Consolidated Operating Cash Flow shall be calculated on a pro forma basis as if
such acquisition and any related financing had occurred on the first day of such
period.

            "CONSOLIDATED INTEREST EXPENSE" means, for any period, without
duplication, the sum of:

            (a) the consolidated interest expense of the Company and its
Restricted Company Subsidiaries for such period, including (i) amortization of
debt discount, (ii) the net cost of

                                      -24-
<PAGE>   30
Interest Rate Agreements (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) accrued interest, (v)
the consolidated amount of any interest capitalized by the Company and (vi)
amortization of debt issuance costs, plus

            (b) the consolidated interest component of Capitalized Lease
Obligations of the Company and its Restricted Company Subsidiaries paid, accrued
and/or scheduled to be paid or accrued during such period; excluding, however,
any amount of such interest of any Restricted Company Subsidiary if the net
income of such Restricted Company Subsidiary is excluded in the calculation of
Consolidated Adjusted Net Income pursuant to clause (e) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Company Subsidiary is excluded from the calculation of Consolidated Adjusted Net
Income pursuant to clause (e) of the definition thereof); provided that in
making such computation, (x) the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate, (y) the Consolidated Interest Expense attributable to interest on
any Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period and (z) the interest rate with respect to any
Indebtedness covered by an Interest Rate Agreement shall be deemed to be the
effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.

            "CONSOLIDATED OPERATING CASH FLOW" means, with respect to any
period, the Consolidated Adjusted Net Income for such period:

            (a) increased by (to the extent deducted in computing Consolidated
Adjusted Net Income) the sum of (i) the Consolidated Tax Expense of such
Restricted Company Subsidiaries as are subject to the immediately preceding
parenthetical clause for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Company and the
Restricted Company Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP; (iv) amortization of the Company and the
Restricted Company Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP; and (v) any other non-cash charges that were
deducted in computing Consolidated Adjusted Net Income (excluding any non-cash
charge which requires an accrual or reserve for cash charges for any future
period) of the Company and its Restricted Company Subsidiaries for such period
in accordance with GAAP; and

            (b) decreased by any non-cash gains of the Company and the
Restricted Company Subsidiaries that were included in computing Consolidated
Adjusted Net Income.

            "CONSOLIDATED TAX EXPENSE" means, for any period, the provision for
U.S. federal, state, provincial, local and foreign income taxes of the Company
and the Restricted Company Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.

            "EVENT OF DEFAULT" means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by

                                      -25-
<PAGE>   31
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

            (a) default in the payment of any interest on any Note when it
becomes due and payable, and continuance of such default for a period of 30 days
or more (provided that such 30-day grace period shall not be applicable to the
first four interest payments due on the Notes);

            (b) default in the payment of the principal of (or premium, if any,
on) any Note at its Maturity (upon acceleration, optional redemption, required
purchase or otherwise);

            (c) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a default in
the performance, or breach, of a covenant or agreement which is specifically
dealt with in the immediately preceding clause (a) or (b) or in clause (B), (C)
or (D) of this clause (c)) and continuance of such default or breach for a
period of 30 days after written notice shall have been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes then Outstanding; (B) default in the
performance or breach of the provisions of Section 1017; (C) completion of any
transaction or series of transactions pursuant to which the Company consolidates
with or merges into any other Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all of the properties and assets of the Company
and the Restricted Subsidiaries on a consolidated basis to any other Person or
Persons, which does not constitute a Permitted Transaction; and (D) default in
the performance or breach of Section 1010;

            (d) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of the Company or any Significant
Subsidiary aggregating $7,500,000 or more, when the same becomes due and payable
at the Stated Maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured or
waived or (B) Indebtedness of the Company or any Significant Subsidiary
aggregating $7,500,000 or more shall have been accelerated or otherwise declared
due and payable, or required to be prepaid or repurchased (other than by
regularly scheduled required prepayment), prior to the Stated Maturity thereof;

            (e) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $7,500,000 and either (A)
an enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (B) there shall have been a period of 30 days during which
a stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, was not in effect;

            (f) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Significant Subsidiary under the Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days;

                                      -26-
<PAGE>   32
            (g) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under the Federal Bankruptcy Code or any other applicable federal or state law,
or the consent by it to the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any substantial
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due; or

            (h) the Pledge Agreement ceases to be in full force and effect
before payment in full of the obligations thereunder.

            "FAIR MARKET VALUE" means, with respect to any asset or property,
the sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Unless otherwise specified herein,
Fair Market Value shall be determined by the Board of Directors acting in good
faith and as of the date on which such determination is made.

            "INCUMBENT" means any railroad, utility, governmental entity,
pipeline or other licensed owner (which ownership is determined immediately
prior to any transaction with the Company or a Restricted Company Subsidiary) of
Telecommunications Assets to be used in the Company's network pursuant to an
Incumbent Agreement (and any subsidiary or Affiliate of such Person that is a
party to an Incumbent Agreement for the sole purpose of receiving payments from
the Company or a Restricted Company Subsidiary pursuant to such agreement).

            "INCUMBENT AGREEMENT" means an agreement between an Incumbent and
the Company or a Restricted Company Subsidiary pursuant to which, among other
things, such Incumbent receives a payment equal to a percentage of the Company's
or such Restricted Company Subsidiary's revenues, if any, attributable, in whole
or in part, to Telecommunications Assets transferred or leased, or with respect
to which a right of use has been granted, by such Incumbent to the Company or
such Restricted Company Subsidiary and upon or with respect to which the Company
or such Restricted Company Subsidiary has constructed or intends to construct a
portion of its network.

            "INCUR" OR "INCUR" means, with respect to any Indebtedness, to
incur, create, issue, assume, guarantee or otherwise become directly or
indirectly liable or responsible for the payment of, or otherwise incur, such
Indebtedness, contingently or otherwise; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
incurrence of Indebtedness. With respect to Indebtedness to be borrowed under a
binding commitment previously entered into that provides for the Company to
Incur Indebtedness on a revolving basis, the Company shall be deemed to have
Incurred the greater of (a) the Indebtedness actually Incurred or (b) all or a
portion of the amount of such unborrowed commitment that the Company shall have
so designated to be Incurred in an Officer's Certificate delivered to the
Trustee (in which case the Company shall not be deemed to incur such unborrowed
amount at the time or times it is actually borrowed).

            "INDEBTEDNESS" means, with respect to any Person at any date of
determination, without duplication:

                                      -27-
<PAGE>   33
            (a) all liabilities, contingent or otherwise, of such Person: (i)
for borrowed money (including overdrafts), (ii) in connection with any letters
of credit and acceptances issued under letter of credit facilities, acceptance
facilities or other similar facilities (including reimbursement obligations with
respect thereto), (iii) evidenced by bonds, notes, debentures or other similar
instruments, (iv) for the deferred and unpaid purchase price of property or
services or created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person or (v) for
Capitalized Lease Obligations (including any Sale-Leaseback Transaction);

            (b) all obligations of such Person under or in respect of Interest
Rate Agreements and Currency Agreements;

            (c) all Indebtedness referred to in (but not excluded from) the
preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
with respect to any property (including accounts and contract rights) owned by
such Person, whether or not such Person has assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of (i) the Fair Market Value of such property or asset and (ii) the
amount of such obligation so secured);

            (d) all guarantees by such Person of Indebtedness referred to in
this definition of any other Person; and

            (e) all Redeemable Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid
dividends.

            The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding and/or designated as
incurred and certified by an officer of the Company to have been Incurred on
such date pursuant to clause (b) of the last sentence of the definition of
"Incur") of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation; provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
equals the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) that Indebtedness shall not include
any liability for U.S. federal, state, local or other taxes owed by such Person.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value will be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock. Notwithstanding the
foregoing, trade accounts and accrued liabilities arising in the ordinary course
of business will not be considered Indebtedness for purposes of this definition.

                                      -28-
<PAGE>   34
            "INVESTED CAPITAL" means the sum of:

            (a) 75% of the aggregate net cash proceeds received by the Company
from the issuance of (or capital contributions with respect to) any Qualified
Capital Stock subsequent to the Issue Date, other than the issuance of Qualified
Capital Stock to a Restricted Company Subsidiary; and

            (b) 75% of the aggregate net cash proceeds from sales of Redeemable
Capital Stock of the Company or Indebtedness of the Company convertible into
Qualified Capital Stock of the Company, in each case upon such redemption or
conversion thereof into Qualified Capital Stock.

            "INVESTMENT" means, with respect to the Company's relationship with
any Person, any direct or indirect advance, loan or other extension of credit or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of others)
or any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
or owned by, any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the Fair Market Value of the net assets of any Subsidiary at the time that
such Subsidiary is designated an Unrestricted Company Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Company
Subsidiary at such time and the portion (proportionate to the Company's equity
interest in such Subsidiary of the Fair Market Value of the net assets of any
Subsidiary at the time that such Subsidiary is designated a Restricted Company
Subsidiary shall be considered a reduction in outstanding Investments.
"Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.

            "NET CASH PROCEEDS" means:

            (a) with respect to any Asset Sale, the proceeds thereof in the form
of cash or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted Company
Subsidiary), net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment banks) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties which are the subject of
such Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Restricted Company Subsidiary) owning a beneficial interest in
the assets subject to the Asset Sale and (v) appropriate amounts to be provided
by the Company or any Restricted Company Subsidiary, as the case may be, as a
reserve required in accordance with GAAP against any liabilities associated with
such Asset Sale and retained by the Company or any Restricted Company
Subsidiary, as the case may be, after such Asset Sale, including pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; and

            (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Redeemable Capital Stock that has been

                                      -29-
<PAGE>   35
converted into or exchanged for Qualified Capital Stock, as referred to in the
definition of "Restricted Payment" contained in this Section 103, the proceeds
of such issuance or sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed of for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Parent or any Subsidiary of the Parent), net of fees, commissions and
expenses actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.

            "PERMITTED INDEBTEDNESS" means:

            (a) Indebtedness of the Company pursuant to the Notes or of any
Restricted Company Subsidiary pursuant to a Guarantee of the Notes;

            (b) Indebtedness of the Company or any Restricted Company Subsidiary
outstanding on the Issue Date;

            (c) Indebtedness of the Company owing to any Restricted Company
Subsidiary (but only so long as such Indebtedness is held by such Restricted
Company Subsidiary); provided that any Indebtedness of the Company owing to any
such Restricted Company Subsidiary is subordinated in right of payment from and
after such time as the Notes shall become due and payable (whether at Stated
Maturity, by acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; and provided further that any transaction
pursuant to which any Restricted Company Subsidiary to which such Indebtedness
is owed ceases to be a Restricted Company Subsidiary shall be deemed to be an
incurrence of Indebtedness by the Company that is not permitted by this clause
(c);

            (d) Indebtedness of any Restricted Company Subsidiary owing to the
Company or of any Restricted Company Subsidiary owing to another Restricted
Company Subsidiary;

            (e) Indebtedness of the Company or any Restricted Company Subsidiary
in respect of performance, surety or appeal bonds or under letter of credit
facilities provided in the ordinary course of business and, in the case of
letters of credit, under which recourse to the Company is limited to the cash
securing such letters of credit;

            (f) Indebtedness of the Company under Currency Agreements and
Interest Rate Agreements entered into in the ordinary course of business;
provided that such agreements are designed to protect the Company or any
Restricted Company Subsidiary against, or manage exposure to, fluctuations in
currency exchange rates and interest rates, respectively, and that such
agreements do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation payable
thereunder;

            (g) Telecommunications Indebtedness and any Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund, such
Telecommunications Indebtedness in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, and reasonable fees and
expenses);

            (h) Indebtedness of the Company or any Restricted Company Subsidiary
consisting of guarantees, indemnities or obligations in connection with (1)
Telecommunications Indebtedness, (2) Indebtedness permitted under clause (j) or
(m) of this "Permitted Indebtedness" definition or (3) in respect of purchase
price adjustments in connection with the acquisition of or disposition of
assets, including shares of Capital Stock;

                                      -30-
<PAGE>   36
            (i) Indebtedness of the Company not to exceed, at any time
outstanding, 2.0 times the Net Cash Proceeds from the issuance and sale after
the Issue Date, other than to a Restricted Company Subsidiary, of Qualified
Capital Stock of the Company, to the extent such Net Cash Proceeds have not been
used to make Restricted Payments pursuant to clause (a)(3)(B) or clauses (b)(ii)
and (iii) of the definition of "Restricted Payment" or to make any Permitted
Investments under clause (h) of the definition of Permitted Investments;
provided that such Indebtedness does not mature prior to the Stated Maturity of
the Notes and has an Average Life longer than the Notes;

            (j) Indebtedness of the Company or any Restricted Company Subsidiary
under one or more Credit Facilities; provided that the aggregate principal
amount of any Indebtedness incurred pursuant to this clause (j) (including any
amounts refinanced or refunded under this clause (j)) does not exceed at any
time outstanding the greater of (x) 80% of eligible consolidated accounts
receivable of the Company as of the last fiscal quarter for which financial
statements are prepared or (y) $50,000,000 or the equivalent thereof in one or
more foreign currencies; and any Indebtedness incurred in exchange for, or the
net proceeds of which are used to refinance or refund, Indebtedness issued under
this clause (j) in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, and reasonable fees and expenses);

            (k) Indebtedness of the Company or a Restricted Company Subsidiary
issued in exchange for, or the net proceeds of which are used to refinance or
refund, then-outstanding Indebtedness of the Company or a Restricted Company
Subsidiary, incurred under the ratio test set forth in clause (i) or (ii) of the
definition of "Allowable Company Indebtedness" or under clauses (b) through (f),
(h), (i) and (m) of this definition of "Permitted Indebtedness," and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, and reasonable fees and expenses);
provided that such new Indebtedness shall only be permitted under this clause
(k) if (A) in case the Notes are refinanced in part, or the Indebtedness to be
refinanced ranks equally with the Notes, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made to rank equally
with, or subordinate in right of payment to, the remaining Notes, (B) in case
the Indebtedness to be refinanced is subordinated in right of payment to the
Notes, such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding is expressly made subordinate in right of payment to the Notes at
least to the same extent that the Indebtedness to be refinanced is subordinated
to the Notes and (C) such new Indebtedness, determined as of the date of
incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness being refinanced or refunded; provided further that no Indebtedness
incurred under this clause (k) in exchange for, or the proceeds of which
refinance or refund, any Indebtedness incurred under the ratio test set forth
under clause (i) or (ii) of the definition of "Allowable Company Indebtedness"
will mature prior to the Stated Maturity of the Notes or have an Average Life
shorter than the Notes; provided further that in no event may Indebtedness of
the Company be refinanced by means of any Indebtedness of any Restricted Company
Subsidiary issued pursuant to this clause (k);

            (l) Indebtedness arising by reason of the recharacterization of a
sale of accounts receivable to an Accounts Receivable Subsidiary; and

                                      -31-
<PAGE>   37
            (m) Indebtedness of the Company or any Restricted Company Subsidiary
in addition to that permitted to be incurred pursuant to clauses (a) through (l)
above in an aggregate principal amount not in excess of $30,000,000 (or the
equivalent thereof in one or more foreign currencies) at any time outstanding.

            "PERMITTED INVESTMENT" means any of the following:

            (a) Investments in Cash Equivalents; provided that the term "with a
maturity of 180 days or less" in clauses (a), (b) and (c) of the definition of
"Cash Equivalents" is changed to "with a maturity of one year or less" for the
purposes of this definition of "Permitted Investments" only;

            (b) Investments in the Company or any Restricted Company Subsidiary;

            (c) Investments by the Company or any Restricted Company Subsidiary
in another Person if, as a result of such Investment, (i) such other Person
becomes a Restricted Company Subsidiary or (ii) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Company Subsidiary;

            (d) Investments in the form of intercompany Indebtedness to the
extent permitted under clauses (c) and (d) of the definition of "Permitted
Indebtedness;"

            (e) Investments in existence on the Issue Date;

            (f) Investments in the Pledged Securities to the extent required by
the Pledge Agreement;

            (g) Investments in an amount not to exceed $1,000,000 (or the
equivalent thereof in one or more foreign currencies) at any one time
outstanding;

            (h) Investments in an aggregate amount not to exceed the sum of (1)
Invested Capital, (2) the Fair Market Value of Qualified Capital Stock of the
Company, Redeemable Capital Stock of the Company, or Indebtedness of the Company
convertible into Qualified Capital Stock of the Company, in the latter two cases
upon such redemption or conversion thereof into Qualified Capital Stock of the
Company, issued by the Company or any Restricted Company Subsidiary as
consideration for any such Investments made pursuant to this clause (h), and (3)
in the case of the disposition or repayment of any Investment made pursuant to
this clause (h) after the Issue Date (including by redesignation of an
Unrestricted Company Subsidiary to a Restricted Company Subsidiary), an amount
equal to the lesser of the return of capital with respect to such Investment and
the initial amount of such Investment, in either case, less the cost of the
disposition of such Investment; provided, however, that the amount of any
Permitted Investments under this clause (h) shall be excluded from the
computation of the amount of any Restricted Payment;

            (i) Investments in trade receivables, prepaid expenses, negotiable
instruments held for collection and lease, utility and worker's compensation,
performance and other similar deposits or escrow;

            (j) Loans, advances and extensions of credit to employees made in
the ordinary course of business of the Company not in excess of $500,000 (or the
equivalent thereof in one or more foreign currencies) in any fiscal year;

                                      -32-
<PAGE>   38
            (k) Bonds, notes, debentures or other securities evidencing
Indebtedness received as a result of Asset Sales permitted under Section 1017);

            (l) Endorsements for collection or deposit in the ordinary course of
business by the Company or any Restricted Company Subsidiary of bank drafts and
similar negotiable instruments of any other person received as payment for
ordinary course of business trade receivables;

            (m) Investments deemed to have been made as a result of the
acquisition of a Person that at the time of such acquisition held instruments
constituting Investments that were not acquired in contemplation of, or in
connection with, the acquisition of such Person;

            (n) Investments in or acquisitions of Capital Stock, indebtedness,
securities or other property of Persons (other than Affiliates of the Company)
received by the Company or any of its Restricted Company Subsidiaries in the
bankruptcy or reorganization of or by such Person or any exchange of such
Investment with the issuer thereof or taken in settlement of or other resolution
of claim or disputes, and, in each case, extensions, modifications and renewals
thereof;

            (o) Investments in any Person to which Telecommunications Assets
used in an Initial System have been transferred and which person has provided to
the Company or a Restricted Company Subsidiary the right to use such assets
pursuant to an Incumbent Agreement; provided that, in the good faith
determination of the Board of Directors, the present value of the future
payments expected to be received by the Company in respect of any such
Investment plus the Fair Market Value of any capital stock or other securities
received in connection therewith shall be at least equal to the Fair Market
Value of such Investment; and

            (p) Investments in one or more Permitted Telecommunications Joint
Ventures; provided that the total original cost of all such Permitted
Telecommunications Joint Ventures plus the cost or Fair Market Value, as
applicable, of all additions thereto less the sum of all amounts received as
returns thereon shall not exceed $20,000,000 (or the equivalent thereof in one
or more foreign currencies).

            "PERMITTED LIENS" means:

            (a) Liens existing on the Issue Date;

            (b) Liens on any property or assets of a Restricted Company
Subsidiary granted in favor of the Company or any Restricted Company Subsidiary;

            (c) Liens on any property or assets of the Company or any Restricted
Company Subsidiary securing the Notes or any Guarantees thereof;

            (d) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease permitted by this Indenture;

            (e) Liens securing Indebtedness incurred under clauses (g), (j) or
(m) of the definition of "Permitted Indebtedness";

            (f) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Company Subsidiary
and, with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceeding, if a reserve or other

                                      -33-
<PAGE>   39
appropriate provision, if any, as required in conformity with GAAP shall have
been made therefor;

            (g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made therefor;

            (h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds, escrows and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for the
payment of money);

            (i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any Restricted Company Subsidiary incurred in the ordinary course of
business;

            (j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;

            (k) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Company Subsidiary; provided that such Lien
does not extend to any property or assets of the Company or any Restricted
Company Subsidiary other than the assets acquired in connection with the
incurrence of such Acquired Indebtedness;

            (l) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements permitted to be incurred under clause (f) of
the definition of "Permitted Indebtedness" or any collateral for the
Indebtedness to which such Interest Rate Agreements or Currency Agreements
relate;

            (m) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;

            (n) Liens securing reimbursement obligations of the Company or any
Restricted Company Subsidiary with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof;

            (o) Liens arising from purchase money mortgages and purchase money
security interests; provided that (i) the related Indebtedness shall not be
secured by any property or assets of the Company or of any Restricted Company
Subsidiary other than the property and assets so acquired and (ii) the Lien
securing such Indebtedness shall be created within 60 days of such acquisition;

            (p) Liens securing the Escrow Account, the Pledged Securities and
the proceeds thereof and the security interest created by the Pledge Agreement;

            (q) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (a) through (o); provided that any
such extension, renewal or

                                      -34-
<PAGE>   40
replacement shall be no more restrictive in any material respect than the Lien
so extended, renewed or replaced and shall not extend to any additional property
or assets;

            (r) Liens with respect to the equipment and related assets of the
Company installed on its network in favor of Persons that have licensed, leased,
transferred or granted to the Company or any Restricted Company Subsidiary a
right to use Telecommunications Assets or financed the purchase of
Telecommunications Assets or securing the obligations of the Company or such
Restricted Company Subsidiary under an Incumbent Agreement; provided that such
Liens will (1) be created on terms that the Company reasonably believes to be no
less favorable to the Company than Liens granted under clause (e) of this
definition and (2) not secure any Indebtedness in excess of the Fair Market
Value of the equipment and assets so secured;

            (s) Liens relating to revenues of the Company or any Restricted
Company Subsidiary arising as a result of obligations under an Incumbent
Agreement; and

            (t) Liens on the property or assets or Capital Stock of Accounts
Receivable Subsidiaries and Liens arising out of any sale of Accounts Receivable
in the ordinary course of business (including in connection with a financing
transaction) to or by an Accounts Receivable Subsidiary or to Persons that are
not Affiliates of the Company.

            "PERMITTED RESTRICTION" means:

            (a) any agreement or instrument governing or relating to
Indebtedness under any senior financing facility permitted to be incurred under
clause (g), (j) or (m) of the definition of Permitted Indebtedness if such
encumbrance or restriction applies only (A) to amounts which at any point in
time (other than during such periods as are described in the following clause
(B)) (1) exceed scheduled amounts due and payable (or which are to become due
and payable within 30 days) in respect of the Notes or this Indenture for
interest, premium, and Liquidated Damages, if any, and principal less the amount
of cash that is otherwise available to the Company at such time for the payment
of interest, premium and Liquidated Damages, if any, and principal due and
payable in respect of the Notes or this Indenture or (2) if paid, would result
in an event described in the following clause (B) of this sentence, or (B)
during the tendency of any event that causes, permits or, after notice or lapse
of time, would cause or permit the holder or holders of such Indebtedness to
declare such Indebtedness to be immediately due and payable or to require cash
collateralization or cash cover for such Indebtedness for so long as such cash
collateralization or cash cover has not been provided; and

            (b) any encumbrance or restriction under the Vendor Credit Facility.

            "PERMITTED TELECOMMUNICATIONS ASSET SALE" means any transfer,
conveyance, sale, lease or other disposition of a capital asset that is a
Telecommunications Asset, the proceeds of which are treated as revenues
(including deferred revenues) by the Company in accordance with GAAP.

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

            "PERMITTED TRANSACTION" means a transaction or a series of
transactions pursuant to which the Company consolidates with or merges with or
into any other Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its properties

                                      -35-
<PAGE>   41
and assets to any other Person or Persons, or pursuant to which any Restricted
Company Subsidiary enters into any such transaction or series of transactions,
provided always that such transaction or series of transactions, shall not be
permitted if it or they in the aggregate would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Company Subsidiaries
on a consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto:

                  (i) either (A) the Company shall be the continuing corporation
            or (B) the Person (if other than the Company) formed by such
            consolidation or into which the Company or such Restricted Company
            Subsidiary is merged or the Person that acquires by sale,
            assignment, conveyance, transfer, lease or disposition all or
            substantially all the properties and assets of the Company and its
            Restricted Company Subsidiaries on a consolidated basis, as the case
            may be (the "Surviving Company Entity"), (1) shall be a corporation
            organized and validly existing under the laws of the United States
            of America, any state thereof or the District of Columbia and (2)
            shall expressly assume, by a supplemental indenture to this
            Indenture in form satisfactory to the Trustee, the Company's
            obligations pursuant to the Notes for the due and punctual payment
            of the principal of, premium, if any, and interest on all the Notes
            and the performance and observance of every covenant herein on the
            part of the Company to be performed or observed;

            (b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
obligation of the Company or any Restricted Company Subsidiary incurred in
connection with or as a result of such transaction or series of transactions as
having been incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;

            (c) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction or
series of transactions occurred on the first day of the two fiscal quarter
period ending immediately prior to the consummation of such transaction or
series of transactions, with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the Company (or the Surviving Company Entity if the Company is not
the continuing obligor hereunder) could incur at least $1.00 of additional
Allowable Company Indebtedness (other than Permitted Indebtedness); and

            (d) the Company or such Person shall have delivered to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate (attaching the computations to demonstrate compliance with clause
(c) above) and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, conveyance, transfer or lease or other disposition
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, constitute a Permitted Transaction for
the purposes of this definition and that all conditions precedent herein
provided for relating to such transaction have been complied with.

                                      -36-
<PAGE>   42
                  Provided that:

                           (i) any merger or consolidation of a Restricted
                  Company Subsidiary with and into the Company (with the Company
                  being the surviving entity) or another Restricted Company
                  Subsidiary need only comply with clauses (c) and (d) above in
                  order to qualify as a Permitted Transaction. Further, any
                  reincorporation of the Company or any Restricted Company
                  Subsidiary under the laws of the United States of America, any
                  state thereof or the District of Columbia shall be a Permitted
                  Transaction;

                           (ii) Upon any consolidation of the Company with or
                  merger of the Company with or into any other corporation or
                  any sale, assignment, conveyance, transfer, lease or
                  disposition of the properties and assets of the Company
                  substantially as an entirety to any Person that qualifies as a
                  Permitted Transaction pursuant to clauses (a) through (d) of
                  this definition in which the Company is not the continuing
                  obligor hereunder, the Surviving Company Entity shall succeed
                  to, and be substituted for, and may exercise every right and
                  power of, the Company hereunder with the same effect as if
                  such successor Person had been named as the Company herein.
                  When a successor assumes all of the obligations of its
                  predecessor under the Indenture, the predecessor shall be
                  released from such obligations; provided that, in the case of
                  a transfer by lease, the predecessor shall not be released
                  from the payment of principal of, premium and Liquidated
                  Damages, if any, and interest on the Notes.

                           (iii) If, upon any such consolidation of the Company
                  with or merger of the Company into any other corporation, or
                  upon any sale, assignment, conveyance, lease or transfer of
                  the property of the Company substantially as an entirety to
                  any other Person, any property or assets of the Company would
                  thereupon become subject to any Lien, then unless such Lien
                  qualifies as a Permitted Lien without equally and ratably
                  securing the Notes, the Company, prior to or simultaneously
                  with such consolidation, merger, sale, assignment, conveyance,
                  lease or transfer, shall as to such property or assets, secure
                  the Notes Outstanding (together with, if the Company shall so
                  determine any other Indebtedness of the Company now existing
                  or hereinafter created which is not subordinate in right of
                  payment to the Notes) equally and ratably with (or prior to)
                  the Indebtedness which upon such consolidation, merger,
                  conveyance, lease or transfer is to become secured as to such
                  property or assets by such Lien, or shall cause such Notes to
                  be so secured.

                  "RESTRICTED PAYMENT" means any of the following actions
whether taken directly or indirectly and whether taken by the Company or any
Restricted Company Subsidiary:

                  (a) (1) the declaration or payment of any dividend on, or
making of any distribution to holders of, any shares of the Capital Stock of the
Company (other than dividends or distributions payable solely in shares of its
Qualified Capital Stock or in options, warrants or other rights to acquire such
shares of Qualified Capital Stock);

                           (2) purchasing, redeeming or otherwise acquiring or
         retiring for value, directly or indirectly, any shares of Capital Stock
         of the Company or any Capital Stock of

                                      -37-
<PAGE>   43
         any of its Affiliates (other than Capital Stock of the Parent, any
         Subsidiaries of the Parent that are not Company Restricted Subsidiaries
         and any Wholly Owned Restricted Subsidiary) or any options, warrants or
         other rights to acquire such shares of Capital Stock;

                           (3) making any principal payment on, or repurchasing,
         redeeming, defeasing or otherwise acquiring or retiring for value,
         prior to the Stated Maturity of any principal payment or any sinking
         fund payment, any Indebtedness of the Company that is expressly
         subordinated in right of payment to the Notes; or

                           (4) making any Investment (other than any Permitted
         Investment) in any Person;

         (such payments or other actions described in (but not excluded from)
         clauses (1) through (4) are collectively referred to as "Restricted
         Payments"); unless at the time of, and immediately after giving effect
         to, the proposed Restricted Payment (the amount of any such Restricted
         Payment, if other than cash, as determined by the Board of Directors
         the Company, whose determination shall be conclusive and evidenced by a
         Board Resolution), (A) no Default or Event of Default shall have
         occurred and be continuing, (B) the Company could incur at least $1.00
         of additional Allowable Company Indebtedness (other than Permitted
         Indebtedness) and (C) the aggregate amount of all Restricted Payments
         declared or made after the Issue Date shall not exceed the sum of:

                           (i) (A) 100% of Consolidated Operating Cash Flow of
                  the Company less 1.5 times Consolidated Interest Expense of
                  the Company or (B) if Consolidated Operating Cash Flow of the
                  Company is a negative, minus 100% of such negative amount, in
                  each case on a cumulative basis for the period beginning on
                  the first day of the Company's first fiscal quarter after the
                  Issue Date and ending on the last day of the Company's last
                  fiscal quarter ending prior to the date of such proposed
                  Restricted Payment; plus

                           (ii) the aggregate Net Cash Proceeds and the Fair
                  Market Value of Telecommunications Assets or Voting Stock of a
                  Person that becomes a Restricted Subsidiary, the assets of
                  which consist primarily of Telecommunications Assets, received
                  by the Company after the Issue Date as capital contributions
                  or from the issuance or sale (other than to any Subsidiary) of
                  shares of Qualified Capital Stock of the Company (including
                  upon the exercise of options, warrants or rights) or warrants,
                  options or rights to purchase shares of Qualified Capital
                  Stock of the Company; plus

                           (iii) the aggregate Net Cash Proceeds and the Fair
                  Market Value of Telecommunications Assets or Voting Stock of a
                  Person that becomes a Restricted Subsidiary, the assets of
                  which consist primarily of Telecommunications Assets, received
                  by the Company after the Issue Date from the issuance or sale
                  (other than to any Subsidiary) of debt securities or
                  Redeemable Capital Stock that have been converted into or
                  exchanged for Qualified Capital Stock of the Company, together
                  with the aggregate Net Cash Proceeds and the Fair Market Value
                  of Telecommunications Assets or Voting

                                      -38-
<PAGE>   44
                  Stock of a Person that becomes a Restricted Subsidiary, the
                  assets of which consist primarily of Telecommunications
                  Assets, received by the Company at the time of such conversion
                  or exchange; plus

                           (iv) to the extent not otherwise included in
                  Consolidated Operating Cash Flow of the Company, an amount
                  equal to the sum of (a) the net reduction in Investments
                  (other than Permitted Investments) in any Person (other than a
                  Restricted Subsidiary) resulting from the payment in cash of
                  dividends, repayments of loans or advances or other transfers
                  of assets, in each case to the Company or any Restricted
                  Subsidiary after the Issue Date from such Person and (b) the
                  amount of any net reduction in Investments resulting from the
                  redesignation of an Unrestricted Company Subsidiary as a
                  Restricted Company Subsidiary (valued as provided in the
                  definition of "Investment") at the time of such redesignation;
                  provided that, in the case of (a) or (b) above, the foregoing
                  sum shall not exceed the total amount of Investments (other
                  than Permitted Investments) previously made in such Person or
                  Unrestricted Company Subsidiary by the Company and its
                  Restricted Company Subsidiaries.

                  (b) Notwithstanding the above, the following actions by the
Company or any Restricted Company Subsidiary shall not constitute Restricted
Payments so long as (with respect to clauses (1) through (6) below) no Default
or Event of Default shall have occurred and be continuing:

                           (1) the payment of any dividend within 60 days after
         the date of declaration thereof, if at such date of declaration the
         payment of such dividend would have complied with the provisions of
         paragraph (a) above and such payment will be deemed to have been paid
         on such date of declaration for purposes of the calculation required by
         paragraph (a) above;

                           (2) the purchase, redemption or other acquisition or
         retirement for value of any shares of Capital Stock of the Company (x)
         in exchange for, or out of the Net Cash Proceeds of a substantially
         concurrent issuance and sale (other than to a Subsidiary) of, shares of
         Qualified Capital Stock of the Company; (y) that are held by former
         officers, employees or directors (or their estates or beneficiaries
         under their estates) of the Company or any of its Subsidiaries;
         provided that the aggregate amount of such purchase, redemption or
         other acquisition or retirement for value under this clause (y) will
         not exceed $250,000 (or the equivalent thereof in one or more foreign
         currencies) in any given fiscal year; or (z) pursuant to the employment
         agreement dated August 4, 1997, between the Company and Richard Jalkut,
         as amended and as in effect on the Issue Date (and any extensions or
         renewals thereof); provided that the amount of such purchase,
         redemption or other acquisition or retirement for value under this
         clause (z) will not exceed $1,000,000 (or the equivalent thereof in one
         or more foreign currencies) in any given fiscal year;

                           (3) the purchase, redemption, defeasance or other
         acquisition or retirement for value of any Indebtedness of the Company
         that is expressly subordinated in right of payment to the Notes in
         exchange for, or out of the Net Cash

                                      -39-
<PAGE>   45
         Proceeds of a substantially concurrent issuance and sale (other than to
         a Subsidiary) of, shares of Qualified Capital Stock of the Company;

                           (4) the purchase of any Indebtedness of the Company
         that is expressly subordinated in right of payment to the Notes at a
         purchase price not greater than 101% of the principal amount thereof in
         the event of a Change of Control in accordance with provisions similar
         to Section 1010; provided that prior to such purchase the Company has
         made the Change of Control Offer as provided in such covenant with
         respect to the Notes and has purchased all Notes validly tendered for
         payment in connection with such Change of Control Offer;

                           (5) the purchase, redemption, defeasance or other
         acquisition or retirement for value of Indebtedness (other than
         Redeemable Capital Stock) of the Company that is expressly subordinated
         in right of payment to the Notes in exchange for, or out of the Net
         Cash Proceeds of a substantially concurrent incurrence (other than to a
         Subsidiary) of, new Indebtedness of the Company that is expressly
         subordinated in right of payment to the Notes, so long as (A) the
         principal amount of such new Indebtedness does not exceed the principal
         amount (or, if such Indebtedness being refinanced provides for an
         amount less than the principal amount thereof to be due and payable
         upon a declaration of acceleration thereof, such lesser amount as of
         the date of determination) of the Indebtedness being so purchased,
         redeemed, defeased, acquired or retired, plus the lesser of (x) the
         amount of any premium required to be paid in connection with such
         refinancing pursuant to the terms of the Indebtedness being refinanced
         or (y) the amount of any premium reasonably determined by the Company
         as necessary to accomplish such refinancing, plus, in either case, the
         amount of expenses of the Company incurred in connection with such
         refinancing; (B) such new Indebtedness is subordinated to the Notes to
         the same extent as such Indebtedness so purchased, redeemed, defeased,
         acquired or retired; and (C) such new Indebtedness has an Average Life
         longer than the Average Life of the Indebtedness being refinanced and a
         final Stated Maturity of principal later than the final Stated Maturity
         of the Indebtedness being refinanced; and

                           (6) the payment of cash in lieu of fractional shares
         of Common Stock pursuant to the Warrant Agreement.

                  The actions described in clauses (1) through (4) and (6) of
this paragraph (b) shall be Restricted Payments that shall be permitted in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph (a)
above. The actions described in clause (5) of this paragraph (b) shall be
Restricted Payments that shall be permitted in accordance with this paragraph
(b) and shall not reduce the amount that would otherwise be available for
Restricted Payments under clause (C) of paragraph (a).

                  "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Company Subsidiary.

                  "SALE-LEASEBACK TRANSACTION" means any direct or indirect
arrangement, or series of related arrangements, with any Person (other than the
Company or a Restricted Company Subsidiary) or to which any Person (other than
the Company or a Restricted Company

                                      -40-
<PAGE>   46
Subsidiary) is a party, providing for the leasing to the Company or to a
Restricted Company Subsidiary of any property for an aggregate term exceeding
three years, whether owned by the Company or by any Subsidiary of the Company at
the Issue Date or later acquired, which has been or is to be sold or transferred
by the Company or such Restricted Company Subsidiary to such Person or to any
other Person from whom funds have been or are to be advanced by such Person on
the security of such property; provided that the transfer by the Company or any
Restricted Company Subsidiary of Telecommunications Assets to, and the leasing
by the Company or any Restricted Company Subsidiary of such assets from, a
Permitted Telecommunications Joint Venture shall not constitute a Sale-Leaseback
Transaction.

                  "SIGNIFICANT SUBSIDIARY" means, at any date of determination,
any Restricted Company Subsidiary that, together with its Subsidiaries, (i) for
the most recent fiscal year of the Company accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Company Subsidiaries,
(ii) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Company Subsidiaries, or
(iii) owns one or more FCC licenses the aggregate cost or Fair Market Value of
which represents 5% or more of the net asset value of the Company and its
Restricted Company Subsidiaries on a consolidated basis as of the end of such
fiscal year, in the case of (i), (ii) or (iii) as set forth on the most recently
available consolidated financial statements of the Company for such fiscal year.

                  "TELECOMMUNICATIONS ASSETS" means, with respect to any Person,
assets (including rights of way, trademarks and licenses) other than current
assets that are utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration or provision of the
Company's network, including any businesses or services in which the Company is
currently engaged and including any computer systems used in a
Telecommunications Business. Telecommunications Assets also include 66 2/3% of
the Voting Stock of another Person, provided that substantially all of the
assets of such other Person consist of Telecommunications Assets, and provided
further such Voting Stock shall be held by the Company or a Restricted Company
Subsidiary, such other Person either is, or immediately following the relevant
transaction shall become, a Restricted Subsidiary of the Company pursuant to
this Indenture or a Permitted Telecommunications Joint Venture subject to the
limitations set forth under clause (p) of the definition of "Permitted
Investment" contained in this Section 103. The determination of what constitutes
Telecommunications Assets shall be made by the Board of Directors and evidenced
by a Board Resolution delivered to the Trustee.

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

                  "TELECOMMUNICATIONS INDEBTEDNESS" means, Indebtedness of the
Company or any Restricted Company Subsidiary incurred at any time within 315
days of, and for the purpose of financing all or any part of the cost of, the
construction, expansion, installation, acquisition or improvement by the Company
or any Restricted Company Subsidiary of any new

                                      -41-
<PAGE>   47
Telecommunications Assets; provided that the proceeds of such Indebtedness are
expended for such purposes within such 315-day period; and provided further that
the Net Cash Proceeds from the issuance of such Indebtedness does not exceed, as
at the date of incurrence thereof, 100% of the lesser of the cost or Fair Market
Value of such Telecommunications Assets; provided further that, to the extent an
Incumbent Agreement is characterized as a Capitalized Lease Obligation, it shall
be considered Telecommunications Indebtedness.

                  "UNRESTRICTED COMPANY SUBSIDIARY" means:

                  (a) any Subsidiary of the Company that at the time of
determination shall be an Unrestricted Company Subsidiary (as designated by the
Board of Directors as provided below); and

                  (b) any Subsidiary of an Unrestricted Company Subsidiary.

                  The Board of Directors may designate any Subsidiary of the
         Company (including any newly acquired or newly formed Subsidiary of the
         Company) to be an Unrestricted Company Subsidiary so long as (i)
         neither the Company nor any other Subsidiary of the Company is directly
         or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
         default with respect to any Indebtedness of such Subsidiary would
         permit (upon notice, lapse of time or otherwise) any holder of any
         other Indebtedness of the Company or any Restricted Company Subsidiary
         to declare a default on such other Indebtedness or cause the payment
         thereof to be accelerated or payable prior to its Stated Maturity,
         (iii) any Investment in such Subsidiary made as a result of designating
         such Subsidiary an Unrestricted Company Subsidiary will not violate the
         provisions of Section 1012, (iv) neither the Company nor any Restricted
         Company Subsidiary has a contract, agreement, arrangement,
         understanding or obligation of any kind, whether written or oral, with
         such Subsidiary other than those that might be obtained at the time
         from persons who are not Affiliates of the Company, and (v) neither the
         Company nor any other Subsidiary of the Company has any obligation (1)
         to subscribe for additional shares of Capital Stock or other equity
         interest in such Subsidiary, or (2) to maintain or preserve such
         Subsidiary's financial condition or to cause such Subsidiary to achieve
         certain levels of operating results. Any such designation by the Board
         of Directors shall be evidenced to the Trustee by filing a Board
         Resolution with the Trustee giving effect to such designation. The
         Board of Directors may designate any Unrestricted Company Subsidiary as
         a Restricted Company Subsidiary if, immediately after giving effect to
         such designation, there would be no Default or Event of Default under
         this Indenture and the Company could incur $1.00 of additional
         Allowable Company Indebtedness (other than Permitted Indebtedness).

SECTION 104. AMENDMENT TO SECTION 103. Section 103 of the Indenture is hereby
amended by deleting the existing Section 103 in its entirety and replacing it
with the following:

Section 103.  Form of Documents Delivered to Trustee.

                  In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only

                                      -42-
<PAGE>   48
one document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.

                  Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.

                  Any certificate or opinion of an officer of the Parent may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Parent, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.

                  Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.

                           AMENDMENTS TO "NOTE FORMS"

SECTION 105. AMENDMENT TO SECTION 202. Section 202 of the Indenture is hereby
amended by deleting the existing Section 202 in its entirety and replacing it
with the following:

         Section 202.  Form of Face of Note.

                                  PATHNET, INC.

                          12 1/4% Senior Note due 2008

                                                          [CUSIP]_______________
                                                         [ISIN]_________________

                                      -43-
<PAGE>   49
No._____________                                                       $________

   Pathnet, Inc., a Delaware corporation (herein called the "Company", which
term includes any successor Person under the Indenture, as amended by the
Supplemental Indenture, each hereinafter referred to), for value received,
hereby promises to pay to _____________ or registered assigns, the principal sum
of ________________ Dollars on April 15, 2008, at the office or agency of the
Company and the Parent (as defined below) referred to below, and to pay interest
thereon on October 15, 1998 and semi-annually thereafter, on April 15 and
October 15 in each year, from April 8, 1998, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 12 1/4% per annum, until the principal hereof is paid or duly provided for,
and (to the extent lawful) to pay on demand interest on any overdue interest at
the rate borne by the Notes from the date on which such overdue interest becomes
payable to the date payment of such interest has been made or duly provided for.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date, as provided in such Indenture, shall be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business of the Regular Record Date for such interest, which
shall be the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. This Note has been issued
with original issue discount for U.S. federal income tax purposes.

   This Note is unconditionally guaranteed by Pathnet Telecommunications, Inc.,
a Delaware corporation (herein called the "Parent") as set forth in the
Guarantee endorsed hereon.

   The following information is supplied for purposes of Section 1273 and 1275
of the Internal Revenue Code.

<TABLE>
<S>                                                        <C>
          Issue Date:                                      April 8, 1998
          Issue Price:                                     $988.29
          Original issue discount under Section 1273 of
          the Internal Revenue Code (for each $1,000
          principal amount):                               $11.71
          Yield Maturity                                   12.46%
</TABLE>

                  Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and such defaulted interest, and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes, may be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to such Special Record Date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Payment of the principal of (and premium, if any, on) and interest on
this Note will be made to the Depositary or its nominee, as the case may be, as
the registered owner thereof, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, the payment of interest may be made at the

                                      -44-
<PAGE>   50
option of the Company or the Parent, as the case may be (i) by its check mailed
to the address of the Person entitled thereto as such address shall appear on
the Note Register or (ii) by wire transfer to an account maintained by the payee
located in the United States.

   The Holder of this Note is entitled to the benefits of the Notes Registration
Rights Agreements, dated as of April 8, 1998 (the "Notes Registration Right
Agreement"), between the Company and the Initial Purchasers named therein.

   Reference is hereby made to the further provisions of this Note set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.

   Unless the certificate of authentication hereon has been duly executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Indenture, as amended by the
Supplemental Indenture, or the Guarantee or be valid or obligatory for any
purpose.

   IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

   Dated:                                 PATHNET, INC.

                                          By____________________________________

                  Attest:

                  _______________________
                  Authorized Signature

                                      -45-
<PAGE>   51
SECTION 106. AMENDMENT TO SECTION 203. Section 203 of the Indenture is hereby
amended by deleting the existing Section 203 in its entirety and replacing it
with the following:

         Section 203. Form of Reverse Note.

                  This Note is one of a duly authorized issue of securities of
the Company designated as its 12 1/4% Senior Notes due 2008 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture, as amended by
the Supplemental Indenture) in aggregate principal amount to $350,000,000, which
may be issued under an indenture dated as of April 8, 1998 between the Company
and The Bank of New York, as trustee, as amended by the Supplemental Indenture
dated as of [           ], 2000 between the Company, Pathnet Telecommunications,
Inc., and The Bank of New York, as trustee. References in this Note to the
Indenture shall be deemed to be references to the Indenture as amended by the
Supplemental Indenture. The Bank of New York, as trustee is herein called the
"Trustee", which term includes any successor trustee under the Indenture.
Reference is hereby made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Parent, the Trustee
and the Holders of the Notes, and of the terms upon which the Notes are, and are
to be, authenticated and delivered.

                  The Notes are subject to redemption upon not less than 30 nor
more than 60 days notice, at any time after April 15, 2003 as a whole or in
part, at the election of the Company, at a Redemption Price (expressed as
percentages of the principal amount) set forth below if redeemed during the
12-month period beginning April 15, of the years indicated (subject to the right
of Holders of record on the relevant Regular Record Dates to receive interest
due on an interest payment date):

<TABLE>
<CAPTION>
                  Year                             Redemption Price
                  ----                             ----------------
<S>                                                <C>
             2003                                      106.125%
             2004                                      104.083%
             2005                                      102.042%
             2006 and thereafter                       100.00%
</TABLE>

                  together in the case of any such redemption with accrued
interest, if any, to the Redemption Date, all as provided in the Indenture.

   Notwithstanding the foregoing, at any time on or prior to April 15, 2001, the
Company may redeem within 60 days of one or more Public Equity Offerings up to
35% of the aggregate principal amount of the Notes issued on the Issue Date at a
redemption price equal to 112.25% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any thereon to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date) with the Net Cash
Proceeds of one or more Public Equity Offerings; provided that at least 65% of
the principal amount of the Notes issued on the Issue Date remain Outstanding.

   If less than all the Notes are to be redeemed, the Trustee will select the
particular Notes to be redeemed not more than 60 days prior to the redemption
date by such method as the Trustee

                                      -46-
<PAGE>   52
deems fair and appropriate; provided that no such partial redemption will reduce
the principal amount of a Note not redeemed to less than $1,000. Notice of
redemption will be mailed, first-class postage prepaid, at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. On and after the date of redemption, interest will
cease to accrue on Notes portions thereof called for redemption and accepted for
payment.

   Upon the occurrence of a Change of Control, the Holder of this Note may
require the Company, subject to certain limitations provided in Section 1010 of
the Indenture and otherwise in this Indenture, to repurchase this Note at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon to the Change of Control
Purchase Date (as defined in Section 1010 of the Indenture).

   In the case of any redemption of Notes, interest installments whose Stated
Maturity is on or prior to the Redemption Date will be payable to the Holders of
record of such Notes, or one or more Predecessor Notes, at the close of business
on the relevant Record Date referred to on the face hereof. Notes (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.

   In the event of redemption of this Note in part only, a new Note or Notes for
the unredeemed portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.

   If an Event of Default shall occur and be continuing, the principal of all
the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.

   The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Defaults, upon compliance by
the Company with certain conditions set forth therein, which provisions apply to
this Notice.

   The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modifications of the rights and obligations of the
Company, the Parent and the rights of the Holders under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all Notes, to waive compliance by the Company and
the Parent with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.

   No reference herein to the Indenture and no provisions of this Note or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of (and premium and Liquidated Damages,
if any) and interest on this Note at the times, place, and rate, and in the coin
or currency, herein prescribed.

   As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note is registerable on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company and the Parent maintained for such

                                      -47-
<PAGE>   53
purpose in The City of New York, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company, the Parent and the
Note Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee and transferees.

   The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for alike aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.

   No service charge shall be made for any registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

   Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any agent shall be affected by notice to the contrary.

   THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.

   All terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.

SECTION 107. ADDITION OF SECTION 203A. The following Section 203A is hereby
added to the Indenture:

         SECTION 203A. Guarantee of Note. Each of the Notes shall have the
         following Guarantee endorsed upon it:

         1.       Guarantee of Payment and Performance of Obligations.

                  (a)      For value received, Pathnet Telecommunications, Inc.
                           (the "Parent") unconditionally guarantees to the
                           holder of any Outstanding Note or Notes (a "Holder")
                           the full and punctual payment and performance of the
                           Obligations (as defined in subsection (b) below).
                           This Guarantee is an absolute, unconditional and
                           continuing guarantee of the full and punctual payment
                           and performance by the Company of each of the
                           Obligations, and not of collectability only, and is
                           no way conditioned upon any requirement that any
                           Holder first attempt to seek payment or performance
                           from the Company or any other Parent or surety or
                           resort to any security or other means of obtaining
                           payment of all or any of the Obligations or upon any
                           other contingency. Upon any default by the Company in
                           the full and punctual payment or performance of any
                           of the Obligations, if such default remains uncured
                           after the giving of any required notice and after any
                           applicable period of cure, the liabilities and
                           obligations of the Parent hereunder shall at the
                           option of any Holder become forthwith effective,

                                      -48-
<PAGE>   54
                           matured, due and payable without further demand or
                           notice of any nature, all such demands and notices
                           being expressly waived by the Parent.

                  (b)      As used herein, the term "Obligations" means all
                           obligations, covenants, liabilities, undertakings and
                           agreements of any kind of the Company to all or any
                           of the Holders contained in the Indenture, to be
                           performed after the date hereof, howsoever, incurred,
                           arising or evidenced, whether now or hereafter
                           existing, due or to become due or of payment or
                           performance and including, without limitation: (i)
                           the prompt payment in full, in United States
                           currency, when due (whether at stated maturity, by
                           acceleration, by mandatory or optional prepayment or
                           otherwise) of the principal of and interest on the
                           Notes (including interest on any overdue principal,
                           and, to the extent permitted by applicable law, on
                           any overdue interest) and all other amounts from time
                           to time owing by the Company under the Indenture and
                           under the Notes (including costs, expenses and
                           taxes); and (ii) the prompt performance and
                           observance by the Company of all covenants,
                           agreements and conditions on its part to be performed
                           and observed under the Indenture, in each case
                           strictly in accordance with the terms thereof (such
                           payments and other obligations being herein
                           collectively referred to as the "Obligations").

         2.       Guarantee Continuing and Liability Unaffected.

                  (a)      Subject to Section 2 (c), this is a continuing
                           guarantee and shall be binding upon the Parent
                           regardless of how long before or after the date
                           hereof any part of the Obligations was or is incurred
                           by the Company. Subject to Section 2 (c), this
                           Guarantee may be enforced by any or all of the
                           Holders from time to time and as often as occasion
                           for such enforcement may arise.

                  (b)      If after receipt of any payment from the Parent made
                           hereunder the Holders, or any of them, are compelled
                           to surrender or voluntarily surrender such payment or
                           proceeds to any person because such payment or
                           application of proceeds is or may be avoided,
                           invalidated, recaptured, or set aside as a
                           preference, fraudulent conveyance, impermissible
                           setoff or for any other reason, whether or not such
                           surrender is the result of (i) any judgment, decree
                           or order of any court or administrative body having
                           jurisdiction over the Holders, or (ii) any settlement
                           or compromise by the Holders of any claim as to any
                           of the foregoing with any person (including the
                           Company), then the Obligations or part thereof
                           affected shall be reinstated and continue and this
                           Guarantee shall be reinstated and continue in full
                           force as to such Obligations or part thereof as if
                           such payment or proceeds had not been received. The
                           provisions of this Section 2(b) shall survive the
                           termination of this Guarantee and any satisfaction
                           and discharge of the Company by virtue of any
                           payment, court order or any federal or state law.

                  (c)      The Parent shall be subrogated to all rights of the
                           Holders in respect of any amounts paid by the Parent
                           pursuant to the provisions of this Guarantee;

                                      -49-
<PAGE>   55
                           provided, however, that Parent shall be entitled to
                           enforce, or to receive any payments arising out of or
                           based upon, such right of subrogation with respect to
                           any Obligation only after the payment of all amounts
                           owed by the Company to the Holders with respect to
                           all of the Obligations have been paid in full.

                  (d)      This Guarantee shall terminate and be of no further
                           force and effect as to any Note upon full payment of
                           the Redemption Price with respect to such Note,
                           provided, however, that this Guarantee shall continue
                           to be effective or shall be reinstated, as the case
                           may be, if at any time the Company must restore
                           payment of any sums paid under such Note or under
                           this Guarantee for any reason whatsoever.

         3.       Unconditional Nature of Parent's Obligations and Liabilities.
         The obligations and liabilities of the Parent hereunder shall be
         absolute and unconditional, and shall not be subject to any
         counterclaim, set-off, deduction or defense based upon any claim the
         Parent may have against the Company or any other person or entity. Such
         obligations and liabilities shall remain in full force and effect for
         the period set forth in Section 2 above without regard to any event,
         circumstance or condition (whether or not the Parent shall have
         knowledge or notice thereof) which but for the provisions of this
         Section might constitute a legal or equitable defense or discharge of a
         Parent or surety or which might in any way limit recourse against the
         Parent, including:

                  (a)      any amendment or modification or supplement to the
                           terms of the Indenture, this Guarantee or any of the
                           Notes, including the renewal or extension of the time
                           for payment of the Notes or the granting of time in
                           respect of the payment thereof;

                  (b)      any waiver, consent, extension, granting of time,
                           forbearance, indulgence or other action or inaction
                           under or in respect of the Indenture or the Notes, or
                           any exercise or non-exercise of any right, remedy or
                           power in respect thereof;

                  (c)      the invalidity or unenforceability, in whole or in
                           part of the Indenture or this Guarantee resulting
                           from the Company's or the Parent's lack of authority
                           to enter into the Indenture and/or to incur any or
                           all of the Obligations, by any person acting for the
                           Company or the Parent without or in excess of
                           authority;

                  (d)      any actual, purported or attempted sale, assignment
                           or other transfer by any or all of the Holders or by
                           the Company or the Parent of the Indenture or the
                           Notes or of any of their rights, interests or
                           obligations thereunder;

                  (e)      the addition of any party as a Parent or surety of
                           all or any part of the Obligations or any limitation
                           of the liability of any additional Parent or surety
                           of all or any part of the Obligations under any other
                           agreement;

                  (f)      any merger or consolidation of the Company or of the
                           Parent into or with any other entity, or any sale,
                           lease, transfer or other disposition of any or all of
                           any Company's or the Parent's assets or any sale,
                           transfer or other

                                      -50-
<PAGE>   56
                           disposition of any or all of the economic interests
                           in the Company or the Parent to any other person or
                           entity;

                  (g)      the recovery of any judgment against the Company or
                           any action to enforce the same; or

                  (h)      any change in the financial condition of the Company
                           or the Company's entry into an assignment for the
                           benefit of creditors, an arrangement or any other
                           agreement or procedure for the restructuring of its
                           liabilities, or the Company's insolvency, bankruptcy,
                           reorganization, dissolution, liquidation or any
                           similar action by or occurrence with respect to the
                           Company.

         4.       Parent's Waiver. The Parent unconditionally waives, to the
fullest extent permitted by law:

                  (a)      notice of any of the matters referred to in Section 3
                           hereof;

                  (b)      diligence, presentment, demand of payment and filing
                           of claims with a court in the event of bankruptcy or
                           insolvency of the Company;

                  (c)      any right to the enforcement, assertion or exercise
                           by any or all of the Holders of any of their rights,
                           powers or remedies under, against or with respect to
                           the Company (i) any other Parent or surety, or (ii)
                           any security for all or any part of the Obligations;

                  (d)      any requirement that the Parent be joined as a party
                           in any action or proceeding against the Company to
                           enforce any of the provisions of the Indenture;

                  (e)      acceptance of this Guarantee by any Holder;

and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in this Guarantee.

         5.       Representations and Warranties. The Parent represents and
warrants that:

                  (a)      the Parent is a corporation duly organized and
                           validly existing in good standing under the laws of
                           the State of Delaware and has the full power,
                           authority and legal right to enter into and perform
                           its obligations under this Guarantee;

                  (b)      this Guarantee has been duly authorized, executed and
                           delivered by the Parent and constitutes the legal,
                           valid and binding obligation of the Parent,
                           enforceable against the Parent in accordance with its
                           terms, except for the effect of bankruptcy,
                           insolvency, reorganization, moratorium, receivership
                           or similar laws affecting the enforcement of
                           creditors' rights generally;

                  (c)      the execution, delivery and performance by the Parent
                           of this Guarantee do not and will not contravene any
                           applicable law, rule, regulation, judgment or order
                           and do not and will not contravene the provisions of,
                           constitute a breach of or default under, or result in
                           the creation of any security interest, lien or
                           encumbrance on any of the property of the Parent
                           pursuant to, the Parent's articles of incorporation
                           or by-laws of any

                                      -51-
<PAGE>   57
                           indenture, mortgage, license or other contract,
                           agreement or instrument to which the Parent is a
                           party or by which it is bound.

         6.  Attorney's Costs. The Parent agrees to pay all reasonable
attorney's fees and disbursements and all other reasonable and actual costs and
expenses which may be incurred by the Holders in the enforcement of this
Guarantee.

         7.  Successors and Assigns. This Guarantee shall be binding upon the
Parent and its respective successors and assigns, and shall inure to the benefit
of and be enforceable by the Holders and their respective successors and
assigns.

         8.  Governing Law. This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York.

         9.  Severability. Wherever possible, each provision of this Guarantee
shall be construed in such manner as to be valid and enforceable against the
Parent under applicable law, but if any provision hereof shall be deemed invalid
or unenforceable to any extent against the Parent in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Parent in one jurisdiction shall not render such
provision ineffective in any other jurisdiction.

         10. Notices.

             Any notice, request or other communication required or permitted to
be given hereunder to the Holders shall be given by the Parent in the same
manner as set forth in Section 106 of the Indenture.

         11. Transferability. This Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Notes.

         12. Headings. Section headings appearing in this Guarantee are for
convenience of reference only and shall not define, limit, amplify or otherwise
modify any provision hereof. Capitalized terms used herein have the meanings
given to them in the Indenture.

                                      -52-
<PAGE>   58
                  This Guarantee shall not be valid or obligatory to any purpose
until the certificate of authentication on the Note on which this Guarantee has
been endorsed shall have been executed by the Trustee under the Indenture by the
signature of one of its authorized officers.

IN WITNESS WHEREOF, the Parent has caused this Guarantee to be executed on its
behalf by an officer or other person thereunto duly authorized as of the date
first above written.

                                   PATHNET TELECOMMUNICATIONS, INC.

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

                             AMENDMENT TO "REMEDIES"

SECTION 108. AMENDMENT TO SECTION 501. Section 501 of the Indenture is hereby
amended by deleting the existing Section 501 in its entirety and replacing it
(i) with the definition of "Event of Default" set forth in Section 103 for the
purposes of interpretation of Section 1017(a) and (ii) with the definition of
"Event of Default" set forth in Section 102 for all other purposes.

      AMENDMENTS TO "CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE"

SECTION 109. AMENDMENT TO ARTICLE EIGHT. Article Eight of the Indenture is
hereby amended by deleting the existing Article Eight in its entirety and
replacing it with the following:

         SECTION 801. Company and Parent May Consolidate, etc., Only on Certain
Terms.

                  Neither the Company nor the Parent will, in a single
transaction or a series of transactions, consolidate with or merge with or into
any other Person or sell, assign, convey, transfer, lease or otherwise dispose
of all or substantially all of its properties and assets to any other Person or
Persons, and neither will the Company or the Parent permit any Restricted
Subsidiary to enter into any such transaction or series of transactions, if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Restricted Entities on a
consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto and subject always to the provisions of
Section 1010 and Section 1017:

                           (1) either (A) the Company or the Parent (as the case
         may be) shall be the continuing corporation or (B) the Person (if other
         than the Company or the Parent) formed by such consolidation or into
         which the Company, the Parent or such Restricted Subsidiary is merged
         or the Person that acquires by sale, assignment, conveyance, transfer,
         lease or disposition all or substantially all the properties and assets
         of the Restricted Entities on a consolidated basis, as the case may be
         (the "Surviving Entity"), (i) shall be a corporation organized and
         validly existing under the laws of the

                                      -53-
<PAGE>   59
         United States of America, any state thereof or the District of Columbia
         and (ii) shall expressly assume, by a supplemental indenture to this
         Indenture in form satisfactory to the Trustee, the obligations of the
         Company or the Parent pursuant to the Notes or the Guarantee, as the
         case may be, for the due and punctual payment of the principal of,
         premium, if any, and interest on all the Notes and the performance and
         observance of every covenant herein on the part of the Company or the
         Parent to be performed or observed;

                           (2) immediately before and immediately after giving
         effect to such transaction or series of transactions on a pro forma
         basis (and treating any obligation of any Restricted Entity incurred in
         connection with or as a result of such transaction or series of
         transactions as having been incurred at the time of such transaction),
         no Default or Event of Default shall have occurred and be continuing;

                           (3) immediately after giving effect to such
         transaction or series of transactions on a pro forma basis (on the
         assumption that the transaction or series of transactions occurred on
         the first day of the two fiscal quarter period ending immediately prior
         to the consummation of such transaction or series of transactions, with
         the appropriate adjustments with respect to the transaction or series
         of transactions being included in such pro forma calculation), the
         Company or the Parent (as the case may be) (or the Surviving Entity if
         the Company or the Parent is not the continuing obligor hereunder)
         could incur at least $1.00 of additional Indebtedness (other than
         Permitted Indebtedness) under Section 1011; and

                           (4) the Company, the Parent or such Person shall have
         delivered to the Trustee, in form and substance reasonably satisfactory
         to the Trustee, an Officers' Certificate (attaching the computations to
         demonstrate compliance with clause (3) above) and an Opinion of
         Counsel, each stating that such consolidation, merger, sale,
         assignment, conveyance, transfer or lease or other disposition and, if
         a supplemental indenture is required in connection with such
         transaction, such supplemental indenture, comply with this Article and
         that all conditions precedent herein provided for relating to such
         transaction have been complied with.

                  Any merger or consolidation of a Restricted Subsidiary or of
the Company with and into the Company or the Parent (with the Company or the
Parent (as the case may be) being the surviving entity) or another Restricted
Subsidiary need only comply with clauses (3) and (4) above. Further, this
section shall not apply to any reincorporation of any Restricted Entity under
the laws of the United States of America, any state thereof or the District of
Columbia.

                  SECTION 802. Successor Substituted.

                  Upon any consolidation of the Company or the Parent with or
merger of the Company or the Parent with or into any other corporation or any
sale, assignment, conveyance, transfer, lease or disposition of the properties
and assets of the Company or the Parent substantially as an entirety to any
Person in accordance with Section 801 in which the Company or the Parent is not
the continuing obligor hereunder, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or the
Parent (as the case may be) hereunder with the same effect as if such successor
Person had been named as the

                                      -54-
<PAGE>   60
Company or the Parent (as the case may be) herein. When a successor assumes all
of the obligations of its predecessor under the Indenture, the predecessor shall
be released from such obligations; provided that, in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium, if any, and interest on the Notes or, in the case where the predecessor
is the Parent, from the obligations under the Guarantees in respect of the
payment of principal of, premium, if any, and interest on the Notes.

                  SECTION 803. Notes to Be Secured in Certain Events.

                  If, upon any such consolidation of the Company or the Parent
with or merger of the Company or the Parent into any other corporation, or upon
any sale, assignment, conveyance, lease or transfer of the property of the
Company or the Parent substantially as an entirety to any other Person, any
property or assets of the Company or the Parent (as the case may be) would
thereupon become subject to any Lien, then unless such Lien could be created
pursuant to Section 1015 without equally and ratably securing the Notes, the
Company or the Parent (as the case may be), prior to or simultaneously with such
consolidation, merger, sale, assignment, conveyance, lease or transfer, shall as
to such property or assets, secure the Notes Outstanding or the Guarantees (as
the case may be) (together with, if the Company or the Parent (as the case may
be) shall so determine, any other Indebtedness of the Company or the Parent (as
the case may be) now existing or hereinafter created which is not subordinate in
right of payment to the Notes or the Guarantees, as the case may be)) equally
and ratably with (or prior to) the Indebtedness which upon such consolidation,
merger, conveyance, lease or transfer is to become secured as to such property
or assets by such Lien, or shall cause such Notes or Guarantees to be so
secured.

                     AMENDMENTS TO "SUPPLEMENTAL INDENTURES"

SECTION 110. AMENDMENT TO SECTION 901. Section 901 of the Indenture is hereby
amended by deleting the existing Section 901 in its entirety and replacing it
with the following:

                  SECTION 901. Supplemental Indentures Without Consent of
Holders.

                  Without the consent of any Holders, the Company and the
Parent, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee, for any of the following purposes:

                  (1) to evidence the succession of another Person to the
         Company, the Parent or any other obligor on the Notes, and the
         assumption by any such successor of the covenants of the Company or the
         Parent or such obligor contained herein and in the Notes in accordance
         with Article Eight of this Indenture;

                  (2) to add to the covenants of the Company, the Parent or any
         other obligor upon the Notes or the Guarantees for the benefit of the
         Holders or to surrender any right or power herein conferred upon the
         Company, the Parent or any other obligor upon the Notes or the
         Guarantees, as applicable, in this Indenture or the Notes;

                  (3) to cure any ambiguity, to correct or supplement any
         provision herein or in the Notes or the Guarantees that may be
         defective or inconsistent with any other provision herein or in the
         Notes or the Guarantees, or to make any other provisions with respect
         to matters or questions arising under this Indenture or the Notes or
         the

                                      -55-
<PAGE>   61
         Guarantees; provided that, in each case, such action shall not
         adversely affect the interest of the Holders;

                  (4) to comply with the requirements of the Commission in order
         to effect or maintain the qualification, if any, of the Indenture under
         the Trust Indenture Act;

                  (5) to evidence and provide the acceptance of the appointment
         of a successor Trustee under this Indenture;

                  (6) to mortgage, pledge, hypothecate or grant a security
         interest in favor of the Trustee for the benefit of the Holders as
         additional security for the payment and performance of the Company's or
         the Parent's obligations hereunder, in any property or assets,
         including any of which are required to be mortgaged, pledged or
         hypothecated, or in which a security interest is required to be granted
         to the Trustee pursuant to this Indenture or otherwise;

                  (7) to add a further guarantor of the Notes under the
         Indenture;

                  (8) to secure the Notes pursuant to the requirements of
         Section 803 or Section 1015 or otherwise;

                  (9) to add any additional Events of Default; or

                  (10) to evidence and provide for the acceptance of appointment
         hereunder by a successor Trustee pursuant to the requirements of
         Section 609.

SECTION 111. AMENDMENT TO SECTION 902. Section 902 of the Indenture is hereby
amended by deleting the existing Section 902 in its entirety and replacing it
with the following:

         SECTION 902. Supplemental Indentures with Consent of Holders.

              With the consent of the Holders of not less than a majority in
         aggregate principal amount of the Outstanding Notes, by Act of said
         Holders delivered to the Company, the Parent and the Trustee, the
         Company and the Parent, when authorized by a Board Resolution, and the
         Trustee may enter into an indenture or indentures supplemental hereto
         for the purpose of adding any provisions to or changing in any manner
         or eliminating any of the provisions of this Indenture or of modifying
         in any manner the rights of the Holders under this Indenture provided,
         however, that no such supplemental indenture shall, without the consent
         of the Holder of each Outstanding Note affected thereby:

                  (1) change the Stated Maturity of the principal of or any
         installment of interest on, any Note, or reduce the principal amount
         thereof (or premium or Liquidated Damages, if any) or the rate of
         interest thereon, alter any redemption provision with respect to any
         Note or change the coin or currency in which any Note or any premium or
         Liquidate Damages or the interest thereon is payable, or impair the
         right to institute suit for the enforcement of any such payment after
         the Stated Maturity thereof (or, in the case of redemption, on or after
         the Redemption Date);

                                      -56-
<PAGE>   62
                  (2) amend, change or modify the obligation of the Company to
         make and consummate an Excess Proceeds Offer with respect to any Asset
         Sale in accordance with Section 1017 or the obligation of the Company
         to make and consummate a Change of Control Offer in the event of a
         Change of Control in accordance with Section 1010, including, in each
         case amending, changing or modifying any definition relating thereto;

                  (3) reduce the percentage of the principal amount of the
         Outstanding Notes, the consent of whose Holders is required for any
         such supplemental indenture, or the consent of whose Holders is
         required for any waiver of compliance with certain provisions and
         defaults of this Indenture and their consequences provided for in this
         Indenture;

                  (4) modify any of the provisions of this Section or Sections
         513 and Section 1019, except to increase the percentage of the
         aggregate principal amount of Outstanding Notes required for such
         actions thereunder or to provide that certain other provisions of this
         Indenture cannot be modified or waived without the consent of the
         Holder of each Outstanding Note affected thereby;

                  (5) except as otherwise permitted under Article Eight consent
         to the assignment or transfer by the Company of any of their rights or
         obligations under the Indenture; or

                  (6) release any Lien created by the Amended and Restated
         Pledge Agreement, except in accordance with the terms of the Amended
         and Restated Pledge Agreement

                  (7) modify the provisions of this Indenture relating to the
         Guarantee in a manner adverse to the Holders.

   It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

                            AMENDMENTS TO "COVENANTS"

SECTION 112. AMENDMENT TO SECTION 1002.

Section 1002 of the Indenture is hereby amended by deleting the existing Section
1002 in its entirety and replacing it with the following:

                  SECTION 1002. Maintenance of Office or Agency:

                  The Company and the Parent shall maintain in The City of New
York, an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company or the Parent in respect of
the Notes, this Indenture or the Guarantees may be served. The Corporate Trust
Office of the Trustee shall be such office or agency of the Company and the
Parent unless the Company or the Parent shall designate and maintain some other
office or agency for one or more of such purposes. The Company and the Parent
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company or the Parent shall fail
to maintain any such required office or agency or shall

                                      -57-
<PAGE>   63
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demand may be made or served at the Corporate Trust
Administration office of the Trustee, and the Company and the Parent hereby
appoint the Trustee as their agent to receive all such presentations,
surrenders, notices and demands.

                  The Company and the Parent may also from time to time
designate one or more other offices or agencies (in or outside of The City of
New York) where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind any such designation; provided, that
such designation or rescission shall not in any manner relieve the Company or
the Parent of their obligation to maintain an office or agency in The City of
New York for such purposes. The Company and the Parent will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.

SECTION 113. AMENDMENT TO SECTION 1003. Section 1003 of the Indenture is hereby
amended by deleting the existing Section 1003 in its entirety and replacing it
with the following:

            SECTION 1003. Money for Note Payments to Be Held in Trust

                  If the Company or the Parent shall at any time act as their
own Paying Agent, they will, on or before each due date of the principal of (or
premium, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal of (or premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of their action or failure so to act.

                  Whenever the Company and the Parent shall have one or more
Paying Agents for the Notes, the Company and/or the Parent will, on or before
10:00 a.m. on each due date of the principal of (or premium, if any) or interest
on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company and/or the Parent will
promptly notify the Trustee of such action or any failure so to act.

                  The Company and the Parent shall cause each Paying Agent
(other than the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:

                  (1) hold all sums held by it for the payment of the principal
         of (and premium, if any) or interest on Notes in trust for the benefit
         of the Persons entitled thereto until such sums shall be paid to such
         Persons or otherwise disposed of as herein provided;

                  (2) give the Trustee notice of any default by the Company or
         the Parent (or any other obligor upon the Notes) in the making of any
         payment of principal (and premium, if any) or interest; and

                  (3) at any time during the continuance of any such default,
         upon the written request of the Trustee, forthwith pay to the Trustee
         all sums so held in trust by such Paying Agent.

                                      -58-
<PAGE>   64
                  The Company or the Parent may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Company Order or Parent Order direct any Paying Agent to
pay, to the Trustee all sums held in trust by the Company, the Parent or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums where held by the Company, the Parent or such Paying Agent;
and, upon such payment by any Paying Agent to the Trustee, such Paying Agent
shall be released from all further liability with respect to such sums.

                  Any money deposited with the Trustee or any Paying Agent, or
then held by the Company or the Parent, in trust for the payment of the
principal of (or premium, if any) or interest on any Note and remaining
unclaimed for two years after such principal, premium, interest has become due
and payable shall be paid to the Company on Company Request or to the Parent on
Parent Request, or (if then held by the Company or the Parent) shall be
discharged from such trust. The Holder of such Note, as an unsecured general
creditor, shall look thereafter only to the Company and the Parent for the
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company or the Parent as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company and the Parent cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Company
or the Parent, as the case may be.

SECTION 114. AMENDMENT TO SECTION 1004. Section 1004 of the Indenture is hereby
amended by deleting the existing Section 1004 in its entirety and replacing it
with the following:

                  SECTION 1004. Corporate Existence.

                  Subject to Article Eight, (a) the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each of its Subsidiaries, and (b) the Parent shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the Parent
and each of its Subsidiaries; provided, as the case may be, that neither the
Company nor the Parent, as the case may be, shall be required to preserve any
such right or franchise if the Board of Directors of the Company or the Parent,
as the case may be, shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company or the Parent and its
respective Subsidiaries as a whole.

SECTION 115. AMENDMENT TO SECTION 1005. Section 1005 of the Indenture is hereby
amended by deleting the existing Section 1005 in its entirety and replacing it
with the following:

                  SECTION 1005. Payment of Taxes and Other Claims.

                  (a) The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Subsidiaries or upon the income, profits or property of the Company or
any Restricted Company Subsidiary and (ii) all material

                                      -59-
<PAGE>   65
lawful claims for labor, materials and supplies, which, if unpaid, might by law
become a lien upon the property of the Company or any of its Subsidiaries; and
(b) the Parent shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Parent or any of its
Subsidiaries or upon the income, profits or property of the Parent or any
Restricted Subsidiary and (ii) all material lawful claims for labor, materials
and supplies, which, if unpaid, might by law become a lien upon the property of
the Parent or any of its Subsidiaries provided, that neither the Company nor the
Parent shall be required to pay or discharge or cause to be paid or discharged
any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.

SECTION 116. AMENDMENT TO SECTION 1006. Section 1006 of the Indenture is hereby
amended by deleting the existing Section 1006 in its entirety and replacing it
with the following:

                  SECTION 1006. Maintenance of Properties.

                  (a) The Company shall, or shall cause its Restricted Company
Subsidiaries to, cause all material properties owned by the Company or any
Restricted Company Subsidiary or used or held for use in the conduct of its
business or the business of any Restricted Company Subsidiary to be maintained
and kept in good condition, repair and working order (reasonable wear and tear
excepted) and supplied with all necessary equipment and will cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times, and (b) the Parent shall, or shall cause the Restricted
Subsidiaries to, cause all material properties owned by the Parent or any
Restricted Subsidiary or used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Parent may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, that nothing in this Section 1006 shall prevent a Restricted Entity
from discontinuing the maintenance of any of such properties or disposing of
them as otherwise permitted herein if such discontinuance or disposition is, in
the judgment of the Parent, desirable in the conduct of its business or the
business of such Restricted Entity and not disadvantageous in any material
respect to the Holders.

SECTION 117. AMENDMENT TO SECTION 1007. Section 1007 of the Indenture is hereby
amended by deleting the existing Section 1007 in its entirety and replacing it
with the following:

                  SECTION 1007. Insurance.

(a) The Company shall at all times keep all of its and its Restricted Company
Subsidiaries' properties which are of an insurable nature insured, and (b) the
Parent shall at all times keep all of its and the Restricted Subsidiaries'
properties, which are of an insurable nature insured, in each case with insurers
believed by the Company or the Parent (as the case may be) to be responsible
against loss or damage to the extent that property of similar character is
usually so insured by corporations similarly situated and owning like
properties.

                                      -60-
<PAGE>   66
SECTION 118. AMENDMENT TO SECTION 1008. Section 1008 of the Indenture is hereby
amended by deleting the existing Section 1008 in its entirety and replacing it
with the following:

            SECTION 1008.  Statement by Officers As to Default.

         (a) The Company and the Parent shall deliver to the Trustee, within 50
days after the end of each fiscal quarter and within 120 days after the end of
each fiscal year, a brief certificate from the principal executive officer,
principal financial officer or principal accounting officer of each of the
Company and the Parent as to his or her knowledge of the compliance of the
Company or the Parent (as the case may be) with all conditions and covenants
under this Indenture since the beginning of such quarter or year, as the case
may be. For purposes of this Section 1008(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.

         (b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of any Restricted Entity gives any notice or takes any other action
with respect to a claimed default (other than with respect to Indebtedness in
the principal amount of less than $7,500,000 (or the equivalent thereof in one
or more foreign currencies)), the Company or the Parent (as the case may be)
shall deliver to the Trustee by registered or certified mail or by facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of an officer of the Company or the Parent (as
the case may be) becoming aware of its occurrence.

SECTION 119. AMENDMENT TO SECTION 1009. Section 1009 of the Indenture is hereby
amended by deleting the existing Section 1009 in its entirety and replacing it
with the following:

            SECTION 1009.  Provision of Financial Statements.

         (a) Subject to Section 1009(b) below the Company and the Parent shall
file on a timely basis with the Commission, to the extent such filings are
accepted by the Commission and whether or not the Company or the Parent (as the
case may be) has a class of securities registered under the Exchange Act, the
annual reports, quarterly reports and other documents that the Company or the
Parent (as the case may be) would be required to file if it were subject to
Section 13 or 15(d) of the Exchange Act.

         (b) Provided always that the Parent complies fully with its filing
obligations pursuant to Section 1009(a) above, the Company shall be entitled in
its sole discretion to rely on any applicable law, rule, regulation or SEC
approval (together "Relevant Saving"), whether in force at the date hereof or
subsequently promulgated, to limit the scope of or cease to comply with its
filing obligations pursuant to Section 1009(a) to the maximum extent permitted
by such Relevant Saving.

         (c) The Parent shall also be required (i) to file with the Trustee, and
provide to each Holder of Notes, without cost to such Holder, copies of such
reports and documents within 15 days after the date on which the Parent files
such reports and documents with the Commission or the date on which the Parent
would be required to file such reports and documents if the Parent were so
required, and (ii) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Parent's cost copies of such reports and documents to any
prospective holder promptly upon request. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information

                                      -61-
<PAGE>   67

contained therein or determinable from information contained therein, including
the Parent's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).

SECTION 120. AMENDMENT TO SECTION 1010. Section 1010 of the Indenture is hereby
amended by deleting the existing Section 1010 in its entirety and replacing it
with the following:

            SECTION 1010.  Purchase of Notes upon Change of Control.

         (a) Upon the occurrence of a Change of Control at any time and subject
to the compliance by the Company or the Parent (as the case may be) with the
requirements of paragraph (b) of this Section 1010, each Holder shall have the
right to require that the Company repurchase all of such Holder's Notes, in
whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase, in accordance with the procedures set forth in paragraphs (b) and
(c) of this Section 1010 (the "Change of Control Offer").

         (b) Within 15 days following any Change of Control, the Company (if the
Change of Control relates to the Company) or the Parent (if the Change of
Control relates to the Parent) shall notify the Trustee thereof and give to each
Holder of the Notes in the manner provided in Section 105 a notice stating:

             (1) that a Change of Control has occurred and that such Holder has
        the right to require the Company to repurchase such Holder's Notes at
        the Change of Control Purchase Price;

             (2) the circumstances and relevant facts regarding such Change of
        Control (including information with respect to pro forma historical
        income, cash flow and capitalization after giving effect to such Change
        of Control);

             (3) the Change of Control Purchase Price and a purchase date (the
        "Change of Control Purchase Date") which shall be a Business Day no
        earlier than 30 days nor later than 60 days from the date such notice is
        mailed, or such later date as is necessary to comply with requirements
        under the Exchange Act or any applicable securities laws or regulations;

             (4) that any Note not tendered will continue to accrue interest;

             (5) that, unless the Company defaults in the payment of the Change
        of Control Purchase Price, any Notes accepted for payment pursuant to
        the Change of Control Offer will cease to accrue interest on and after
        the Change of Control Purchase Date; and

             (6) the instructions a Holder must follow in order to have its
        Notes repurchased in accordance with paragraph (c) of this Section.

         (c) Holders electing to have Notes purchased shall be required to
surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Purchase Date. Holders
shall be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for purchase by the Holder as to which
his election is to be withdrawn and

                                      -62-
<PAGE>   68

a statement that such Holder is withdrawing his election to have such Notes
purchased. Holders whose Notes are purchased only in part shall be issued new
Notes and Guarantees equal in principal amount to the unpurchased portion of the
Notes surrendered, which unpurchased portion shall be equal to $1,000 in
principal amount or integral multiples thereof.

SECTION 121. AMENDMENT TO SECTION 1011. Section 1011 of the Indenture is hereby
amended by deleting the existing Section 1011 in its entirety and replacing it
with the following:

            SECTION 1011.  Limitation on Indebtedness.

            Neither the Company nor the Parent shall , and neither shall they
permit any Restricted Subsidiary to, incur any Indebtedness (including any
Acquired Indebtedness) other than Permitted Indebtedness; provided that the
Company or the Parent (as the case may be) may Incur Indebtedness if, at the
time of such incurrence, the Consolidated Indebtedness to Consolidated Operating
Cash Flow Ratio of the Company or the Parent, as the case may be, would have
been less than or equal to (i) 6.0 to 1.0 but greater than zero, for
Indebtedness incurred on or prior to December 31, 2001, or (ii) 5.0 to 1.0 but
greater than zero, for Indebtedness incurred thereafter. For the purposes of
determining compliance with this Section 1011, in the event that an item of
Indebtedness or any portion thereof meets the criteria of more than one of the
type of Indebtedness that any Restricted Entity is permitted to Incur, the
Parent will have the right, in its sole discretion, to classify such item of
Indebtedness or portion thereof at the time of its incurrence and the Company or
the Parent, as the case may be, will only be required to include the amount and
type of such Indebtedness or portion thereof under the clause permitting the
Indebtedness as so classified.

SECTION 122. AMENDMENT TO SECTION 1012. Section 1012 of the Indenture is hereby
amended by deleting the existing Section 1012 in its entirety and replacing it
with the following:

            SECTION 1012.  Limitation on Restricted Payments.

            The Parent shall not, and shall not permit any Restricted Subsidiary
or, in the case of paragraphs (3) and (4) below, the Company to take, directly
or indirectly, any of the following actions:

             (a) (1) declare or pay any dividend on, or make any distribution to
        holders of, any shares of the Capital Stock of the Parent (other than
        dividends or distributions payable solely in shares of its Qualified
        Capital Stock or in options, warrants or other rights to acquire such
        shares of Qualified Capital Stock);

             (2) purchase, redeem or otherwise acquire or retire for value,
        directly or indirectly, any shares of Capital Stock of the Parent or any
        Capital Stock of any of its Affiliates (other than Capital Stock of the
        Company or any Wholly Owned Restricted Subsidiary) or any options,
        warrants or other rights to acquire such shares of Capital Stock;

             (3) make any principal payment on, or repurchase, redeem, defease
        or otherwise acquire or retire for value, prior to the Stated Maturity
        of any principal payment or any sinking fund payment, any Indebtedness
        of the Parent or of the Company that is expressly subordinated in right
        of payment to the Notes or to the Guarantees, as the case may be; or

                                      -63-
<PAGE>   69

             (4) make any Investment (other than any Permitted Investment) in
        any Person;

(such payments or other actions described in (but not excluded from) clauses (1)
through (4) are collectively referred to as "Restricted Payments"); unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board of Directors of the Parent, whose determination shall be
conclusive and evidenced by a Board Resolution), (A) no Default or Event of
Default shall have occurred and be continuing, (B) the Parent could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1011 and (C) the aggregate amount of all Restricted Payments
declared or made after the Issue Date shall not exceed the sum of:

             (i) 100% of Consolidated Operating Cash Flow of the Parent less 1.5
        times Consolidated Interest Expense of the Parent or (ii) if
        Consolidated Operating Cash Flow of the Parent is a negative, minus 100%
        of such negative amount, in each case on a cumulative basis for the
        period beginning on the first day of the Parent's first fiscal quarter
        after the Issue Date and ending on the last day of the Parent's last
        fiscal quarter ending prior to the date of such proposed Restricted
        Payment; plus

             (ii) the aggregate Net Cash Proceeds and the Fair Market Value of
        Telecommunications Assets or Voting Stock of a Person that becomes a
        Restricted Subsidiary, the assets of which consist primarily of
        Telecommunications Assets, received by the Parent after the Issue Date
        as capital contributions or from the issuance or sale (other than to any
        Subsidiary) of shares of Qualified Capital Stock of the Parent
        (including upon the exercise of options, warrants or rights) or
        warrants, options or rights to purchase shares of Qualified Capital
        Stock of the Parent; plus

             (iii) the aggregate Net Cash Proceeds and the Fair Market Value of
        Telecommunications Assets or Voting Stock of a Person that becomes a
        Restricted Subsidiary, the assets of which consist primarily of
        Telecommunications Assets, received by the Parent after the Issue Date
        from the issuance or sale (other than to any Subsidiary) of debt
        securities or Redeemable Capital Stock that have been converted into or
        exchanged for Qualified Capital Stock of the Parent, together with the
        aggregate Net Cash Proceeds and the Fair Market Value of
        Telecommunications Assets or Voting Stock of a Person that becomes a
        Restricted Subsidiary, the assets of which consist primarily of
        Telecommunications Assets, received by the Parent at the time of such
        conversion or exchange; plus

             (iv) to the extent not otherwise included in Consolidated Operating
        Cash Flow of the Parent, an amount equal to the sum of (a) the net
        reduction in Investments (other than Permitted Investments) in any
        Person (other than a Restricted Subsidiary) resulting from the payment
        in cash of dividends, repayments of loans or advances or other transfers
        of assets, in each case to the Parent or any Restricted Subsidiary after
        the Issue Date from such Person and (b)

                                      -64-
<PAGE>   70

        the amount of any net reduction in Investments resulting from the
        redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
        (valued as provided in the definition of "Investment") at the time of
        such redesignation; provided that, in the case of (a) or (b) above, the
        foregoing sum shall not exceed the total amount of Investments (other
        than Permitted Investments) previously made in such Person or
        Unrestricted Subsidiary by the Parent and its Restricted Subsidiaries.

         (b) Notwithstanding paragraph (a) above, the Parent and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(2) through (6) below) no Default or Event of Default shall have occurred and be
continuing:

             (1) the payment of any dividend within 60 days after the date of
        declaration thereof, if at such date of declaration the payment of such
        dividend would have complied with the provisions of paragraph (a) above
        and such payment will be deemed to have been paid on such date of
        declaration for purposes of the calculation required by paragraph (a)
        above;

             (2) the purchase, redemption or other acquisition or retirement for
        value of any shares of Capital Stock of the Parent (x) in exchange for,
        or out of the Net Cash Proceeds of a substantially concurrent issuance
        and sale (other than to a Subsidiary) of, shares of Qualified Capital
        Stock of the Parent; or (y) that are held by former officers, employees
        or directors (or their estates or beneficiaries under their estates) of
        the Parent or any of its Subsidiaries; provided that the aggregate
        amount of such purchase, redemption or other acquisition or retirement
        for value under this clause (y) will not exceed $250,000 (or the
        equivalent thereof in one or more foreign currencies) in any given
        fiscal year;

             (3) the purchase, redemption, defeasance or other acquisition or
        retirement for value of any Indebtedness of the Parent that is expressly
        subordinated in right of payment to the Notes in exchange for, or out of
        the Net Cash Proceeds of a substantially concurrent issuance and sale
        (other than to a Subsidiary) of, shares of Qualified Capital Stock of
        the Parent;

             (4) the purchase of any Indebtedness of the Company that is
        expressly subordinated in right of payment to the Notes or the purchase
        of any Indebtedness of the Parent that is expressly subordinated in
        right of payment to the Guarantees, in each case at a purchase price not
        greater than 101% of the principal amount thereof in the event of a
        Change of Control in accordance with provisions similar to Section 1010;
        provided that prior to such purchase the Company has made the Change of
        Control Offer as provided in such covenant with respect to the Notes and
        has purchased all Notes validly tendered for payment in connection with
        such Change of Control Offer;

             (5) the purchase, redemption, defeasance or other acquisition or
        retirement for value of Indebtedness (other than Redeemable Capital
        Stock) of the Parent that is expressly subordinated in right of payment
        to the Notes in exchange for, or out of the Net Cash Proceeds of a
        substantially concurrent incurrence (other than to a Subsidiary) of, new
        Indebtedness of the Parent that is expressly subordinated in right of

                                      -65-
<PAGE>   71

        payment to the Notes, so long as (A) the principal amount of such new
        Indebtedness does not exceed the principal amount (or, if such
        Indebtedness being refinanced provides for an amount less than the
        principal amount thereof to be due and payable upon a declaration of
        acceleration thereof, such lesser amount as of the date of
        determination) of the Indebtedness being so purchased, redeemed,
        defeased, acquired or retired, plus the lesser of (x) the amount of any
        premium required to be paid in connection with such refinancing pursuant
        to the terms of the Indebtedness being refinanced or (y) the amount of
        any premium reasonably determined by the Parent as necessary to
        accomplish such refinancing, plus, in either case, the amount of
        expenses of the Parent incurred in connection with such refinancing; (B)
        such new Indebtedness is subordinated to the Notes to the same extent as
        such Indebtedness so purchased, redeemed, defeased, acquired or retired;
        and (C) such new Indebtedness has an Average Life longer than the
        Average Life of the Indebtedness being refinanced and a final Stated
        Maturity of principal later than the final Stated Maturity of the
        Indebtedness being refinanced; and

             (6) the payment of cash in lieu of fractional shares of Common
        Stock pursuant to the Warrant Agreement.

The actions described in clauses (1) through (4) and (6) of this paragraph (b)
shall be Restricted Payments that shall be permitted in accordance with this
paragraph (b) but shall reduce the amount that would otherwise be available for
Restricted Payments under clause (C) of paragraph (a) above. The actions
described in clause (5) of this paragraph (b) shall be Restricted Payments that
shall be permitted in accordance with this paragraph (b) and shall not reduce
the amount that would otherwise be available for Restricted Payments under
clause (C) of paragraph (a).

SECTION 123. AMENDMENT TO SECTION 1013. Section 1013 of the Indenture is hereby
amended by deleting the existing Section 1013 in its entirety and replacing it
with the following:

            SECTION 1013.  Limitation on Issuance and Sale of Capital Stock of
the Company and Restricted Subsidiaries.

            Neither the Company nor the Parent shall , and neither shall they
permit any Restricted Subsidiary to, issue or sell any Capital Stock of the
Company or of a Restricted Subsidiary (other than to a Restricted Entity );
provided, that this covenant shall not prohibit (i) issuances or sales of
Capital Stock of the Company or a Restricted Subsidiary if, immediately after
giving effect to such issuance or sale, the Company would no longer be Wholly
Owned by the Parent or such Restricted Subsidiary would no longer be a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made under
Section 1012 if made on the date of such issuance and sale, (ii) the ownership
by directors of directors' qualifying shares or the ownership by foreign
nationals of Capital Stock of the Company or of any Restricted Subsidiary, to
the extent mandated by applicable law, (iii) the issuance and sale of Capital
Stock of the Company or any Restricted Subsidiary owned by any Restricted Entity
in compliance with Section 1017; provided that such Restricted Subsidiary would
remain a Restricted Subsidiary after such transaction or (iv) the issuance and
sale of Capital Stock of the Company or any Restricted Subsidiary to any Person
that transfers, leases, licenses or grants a right to use Telecommunications
Assets to the Parent or the Company (as the case may be) pursuant to an
Incumbent Agreement; provided that, after such issuance and sale, such
subsidiary remains a Restricted Subsidiary and, in the good faith

                                      -66-
<PAGE>   72

determination of the Board of Directors of the Parent, the Fair Market Value of
any such transfer, lease, license or grant is not less than the Fair Market
Value of the Capital Stock of such Restricted Subsidiary issued and sold in
respect thereof.

SECTION 124. AMENDMENT TO SECTION 1014. Section 1014 of the Indenture is hereby
amended by deleting the existing Section 1014 in its entirety and replacing it
with the following:

            SECTION 1014.  Limitation on Transactions with Affiliates.

            Neither the Company nor the Parent shall, and neither shall they
permit any Restricted Subsidiary to, enter into or suffer to exist, directly or
indirectly, any transaction or series of related transactions (including, the
sale, purchase, exchange or lease of assets, property or services) with, or for
the benefit of, any Affiliate of the Parent, the Company or any Restricted
Subsidiary (other than a Restricted Entity so long as no Affiliate of the Parent
(other than a Restricted Entity) shall beneficially own Capital Stock in such
Restricted Entity) unless (i) such transaction or series of related transactions
are on terms, taken as a whole, that are no less favorable to the Company, the
Parent, or such Restricted Subsidiary, as the case may be, than those that could
have been obtained in an arm's length transaction with unrelated third parties
that are not Affiliates; (ii) with respect to any transaction or series of
related transactions involving aggregate consideration equal to or greater than
$5,000,000 (or the equivalent thereof in one or more foreign currencies), the
Parent will deliver an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above;
and (iii) with respect to any transaction or series of related transactions
involving aggregate consideration in excess of $10,000,000 (or the equivalent
thereof in one or more foreign currencies), the Parent will deliver the
Officers' Certificates described in clause (ii) above, which will also certify
that such transaction or series of related transaction has been approved by a
majority of the Disinterested Directors of the Board of Directors of the Parent,
or that the Parent has obtained a written opinion from an independent financial
expert certifying that the financial terms of such transaction or series of
related transactions, taken as a whole, are fair to the Company, the Parent, or
the Restricted Subsidiary, as the case may be, from a financial point of view:
provided, that this covenant shall not restrict (1) any transaction or series of
related transactions between the Company and the Parent, (2) any transaction or
series of related transactions between either the Company or the Parent (as the
case may be) and one or more of the Restricted Subsidiaries or between the
Restricted Subsidiaries, (3) the Company or the Parent from paying reasonable
and customary regular compensation and fees to directors of any Restricted
Entity who are not employees of any Restricted Entity, (4) the performance of
the Parent's obligations under the Stockholders' Agreement, dated as of [ ],
among the Parent and the Investors named therein, as amended and supplemented
from time to time or (5) the performance of the Company's obligations under the
Investment and Stockholders' Agreement, dated as of October 31, 1997, among the
Company, David Schaeffer and the Investors named therein, as amended; the
Investment and Stockholders' Agreement, dated as of August 28, 1995, by and
among the Company and the Investors named therein; the Non-Qualified Stock
Option Agreement, dated August 4, 1997, between the Company and Richard Jalkut;
and the Employment Agreement, dated August 4, 1997, between the Company and
Richard Jalkut, in each case as amended through the Issue Date; provided that
any amendments or modifications to the terms of transactions described in this
clause (5) will be (x) no less favorable to the Parent or the Company, as the
case may be, than those that could have been obtained in an arm's length
transaction with unrelated third parties who are not Affiliates and (y) approved
by the Board of

                                      -67-
<PAGE>   73

Directors of the Parent or the Company, as the case may be, (including a
majority of the Disinterested Directors of the relevant Board of Directors) (6)
the making of any Restricted Payment not prohibited by Section 1012 and (7)
loans or advances made to directors, officers or employees of any Restricted
Entity, or guarantees in respect thereof or otherwise made on their behalf, in
respect of expenses incurred in the ordinary course of business, in an aggregate
principal amount not to exceed $500,000 (or the equivalent thereof in one or
more foreign currencies in any calendar year.)

SECTION 125. AMENDMENT TO SECTION 1015. Section 1015 of the Indenture is hereby
amended by deleting the existing Section 1015 in its entirety and replacing it
with the following:

            SECTION 1015.  Limitation on Liens.

            Neither the Company nor the Parent shall, and neither shall they
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (other than Permitted Liens) on or with
respect to any of its property or assets (including any shares of Capital Stock
or Indebtedness of the Company or any Restricted Subsidiary) whether owned at
the Issue Date (in the case of the Company) or the Amendment Date (in the case
of the Parent) or thereafter acquired, or any income, profits or proceeds
therefrom, or assign or otherwise convey any right to receive income thereon,
unless (x) in the case of any Lien securing Indebtedness of the Company or the
Parent (as the case may be) that is expressly subordinated in right of payment
to the Notes, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Lien and (y) in the case of any
other Lien, the Notes are secured by a Lien on such property, assets or proceeds
that is senior in priority to, or equally and ratably secured with, the
obligation or liability secured by such Lien.

SECTION 126. AMENDMENT TO SECTION 1016. Section 1016 of the Indenture is hereby
amended by deleting the existing Section 1016 in its entirety and replacing it
with the following:

            SECTION 1016.  Limitations on Issuance of Certain Guarantees and
Debt Securities.

            Neither the Company nor the Parent shall permit any Restricted
Subsidiary to (i) directly or indirectly guarantee, assume or in any other
manner become liable with respect to any Debt Securities ("Guaranteed
Indebtedness") or (ii) issue any Debt Securities, unless, in either such case,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the guarantee (a "Subsidiary Guarantee") of payment of
the Notes. If the Guaranteed Indebtedness (A) ranks equally in right of payment
with the Notes, then the guarantee of such Guaranteed Indebtedness will rank
equally in right of payment with, or be subordinated in right of payment to, the
Subsidiary Guarantee or (B) is subordinated in right of payment to the Notes,
then the guarantee of such Guaranteed Indebtedness will be subordinated in right
of payment to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated in right of payment to the Notes. The
obligations of each Restricted Subsidiary under a Subsidiary Guarantee will be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Restricted Subsidiary, result in the
obligations of such Restricted Subsidiary under the Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.

            Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary of the Notes shall provide by its terms that it shall be
automatically and

                                      -68-
<PAGE>   74

unconditionally released and discharged upon (i) the sale or other disposition,
by way of merger or otherwise, to any Person not an Affiliate of the Parent, of
all of the Restricted Entities' Capital Stock in such Restricted Subsidiary,
(ii) the merger or consolidation of the applicable Restricted Subsidiary with
and into another Restricted Entity that has guaranteed the Notes and that is the
surviving Person in such merger or consolidation and (iii) the release by all of
the holders of Debt Securities of the Company or of the Parent (as the case may
be) of such Restricted Subsidiary's obligations under all of its Guarantees in
respect thereof and the release by all of the holders of Debt Securities of such
Restricted Subsidiary of its obligations thereunder.

SECTION 127. AMENDMENT TO SECTION 1017. Section 1017 of the Indenture is hereby
amended by deleting the existing Section 1017 in its entirety and replacing it
with the following:

            SECTION 1017.  Limitation on Sale of Assets.

         (a) Limitation on Asset Sales by the Company and Restricted Company
Subsidiaries.

             (i) The Company shall not, and shall not permit any Restricted
         Company Subsidiary to, directly or indirectly, engage in any Asset Sale
         unless (A) the consideration received by the Company or such Restricted
         Company Subsidiary for such Asset Sale is not less than the Fair Market
         Value of the shares or other assets sold (as determined by the Board of
         Directors of the Company, whose determination shall be conclusive and
         evidenced by a resolution thereof) and (B) the consideration received
         by the Company or the relevant Restricted Company Subsidiary in respect
         of such Asset Sale consists of at least 75% cash or Cash Equivalents;
         provided, that for purposes of this Section 1017(a) "Cash Equivalents"
         shall include (X) the amount of any liabilities (other than liabilities
         that are by their terms subordinated to the Notes) of the Company or
         such Restricted Company Subsidiary (as shown on the Company's or such
         Restricted Company Subsidiary's most recent balance sheet or in the
         notes thereto) that are assumed by the transferee of any such assets or
         other property in such Asset Sale or are no longer a liability of the
         Company or any Restricted Company Subsidiary (and excluding any
         liabilities that are incurred in connection with or in anticipation of
         such Asset Sale), but only to the extent that such assumption is
         effected on a basis under which there is no further recourse to the
         Company or any of its Restricted Company Subsidiaries with respect to
         such liabilities and (Y) any securities, notes or other obligations
         received by the Company or any such Restricted Company Subsidiary in
         connection with such Asset Sale that are converted by the Company or
         such Restricted Company Subsidiary into cash within 60 days of receipt.

             (ii) If the Company or any Restricted Company Subsidiary engages in
         an Asset Sale, the Company may use the Net Cash Proceeds thereof,
         within 12 months after such Asset Sale, to (A) permanently repay or
         prepay the Notes or any then outstanding Indebtedness of the Company
         that ranks equally with the Notes or Indebtedness of any Restricted
         Company Subsidiary or permanently reduce (without making any
         prepayment) any Indebtedness of the Company ranking equally with the
         Notes or any Indebtedness of a Restricted Company Subsidiary or (B)
         invest (or enter into a legally binding agreement to invest) in
         properties and assets to replace the properties and assets that were
         the subject of the Asset Sale or in properties and assets that are or
         will be used in the Telecommunications Business of the Company or a

                                      -69-
<PAGE>   75

         Restricted Company Subsidiary, as the case may be. If any such legally
         binding agreement to invest such Net Cash Proceeds is terminated, then
         the Company may, within 60 days of such termination or within 12 months
         of such Asset Sale, whichever is later, apply or invest such Net Cash
         Proceeds as provided in clause (A) or (B) (without regard to the
         parenthetical contained in such clause (B) above. The amount of such
         Net Cash Proceeds not so used as set forth above in this paragraph (ii)
         constitutes "Company Excess Proceeds."

             (iii) When the aggregate amount of Company Excess Proceeds exceeds
         $10,000,000 (or the equivalent thereof in one or more foreign
         currencies after deducting fees that would be incurred in converting
         such funds to US dollars), the Company shall, within 15 Business Days,
         make an offer to purchase (a "Company Excess Proceeds Offer"), on a
         proportional basis, the Notes and Indebtedness described in the second
         succeeding sentence, in accordance with the procedures set forth below,
         the maximum principal amount of Notes (expressed as a multiple of
         $1,000) and such other Indebtedness that may be purchased with the
         Company Excess Proceeds. Any Company Excess Proceeds Offer shall
         include a pro rata offer under similar circumstances to purchase all
         other Indebtedness of the Company ranking equally with the Notes which
         Indebtedness contains similar provisions requiring the Company to
         purchase such Indebtedness. The offer price as to each Note (the
         "Company Excess Proceeds Offer Price") will be payable in cash in an
         amount equal to 100% of the principal amount of such Note, plus accrued
         and unpaid interest, if any, thereon to the date of purchase. To the
         extent that the aggregate principal amount of Notes validly tendered
         and not withdrawn by holders thereof pursuant to a Company Excess
         Proceeds Offer is less than the Company Excess Proceeds, the Company
         may use such deficiency for general corporate purposes. If the
         aggregate principal amount of Notes validly tendered and not withdrawn
         by holders thereof pursuant to a Company Excess Proceeds Offer exceeds
         the Excess Proceeds, Notes to be purchased will be selected on a
         proportional basis. Upon completion of such Company Exceeds Proceeds
         Offer, the amount of Company Excess Proceeds shall be reset to zero.

         (b) Limitation on Asset Sales by Parent and Restricted Parent
Subsidiaries. (i)The Parent shall not, and shall not permit any Restricted
Parent Subsidiary to, directly or indirectly, engage in any Asset Sale unless
(A) the consideration received by the Parent or such Restricted Parent
Subsidiary for such Asset Sale is not less than the Fair Market Value of the
shares or other assets sold (as determined by the Board of Directors of the
Parent, whose determination shall be conclusive and evidenced by a resolution
thereof) and (B) the consideration received by the Parent or the relevant
Restricted Parent Subsidiary in respect of such Asset Sale consists of at least
75% cash or Cash Equivalents; provided, that for purposes of this Section
1017(b), "Cash Equivalents" shall include (X) the amount of any liabilities
(other than liabilities that are by their terms subordinated to the Notes) of
the Parent or such Restricted Parent Subsidiary (as shown on the Parent's or
such Restricted Parent Subsidiary's most recent balance sheet or in the notes
thereto) that are assumed by the transferee of any such assets or other property
in such Asset Sale or are no longer a liability of the Parent or any Restricted
Parent Subsidiary (and excluding any liabilities that are incurred in connection
with or in anticipation of such Asset Sale), but only to the extent that such
assumption is effected on a basis under which there is no further recourse to
the Parent or any of the Restricted Parent Subsidiaries with respect to such
liabilities and (Y) and securities, notes or other obligations received by the

                                      -70-
<PAGE>   76

Parent or any of its Restricted Parent Subsidiaries in connection with such
Asset Sale that are converted by the Parent or such Restricted Parent Subsidiary
into cash within 60 days of receipt.

            (ii) If the Parent or any Restricted Parent Subsidiary engages in an
         Asset Sale, the Parent may use the Net Cash Proceeds thereof, within 12
         months after such Asset Sale, to (A) commence an offer to purchase the
         Notes or any then outstanding Indebtedness of the Parent that ranks
         equally with the Notes or Indebtedness of any Restricted Parent
         Subsidiary or permanently reduce (without making any prepayment) any
         Indebtedness of the Parent ranking equally with the Guarantee or any
         Indebtedness of a Restricted Parent Subsidiary, (B) cause the Company
         to repay or prepay the Notes or any then outstanding Indebtedness of
         the Company that ranks equally with the Notes or Indebtedness of any
         Restricted Company Subsidiary or permanently reduce (without making any
         prepayment) any Indebtedness of the Company ranking equally with the
         Notes or Indebtedness of any Restricted Company Subsidiary, or (C)
         invest (or enter into a legally binding agreement to invest) in
         properties and assets to replace the properties and assets that were
         the subject of the Asset Sale or in properties and assets that are or
         will be used in the Telecommunications Business. If any such legally
         binding agreement to invest such Net Cash Proceeds is terminated, then
         the Parent may, within 60 days of such termination or within 12 months
         of such Asset Sale, whichever is later, apply or invest such Net Cash
         Proceeds as provided in clause (A), or (B) or (C) (without regard to
         the parenthetical contained in such clause (C)) above. The amount of
         such Net Cash Proceeds not so used as set forth above in this paragraph
         (c) constitutes "Parent Excess Proceeds."

            (iii) When the aggregate amount of Parent Excess Proceeds exceeds
         $10,000,000, the Parent shall, within 15 business days, make an offer
         to purchase (a "Parent Proceeds Offer"), on a proportional basis, the
         Notes and Indebtedness described in the second succeeding sentence, in
         accordance with the procedures set forth below, the maximum principal
         amount of Notes (expressed as a multiple of $1,000) and such other
         Indebtedness that may be purchased with the Parent Excess Proceeds. Any
         Parent Excess Proceeds Offer made by the Parent shall include a pro
         rata offer under similar circumstances to purchase all other
         Indebtedness of the Parent ranking equally with the Notes which
         Indebtedness contains similar provisions requiring the Parent to
         purchase such Indebtedness. The offer price as to each Note (the
         "Parent Excess Proceeds Offer Price") will be payable in cash in an
         amount equal to 100% of the principal amount of such Note, plus accrued
         and unpaid interest, if any, thereon to the date of purchase. To the
         extent that the aggregate principal amount of Notes validly tendered
         and not withdrawn by holders thereof pursuant to an Parent Excess
         Proceeds Offer is less than the Parent Excess Proceeds, the Parent may
         use such deficiency for general corporate purposes. If the aggregate
         principal amount of Notes validly tendered and not withdrawn by holders
         thereof pursuant to a Parent Excess Proceeds Offer exceeds the Parent
         Excess Proceeds, Notes to be purchased will be selected on a
         proportional basis. Upon completion of such Parent Excess Proceeds
         Offer, the amount of Excess Proceeds shall be reset to zero.

SECTION 128. AMENDMENT TO SECTION 1018. Section 1018 of the Indenture is hereby
amended by deleting the existing Section 1018 in its entirety and replacing it
with the following:

            SECTION 1018.  Limitations on Dividend Restrictions.

                                      -71-
<PAGE>   77

            Neither the Company nor the Parent shall, and neither shall they
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction of
any kind on the ability of the Company or any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of any Capital Stock of the Company or such Restricted Subsidiary owned
by any Restricted Entity, (b) pay any Indebtedness owed to any Restricted
Entity, (c) make Investments in any Restricted Entity, (d) transfer any of its
property or assets to any Restricted Entity or (e) guarantee any indebtedness of
any Restricted Entity, except for such encumbrances or restrictions existing
under or by reason of (i) any agreement in effect on the Issue Date, (ii)
applicable law, (iii) customary non-assignment provisions in leases entered into
in the ordinary course of business and other agreements of any Restricted
Entity, (iv) any agreement or other instrument of a Person acquired by the any
Restricted Entity in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (v) customary restrictions on
transfers of property contained in any security agreement (including a capital
lease obligation) securing Indebtedness of a Restricted Entity otherwise
permitted hereunder, (vi) any encumbrance or restriction with respect to a
Restricted Subsidiary entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary
permitted under Section 1017), (vii) any agreement or instrument governing or
relating to Indebtedness under any senior financing facility permitted to be
incurred under clause (g), (j) or (m) of the definition of "Permitted
Indebtedness" if such encumbrance or restriction applies only (A) to amounts
which at any point in time (other than during such periods as are described in
the following clause (B)) (1) exceed scheduled amounts due and payable (or which
are to become due and payable within 30 days) in respect of the Notes or this
Indenture for interest, premium and principal less the amount of cash that is
otherwise available to the Company or the Parent (as the case may be) at such
time for the payment of interest, premium and principal due and payable in
respect of the Notes or this Indenture or (2) if paid, would result in an event
described in the following clause (B) of this sentence, or (B) during the
pendency of any event that causes, permits or, after notice or lapse of time,
would cause or permit the holder or holders of such Indebtedness to declare such
Indebtedness to be immediately due and payable or to require cash
collateralization or cash cover for such Indebtedness for so long as such cash
collateralization or cash cover has not been provided; (viii) any encumbrance or
restriction under the Vendor Credit Facility; (ix) any encumbrance or
restriction relating to transfer of property or assets comprising an Initial
System pursuant to an Incumbent Agreement, and (x) any encumbrance or
restriction under any agreement that extends, renews, refinances or replaces
agreements containing the encumbrances or restrictions in the foregoing clauses
(i) through (vi) and (viii), so long as the Board of Directors of the Parent
determines in good faith that the terms and conditions of any such encumbrances
or restrictions, taken as a whole, are no less favorable to any Restricted
Entity and the holders of the Notes than those so extended, renewed, refinanced
or replaced."

                            AMENDMENTS TO "SECURITY"

SECTION 129. AMENDMENTS TO ARTICLE 12. Article 12 of the Indenture is hereby
amended by deleting the existing Article 12 in its entirety and replacing it
with the following:

SECTION 1201. Security

     (a)  On the date hereof, the Company shall purchase the New Pledged
Securities, and at all times, subject to the Amended and Restated Pledge
Agreement, pledge to the Trustee the Pledged Securities as security for the
benefit of the Holders. The Pledged Securities must be in such amount as will
be sufficient upon receipt of scheduled interest on and principal payments of
such Pledged Securities, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to provide for payment
in full of the fourth and fifth scheduled interest payments due on the
Outstanding Notes. The Pledged Securities shall be pledged by the Company to
the Trustee for the benefit of the Holders pursuant to the Amended and Restated
Pledge Agreement and shall be held by the Trustee in the Escrow Account pending
disposition pursuant to the Amended and Restated Pledge Agreement.

     (b)  Each Holder, by its continued acceptance of a Note, consents and
agrees to the terms of the Pledge Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Pledged Securities) as
the same may be in effect or may be amended from time to time in accordance
with its terms, and authorizes and directs the Trustee to enter into the
Amended and Restated Pledge Agreement and to perform its respective obligations
and exercise its respective rights thereunder in accordance therewith. The
Company shall do or cause to be done all such acts and things as may be
reasonably necessary or proper, or as may be required by the provisions of the
Amended and Restated Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Amended
and Restated Pledge Agreement or any part thereof, as from time to time
constituted, so as to render the same available for the security and benefit of
this Indenture and of the Notes secured hereby, according to the intent and
purposes herein expressed. The Company shall take, or shall cause to be taken,
any and all actions reasonably required (and any action reasonably requested by
the Trustee) to cause the Amended and Restated Pledge Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Notes, valid and enforceable first priority liens in and on all the
Pledged Securities, in favor of the Trustee, superior to and prior to the
rights of the third Persons and subject to no other Liens.

     (c)  The release of any Pledged Securities pursuant to the Amended and
Restated Pledge Agreement will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Pledged Securities are released pursuant to this Indenture and the Amended and
Restated Pledge Agreement. To the extent applicable, the Company shall cause
TIA Section 314(d), relating to the release of property or securities from the
Lien and security interest of the Amended and Restated Pledge Agreement and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Amended and Restated Pledge
Agreement, to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent appraiser or other
expert selected or approved by the Company in the exercise of reasonable care.

     (d)  The Company shall cause TIA Section 314(b), relating to opinions of
counsel regarding the Lien under the Amended and Restated Pledge Agreement, to
be complied with. The Trustee may, to the extent permitted by Section 602
hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such instruments.

     (e)  The Trustee, in its sole discretion and without the consent of the
Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then Outstanding shall, on behalf of the Holders,
take all actions it deems necessary or appropriate in order to (i) enforce any
of the terms of the Amended and Restated Pledge Agreement and (ii) collect and
receive any and all amounts payable in respect of the obligations of the
Company thereunder. The Trustee shall have power to institute and to maintain
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders in the Pledged
Securities (including power to institute and maintain suits or proceedings to
restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or
order would impair the security interest hereunder or be prejudicial to the
interest of the Holders of the Trustee).

                 AMENDMENTS TO "DEFEASANCE AND COVENANT DEFEASANCE"

SECTION 130. AMENDMENTS TO ARTICLE 13. Article 13 of the Indenture is hereby
amended by deleting the existing Article 13 in its entirety and replacing it
with the following:

                                      -72-
<PAGE>   78

SECTION 1301.  Company's Option to Effect Defeasance or Covenant Defeasance.

            The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.

SECTION 1302.  Defeasance and Discharge.

            Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, each of the Company and the Parent shall be
deemed to have been discharged from its obligations with respect to all
Outstanding Notes on the date the conditions set forth in Section 1304 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Notes, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 1305 and the other
Sections of this Indenture referred to in (A) and (B) below, and to have
satisfied all its other obligations under such Notes and this Indenture insofar
as such Notes are concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Notes to receive, solely
from the trust fund described in Section 1304 and as more fully set forth in
such Section, payments in respect of the principal of (and premium, if any, on)
and interest and Liquidated Damages, if any, on such Notes when such payments
are due, (B) the Company's and the Parent's obligations with respect to such
Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Thirteen. Subject to compliance with this Article Thirteen, the Company may
exercise its option under this Section 1302 notwithstanding the prior exercise
of its option under Section 1303 with respect to the Notes. Forthwith upon
exercise by the Company of its option under this Section 1302 the Guarantees
shall cease to be of further force and effect.

SECTION 1303.  Covenant Defeasance.

            Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company and the Parent shall be released
from their respective obligations under any covenant contained in Section 801(2)
and (3) and Section 803 and in Sections 1007 through 1018 with respect to the
Outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter
be deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent or declaration or Act of Holders (and the consequences of any thereof)
in connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the Outstanding Notes, the Company and the Parent
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 501(4), but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby.

                                      -73-
<PAGE>   79

SECTION 1304.  Conditions to Defeasance or Covenant Defeasance.

            The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Notes:

            (1) The Company or the Parent shall have deposited or caused to be
deposited irrevocably with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the provisions of
this Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) cash in
United States dollars, (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, (i) the principal of (and premium, if any) and
interest and Liquidated Damages, if any, on, Outstanding Notes on the Stated
Maturity (or Redemption Date, if applicable) of such principal (and premium, if
any) or installment of interest and Liquidated Damages, if any, and (ii) any
payments applicable to the Outstanding Notes on the day on which such payments
are due and payable in accordance with the terms of this Indenture and of such
Notes; provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to said payments
with respect to the Notes. Before such a deposit, the Company may give to the
Trustee, in accordance with Section 1103 hereof, a notice of its election to
redeem all of the Outstanding Notes at a future date in accordance with Article
Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing. For this
purpose, "U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect to
any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.

            (2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (6) and (7) of Section 501 hereof are concerned, at any time during
the period ending on the 123rd day after the date of

                                      -74-
<PAGE>   80

such deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).

            (3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or the Parent is a
party or by which it is bound.

            (4) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (y) since April 1, 1998, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion shall confirm that, the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred.

            (5) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such covenant defeasance and
will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.

            (6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302 or
the covenant defeasance under Section 1303 (as the case may be) have been
complied with.

SECTION 1305.  Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.

            Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law.

            The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.

                                      -75-
<PAGE>   81

            Anything in this Article Thirteen to the contrary notwithstanding,
the Trustee shall deliver or pay to the or the Parent, as the case may be, from
time to time upon Company Request or Parent Request, as applicable any money or
U.S. Government Obligations held by it as provided in Section 1304 which, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.

                                      -76-
<PAGE>   82

SECTION 1306.  Reinstatement.

            If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Parent's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 1302 or 1303, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 1305; provided, however, that if the Company or the
Parent makes any payment of principal of (or premium, if any) or interest on any
Note following the reinstatement of its obligations, the Company or the Parent,
as applicable, shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.

                                PARENT GUARANTEE

SECTION 131. GUARANTEE. Parent agrees that forthwith upon execution of this
Supplemental Indenture it will enter into a guarantee of the Company's
obligations under the Notes in the form attached hereto as Exhibit 1.

                                  MISCELLANEOUS

SECTION 132. WAIVER. Without limitation to Section 1019 of the Indenture, the
Parent may omit in any particular instance to comply with any term provision or
condition set forth in Section 803 or Sections 1005 through 1018, inclusive, if
before or after the time for such compliance the Holders of at least a majority
in aggregate principal amount of the Outstanding Notes, by Act of such Holders,
waive such compliance in such instance with such term, provision or condition
except to the extent so expressly waived, and, until such waivers shall become
effective, the obligations of the Parent and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.

SECTION 133.      ACTS OF HOLDERS.

         (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Supplemental Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Parent and/or
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Supplemental Indenture and conclusive in favor of the Trustee,
the Parent and the Company, if made in the manner provided in this Section.

         (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgements of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution

                                      -77-
<PAGE>   83

thereof. Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner that the Trustee deems sufficient.

         (c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.

         (d) If the Parent and/or the Company shall solicit from the Holders of
Notes any request, demand, authorization, direction, notice, consent, waiver or
other Act, the Company or the Parent (as the case may be) may, at its option, by
or pursuant to a Board Resolution, fix in advance a record date for the
determination of Holders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other Act, but neither the Company nor the
Parent shall have no obligation to do so. Notwithstanding TIA Section 316(c),
such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.

         (e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Parent or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.

SECTION 134.      NOTICE OF HOLDERS; WAIVER.

            Where this Supplemental Indenture provides for notice of any event
to Holders by the Parent or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at its
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

                                      -78-
<PAGE>   84

            In case, by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.

SECTION 135.      COUNTERPARTS. This Supplemental Indenture may be signed in any
number of counterparts each of which so executed shall be deemed to be an
original, but all such counterparts together constitute but one and the same
Supplemental Indenture.

SECTION 136.      GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

SECTION 137.      SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

SECTION 138.      HEADINGS. The various headings of this Supplemental Indenture
are inserted for convenience only and shall not affect the meaning or
interpretation of this Supplemental Indenture or any provisions hereof or
thereof.

SECTION 139.      EFFECT OF SUPPLEMENTAL INDENTURE. Pursuant to Section 902 of
the Indenture, upon the execution of this Supplemental Indenture, the Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties and liabilities and immunities under the Indenture
of the Trustee shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of this Supplemental Indenture shall be and be deemed to be part
of the terms and conditions of the Indenture for any and all purposes.

SECTION 140.      INDENTURE IN FULL FORCE AND EFFECT AS SUPPLEMENTED. Except as
specifically stated herein, all of the terms and conditions of the Indenture
shall remain in full force and effect. All references to the Indenture in any
other document or instrument shall be deemed to mean the Indenture, as
supplemented by this Supplemental Indenture. This Supplemental Indenture shall
not constitute a novation of the Indenture, but shall constitute an amendment
thereto. The parties hereby agree to be bound by the terms and obligations of
the Indenture, as supplemented by this Supplemental Indenture, as though the
terms and obligations of the Indenture were set forth herein.

                                      -79-
<PAGE>   85

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

                                  PATHNET, INC.

                                         By:_________________________________
                                               Name:
                                               Title:

                                         PATHNET TELECOMMUNICATIONS, INC.

                                         By:_________________________________
                                               Name:
                                               Title:

                                         THE BANK OF NEW YORK, TRUSTEE

                                         By:_________________________________
                                               Name:
                                               Title:

                                      -80-
<PAGE>   86

                                    EXHIBIT 1

                                FORM OF GUARANTEE

     1.   Guarantee of Payment and Performance of Obligations.

          (a)  For value received, Pathnet Telecommunications, Inc. (the
               "Parent") unconditionally guarantees to the holder of any
               Outstanding Note or Notes (a "Holder") the full and punctual
               payment and performance of the Obligations (as defined in
               subsection (b) below). This Guarantee is an absolute,
               unconditional and continuing guarantee of the full and punctual
               payment and performance by the Company of each of the
               Obligations, and not of collectability only, and is no way
               conditioned upon any requirement that any Holder first attempt to
               seek payment or performance from the Company or any other Parent
               or surety or resort to any security or other means of obtaining
               payment of all or any of the Obligations or upon any other
               contingency. Upon any default by the Company in the full and
               punctual payment or performance of any of the Obligations, if
               such default remains uncured after the giving of any required
               notice and after any applicable period of cure, the liabilities
               and obligations of the Parent hereunder shall at the option of
               any Holder become forthwith effective, matured, due and payable
               without further demand or notice of any nature, all such demands
               and notices being expressly waived by the Parent.

          (b)  As used herein, the term "Obligations" means all obligations,
               covenants, liabilities, undertakings and agreements of any kind
               of the Company to all or any of the Holders contained in the
               Indenture, to be performed after the date hereof, howsoever,
               incurred, arising or evidenced, whether now or hereafter
               existing, due or to become due or of payment or performance and
               including, without limitation: (i) the prompt payment in full, in
               United States currency, when due (whether at stated maturity, by
               acceleration, by mandatory or optional prepayment or otherwise)
               of the principal of and interest on the Notes (including interest
               on any overdue principal, and, to the extent permitted by
               applicable law, on any overdue interest) and all other amounts
               from time to time owing by the Company under the Indenture and
               under the Notes (including costs, expenses and taxes); and (ii)
               the prompt performance and observance by the Company of all
               covenants, agreements and conditions on its part to be performed
               and observed under the Indenture, in each case strictly in
               accordance with the terms thereof (such payments and other
               obligations being herein collectively referred to as the
               "Obligations").

     2.   Guarantee Continuing and Liability Unaffected.

          (a)  Subject to Section 2 (c), this is a continuing guarantee and
               shall be binding upon the Parent regardless of how long before or
               after the date hereof any part of the Obligations was or is
               incurred by the Company. Subject to

<PAGE>   87

               Section 2 (c), this Guarantee may be enforced by any or all of
               the Holders from time to time and as often as occasion for such
               enforcement may arise.

          (b)  If after receipt of any payment from the Parent made hereunder
               the Holders, or any of them, are compelled to surrender or
               voluntarily surrender such payment or proceeds to any person
               because such payment or application of proceeds is or may be
               avoided, invalidated, recaptured, or set aside as a preference,
               fraudulent conveyance, impermissible setoff or for any other
               reason, whether or not such surrender is the result of (i) any
               judgment, decree or order of any court or administrative body
               having jurisdiction over the Holders, or (ii) any settlement or
               compromise by the Holders of any claim as to any of the foregoing
               with any person (including the Company), then the Obligations or
               part thereof affected shall be reinstated and continue and this
               Guarantee shall be reinstated and continue in full force as to
               such Obligations or part thereof as if such payment or proceeds
               had not been received. The provisions of this Section 2(b) shall
               survive the termination of this Guarantee and any satisfaction
               and discharge of the Company by virtue of any payment, court
               order or any federal or state law.

          (c)  The Parent shall be subrogated to all rights of the Holders in
               respect of any amounts paid by the Parent pursuant to the
               provisions of this Guarantee; provided, however, that Parent
               shall be entitled to enforce, or to receive any payments arising
               out of or based upon, such right of subrogation with respect to
               any Obligation only after the payment of all amounts owed by the
               Company to the Holders with respect to all of the Obligations
               have been paid in full.

          (d)  This Guarantee shall terminate and be of no further force and
               effect as to any Note upon full payment of the Redemption Price
               with respect to such Note, provided, however, that this Guarantee
               shall continue to be effective or shall be reinstated, as the
               case may be, if at any time the Company must restore payment of
               any sums paid under such Note or under this Guarantee for any
               reason whatsoever.

     3.   Unconditional Nature of Parent's Obligations and Liabilities. The
     obligations and liabilities of the Parent hereunder shall be absolute and
     unconditional, and shall not be subject to any counterclaim, set-off,
     deduction or defense based upon any claim the Parent may have against the
     Company or any other person or entity. Such obligations and liabilities
     shall remain in full force and effect for the period set forth in Section 2
     above without regard to any event, circumstance or condition (whether or
     not the Parent shall have knowledge or notice thereof) which but for the
     provisions of this Section might constitute a legal or equitable defense or
     discharge of a Parent or surety or which might in any way limit recourse
     against the Parent, including:

<PAGE>   88

          (a)  any amendment or modification or supplement to the terms of the
               Indenture, this Guarantee or any of the Notes, including the
               renewal or extension of the time for payment of the Notes or the
               granting of time in respect of the payment thereof;

          (b)  any waiver, consent, extension, granting of time, forbearance,
               indulgence or other action or inaction under or in respect of the
               Indenture or the Notes, or any exercise or non-exercise of any
               right, remedy or power in respect thereof;

          (c)  the invalidity or unenforceability, in whole or in part of the
               Indenture or this Guarantee resulting from the Company's or the
               Parent's lack of authority to enter into the Indenture and/or to
               incur any or all of the Obligations, by any person acting for the
               Company or the Parent without or in excess of authority;

          (d)  any actual, purported or attempted sale, assignment or other
               transfer by any or all of the Holders or by the Company or the
               Parent of the Indenture or the Notes or of any of their rights,
               interests or obligations thereunder;

          (e)  the addition of any party as a Parent or surety of all or any
               part of the Obligations or any limitation of the liability of any
               additional Parent or surety of all or any part of the Obligations
               under any other agreement;

          (f)  any merger or consolidation of the Company or of the Parent into
               or with any other entity, or any sale, lease, transfer or other
               disposition of any or all of any Company's or the Parent's assets
               or any sale, transfer or other disposition of any or all of the
               economic interests in the Company or the Parent to any other
               person or entity;

          (g)  the recovery of any judgment against the Company or any action to
               enforce the same; or

          (h)  any change in the financial condition of the Company or the
               Company's entry into an assignment for the benefit of creditors,
               an arrangement or any other agreement or procedure for the
               restructuring of its liabilities, or the Company's insolvency,
               bankruptcy, reorganization, dissolution, liquidation or any
               similar action by or occurrence with respect to the Company.

     4.   Parent's Waiver. The Parent unconditionally waives, to the fullest
extent permitted by law:

          (a)  notice of any of the matters referred to in Section 3 hereof;

          (b)  diligence, presentment, demand of payment and filing of claims
               with a court in the event of bankruptcy or insolvency of the
               Company;

<PAGE>   89

          (c)  any right to the enforcement, assertion or exercise by any or all
               of the Holders of any of their rights, powers or remedies under,
               against or with respect to the Company (i) any other Parent or
               surety, or (ii) any security for all or any part of the
               Obligations;

          (d)  any requirement that the Parent be joined as a party in any
               action or proceeding against the Company to enforce any of the
               provisions of the Indenture;

          (e)  acceptance of this Guarantee by any Holder;

and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in this Guarantee.

     5.   Representations and Warranties. The Parent represents and warrants
that:

          (a)  the Parent is a corporation duly organized and validly existing
               in good standing under the laws of the State of Delaware and has
               the full power, authority and legal right to enter into and
               perform its obligations under this Guarantee;

          (b)  this Guarantee has been duly authorized, executed and delivered
               by the Parent and constitutes the legal, valid and binding
               obligation of the Parent, enforceable against the Parent in
               accordance with its terms, except for the effect of bankruptcy,
               insolvency, reorganization, moratorium, receivership or similar
               laws affecting the enforcement of creditors' rights generally;

          (c)  the execution, delivery and performance by the Parent of this
               Guarantee do not and will not contravene any applicable law,
               rule, regulation, judgment or order and do not and will not
               contravene the provisions of, constitute a breach of or default
               under, or result in the creation of any security interest, lien
               or encumbrance on any of the property of the Parent pursuant to,
               the Parent's articles of incorporation or by-laws of any
               indenture, mortgage, license or other contract, agreement or
               instrument to which the Parent is a party or by which it is
               bound.

     6.   Attorney's Costs. The Parent agrees to pay all reasonable attorney's
fees and disbursements and all other reasonable and actual costs and expenses
which may be incurred by the Holders in the enforcement of this Guarantee.

     7.   Successors and Assigns. This Guarantee shall be binding upon the
Parent and its respective successors and assigns, and shall inure to the benefit
of and be enforceable by the Holders and their respective successors and
assigns.

     8.   Governing Law. This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York.

<PAGE>   90

     9.   Severability. Wherever possible, each provision of this Guarantee
shall be construed in such manner as to be valid and enforceable against the
Parent under applicable law, but if any provision hereof shall be deemed invalid
or unenforceable to any extent against the Parent in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Parent in one jurisdiction shall not render such
provision ineffective in any other jurisdiction.

     10.  Notices.

          Any notice, request or other communication required or permitted to be
     given hereunder to the Holders shall be given by the Parent in the same
     manner as set forth in Section 106 of the Indenture.

     11.  Transferability. This Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Notes.

     12.  Headings. Section headings appearing in this Guarantee are for
convenience of reference only and shall not define, limit, amplify or otherwise
modify any provision hereof. Capitalized terms used herein have the meanings
given to them in the Indenture.

          This Guarantee shall not be valid or obligatory to any purpose until
the certificate of authentication on the Note on which this Guarantee has been
endorsed shall have been executed by the Trustee under the Indenture by the
signature of one of its authorized officers.

          IN WITNESS WHEREOF, the Parent has caused this Guarantee to be
executed on its behalf by an officer or other person thereunto duly authorized
as of the date first above written.

                                            PATHNET TELECOMMUNICATIONS, INC.

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00003-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00003-of-00352.parquet"}]]