Document:

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                                                                    EXHIBIT 10.1

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                           LOAN AND SECURITY AGREEMENT

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                         WELLS FARGO RETAIL FINANCE LLC
                                   THE LENDER

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                                  DELIA*S CORP.

                                THE LEAD BORROWER
                                      FOR:

                                  dELiA*s CORP.
                            dELiA*s OPERATING COMPANY
                          dELiA*s DISTRIBUTION COMPANY
                             dELiA*s RETAIL COMPANY
                                  THE BORROWERS

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                               September 24, 2001

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                                TABLE OF CONTENTS

ARTICLE 1: - DEFINITIONS:

 ARTICLE 2: - THE REVOLVING CREDIT:
<Table>
<S>                        <C>                                                                                   <C>
                  2-1.     Establishment of  Revolving Credit....................................................26
                  2-2.     Reserves..............................................................................26
                  2-3.     Eligible Inventory Criteria...........................................................28
                  2-4.     Advances in Excess of Borrowing Base (OverLoans)......................................28
                  2-5.     Risks of Value of Collateral..........................................................28
                  2-6.     Lender's Commitment...................................................................28
                  2-7.     Revolving Credit Loan Requests........................................................29
                  2-8      Making of Revolving Credit Loans......................................................30
                  2-9.     The Loan Account......................................................................31
                  2-10.    The Revolving Credit Note.............................................................32
                  2-11.    Payment of The Loan Account...........................................................32
                  2-12.    Interest on Revolving Credit Loans. ..................................................33
                  2-13.    Fees..................................................................................34
                  2-14.    Lender's Discretion...................................................................37
                  2-15.    Procedures For Issuance of L/C's......................................................38
                  2-16.    Fees For L/C's........................................................................39
                  2-17.    Concerning L/C's......................................................................40
                  2-18.    Changed Circumstances.................................................................41
                  2-19.    Designation of Lead Borrower as Borrowers'  Agent.....................................42

ARTICLE 3: - CONDITIONS PRECEDENT:
                  3-1.     Corporate Due Diligence...............................................................43
                  3-2.     Opinion...............................................................................43
                  3-3.     Officers' Certificates................................................................43
                  3-4.     Additional Documents. Satisfaction of Conditions......................................44
                  3-5.     Payoff Letter From Congress...........................................................44
                  3-7.     Representations and Warranties........................................................44
                  3-8.     Minimum Day One Excess Availability...................................................44
                  3-9.     All Fees and Expenses Paid............................................................44
                  3-10.    No Borrower InDefault.................................................................45
                  3-11.    No Adverse Change.....................................................................45
                  3-12.    Benefit of Conditions Precedent.......................................................45

ARTICLE 4: - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
                  4-1.     Payment and Performance of Liabilities................................................45
                  4-2.     Due Organization. Authorization. No Conflicts.........................................45
                  4-3.     Trade Names...........................................................................46
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<Table>
<S>                        <C>                                                                                   <C>
                  4-4.     Infrastructure........................................................................47
                  4-5.     Locations.............................................................................47
                  4-6.     Lease Amendments. New Stores. Store Closings..........................................48
                  4-7.     Title to Assets.......................................................................50
                  4-8.     Indebtedness..........................................................................50
                  4-9.     Insurance.............................................................................52
                  4-10.    Licenses..............................................................................53
                  4-11.    Leases................................................................................53
                  4-12.    Requirements of Law...................................................................53
                  4-13.    Labor Relations.......................................................................54
                  4-14.    Maintain Properties...................................................................54
                  4-15.    Taxes.................................................................................55
                  4-16.    No Margin Stock.......................................................................56
                  4-17.    ERISA.................................................................................56
                  4-18.    Hazardous Materials...................................................................57
                  4-19.    Litigation............................................................................58
                  4-20.    Dividends. Investments. Corporate Action..............................................58
                  4-21.    Loans.................................................................................58
                  4-22.    Protection of Assets..................................................................59
                  4-23.    Line of Business......................................................................59
                  4-24.    Affiliate Transactions................................................................59
                  4-25.    Further Assurances....................................................................59
                  4-26.    Adequacy of Disclosure................................................................60
                  4-27.    No Restrictions on Liabilities........................................................61
                  4-28.    Other Covenants.......................................................................61

ARTICLE 5: - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
                  5-1.     Maintain Records......................................................................61
                  5-2.     Access to Records.....................................................................62
                  5-3.     Immediate Notice to Lender............................................................63
                  5-4.     Borrowing Base Certificate............................................................64
                  5-5.     Monthly Reports.......................................................................64
                  5-6.     Annual Reports........................................................................64
                  5-7.     Officers' Certificates................................................................65
                  5-8.     Inventories, Appraisals, and Audits...................................................66
                  5-9.     Additional Financial Information. Business Plan.......................................69
                  5-10.    Financial Performance Covenants.......................................................69
                  5-11     E-Reporting...........................................................................70

ARTICLE 6: - USE OF COLLATERAL:
                  6-1.     Use of Inventory Collateral...........................................................70
                  6-2.     Inventory Quality.....................................................................71
                  6-3.     Adjustments and Allowances............................................................71
                  6-4.     Validity of Accounts..................................................................71
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<S>                        <C>                                                                                   <C>
                  6-5.     Notification to Account Debtors.......................................................71

ARTICLE 7: - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
                  7-1.     Depository Accounts...................................................................71
                  7-2.     Credit Card Receipts..................................................................72
                  7-3.     The Concentration, Blocked, and Operating Accounts....................................73
                  7-4.     Proceeds and Collections..............................................................74
                  7-5.     Payment of Liabilities................................................................75
                  7-6.     The Operating Account.................................................................76

ARTICLE 8: - GRANT OF SECURITY INTEREST:
                  8-1.     Grant of Security Interest............................................................76
                  8-2.     Extent and Duration of Security Interest..............................................78

ARTICLE 9: - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
                  9-1.     Appointment as Attorney-In-Fact.......................................................78
                  9-2.     No Obligation to Act..................................................................79

ARTICLE 10: - EVENTS OF DEFAULT:
                  10-1.    Failure to Pay the Revolving Credit...................................................79
                  10-2.    Failure To Make Other Payments........................................................79
                  10-3.    Failure to Perform Covenant or Liability (No Grace Period)............................80
                  10-4.    Failure to Perform Covenant or Liability (Grace Period)...............................80
                  10-5.    Misrepresentation.....................................................................80
                  10-6.    Acceleration of Other Debt. Breach of Lease...........................................80
                  10-7.    Default Under Other Agreements........................................................80
                  10-8.    Uninsured Casualty Loss...............................................................80
                  10-9.    Attachment. Judgment. Restraint of Business...........................................81
                  10-10.   Business Failure......................................................................81
                  10-11.   Bankruptcy............................................................................81
                  10-12.   Indictment - Forfeiture...............................................................82
                  10-13.   Guarantor's Default...................................................................82
                  10-14.   Termination of Guaranty...............................................................82
                  10-15.   Challenge to Loan Documents...........................................................82
                  10-16.   Change in Control.....................................................................82
                  10-17.   Material Adverse Change. .............................................................82

ARTICLE 11: - RIGHTS AND REMEDIES UPON DEFAULT:
                  11-1     Acceleration..........................................................................82
                  11-2.    Rights of Enforcement.................................................................83
                  11-3.    Sale of Collateral....................................................................83
                  11-4.    Occupation of Business Location.......................................................84
                  11-5.    Grant of Nonexclusive License.........................................................84
                  11-6.    Assembly of Collateral................................................................85
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<S>                        <C>                                                                                   <C>
                  11-7.    Rights and Remedies...................................................................85

ARTICLE  12:- NOTICES:
                  12-1.    Notice Addresses......................................................................85
                  12-2.    Notice Given..........................................................................86

ARTICLE 13: - TERM:
                  13-1.    Termination of Revolving Credit.......................................................87
                  13-2.    Actions On Termination................................................................87

ARTICLE 14: - GENERAL:
                  14-1.    Protection of Collateral..............................................................88
                  14-2.    Publicity.............................................................................88
                  14-3.    Successors and Assigns................................................................88
                  14-4.    Severability..........................................................................89
                  14-5.    Amendments.  Course of Dealing........................................................89
                  14-6.    Power of Attorney.....................................................................89
                  14-7.    Application of Proceeds...............................................................90
                  14-8.    Increased Costs.......................................................................90
                  14-9.    Costs and Expenses of the Lender .....................................................91
                  14-10.   Copies and Facsimiles.................................................................92
                  14-11.   Massachusetts Law.....................................................................92
                  14-12.   Consent to Jurisdiction...............................................................92
                  14-13.   Indemnification.......................................................................93
                  14-14.   Rules of Construction.................................................................93
                  14-15.   Intent................................................................................95
                  14-16.   Participations:.......................................................................95
                  14-17.   Confidentiality: .....................................................................95
                  14-18.   Right of Set-Off......................................................................96
                  14-19.   Pledges To Federal Reserve Banks: ....................................................96
                  14-20.   Maximum Interest Rate.................................................................96
                  14-21.   Waivers. .............................................................................97
</Table>

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                                    EXHIBITS

         2:2-1(b)(ii)      :        NRLV Percentage
         2:2-10            :        Revolving Credit Note
         3:3-2             :        Opinion of Counsel to the Borrowers
         4:4-2             :        Corporate Information
         4:4-3             :        Trade Names
         4:4-4             :        Infrastructure
         4:4-5             :        Locations, Leases, and Landlords
         4:4-7(a)          :        Certain Encumbrances
         4:4-7(c)(ii)      :        Equipment Usage Agreement
         4:4-8             :        Indebtedness
         4:4-9             :        Insurance Policies
         4:4-11            :        Capital Leases
         4:4-15            :        Taxes
         4:4-18            :        Hazardous Materials
         4:4-19            :        Litigation
         4:4-20            :        Certain Permitted Investments
         5:5-4             :        Borrowing Base Certificate
         5:5-5             :        Monthly Financial Reporting Requirements
         5:5-9(b)          :        Business Plan
         7:7-1             :        DDA's.
         7:7-2             :        Credit Card Arrangements
         7:7-6             :        Operating Account

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LOAN AND SECURITY AGREEMENT                       WELLS FARGO RETAIL FINANCE LLC
                                                                      THE LENDER

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                                                              September 24, 2001

         THIS AGREEMENT is made between

                  Wells Fargo Retail Finance LLC (the "LENDER"), a Delaware
         limited liability company with offices at One Boston Place - 18th
         Floor, Boston, Massachusetts 02108,

                  and

                  dELiA*s Corp. ( in such capacity, the "LEAD BORROWER"), a
         Delaware corporation with its principal executive offices at 435 Hudson
         Street, New York, New York 10014, as agent for the following
         (individually, a "BORROWER" and collectively, the "BORROWERS"):

                  dELiA*s Corp.,
                  dELiA*s Operating Company,
                  dELiA*s Distribution Company,
                  dELiA*s Retail Company,

         each a Delaware corporation with its principal executive offices at 435
         Hudson Street, New York, New York 10014, in consideration of the mutual
         covenants contained herein and benefits to be derived herefrom,

                                   WITNESSETH:

ARTICLE 1: - DEFINITIONS:

         As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:

         "1934 ACT": The Securities Exchange Act of 1934, as amended.

         "ACCOUNT DEBTOR": Has the meaning given that term in the UCC.

         "ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
                  "accounts" as defined

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                  in the UCC, and also all: accounts, accounts receivable,
                  receivables, and rights to payment (whether or not earned by
                  performance) for: property that has been or is to be sold,
                  leased, licensed, assigned, or otherwise disposed of; services
                  rendered or to be rendered; a policy of insurance issued or to
                  be issued; a secondary obligation incurred or to be incurred;
                  energy provided or to be provided; for the use or hire of a
                  vessel; arising out of the use of a credit or charge card or
                  information contained on or used with that card; winnings in a
                  lottery or other game of chance; and also all Inventory which
                  gave rise thereto, and all rights associated with such
                  Inventory, including the right of stoppage in transit; all
                  reclaimed, returned, rejected or repossessed Inventory (if
                  any) the sale of which gave rise to any Account.

         "ACH":   Automated clearing house.

         "AFFILIATE": With respect to any two Persons, a relationship in which
                  (i) one holds, directly or indirectly, not less than Twenty
                  Five Percent (25%) of the capital stock, beneficial interests,
                  partnership interests, or other equity interests of the other;
                  or (ii) one has, directly or indirectly, the right, under
                  ordinary circumstances, to vote for the election of a majority
                  of the directors (or other body or Person who has those powers
                  customarily vested in a board of directors of a corporation);
                  or (iii) not less than Twenty Five Percent (25%) of their
                  respective ownership is directly or indirectly held by the
                  same third Person; or (iv) one directly or indirectly is under
                  the common control of the other by reason of direct or
                  indirect power to direct or cause the direction of management
                  and policies of the other (through the ownership of voting
                  securities, by contract, or on any other basis).

         "APPLICABLE LAW": As to any Person: (i) All statutes, rules,
                  regulations, orders, or other requirements having the force of
                  law and (ii) all (A) court orders and injunctions, (B)
                  arbitrator's written decisions, and/or (C) similar rulings
                  which similar rulings are in writing, in each instance ((i)
                  and (ii)) of or by any federal, state, municipal, and other
                  governmental authority, or court, tribunal, panel, or other
                  legislative or administrative body which has or claims
                  jurisdiction over such Person, or any property of such Person,
                  or of any other Person for whose conduct such Person would be
                  responsible.

         "APPROVED BANK ISSUER": (x) Any commercial bank organized under the
                  laws of the United States, any state thereof, the District of
                  Columbia, having capital and surplus in an aggregate amount
                  not less than $500,000,000 which has not less than the second
                  highest rating by a nationally recognized credit rating agency
                  and (y) the Lender (and Affiliates of the Lender).

         "AVAILABILITY": The result of the following:
                        (a) The lesser of

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                                    (i)     The Credit Limit
                                    or
                                    (ii)    The Borrowing Base

                           MINUS
                           (b)      The aggregate unpaid balance of the Loan
                                    Account
                           MINUS
                           (c)      The aggregate undrawn Stated Amount of all
                                    then outstanding L/C's and any L/C Landing
                                    Costs applicable thereto

                           PLUS
                           (d)      The product of (x) the Stated Amount of all
                                    then outstanding documentary L/C's
                                    MULTIPLIED by (y) the result of (i) 100%
                                    MINUS (ii) the L/C Reserve Percentage

                           MINUS
                           (e)      The aggregate of the Availability Reserves.

         "AVAILABILITY RESERVES": Such reserves as the Lender from time to time
                  determines in the Lender's discretion as being appropriate to
                  reflect the impediments to the Lender's ability to realize
                  upon the Collateral. Without limiting the generality of the
                  foregoing, Availability Reserves may include (but are not
                  limited to) reserves based on the following:

                           (i)      Rent as provided in Sections 4:4-5(e) and
                                    4:4-5(f).
                           (ii)     Customer Credit Liabilities.
                           (iii)    Taxes and other governmental charges,
                                    including, ad valorem, personal property,
                                    and other taxes which reasonably could be
                                    expected to have priority over the
                                    Collateral Interests of the Lender in the
                                    Collateral.
                           (iv)     L/C Landing Costs.

         "BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.

         "BLOCKED ACCOUNT": Any DDA into which the contents of any other DDA is
                  transferred.

         "BLOCKED ACCOUNT AGREEMENT": An Agreement, in form reasonably
                  satisfactory to the Lender, which Agreement recognizes the
                  Lender's Collateral Interest in the contents of the DDA which
                  is the subject of such Agreement and agrees that, on notice
                  from the Lender, such contents thereafter shall be transferred
                  only to Concentration Account (or, with respect to the
                  Concentration Account, to the Lender's Depository Account).

         "BORROWER" and "BORROWERS": Is defined in the Preamble.

         "BORROWING BASE": The result of the lesser of (a) or (b), where:

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                  (a)      Is the aggregate of the following:
                           (i)      The lesser of
                                    (A)     The Standard Line Credit Limit
                                    or
                                    (B)     The product of the Cost of Eligible
                                            Inventory (net of Inventory
                                            Reserves) multiplied by the Standard
                                            Inventory Advance Rate.

                           PLUS
                           (ii)     The lesser of
                                    (A)     The Special Line Credit Limit
                                    or
                                    (B)     The product of the Cost of Eligible
                                            Inventory (net of Inventory
                                            Reserves) multiplied by the Special
                                            Inventory Advance Rate.

                  (b)      Is 95% of the Three Month Rolling Average NRLV.

         "BORROWING BASE CERTIFICATE": Is defined in Section 5:5-4.

         "BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any
                  day on which banks in Boston, Massachusetts or in New York,
                  New York, generally are not open to the general public for
                  the purpose of conducting commercial banking business; or
                  (c) a day on which the principal office of the Lender is
                  not open to the general public to conduct business.

         "BUSINESS PLAN": The Borrowers' business plan annexed hereto as
                  EXHIBIT 5:5-10(b) and any revision, amendment, or update of
                  such business plan presented by the Lead Borrower to the
                  Lender as to which the Lender has provided its written
                  sign-off. (SEE Section 5:5-9(c) which relates to the
                  Lender's signing off on a revised business plan in the
                  event of the refinancing of the Hanover Property
                  Indebtedness).

         "CAPITAL LEASE": Any lease which should be capitalized in accordance
                  with GAAP.

         "CASH CONCENTRATION CURE": The concurrence of the following two
                  events on each of ninety (90) consecutive days:
                           (a)      No Borrower is InDefault.
                           (b)      The sum of the following equals or exceeds
                  $5 Million: (x) Excess Availability, PLUS (y) cash on hand,
                  PLUS (z) Cash Equivalents.

         "CASH CONCENTRATION TRIGGER EVENT": The occurrence of either of the
                  following:
                           (a)      Any Event of Default.
                           (b)      Any Excess Availability Threshold Breach.

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         "CASH EQUIVALENTS": Each of the following, but only to the extent
                  that Section 4:4-25 (which relates to further assurances) is
                  satisfied with respect thereto:
                           (a) Securities issued or directly and fully
                  guaranteed or insured by the United States of America or any
                  agency or instrumentality thereof and entitled to the full
                  faith and credit of the United States of America.
                           (b) Dollar denominated commercial paper issued by any
                  Approved Bank Issuer or by the parent company of any Approved
                  Bank Issuer and commercial paper issued by, or guaranteed by,
                  any Person with a short-term commercial paper rating of at
                  least A-1 or the equivalent thereof by S&P or at least P-1 or
                  the equivalent thereof by Moody's, and in each instance
                  maturing within twelve months after the date of acquisition.
                           (c) Marketable direct obligations issued by any state
                  of the United States of America or any political subdivision
                  of any such state of any public instrumentality thereof
                  maturing within twelve months from the date of acquisition
                  thereof and, at the time of acquisition have one of the two
                  highest ratings obtainable from either S&P or Moody's.
                           (d) Any repurchase agreement entered into with any
                  Approved Bank Issuer which is secured by any obligation of the
                  type described in any of clauses (a) through (c) of this
                  Definition.
                           (e) Investments in money market funds substantially
                  all the assets of which are comprised of securities of the
                  types described in clauses (a) through (d) of this Definition.

         "CHANGE IN CONTROL": The occurrence of any of the following:
                           (a) The acquisition, by any group of persons (within
                  the meaning of the 1934 Act ) or by any Person, of beneficial
                  ownership (within the meaning of Rule 13d-3 of the Securities
                  and Exchange Commission) of 25% or more of the issued and
                  outstanding capital stock of the Lead Borrower (or of the
                  issued and outstanding combined voting power of any parent
                  corporation or other entity) having the right, under ordinary
                  circumstances, to vote for the election of directors of the
                  Lead Borrower, PROVIDED, HOWEVER, such acquisition by Stephen
                  I. Kahn or by Christopher C. Edgar or by any group within the
                  meaning of Section 13(d)(3) of the 1934 Act of which Stephen
                  I. Kahn is a member shall not constitute a "Change in
                  Control".
                           (b) More than half of the persons who were directors
                  of the Lead Borrower (or of any parent of the Lead Borrower)
                  on the first day of any period consisting of Twelve (12)
                  consecutive calendar months (the first of which Twelve (12)
                  month periods commencing with the first day of the month
                  during which this Agreement was executed), cease to be
                  directors of the Lead Borrower (or such parent, as applicable)
                  for any reason other than (i) death or disability or (ii)
                  replacement by individuals whose nomination for election to
                  the relevant board of directors is approved , prior to such
                  election, by a majority of the directors of the relevant board
                  of directors.
                           (c) Any failure of the Lead Borrower directly or
                  indirectly to own, beneficially and of record, 100% of the
                  capital stock or share capital of all other

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                  Borrowers.

         "CHATTEL PAPER": Has the meaning given that term in the UCC.

         "COLLATERAL": Is defined in Section 8:8-1.

         "COLLATERAL INTEREST": Any interest in property to secure an
                  obligation, including, without limitation, a security
                  interest, mortgage, and deed of trust.

         "COLLATERAL INTEREST RESTRICTIONS": Any restriction to the creation of
                  a Collateral Interest to the extent that such restriction is
                  not made ineffective by UCC Sections 9-401, 9- 407, 9-408, or
                  9-409.

         "CONCENTRATION ACCOUNt": Is defined in Section 7:7-3(a)(ii).

         "CONGRESS": Congress Financial Corporation.

         "CONSOLIDATED": When used to modify a financial term, test, statement,
                  or report, refers to the application or preparation of such
                  term, test, statement or report (as applicable) based upon the
                  consolidation, in accordance with GAAP, of the financial
                  condition or operating results of the Borrowers and their
                  respective subsidiaries.

         "COST":  The lower of (a) or (b), where:
                           (a) is the calculated cost of purchases, based upon
                  the Borrowers' accounting practices, known to the Lender,
                  which practices are in effect on the date on which this
                  Agreement was executed as such calculated cost is determined
                  from: invoices received by the Borrowers; the Borrowers'
                  purchase journal; or the Borrowers' stock ledger.
                           (b) is the cost equivalent of the lowest ticketed or
                  promoted price at which the subject Inventory is offered to
                  the public by a Borrower, after all mark-downs (whether or not
                  such price is then reflected on the Borrowers' accounting
                  system), which cost equivalent is determined in accordance
                  with the retail method of accounting, reflecting the
                  Borrowers' historic business practices.
                           ("Cost" does not include inventory capitalization
                  costs or other non-purchase price charges (such as freight)
                  used in the Borrowers' calculation of cost of goods sold).

         "COSTS OF COLLECTION": Includes, without limitation, all attorneys'
                  reasonable fees and reasonable out-of-pocket expenses incurred
                  by the Lender's outside attorneys, and all reasonable
                  out-of-pocket costs incurred by the Lender in the
                  administration of the Liabilities and/or the Loan Documents,
                  including, without limitation, reasonable costs and expenses
                  associated with travel on behalf of the Lender, where such
                  costs and expenses are directly or indirectly related to or in
                  respect of the Lender's:

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                  administration and management of the Liabilities; negotiation,
                  documentation, and amendment of any Loan Document; or efforts
                  to preserve, protect, collect, or enforce the Collateral, the
                  Liabilities, and/or the Lender's Rights and Remedies and/or
                  any of the rights and remedies of the Lender against or in
                  respect of any guarantor or other person liable in respect of
                  the Liabilities (whether or not suit is instituted in
                  connection with such efforts). The Costs of Collection are
                  Liabilities, and at the Lender's option may bear interest at
                  the then effective Reference Margin Rate.

         "CREDIT LIMIT": The aggregate, on any day, of the Standard Credit
                  Limit and the Special Line Credit Limit.

         "CUSTOMER CREDIT LIABILITY": Gift certificates, customer deposits,
                  merchandise credits, layaway obligations, frequent shopping
                  programs, and similar liabilities of any Borrower to its
                  retail customers and prospective customers.

         "DDA": Any checking or other demand daily depository account
                  maintained by any Borrower, other than any Exempt DDA.

         "DEPOSIT ACCOUNT": Has the meaning given that term in the UCC and also
                  includes all demand, time, savings, passbook, or similar
                  accounts maintained with a bank.

         "DOCUMENTS": Has the meaning given that term in the UCC.

         "DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.

         "EARLY TERMINATION FEE": Is defined in Section 2:2-13(e).

         "EBITDA": The Borrowers' Consolidated net income for any period PLUS
                  the following expenses to the extent that such expenses were
                  deducted in the calculation of such Consolidated net income
                  for that period:
                           (a) Total interest expense (inclusive of amortization
                  of deferred financing fees, premiums on interest rate
                  protection agreements and any original issue discount).
                           (b) Provisions for taxes based on income.
                           (c) Depreciation and amortization expense (including
                  amortization of goodwill, transaction expenses, covenants not
                  to compete, other intangible assets and deferred charges).
                           (d) All other non-cash expenses.

         "EFFECTIVE ADVANCE RATE": The decimal equivalent of a fraction in which
                  the numerator is the principal balance of the Loan Account and
                  the denominator is the Cost of Eligible Inventory (net of
                  Inventory Reserves).

         "ELIGIBLE IN-TRANSIT INVENTORY": Inventory having a Cost, at any one
                  time aggregating

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                  not more than Seven Million Dollars ($7,000,000.00), title to
                  which has passed to any Borrower and which has then been
                  shipped from a foreign location for receipt, within 60 days,
                  at a warehouse or distribution facility at which any Borrower
                  maintains Inventory and located in a jurisdiction in which the
                  United States, PROVIDED THAT the conditions in (a) and in
                  either (b)(i) or (b)(ii), below, are satisfied:
                           (a) Such Inventory would constitute "Eligible
                  Inventory" within the meaning of Clause (a) of the Definition
                  of that term.
                           (b) (i)  The documents which relate to such shipment
                  name the Lender as consignee of the subject Inventory.
                                    (ii) The Lender has control over the
                  documents which evidence ownership of the subject Inventory
                  (such as by the providing to the Lender of a Customs Brokers
                  Agreement in form reasonably satisfactory to the Lender).

         "ELIGIBLE INVENTORY": The following:
                           (a) All Inventory of the Borrowers which consists of
                  finished goods held for resale in the ordinary course of the
                  business of the Borrowers is acceptable to the Lender in the
                  exercise of the Lender's discretion based on the application
                  of the Eligible Inventory Criteria.
                           (b) Eligible In-Transit Inventory.

         "ELIGIBLE INVENTORY CRITERIA": At the execution of this Agreement, as
                  set forth below and subject to resetting as provided in
                  Section 2:2-3. "Eligible Inventory" does not include any of
                  the following:
                           (a) Inventory which is not then in compliance with
                  any representation or warranty included in any Loan Document.
                           (b) Inventory in the possession of a contract
                  manufacturer, or in the possession of a third party on
                  consignment or pursuant to a sale on approval or sale or
                  return, or otherwise located at the place of business of a
                  third party at which such party deals in goods of that kind or
                  under other circumstances in which such third party or
                  creditors of such third party may be able to assert rights in
                  the Inventory.
                           (c) Inventory, title to which is evidenced by
                  warehouse receipts or other documents of the title (other than
                  Inventory which satisfies the requirements included in the
                  Definition of "Eligible In-Transit Inventory").
                           (d) Inventory which is located at premises other than
                  one then owned or leased by a Borrower (other than Inventory
                  which satisfies the requirements included in the Definition of
                  "Eligible In-Transit Inventory").
                           (e) Inventory sold on lay-away or any similar
                  arrangement (subject to a basket of up to $25,000.00 in such
                  Inventory at any one time, the sale of which under such
                  arrangements has not yet been reflected by being relieved from
                  the Borrower's stock ledger).
                           (f) Inventory which is damaged, defective, or
                  otherwise not salable in the ordinary course of business.
                           (g) Inventory which is not similar in type to that
                  which the Borrowers offer for resale in the ordinary course
                  (i) in the businesses in which they were

                                                                          Page 8
<Page>

                  engaged at the execution of this Agreement or (ii) in a
                  business reasonably related thereto.
                           (h) Inventory which consists of packaging and
                  shipping materials.
                           (i) Inventory which consists of supplies used or
                  consumed in any Borrower's business.
                           (j) Inventory which is subject to a Encumbrance (even
                  if such Encumbrance is a Permitted Encumbrance) other than an
                  Encumbrance in favor of the Lender.
                           (k) Inventory which has been sold on a bill and
                  hold basis.
                           (l) Inventory which is not subject to the prior and
                  only perfected security interest in favor of the Lender.
                           (m) Returned Inventory which is not first quality
                  goods being held for resale.
                           (n) Inventory being held to be returned to vendors.
                           (o) Inventory (subject to a basket of up to
                  $25,000.00 of such Inventory (at Cost) in any one month and an
                  aggregate of $150,000.00 of such Inventory (at Cost) on a
                  rolling 12 month basis) which has been subject to more than
                  one transfer from a Sales Channel to another,

         "EMPLOYEE BENEFIT PLAN": Any employee pension plan, as defined in
                  Section 3(2) of ERISA and covered by Title IV of ERISA.

         "ENCUMBRANCE": Each of the following:
                           (a) A Collateral Interest or agreement to create or
                  grant a Collateral Interest; the interest of a lessor under a
                  Capital Lease; conditional sale or other title retention
                  agreement; sale of accounts receivable or chattel paper; or
                  other arrangement pursuant to which any Person is entitled to
                  any preference or priority with respect to the property or
                  assets of another Person or the income or profits of such
                  other Person; each of the foregoing whether consensual or
                  non-consensual and whether arising by way of agreement,
                  operation of law, legal process or otherwise.
                           (b) The filing, authorized by a Borrower, of any
                  financing statement under the UCC or comparable law of any
                  jurisdiction other than a filing in respect of a lease
                  otherwise permitted by this Agreement.

         "END DATE": The date upon which all of the following conditions are
                  satisfied: (a) all payment Liabilities described in Section
                  13:13-2(a) have been paid in full; (b) those arrangements
                  concerning L/C's which are described in Section 13:13-2(b)
                  have been made ; and (c) all obligations of the Lender to make
                  loans and advances and to provide other financial
                  accommodations to the Borrowers hereunder shall have been
                  irrevocably terminated.

         "ENVIRONMENTAL LAWS": All of the following:
                           (a) Applicable Law which regulates or relates to, or
                  imposes any standard of conduct or liability on account of or
                  in respect to pollution or protection of the

                                                                          Page 9
<Page>

                  environment, including, without limitation, Hazardous
                  Materials, as are now or hereafter in effect.
                           (b) The common law to the extent that it relates to
                  damage to Persons or property from releases of or exposure to
                  Hazardous Materials.

         "EQUIPMENT": Includes, without limitation, "equipment" as defined in
                  the UCC, and also all furniture, store fixtures, motor
                  vehicles, rolling stock, machinery, office equipment, plant
                  equipment, tools, dies, molds, and other goods, property, and
                  assets which are used and/or were purchased for use in the
                  operation or furtherance of a Borrower's business, and any and
                  all accessions or additions thereto, and substitutions
                  therefor.

         "ERISA": The Employee Retirement Income Security Act of 1974, as
                  amended.

         "ERISA AFFILIATE": Any Person which is under common control with a
                  Borrower within the meaning of Section 4001 of ERISA or is
                  part of a group which includes any Borrower and which would be
                  treated as a single employer under Section 414 of the Internal
                  Revenue Code of 1986, as amended.

         "EURODOLLAR BUSINESS DAY": Any day which is both a Business Day and a
                  day on which the principal market in Eurodollars in which
                  Wells Fargo Bank, N.A. participates is open for dealings in
                  United States Dollar deposits.

         "EURODOLLAR LOAN": Any Revolving Credit Loan which bears interest at a
                  Eurodollar Rate.

         "EURODOLLAR MARGIN": 275 basis points.

         "EURODOLLAR OFFER RATE": That rate of interest (rounded upwards, if
                  necessary, to the next 1/100 of 1%) determined by the Lender
                  in good faith (which shall be presumed) to be the average
                  prevailing rate per annum at which deposits on U.S. Dollars
                  are offered to Wells Fargo Bank, N.A., by first-class banks in
                  the Eurodollar market in which Wells Fargo Bank, N.A.
                  participates at or about 10:00AM (Boston Time) Two (2)
                  Eurodollar Business Days before the first day of the Interest
                  Period for the subject Eurodollar Loan, for a deposit
                  approximately in the amount of the subject loan for a period
                  of time approximately equal to such Interest Period.

         "EURODOLLAR RATE": That per annum rate which is the aggregate of the
                  Eurodollar Offer Rate PLUS the Eurodollar Margin EXCEPT THAT,
                  in the event that the Lender determines in good faith (which
                  shall be presumed) that the Lender is subject to the Reserve
                  Percentage, the "Eurodollar Rate" shall mean, with respect to
                  any Eurodollar Loans then outstanding (from the date on which
                  that Reserve Percentage first became applicable to such
                  loans), and with respect to all Eurodollar Loans thereafter
                  made (but only so long as the Reserve Percentage continues to
                  apply to such Eurodollar Loans), an interest rate per annum
                  equal the sum of (a) plus (b), where:

                                                                         Page 10
<Page>

                           (a) is the decimal equivalent of the following
                  fraction:

                              Eurodollar Offer Rate
                              ---------------------
                           1 minus Reserve Percentage

                           (b) is the applicable Eurodollar Margin.

         "EVENTS OF DEFAULT": Is defined in Article 10:. An "Event of Default"
                  shall be deemed to have occurred and to be continuing unless
                  and until that Event of Default has been duly waived by the
                  Lender.

         "EXCESS AVAILABILITY": The result of (a) Availability MINUS (b) all
                  then past due obligations of the Borrowers, including accounts
                  payable which are beyond customary trade terms extended to the
                  Borrowers and rent obligations of the Borrowers which are
                  beyond applicable grace periods.

         "EXCESS AVAILABILITY THRESHOLD BREACH": Circumstances under which the
                  result of the following does not equal or exceed $5 Million:
                  (a) Excess Availability, PLUS (b) the Borrowers' then cash on
                  hand, PLUS (c) the Borrowers' then Cash Equivalents, MINUS (d)
                  the aggregate of the non-financed portion of Capital
                  Expenditures coming due within the then next thirty (30) days.

         "EXCLUDED ASSETS" : The following:
                           (a) The Excluded Hanover Property.
                           (b) Any rights or interest in any Leasehold Interest,
                  General Intangible, or Payment Intangible to the extent that
                  the creation of a security interest therein is prohibited by
                  terms by which the relevant Borrower is bound and such
                  restriction is a Collateral Interest Restriction.

         "EXCLUDED HANOVER PROPERTY": Equipment, a security interest in which is
                  created by any Hanover Loan Document, to the extent that the
                  creation of a security interest therein is subject to a
                  Collateral Interest Restriction.

         "EXEMPT DDA": A depository account maintained by any Borrower, the
                  only contents of which may be transfers FROM the Operating
                  Account and actually used solely (i) for petty cash purposes;
                  or (ii) for payroll.

         "FIRST FUNDING": The making of the first loan under the Revolving
                  Credit.

         "FISCAL": When followed by "month" or "quarter", the relevant fiscal
                  period based on the Borrowers' fiscal year and accounting
                  conventions. When followed by reference to a specific year,
                  the fiscal year which ends in a month of the year to which
                  reference is being made (e.g. if the Borrowers' fiscal year
                  ends in January 2002 reference to that year would be to the
                  Borrowers' "Fiscal 2002").

                                                                         Page 11
<Page>

         "FIXED CHARGES": The sum of (a) PLUS (b), where
                           (a) is the sum of the following for the same period:
                                    (i)     Interest.
                                    (ii)    Cash payments for taxes.
                                    (iii)   Payments which are due and payable
                                            on account of long term debt,
                                            excluding such payments as are
                                            accounted for as operating expenses
                                            on the relevant Borrower's operating
                                            statement.
                           (b) is the cumulative aggregate of cash payments for
                  Capital Expenditures, since the first day of the Borrowers'
                  Fiscal month commencing in October 2001 through the end of the
                  period in respect of which Fixed Charges are being determined,
                  in excess of the result of
                                    (i)     $29,675,800.00
                                            MINUS
                                    (ii)    The Borrowers' cumulative net cash
                                            loss (if any) for the same period
                                            ("net cash loss" being the
                                            Borrowers' cumulative Consolidated
                                            loss for such period, determined
                                            without regard to any noncash
                                            expenses).

         "FIXTURES": Has the meaning given that term in the UCC.

         "GAAP": Principles which are consistent with those promulgated or
                  adopted by the Financial Accounting Standards Board and its
                  predecessors (or successors) in effect and applicable to that
                  accounting period in respect of which reference to GAAP is
                  being made.

         "GENERAL INTANGIBLES": Includes, without limitation, "general
                  intangibles" as defined in the UCC; and also all: rights to
                  payment for credit extended; deposits; amounts due to any
                  Borrower; credit memoranda in favor of any Borrower; warranty
                  claims; tax refunds and abatements; insurance refunds and
                  premium rebates; all means and vehicles of investment or
                  hedging, including, without limitation, options, warrants, and
                  futures contracts; records; customer lists; telephone numbers;
                  goodwill; causes of action; judgments; payments under any
                  settlement or other agreement; literary rights; rights to
                  performance; royalties; license and/or franchise fees; rights
                  of admission; licenses; franchises; license agreements,
                  including all rights of any Borrower to enforce same; permits,
                  certificates of convenience and necessity, and similar rights
                  granted by any governmental authority; patents, patent
                  applications, patents pending, and other intellectual
                  property; internet addresses and domain names; developmental
                  ideas and concepts; proprietary processes; blueprints,
                  drawings, designs, diagrams, plans, reports, and charts;
                  catalogs; manuals; technical data; computer software programs
                  (including the source and object codes therefor), computer
                  records, computer software, rights of access to computer
                  record service bureaus, service bureau computer contracts, and
                  computer data; tapes, disks, semi-conductors chips and
                  printouts; trade secrets rights, copyrights, mask work

                                                                         Page 12
<Page>

                  rights and interests, and derivative works and interests;
                  user, technical reference, and other manuals and materials;
                  trade names, trademarks, service marks, and all goodwill
                  relating thereto; applications for registration of the
                  foregoing; and all other general intangible property of any
                  Borrower in the nature of intellectual property; proposals;
                  cost estimates, and reproductions on paper, or otherwise, of
                  any and all concepts or ideas, and any matter related to, or
                  connected with, the design, development, manufacture, sale,
                  marketing, leasing, or use of any or all property produced,
                  sold, or leased, by any Borrower or credit extended or
                  services performed, by any Borrower, whether intended for an
                  individual customer or the general business of any Borrower,
                  or used or useful in connection with research by any Borrower.

         "GOODS": Has the meaning given that term in the UCC, and also includes
                  all things movable when a security interest therein attaches
                  and also all computer programs embedded in goods and any
                  supporting information provided in connection with a
                  transaction relating to the program if (i) the program is
                  associated with the goods in such manner that it customarily
                  is considered part of the goods or (ii) by becoming the owner
                  of the goods, a Person acquires a right to use the program in
                  connection with the goods.

         "GUARANTOR'S DEFAULT": The occurrence of (a) any event described in
                  Section 10:10-11 (which relates to bankruptcy) with respect to
                  any guarantor of the Liabilities or (b) any "Event of Default"
                  within the meaning of any instrument which secures the
                  guaranty of the Liabilities by such guarantor.

         "HANOVER PROPERTY": The land, with the buildings thereon located in
                  Penn Township, York County, Pennsylvania and known for street
                  numbering purposes as 348 Poplar Street, Hanover, Pennsylvania
                  17331.

         "HANOVER PROPERTY INDEBTEDNESS": Indebtedness of dELiA*s Distribution
                  Company to Allfirst Bank arising pursuant to the Hanover
                  Property Loan Documents as in effect on the date hereof or any
                  refinancing thereof, PROVIDED, THAT, each of the following
                  conditions is satisfied:
                           (a) The principal amount of such Indebtedness does
                  not exceed $5,320,000, less the aggregate amount of all
                  repayments, repurchases or redemptions, whether optional or
                  mandatory in respect thereof, plus interest thereon at the
                  rate provided for in the Hanover Property Loan Documents as in
                  effect on the date of this Agreement.
                           (b) Such Indebtedness is not secured by any assets
                  or properties of any Borrower other than the Hanover
                  Property.
                           (c) Such Indebtedness is not guarantied by any
                  Borrower.

         "HANOVER PROPERTY LOAN DOCUMENTS": The following, each dated August 6,
                  1999 (as the same now exist or may hereafter be amended,
                  modified, supplemented, extended, renewed, restated or
                  replaced), which, except for the instrument described in
                  clause

                                                                         Page 13
<Page>

                  (f) of this Definition is between dELiA*s Distribution Company
                  and Allfirst Bank or in favor of Allfirst Bank:

                           (a) Construction Loan Agreement.
                           (b) Open-End Construction /Permanent Loan Mortgage
                  and Security Agreement with respect to the Hanover Property.
                           (c) Equipment Security Agreement with respect to
                  the equipment and fixtures located at the Hanover Property.
                           (d) Collateral Assignment of Agreements
                  Affecting Real Estate.
                           (e) Assignment of Leases and Rents
                           (f) Suretyship Agreement, dated August 6, 1999, by
                  dELiA*s Corp. in favor of Allfirst Bank.

         "HAZARDOUS MATERIALS": Any (a) substance which is defined or regulated
                  as a hazardous material in or under any Environmental Law and
                  (b) oil in any physical state in amounts or concentrations
                  which are regulated under any Environmental Law.

         "INDEBTEDNESS": All indebtedness and obligations of or assumed by any
                  Person on account of or in respect to any of the following:
                           (a) In respect of money borrowed (including any
                  indebtedness which is non-recourse to the credit of such
                  Person but which is secured by an Encumbrance on any asset of
                  such Person, but only to the extent of the greater or the
                  market or net book value of such asset) whether or not
                  evidenced by a promissory note, bond, debenture or other
                  written obligation to pay money.
                           (b) In connection with any letter of credit or
                  acceptance transaction (including, without limitation, the
                  face amount of all letters of credit and acceptances issued
                  for the account of such Person or reimbursement on account of
                  which such Person would be obligated).
                           (c) In connection with the sale or discount of
                  accounts receivable or chattel paper of such Person.
                           (d) On account of deposits or advances.
                           (e) As lessee under Capital Leases.
                           (f) In connection with any sale and leaseback
                  transaction.
                           "Indebtedness" also includes:
                                            (x) Indebtedness of others secured
                                    by an Encumbrance on any asset of such
                                    Person, whether or not such Indebtedness is
                                    assumed by such Person (except that, if such
                                    Indebtedness is non- recourse to such
                                    Person, it shall be deemed "Indebtedness"
                                    within the meaning of this Definition only
                                    to the extent of the greater of the market
                                    or net book value of such assets).
                                            (y) Any guaranty, endorsement,
                                    suretyship or other undertaking pursuant to
                                    which that Person may be liable on account
                                    of any obligation of any third party except
                                    for endorsements of

                                                                         Page 14
<Page>

                                    instruments for deposit or collection or
                                    standard contractual indemnities entered
                                    into, in each instance, in the ordinary
                                    course of business.
                                            (z) The Indebtedness of a
                                    partnership or joint venture for which such
                                    Person is liable as a general partner or
                                    joint venturer.
                           "Indebtedness" does not include any obligation which
                           is payable solely with shares of the Lead Borrower's
                           common stock.

         "INDEFAULT": Any occurrence, circumstance, or state of facts with
                  respect to a Borrower which (a) is an Event of Default; or (b)
                  would become an Event of Default if any requisite notice were
                  given and/or any requisite period of time were to run and such
                  occurrence, circumstance, or state of facts were not
                  absolutely cured within any applicable grace period.

         "INDEMNIFIED PERSON": Is defined in Section 14:14-13.

         "INITIAL BLOCKED ACCOUNT": Is defined in Section 7:7-3(a)(i).

         "INSTRUMENTS": Has the meaning given that term in the UCC.

         "INTEREST PAYMENT DATE": With reference to:
                           Each Eurodollar Loan: The last day of the Interest
                  Period relating thereto; the Termination Date; and the End
                  Date.
                           Each Reference Rate Loan: The first day of each
                  month; the Termination Date; and the End Date.

         "INTEREST PERIOD": The following:
                           (a) With respect to each Eurodollar Loan: Subject to
                  Subsection (c), below, the period commencing on the date of
                  the making or continuation of, or conversion to, the subject
                  Eurodollar Loan and ending one, two, or three months
                  thereafter, as the Lead Borrower may elect by notice (pursuant
                  to Section 2:2-7) to the Lender.
                           (b) With respect to each Reference Rate Loan: Subject
                  to Subsection (c), below, the period commencing on the date of
                  the making or continuation of or conversion to such Reference
                  Rate Loan and ending on that date (i) as of which the subject
                  Reference Rate Loan is converted to a Eurodollar Loan, as the
                  Lead Borrower may elect by notice (pursuant to Section 2:2-7)
                  to the Lender, or (ii) on which the subject Reference Rate
                  Loan is paid by the Borrowers.
                           (c) The setting of Interest Periods is in all
                  instances subject to the following:
                                    (i) Any Interest Period for a Reference Rate
                           Loan which would otherwise end on a day which is not
                           a Business Day shall be extended to the next
                           succeeding Business Day.
                                    (ii) Any Interest Period for a Eurodollar
                           Loan which would

                                                                         Page 15
<Page>

                           otherwise end on a day that is not a Business Day
                           shall be extended to the next succeeding Business
                           Day, unless that succeeding Business Day is in the
                           next calendar month, in which event such Interest
                           Period shall end on the last Business Day of the
                           month during which the Interest Period ends.
                                    (iii) Subject to Subsection (iv), below, any
                           Interest Period applicable to a Eurodollar Loan,
                           which Interest Period begins on a day for which there
                           is no numerically corresponding day in the calendar
                           month during which such Interest Period ends, shall
                           end on the last Business Day of the month during
                           which that Interest Period ends.
                                    (iv) Any Interest Period which would
                           otherwise end after the Termination Date shall end on
                           the Termination Date.

                                    (v) The number of Interest Periods in effect
                           at any one time is subject to Section 2:2-12(e)
                           hereof.

         "INVENTORY": Includes, without limitation, "inventory" as defined in
                  the UCC and also all: (a) Goods which are leased by a Person
                  as lessor; are held by a Person for sale or lease or to be
                  furnished under a contract of service; are furnished by a
                  Person under a contract of service; or consist of raw
                  materials, work in process, or materials used or consumed in a
                  business; (b) Goods of said description in transit; (c) Goods
                  of said description which are returned, repossessed and
                  rejected; (d) packaging, advertising, and shipping materials
                  related to any of the foregoing; (e) all names, marks, and
                  General Intangibles affixed or to be affixed or associated
                  thereto; and (f) Documents and Documents of Title which
                  represent any of the foregoing.

          INVENTORY RESERVES": Such Reserves as may be established from time to
                  time by the Lender in the Lender's discretion with respect to
                  the determination of the saleability, at retail, of the
                  Eligible Inventory or which reflect such other factors as
                  affect the market value of the Eligible Inventory.

         "INVESTMENT PROPERTY": Has the meaning given that term in the UCC.

         "ISSUER": The issuer of any L/C.

         "L/C": Any letter of credit, the issuance of which is procured by the
                  Lender for the account of any Borrower and any acceptance made
                  on account of such letter of credit.

         "L/C RESERVE PERCENTAGE": The following percentage, based on the
                  number of days that the subject L/C has been open:

<Table>
<S>                                     <C>                        <C>
From                                    Through                    Percentage
0 Days                                  30 Days                    25%
31 Days                                 60 Days                    35%
</Table>

                                                                         Page 16
<Page>

<Table>
<S>                                     <C>                        <C>
61 Days                                 Expiry                     100%
</Table>

         "L/C LANDING COSTS": To the extent not included in the Stated
                  Amount of an L/C, customs, duty, freight, and other
                  out-of-pocket costs and expenses which will be expended to
                  "land" the Inventory, the purchase of which is supported by
                  such L/C.

         "LEASE": Any lease or other agreement, no matter how styled or
                  structured, pursuant to which a Borrower is entitled to the
                  use or occupancy of any space.

         "LEASEHOLD INTEREST": Any interest of a Borrower as lessee under any
                  Lease.

         "LENDER": Is defined in the Preamble to this Agreement.

         "LENDER'S DEPOSITORY ACCOUNT": Is defined in Section 7:7-3(a)(iii).

         "LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11:11-7.

         "LETTER-OF-CREDIT RIGHT": Has the meaning given that term in the UCC
                  and also refers to any right to payment or performance under
                  an L/C, whether or not the beneficiary has demanded or is at
                  the time entitled to demand payment or performance.

         "LIABILITIES": Includes, without limitation, the following:
                           (i)      Any and all direct and indirect liabilities,
                  debts, and obligations of each Borrower to the Lender.
                           (ii)     Any and all direct and indirect liabilities,
                  debts, and obligations of each Borrower to any Affiliate of
                  the Lender, each of every kind, nature, and description which
                  arises under any Loan Document.
                           (iii)    Each obligation to repay any loan, advance,
                  indebtedness, note, obligation, overdraft, or amount now or
                  hereafter owing by any Borrower to the Lender (including all
                  future advances whether or not made pursuant to a commitment
                  by the Lender), whether or not any of such are liquidated,
                  unliquidated, primary, secondary, secured, unsecured, direct,
                  indirect, absolute, contingent, or of any other type, nature,
                  or description, or by reason of any cause of action which the
                  Lender may hold against any Borrower.
                           (iv)     All notes and other obligations of each
                  Borrower now or hereafter assigned to or held by the Lender,
                  each of every kind, nature, and description.
                           (v)      All interest, fees, and charges and other
                  amounts which may be charged by the Lender to any Borrower
                  and/or which may be due from any Borrower to the Lender from
                  time to time.
                           (vi)     All costs and expenses incurred or paid by
                  the Lender in respect of any agreement between any Borrower
                  and the Lender or instrument furnished by any Borrower to the
                  Lender (including, without limitation, Costs of Collection,
                  attorneys'

                                                                         Page 17
<Page>

                  reasonable fees, and all court and litigation costs and
                  expenses).
                           (vii)    Any and all covenants of each Borrower to or
                  with the Lender and any and all obligations of each Borrower
                  to act or to refrain from acting in accordance with any
                  agreement between that Borrower and the Lender or instrument
                  furnished by that Borrower to the Lender.

         "LOAN ACCOUNT": Is defined in Section 2:2-9.

         "LOAN DOCUMENTS": All of the following:
                           (a) This Agreement and each other instrument or
                  document from time to time executed and/or delivered to the
                  Lender in connection with the arrangements contemplated
                  hereby.
                           (b) Each instrument or document from time to time
                  executed and/or delivered in connection with or in
                  furtherance of the arrangements contemplated hereby with or to
                  any Affiliate of the Lender, including, without limitation,
                  cash management services, letter of credit services, or
                  interest rate protection provided by any Affiliate of the
                  Lender, as each may be amended from time to time.

         "MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
                  accounting periods subsequent to the Borrowers' fiscal year
                  most recently completed prior to the execution of this
                  Agreement, which change has a material effect on the
                  Borrowers' Consolidated financial condition or operating
                  results, as reflected on financial statements and reports
                  prepared by or for the Borrowers, when compared with such
                  condition or results as if such change had not taken place or
                  where preparation of the Borrowers' statements and reports in
                  compliance with such change results in the breach of a
                  financial performance covenant imposed pursuant to Section
                  5:5-10 where such a breach would not have occurred if such
                  change had not taken place or VISA VERSA.

         "MATURITY DATE": September 30, 2004, SUBJECT, HOWEVER, to extension as
                  provided in Section 13:13-1(a).

         "MATERIAL ADVERSE CHANGE": Any event, fact, circumstance, change in, or
                  effect, on the business of the Borrowers, when taken as a
                  whole, which, individually or in the aggregate or on a
                  cumulative basis with any other circumstances, changes in, or
                  effects on, the Borrowers or the Collateral, constitutes any
                  of the following:
                           (a) A material adverse change in the business,
                  operations, results of operations, assets, liabilities, or
                  condition (financial or otherwise) of the Borrowers (when
                  taken as a whole), including, without limitation, a material
                  adverse change in the business, operations, results, assets,
                  liabilities or condition since the date of the latest
                  financial information supplied pursuant to this Agreement or
                  at any time when compared to the Business Plan.
                           (b) The material impairment of the Borrowers'
                  ability to perform their obligations under the Loan Documents
                  or of the Lender's ability to enforce the

                                                                         Page 18
<Page>

                  Liabilities or to realize on any of the Collateral.
                           (c) A material adverse effect on the value of the
                  Collateral or the amount which the Lender likely would
                  receive (after giving consideration to delays in payment and
                  costs of enforcement).
                           (d) A material impairment to the priority of the
                  Lender's Collateral Interests in the Collateral.

         "MATERIAL ADVERSE EFFECT": A result, consequence, or outcome with
                  respect to the Borrowers, taken as a whole which constitutes a
                  Material Adverse Change.

         "MOODY'S": Moody's Corporation.

         "NRLV": The product of (a) the Cost of Eligible Inventory (net of
                  Inventory Reserves) MULTIPLIED by (b) the NRLV Percentage.
                  ("NRLV" REFERS TO "NET RETAIL LIQUIDATION VALUE").

         "NRLV PERCENTAGE": (a) Until the earlier of (i) the occurrence of a
                  ReAppraisal Event or (ii) the last day of the Eighteenth
                  month after (and counting) the month during which the initial
                  advance under the Revolving Credit takes place, that
                  percentage for the relevant month as set forth on EXHIBIT
                  2:2-1(b)(ii).

                                            (b) For periods commencing with the
                  earlier of (i) the occurrence of a ReAppraisal Event or (ii)
                  the last day of the Eighteenth month after (and counting) the
                  month during which the initial advance under the Revolving
                  Credit takes place, that percentage, determined from the then
                  most recent appraisal of the Borrowers Inventory undertaken at
                  the request of the Lender, to reflect the appraiser's estimate
                  of the net recovery on the Borrowers' Inventory in the event
                  of an in-store liquidation of that Inventory.

         "OPERATING ACCOUNT": Is defined in Section 7:7-3.

         "OVERLOAN": A loan, advance, or providing of credit support (such as
                  the issuance of any L/C) to the extent that, immediately after
                  its having been made, Availability is less than zero.

         "PAYMENT INTANGIBLE": Has the meaning given that term in the UCC and
                  also refers to any general intangible under which the Account
                  Debtor's primary obligation is a monetary obligation.

         "PERMITTED DISTRIBUTIONS": Each of the following:

                  (a) The payment of any dividend by any Borrower or any
         subsidiary of a Borrower  to another Borrower.
                  (b) The payment, by the Lead Borrower on account of stock
         option plans and stock appreciation rights programs of the Lead
         Borrower and repurchase options for common

                                                                         Page 19
<Page>

         stock of the Lead Borrower upon the termination of employment, death,
         permanent disability or retirement of its employees, directors,
         management or consultants, PROVIDED, THAT, as to any such repurchase,
         each of the following conditions is satisfied:
                           (i)      As of the date of the payment for such
                  repurchase and after giving effect thereto, no Borrower is In
                  Default.
                           (ii)     Such repurchase is paid for with funds
                  legally available therefor or solely in common stock of the
                  Lead Borrower.
                           (iii)    Such repurchase shall not violate any
                  Applicable Law or the terms of any indenture, agreement or
                  undertaking to any Borrower is a party or by which any
                  Borrower or its property are bound.
                           (iv)     The aggregate amount of all payments for
                  such repurchase in any Fiscal year does not exceed
                  $1,000,000.00.
                  (c) Payment of any Borrower's Indebtedness with capital stock
         of the Lead Borrower.

         "PERMITTED ENCUMBRANCES": The following:
                  (a) Inchoate liens for unpaid taxes that either (i) are not
         yet due and payable or (ii) are being contested in good faith by any
         Borrower (or subsidiary thereof) to the extent permitted by Section
         4:4-15.
                  (b)      The interests of lessors under operating leases of
         personal property.
                  (c)      Encumbrances arising by operation of law in favor of
         warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
         suppliers, incurred in the ordinary course of business of any Borrower
         and not in connection with the borrowing of money.
                  (d)      Encumbrances arising from deposits made in connection
         with obtaining worker's compensation or other unemployment insurance.
                  (e)      Encumbrances or deposits to secure performance bids,
         tenders, or leases (to the extent permitted under this Agreement),
         incurred in the ordinary course of business of Borrower and not in
         connection with the borrowing of money.
                  (f)      Encumbrances arising by reason of security for surety
         or appeal bonds in the ordinary course of business of any Borrower.
                  (g)      Encumbrances of or resulting from any judgment or
         award to the extent that such judgment or award does not constitute an
         Event of Default (as to which, SEE Section 10:10-9)
                  (h)      Encumbrances with respect to easements, zoning
         restrictions, rights-of-way, restrictions, minor defects or
         irregularities in title and other similar charges or encumbrances not
         interfering in any material respect with the ordinary conduct of the
         business of any Borrower or any of its subsidiaries.
                  (i)      Encumbrances of licensors under any license permitted
         by this Agreement.
                  (j)      The interests of any mortgagee of real estate, all or
         a part thereof of which is leased by a Borrower.
                  (j)      Restrictions on assignments of Leases, to the extent
         that such restrictions do not  constitute Collateral Interest
         Restrictions.
                  (k)      Purchase money security interests in Equipment which
         solely secures Permitted Indebtedness.

                                                                         Page 20
<Page>

                  (l)      The security interests in favor of the landlord
         thereof created by those Leases described on EXHIBIT 4:4-7(a), annexed
         hereto.
                  (m)      Encumbrances in favor of Congress, but only if the
         Lender has received a written undertaking by Congress to terminate such
         security interests and to terminate all financing statements on which
         it is named as the secured party as provided in the payout letter
         described in Section 3:3-5.

         "PERMITTED INDEBTEDNESS": The following
                  (a)      The Hanover Property Indebtedness.
                  (b)      Indebtedness of any Borrower to any other Borrower,
         PROVIDED, THAT, the Indebtedness arising pursuant to such loan or
         advance shall not be evidenced by a promissory note or other
         instrument, unless the originals of all notes or other instruments are
         delivered to Lender to hold as part of the Collateral, with such
         endorsement and/or assignment by the payee of such notes as Lender may
         require.
                  (c)      Indebtedness arising pursuant to guarantees by one or
         more Borrowers (or any subsidiary thereof) of (i) any Indebtedness of
         another Borrower, which Indebtedness is permitted by Section 4:4-8 or
         (ii) any Leases or other contractual obligations of another Borrower,
         which Lease or other contractual obligation is permitted by this
         Agreement.
                  (e)      The Indebtedness set forth on EXHIBIT 4:4-8 , annexed
         hereto.
                  (f)      Indebtedness arising pursuant to the settlement or
         other disposition of any litigation or other dispute between Borrower
         (or subsidiary thereof) in an amount not to exceed $2,500,000.00 in
         aggregate principal amount at any time outstanding.
                  (g)      Purchase money Indebtedness (including Capital
         Leases), not to exceed $1,000,000.00 incurred in any Fiscal year nor
         $1,000,000.00 outstanding in the aggregate at any one time.
                  (h)      Indebtedness arising from Leases (other than any
         Capital Lease) which results from a sale and leaseback transaction.

         "PERMITTED INVESTMENTS": Each of the following, but only to the extent
                  that Section 4:4-25 (which relates to further assurances) is
                  satisfied with respect thereto:
                  (a)      Cash Equivalents.
                  (b)      Lead Borrower's holding of equity interests in the
         other Borrowers and other subsidiaries.
                  (c)      Receivables owing to Borrower, if created or acquired
         in the ordinary course of business and payable or dischargeable in
         accordance with customary trade terms (including the dating of
         receivables) of such Borrower.
                  (d)      Equity securities and debt obligations received in
         connection with the bankruptcy or reorganization of suppliers and
         customers and in settlement of delinquent obligations of, and other
         disputes with, customers and suppliers arising in the ordinary course
         of business.
                  (e)      Each of the following, but only if entered into in
         the ordinary course of business and for bona fide business (and not
         speculative) purposes:
                           (i) Interest rate protection agreements entered into
                  to protect against fluctuations in interest rates in respect
                  of the Liabilities.

                                                                         Page 21
<Page>

                           (ii)     Hedging agreements with respect to raw
                  materials to be used in the business of a Borrower.
                           (iii)    Other hedging agreements with respect to
                  currencies in which a Borrower transacts business.
                  (f)      Investments extant on the date of this Agreement and
         listed on EXHIBIT 4:4- 20 annexed hereto (but not any additions thereto
         or replacements thereof).
                  (g)      Investments of the types extant on the date of this
         Agreement, listed on EXHIBIT 4:4-20 annexed hereto, and held in the
         securities account maintained by Chase H&Q, a division of Chase
         Securities Inc., and any additions or replacements thereto.
                  (h)      Investments in licensing and branding joint ventures,
         PROVIDED THAT (i) the revenues which are generated therefrom are
         treated as Receipts; (ii) such joint ventures do not have a material
         adverse effect on the Lender's ability to realize on the Collateral;
         (iii) total Cash Equivalents, Inventory (valued at Cost), and Equipment
         (at net book value) contributed to such joint ventures does not exceed
         $1,000,000.00; and (iv) no making of any such contribution results in
         an Excess Availability Threshold Breach.
                  (i)      Intercompany loans and advances by any Borrower to
         any other Borrower to the extent permitted by Section 4:4-8.
                  (j)      Loans and advances by any Borrower to the extent
         permitted by Section 4:4- 24.

         "PERSON": Any natural person, and any corporation, limited liability
                  company, trust, partnership, joint venture, or other
                  enterprise or entity.

         "PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
                  UCC and each type of property described in Section 8:8-1
                  hereof.

         "REAPPRAISAL EVENT": Each of the following:
                           (a)      An Event of Default.
                           (b)      Any of the following occurs with respect to
                  either (or both) the direct or the retail operations of the
                  Borrower (each of which shall be tested monthly):
                                    (i) The ratio of (i) the cost of goods sold
                           for the then preceding 12 month period to (ii) the
                           average Cost of Inventory for the same period is 15%
                           or more less than such ratio, as calculable from the
                           Business Plan.
                                    (ii) The percentage of the Cost of Inventory
                           held for sale through a Sales Channel for more than
                           the following number of days exceeds the following
                           percentage of the then total Cost of Inventory of
                           that Sales Channel:

<Table>
<S>                                           <C>                   <C>
                           Sales Channel      Number of Days        Percentage
                           Premier            180                   20%
                           Outlet             180                   30%
</Table>

                                                                         Page 22
<Page>

<Table>
<S>                                               <C>               <C>
                           Catalogue/Internet     270               15%
</Table>

                                    (iii) The decimal equivalent of the
                           following fraction, for such month, is less than 85%
                           of such decimal equivalent for such month, as
                           calculable from the Business Plan:
                                            (A) Numerator:
                                                     net sales for the then
                                                     preceding 12 month period
                                                     MINUS
                                                     Product cost of goods sold
                                                     for the same period
                                            (B) Denominator:
                                                     net sales for the then
                                                     preceding 12 month period

         "RECEIPTS": All cash, cash equivalents, money, checks, credit card
                  slips, receipts which constitute any of the following: (a)
                  Proceeds from any sale of the Collateral; (b) the net proceeds
                  of any investment by a third party in any of the Borrowers;
                  (c) the proceeds of any Indebtedness (other than under the
                  Revolving Credit); and (d) proceeds which arise other than
                  from ordinary business operations (such as, by way of
                  illustration, tax refunds and condemnation awards).

         "RECEIVABLES COLLATERAL": That portion of the Collateral which consists
                  of Accounts, Accounts Receivable, General Intangibles, Chattel
                  Paper, Instruments, Documents of Title, Documents, Investment
                  Property, Payment Intangibles, Letter-of-Credit Rights,
                  bankers' acceptances, and all other rights to payment.

         "REFERENCE RATE": The Prime Rate announced from time to time by Wells
                  Fargo Bank, N.A. (or any successor in interest to Wells Fargo
                  Bank, N.A.). In the event that said bank (or any such
                  successor) ceases to announce such a rate, "Prime Rate" shall
                  refer to that rate or index announced or published from time
                  to time as the Lender, in good faith, designates as the
                  functional equivalent to said Prime Rate. Any change in "Prime
                  Rate" shall be effective, for purposes of the calculation of
                  interest due hereunder, when such change is made effective
                  generally by the bank on whose rate or index "Prime Rate" is
                  being set.

         "REFERENCE RATE LOANS": Standard Reference Rate Loans and Special
                  Reference Rate Loans.

         "REQUIRED EBITDA": Subject to Section 5:5-9(c) (which relates to the
                  effect of a refinancing of the Hanover Property Indebtedness),
                  that amount set by the Lender annually, for each month of the
                  relevant Fiscal year, at the Required EBITDA Percentage of the
                  Borrowers' Consolidated EBITDA, as calculable from the
                  Business Plan. For the Borrowers' Fiscal year ending in
                  February 2002, Required

                                                                         Page 23
<Page>

                  EBITDA shall be set on a year to date basis. For each Fiscal
                  year thereafter, Required EBITDA shall be set on a rolling
                  twelve (12) month basis.

         "REQUIRED EBITDA PERCENTAGE ": Through the Borrowers' Fiscal year
                  ending in February 2002: 85% of the Borrower's Consolidated
                  year to date EBITDA through the end of the relevant month, as
                  calculable from the Business Plan.

                           For the Borrowers' Fiscal years thereafter, the
                  greater of (a) 85% or (b) that percentage of the Borrowers'
                  Consolidated EBITDA, as calculable from the Business Plan in
                  respect of which Required EBITDA is being determined, so as to
                  cover Fixed Charges for the same period in respect of which
                  Required EBITDA is being tested, likewise calculable from that
                  Business Plan.

         "REQUIREMENTS OF LAW":     As to any Person:
                           (a)      Applicable Law.
                           (b)      That Person's organizational documents.
                           (c)      That Person's by-laws and/or other
                  instruments which deal with corporate or similar governance,
                  as applicable.

         "RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to
                  the Lender under regulations issued from time to time by the
                  Board of Governors of the Federal Reserve System for
                  determining the maximum reserve requirement of the Lender with
                  respect to "Eurocurrency liabilities" as defined in such
                  regulations. The Reserve Percentage applicable to a particular
                  Eurodollar Loan shall be based upon that in effect during the
                  subject Interest Period, with changes in the Reserve
                  Percentage which take effect during such Interest Period to
                  take effect (and to consequently change any interest rate
                  determined with reference to the Reserve Percentage) if and
                  when such change is applicable to such loans.

         "RESERVES": The following: Availability Reserves and Inventory
                  Reserves.

         "RESET REJECTION": Is defined in Section 5:5-8(c)(v)(A)(II).

         "REVOLVING CREDIT": Is defined in Section 2:2-1.

         "REVOLVING CREDIT LOANS": Loans made under the Revolving Credit, except
                  that where the term "Revolving Credit Loan" is used with
                  reference to available interest rates applicable to the loans
                  under the Revolving Credit, it refers to so much of the unpaid
                  principal balance of the Loan Account as bears the same rate
                  of interest for the same Interest Period. (SEE Section
                  2:2-12).

         "REVOLVING CREDIT NOTE": Is defined in Section 2:2-10.

         "S&P":   Standard & Poors, a division of the McGraw Hill Companies.

                                                                         Page 24
<Page>

         "SALES CHANNEL": Any of the following, as the context requires: (a) a
                  premier store; (b) an outlet store; or (c) sales through a
                  Borrower's catalogue or internet operations.

         "SEC": The Securities and Exchange Commission.

         "SECOND APPRAISAL": Is defined in Section 5:5-8(c)(v).

         "SPECIAL INVENTORY ADVANCE RATE": 4%, subject to reset as provided in
                  Section 5:5-8(c)

         "SPECIAL LINE CREDIT LIMIT": $3 Million.

         "SPECIAL REFERENCE RATE": The aggregate of the Reference Rate PLUS 250
                  basis points per annum.

         "SPECIAL REFERENCE RATE LOAN": Each Revolving Credit Loan while bearing
                  interest at the Special Reference Rate.

         "STANDARD INVENTORY ADVANCE RATE": 73%, subject to reset as provided in
                  Section 5:5-8(c)

         "STANDARD LINE CREDIT LIMIT": $22 Million.

         "STANDARD REFERENCE RATE ": The aggregate of the Reference Rate PLUS 50
                  basis points per annum.

         "STANDARD REFERENCE RATE LOAN": Each Revolving Credit Loan while
                  bearing interest at the Standard Reference Rate.

         "STATED  AMOUNT": The maximum amount for which an L/C may be honored.

         "STORE": (When used as a noun) A location at which any Borrower
                  maintains Inventory for retail sale to the public from that
                  location.

         "SUPPORTING OBLIGATION": Has the meaning given that term in the UCC and
                  also refers to any Letter-of-Credit Right or secondary
                  obligation which supports the payment or performance of an
                  Account, Chattel Paper, a Document, a General Intangible, an
                  Instrument, or Investment Property.

         "TANGIBLE NET WORTH": The difference between (a) the aggregate of the
                  Borrowers' Consolidated assets as reflected on the Borrowers'
                  Consolidated balance sheet prepared in accordance with GAAP,
                  other than any of its assets reflected thereon

                                                                         Page 25
<Page>

                  which are generally regarded as "intangible" and (b) the
                  aggregate of the Borrowers' Consolidated liabilities as
                  reflected on the Borrowers' Consolidated balance sheet
                  likewise so prepared.

         "TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
                  occurrence of any event described in Section 10:10-11, below;
                  or (c) the Lender's notice to the Lead Borrower setting the
                  Termination Date on account of the occurrence of any Event of
                  Default other than as described in Section 10:10-11, below;
                  (d) that date of which not less than fifteen (15) days
                  irrevocable prior written notice is provided by the Lead
                  Borrower to the Lender; or (e) that date set by the Lead
                  Borrower or the Lender as pursuant to Section 5:5-8(c)(v)(B),
                  13:13-1(a)(ii), or 14:14-3(c).

         "TEST MONTH": Any Fiscal month during any one or more days of which
                  Tangible Net Worth is less than $12 Million.

         "THREE MONTH ROLLING AVERAGE NRLV": The average NRLV for the then
                  most recent prior two (2) months and for the month during
                  which reference is being made thereto (e.g. the Three Month
                  Rolling Average NRLV to be applied during the month of
                  November would be based on the NRLV for the immediately prior
                  September and October and for that November).

         "UCC": The Uniform Commercial Code as in effect from time to time in
                  Massachusetts.

         "UNUSED LINE FEE": Is defined in Section 2:2-13(d).

 ARTICLE 2: - THE REVOLVING CREDIT:

         2-1.     ESTABLISHMENT OF REVOLVING CREDIT

                  (a) The Lender hereby establishes a revolving line of credit
(the "REVOLVING CREDIT") in the Borrowers' favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrowers as provided herein.

                  (b) Loans, advances, and financial accommodations under the
Revolving Credit shall be made with reference to the Borrowing Base and shall be
subject to Availability. The Borrowing Base and Availability shall be determined
by the Lender by reference to Borrowing Base Certificates furnished as provided
in Section 5:5-4, below, and shall be subject to the following:

                           (i)      The Cost of Eligible Inventory will be
         determined in a manner

                                                                         Page 26
<Page>

         consistent with current tracking practices, based on the Borrowers'
stock ledger inventory.

                           (ii)     The NRLV Percentage shall be based on
         EXHIBIT 2:2-1(b)(ii), annexed hereto or as otherwise determined in
         accordance with the Definition of that term.

                  (c)      The proceeds of borrowings under the Revolving Credit
shall be used as follows:

                           (i) The initial such proceeds shall be used to repay,
         in full, the then existing Indebtedness of the Borrowers to Congress
         and fees and expenses associated with the retirement of Congress as the
         Borrowers' working capital lender.

                           (ii) Except as permitted by Section 2:2-1(c)(i), such
         proceeds shall be used solely in accordance, in all material respects,
         with the Business Plan for the Borrowers' general corporate purposes,
         including for working capital and Capital Expenditures, all solely to
         the extent permitted by this Agreement. No proceeds of a borrowing
         under the Revolving Credit may be used, nor shall any be requested,
         with a view towards the accumulation of any general fund or funded
         reserve of the Borrowers other than in the ordinary course of the
         Borrowers' business and consistent with the provisions of this
         Agreement.

         2-2.     RESERVES.

                  (a)      The only reserves, at the execution of this
Agreement, are as follows:

                           (i)      Availability Reserve for rent as provided in
         Sections 4:4-5(e) and 4:4- 5(f).

                           (ii)     Inventory Reserves:

                                    (A) 100% of the Cost of all Eligible
                  Inventory located at any location the landlord of which has
                  been granted a security interest in the personal property of
                  any Borrower, which landlord has not subordinated to the
                  security interests created herein by an instrument which is
                  reasonably satisfactory to the Lender.

                                    (B)     Damaged goods.

                                    (C)     Shrinkage

                                    (D)     In transit Inventory which does not
                           constitute Eligible In-Transit Inventory.

                                                                         Page 27
<Page>

                  (b)      The Lender will not create any Reserves in addition
to those described in Section 2:2-2(a) except where both

                           (i) an Excess Availability Threshold Breach has
         occurred; and

                           (ii) such Reserve is created in response to material
         adverse effects on the Collateral or the Lender's security interest
         therein.

                  (c)      In all events, Reserves are subject to the following:

                           (i) Reserves which are based on objectively
         determinable facts (such as the amount of rent which a Borrower pays),
         which amount is utilized in the determination of the Reserves for rent
         provided for in Sections 4:4-5(e) and 4:4-5(f)) shall be based on such
         objectively determinable facts and shall be subject to change as such
         facts change.

                           (ii) Reserves which are based on facts as to there is
         a reasonable basis for estimate shall be based on such estimates and
         shall be subject to change as the basis for such estimate changes.

                           (iii) The Lender's creation of any Reserve (subject,
         in all events to Section 2:2-2(b)) and its revision, adjustment and
         modification of Reserves constitute the Lender's exercise of its
         discretion and determination of facts and circumstances in consequence
         of which the Lender's actions are subject to Section 2:2-14.

                           (iv) Each Reserve shall bear a reasonable
         relationship to the facts, circumstances, or factors on which such
         Reserve is based.

                           (v) In no event will the Lender establish duplicative
         Reserves or Reserves based on obsolescence of Inventory.

         2-3.     ELIGIBLE INVENTORY CRITERIA.

                  (a) Subject to Section 2:2-3(b), the Lender may reset the
Eligible Inventory Criteria from time to time to reflect facts, events,
conditions, or circumstances which the Lender determines in the exercise of the
Lender's discretion could adversely affect or could reasonably be expected to
adversely affect the saleability of Inventory, but only where such facts,
events, conditions or circumstances either:

                           (i) Come into existence after the date of this
         Agreement; or

                           (ii) are extant at the execution of this Agreement
         and of which the Lender does not have knowledge.

                                                                         Page 28
<Page>

                  (b) The Lender may not reset the Eligible Inventory Criteria,
as provided in Section 2:2-3(a) unless an Excess Availability Threshold Breach
has occurred.

         2-4.     ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS).

                  (a) The Lender does not have any obligation to make any loan
or advance, or otherwise to provide any credit to or for the benefit of the
Borrowers where the result of such loan, advance, or credit is an OverLoan.

                  (b) The Lender's providing of an OverLoan on any one occasion
does not affect the obligations of each Borrower hereunder (including each
Borrower's obligation to immediately repay any amount which otherwise
constitutes an OverLoan) nor obligate the Lender to do so on any other occasion.

         2-5.     RISKS OF VALUE OF COLLATERAL. The Lender's reference to a
given asset in connection with the making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Lender relative to the actual value of the asset in
question. All risks concerning the value of the Collateral are and remain upon
the Borrowers. All Collateral secures the prompt, punctual, and faithful
performance of the Liabilities whether or not relied upon by the Lender in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.

         2-6.     LENDER'S COMMITMENT. Subject to the provisions of this
Agreement, the Lender shall make a loan or advance under the Revolving Credit
and shall endeavor to have an L/C issued for the account of the Lead Borrower,
in each instance if duly and timely requested by the Lead Borrower as provided
herein PROVIDED THAT:

                  (a)      No OverLoan is then outstanding and none will result
therefrom.

                  (b)      No Borrower is then InDefault and none will thereby
become InDefault.

         2-7.     REVOLVING CREDIT LOAN REQUESTS.

                  (a) Requests for loans and advances under the Revolving Credit
or for the continuance or conversion of an interest rate applicable to a
Revolving Credit Loan may be requested by the Lead Borrower pursuant to the
procedures set forth below, IT BEING UNDERSTOOD, HOWEVER, that the Lender, from
time to time may alter and adjust such procedures reasonably and on not less
than five (5) Business Days prior written notice (in reasonable detail as to the
manner of such alteration

                                                                         Page 29
<Page>

or adjustment) to the Lead Borrower.

                  (b) Subject to the provisions of this Agreement, the Lead
Borrower may request a Revolving Credit Loan and elect an interest rate and
Interest Period to be applicable to that Revolving Credit Loan by giving notice
to the Lender by no later than the following:

                           (i) If such Revolving Credit Loan is to be or is to
         be converted to a Reference Rate Loan: By 11:30AM on the Business Day
         on which the subject Revolving Credit Loan is to be made or is to be so
         converted. Reference Rate Loans requested by the Lead Borrower, other
         than those resulting from the conversion of a Eurodollar Loan, shall
         not be less than $10,000.00.

                           (ii) If such Revolving Credit Loan is to be, or is to
         be continued as, or converted to, a Eurodollar Loan: By 1:00PM Three
         (3) Eurodollar Business Days before the commencement of any new
         Interest Period or the end of the then applicable Interest Period.
         Eurodollar Loans and conversions to Eurodollar Loans shall each be not
         less than $1,000,000.00 and in increments of $500,000.00 in excess of
         such minimum.

                           (iii) Any Eurodollar Loan which matures while any
         Borrower is InDefault shall be converted, at the option of the Lender,
         to a Reference Rate Loan notwithstanding any notice from the Lead
         Borrower that such Loan is to be continued as a Eurodollar Loan.

                  (c) Any request for a Revolving Credit Loan or for the
continuance or conversion of an interest rate applicable to a Revolving Credit
Loan which is made after the applicable deadline therefor, as set forth above,
shall be deemed to have been made at the opening of business on the then next
Business Day or Eurodollar Business Day, as applicable.

                  (d) The Lead Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of the Borrowers as provided in
Section 2:2-15.

                  (e) The Lender may rely on any request for a loan or advance,
or other financial accommodation under the Revolving Credit which the Lender, in
good faith, believes to have been made by a Person duly authorized to act on
behalf of the Lead Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Lender's being furnished with such documentation concerning that Person's
authority to act as reasonably may be satisfactory to the Lender.

                  (f) A request by the Lead Borrower for a loan or advance, or
other financial accommodation under the Revolving Credit shall be irrevocable
and shall constitute certification by each Borrower that as of the date of such
request, each of the following is true and correct:

                           (i) There has been no Material Adverse Change in the
         Borrowers' financial condition from the most recent financial
         information (taken as a whole) furnished

                                                                         Page 30
<Page>

         Lender pursuant to this Agreement.

                           (ii) All or a portion of any loan or advance so
         requested will be set aside by the Borrowers to cover the Borrowers'
         obligations for sales tax on account of sales since the then most
         recent borrowing pursuant to the Revolving Credit.

                           (iii) Each representation which is made herein or in
         any of the Loan Documents is then true and complete in all material
         respects as of and as if made on the date of such request.

                           (iv) Unless accompanied by a written Certificate of
         the Lead Borrower's Chief Executive Officer, President or its Chief
         Financial Officer describing (in reasonable detail) the facts and
         circumstances thereof and the steps (if any) being taken to remedy such
         condition, that no Borrower is or if a Borrower is InDefault.

                  (g)      If, at any time or from time to time, any Borrower is
InDefault:

                           (i) The Lender may suspend the Revolving Credit
         immediately, in which event, the Lender shall not be obligated, during
         such suspension, to make any loans or advance, or to provide any
         financial accommodation hereunder or to seek the issuance of any L/C.

                           (ii) The Lender may suspend the right of the Lead
         Borrower to request any Eurodollar Loan or to convert any Reference
         Rate Loan to a Eurodollar Loan.

         2-8      MAKING OF REVOLVING CREDIT LOANS.

                  (a) A loan or advance under the Revolving Credit shall be made
by the transfer of the proceeds of such loan or advance to the Operating Account
or as otherwise instructed by the Lead Borrower.

                  (b) A loan or advance shall be deemed to have been made under
the Revolving Credit (and the Borrowers shall be indebted to the Lender for the
amount thereof immediately) at the following:

                           (i) The Lender's initiation of the transfer of the
         proceeds of such loan or advance in accordance with the Lead Borrower's
         wire instructions (if such loan or advance is of funds requested by the
         Lead Borrower).

                           (ii) The charging of the amount of such loan to the
         Loan Account in accordance with this Agreement (in all other
         circumstances).

                                                                         Page 31
<Page>

                  (c)      Except as provided in Section 2:2-8(d), there shall
not be any recourse to or liability of the Lender on account of the following:

                           (i) Any reasonable delay in the making of any loan or
         advance requested under the Revolving Credit.

                           (ii) Any delay by any bank or other depository
         institution in treating the proceeds of any such loan or advance as
         collected funds.

                           (iii) Any delay in the receipt, and/or any loss, of
         funds which constitutes a loan or advance under the Revolving Credit,
         the wire transfer of which was properly initiated by the Lender in
         accordance with wire instructions provided to the Lender by the Lead
         Borrower (written confirmation of the initiation of which is provided
         by the Lender to the Lead Borrower on request of the Lead Borrower).

                  (d) Section 2:2-8(c) shall not relieve the Lender from
recourse or liability on account of an act or failure to act where there is a
specific finding in a judicial proceeding by a court of competent jurisdiction
(in which the Lender has been given an opportunity to be heard), from which
finding no further appeal is available, that the Lender had acted in actual bad
faith or in a grossly negligent manner or in wilful misconduct.

         2-9.     THE LOAN ACCOUNT.

                  (a) An account ("LOAN ACCOUNT") shall be opened on the books
of the Lender in which a record shall be kept of all loans and advances made
under the Revolving Credit.

                  (b) The Lender shall also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed to the
Lender on account of the Liabilities and of all credits against such amounts so
owed.

                  (c) The Lender shall provide the Lead Borrower, monthly, with
a statement of the Loan Account.

                  (d) All credits against the Liabilities shall be conditional
upon final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.

                  (e) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which any Borrower is obligated hereunder are
payable on demand. In the event that

                                                                         Page 32
<Page>

the Lead Borrower prevails in any dispute of the the amount of any such fee,
service charge, cost, or expense, the Lender shall refund any interest which
accrued on any amount paid over to that Borrower in consequence of the
resolution of such dispute.

                  (f) In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments which will be due
and payable between the date of such determination and the first day of the then
next succeeding month as having been advanced under the Revolving Credit whether
or not such amounts are then due and payable.

                  (g) The Lender, without the request of the Lead Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which Lender is entitled from any Borrower pursuant hereto and may
charge the same to the Loan Account notwithstanding that an OverLoan may result
thereby and shall provide notice of such advance to the Lead Borrower. Such
action on the part of the Lender shall not constitute a waiver of the Lender's
rights and each Borrower's obligations under Section 2:2-11(b). Any amount which
is added to the principal balance of the Loan Account as provided in this
Section 2:2-9(g) shall bear interest at the interest rate then and thereafter
applicable to Standard Reference Rate Loans.

                  (h) Any statement rendered by the Lender to the Lead Borrower
concerning the Liabilities shall be considered correct and accepted by each
Borrower and shall be conclusively binding upon each Borrower unless the Lead
Borrower provides the Lender with written objection thereto within twenty (20)
days from the mailing of such statement, which written objection shall indicate,
with reasonable particularity, the reason for such objection. The Loan Account
and the Lender's books and records concerning the loan arrangement contemplated
herein and the Liabilities shall be prima facie evidence and proof of the items
described therein.

         2-10. THE REVOLVING CREDIT NOTE. The Borrowers' obligation to repay
loans and advances under the Revolving Credit, with interest as provided herein,
shall be evidenced by a note (the "REVOLVING CREDIT NOTE") in the form of
EXHIBIT 2:2-10, annexed hereto, executed by each Borrower. Neither the original
nor a copy of the Revolving Credit Note shall be required, HOWEVER, to establish
or prove any Liability.

         2-11.    PAYMENT OF THE LOAN ACCOUNT.

                  (a) The Borrowers MAY repay all or any portion of the
principal balance of the Loan Account from time to time until the Termination
Date.

                  (b) The Borrowers, without notice or demand from the Lender
SHALL pay the Lender that amount, from time to time, which is necessary so that
there is no OverLoan outstanding.

                  (c) The Borrowers SHALL repay that amount described in Section
13:13-2(a) on the

                                                                         Page 33
<Page>

Termination Date.

                  (d) The Lender shall cause the application of payments (if
any), pursuant to Sections 2:2-11(a) and 2:2-11(b) in the following order:

                           (i)      Eurodollar Loans which are then maturing.

                           (ii)     Special  Reference Rate Loans.

                           (iii)    Standard  Reference Rate Loans.

                           (iv)     Eurodollar Loans which have not then
                                    matured.

                  (e) The Borrowers shall indemnify the Lender and hold the
Lender harmless from and against any actual loss, cost or expense (including
loss of anticipated profits and amounts payable by the Lender on account of
"breakage fees" (so-called)) which the Lender sustains or incurs (including,
without limitation, by virtue of acceleration after the occurrence of any Event
of Default) as a consequence of the following:

                           (i) Default by any Borrower in payment of the
         principal amount of or any interest on any Eurodollar Loan as and when
         due and payable, including any such loss or expense arising from
         interest or fees payable by the Lender in order to maintain its
         Eurodollar Loans.

                           (ii) Default by any Borrower in making a borrowing or
         conversion after the Lead Borrower has given (or is deemed to have
         given) a request for a Revolving Credit Loan or a request to convert a
         Revolving Credit Loan from one applicable interest rate to another.

                           (iii) The making of any payment on a Eurodollar Loan
         or the making of any conversion of any such Loan to a Reference Rate
         Loan on a day that is not the last day of the applicable Interest
         Period with respect thereto.

         2-12.    INTEREST ON REVOLVING CREDIT LOANS.

                  (a) Each Revolving Credit Loan shall bear interest at the
Standard Reference Rate (as to Revolving Credit Loans made or deemed made based
on the Standard Inventory Advance Rate) or Special Reference Rate (as to
Revolving Credit Loans made or deemed made based on the Special Inventory
Advance Rate), as applicable, unless timely notice is given (as provided in
Section 2:2-7) that the subject Revolving Credit Loan (or a portion thereof) is,
or is to be converted to, a Eurodollar Loan.

                                                                         Page 34
<Page>

                  (b) A Revolving Credit Loan made or deemed made at any time
that Availability, without giving effect to the Special Inventory Advance Rate,
is zero, shall bear interest at the Special Reference Rate.

                  (c) Each Revolving Credit Loan which consists of a Eurodollar
Loan shall bear interest at the applicable Eurodollar Rate.

                  (d) Subject to, and in accordance with, the provisions of this
Agreement, the Lead Borrower may cause all or a part of the unpaid principal
balance of the Loan Account which bears interest at the Standard Reference Rate
to bear interest at a Eurodollar Rate as specified from time to time by the Lead
Borrower.

                  (e) The Lead Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that there are more than four (4)
Eurodollar Rates applicable to the Revolving Credit Loans at any one time.

                  (f) The Borrowers shall pay accrued and unpaid interest on
each Revolving Credit Loan in arrears as follows:

                           (i) On the applicable Interest Payment Date for that
         Revolving Credit Loan.

                           (ii) On the Termination Date and on the End Date.

                           (iii) Following the occurrence of any Event of
         Default, with such frequency as may be determined by the Lender.

                  (g) Following the occurrence of any Event of Default (and
whether or not the Lender exercises the Lender's rights on account thereof), all
Revolving Credit Loans shall bear interest, at the option of the Lender at a
rate which is the aggregate of the rate applicable to Standard Reference Rate
Loans or Special Reference Rate Loans, as applicable, PLUS Two Percent (2%) per
annum.

         2-13.    FEES.

                  (a) ORIGINATION FEE: In consideration of the commitment to
make loans and advances to the Borrowers under the Revolving Credit, and to
maintain sufficient funds available for such purpose, there has been earned and
the Borrowers shall pay to the Lender, at the execution of this Agreement, an
origination fee of $62,500,00.

                  (b) ANNIVERSARY FEE: In consideration of the commitment to
make loans and advances to the Borrowers under the Revolving Credit, and to
maintain sufficient funds available

                                                                         Page 35
<Page>

for such purpose, the Lender shall have earned an anniversary fee of $62,500.00
which is payable at the earlier of the occurrence of an Event of Default or the
first anniversary of the execution of this Agreement.

                  (c) COLLATERAL MONITORING FEE: The Borrowers shall pay the
Lender, on the first day of each month, a Collateral Monitoring Fee which shall
be based on the Effective Advance Rate on the last day of the immediately
preceding month and shall consist of the following:

<Table>
<Caption>

Effective Advance Rate Greater Than              Effective Advance Rate Up               Monthly Fee ($)
(%)                                              To (%)

<S>                                              <C>                                     <C>
0                                                65                                      Nil
65                                               70                                      2,500
70                                               75                                      3,500
75                                               N/A                                     5,000
</Table>

                  (d) UNUSED LINE FEE: The Borrowers shall pay the Lender the
"UNUSED LINE FEE" (so referred to herein) of 0.375% per annum of the average
difference, during the month just ended (or relevant period with respect to the
payment being made on the Termination Date) between the Credit Limit and the
aggregate of the unpaid principal balance of the Loan Account and the undrawn
Stated Amount of L/C's outstanding during the relevant period. The Unused Line
Fee shall be paid in arrears, on the first day of each month after the execution
of this Agreement and on the Termination Date.

                  (e) EARLY TERMINATION FEE:

                           (i) Except as provided in Sections 2:2-13(e)(ii) and
         2:2-13(e)(iii), in the event that the Termination Date occurs, for any
         reason, prior to the Maturity Date, the Borrowers shall pay to the
         Lender the "EARLY TERMINATION FEE" (so referred to herein) equal to the
         following percentage highest Credit Limit which may ever be in effect
         under this Agreement:

<Table>
<S>                                         <C>                                                  <C>
                                    (A)     Termination Prior to October  1, 2002:               2.0%

                                    (B)     Termination On or After October 1, 2002:             1.0%
</Table>

                           (ii) The Early Termination Fee shall be waived by the
         Lender in the event that each of the following conditions is satisfied:

                                    (A) The Lead Borrower provides the Lender
                  with irrevocable written notice which sets the Termination
                  Date as provided in Section 5:5-8(c)(v)(B)

                                                                         Page 36
<Page>

                  (which relates to the Borrowers' right to terminate the credit
                  facility contemplated herein under the circumstances described
                  in Section 5:5-8(c)(v) in the event of a resetting of the
                  Standard Inventory Advance Rate to less than 70%).

                                    (B) The Borrowers discharge all of their
                  obligations on account of such termination (as to which, SEE
                  Section 13:13-2) with the proceeds of a financing from a third
                  party which has provided the Borrower with a financing
                  commitment with advance rates (inclusive of all applicable
                  reserves used to determine the amount available to the
                  Borrowers under such financing commitment) which provide the
                  Borrower with greater availability on the same assets than are
                  offered by the Lender.

                           (iii) The Early Termination Fee shall be waived by
         the Lender in the event that the Borrowers, on a Termination Date set
         pursuant to Section 14:14-3(c) (which relates to the Borrowers' right
         to terminate the credit facility contemplated hereby in certain
         circumstances in the event of the assignment or transfer by the Lender
         of its rights under this Agreement), discharge all of their obligations
         on account of a termination (as to which, SEE Section 13:13-2) with the
         proceeds of a financing from a third party.

                  (f) PASS THROUGH OF FEES INCURRED BY LENDER: In addition to
any other payments to be made by the Borrowers to the Lenders, the Borrowers
shall reimburse the Lender for the following:

                           (i) Subject to Section 5:5-8(c), the actual charges
         paid or incurred by the Lender for each appraisal of the Collateral
         performed by personnel employed or retained by the Lender.

                           (ii) Subject to Section 5:5-8(d), the actual charges
         paid or incurred by the Lender for each financial analysis and
         examination (i.e., audits) of any of the Borrowers performed by
         personnel employed or retained by the Lender.

                           (iii) The actual charges paid or incurred by the
         Lender if it elects to employ or retain the services of one or more
         third Persons to perform legal investigation, documentation financial
         analysis and examinations (i.e., audits) of any of the Borrowers or to
         appraise the Collateral.

                  (g) ADDITIONAL FEES: In addition to any other right to which
the Lender is then entitled on account thereof, the Lender may assess an
additional fee payable by the Borrowers on account of the accommodation of
Lender to the Borrowers' request that the Lender depart or dispense with one or
more of the administrative provisions of this Agreement.

                  (h) CONCERNING FEES: The Borrowers shall not be entitled to
any credit, rebate or repayment of any fee earned by the Lender pursuant to this
Agreement or any Loan Document

                                                                         Page 37
<Page>

notwithstanding any termination of this Agreement or suspension or termination
of the Lender's obligation to make loans and advances hereunder.

         2-14.    LENDER'S DISCRETION.

                  (a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to the Lender's exercise of its
judgment, in good faith (which shall be presumed), based upon the Lender's
consideration of any such factors as the Lender, taking into account information
of which the Lender then has actual knowledge, believes:

                           (i) Will or reasonably could be expected to
         materially adversely affect the value of the Collateral, the
         enforceability of the Lender's Collateral Interests therein, or the
         amount which the Lender would likely realize therefrom (taking into
         account delays which may possibly be encountered in the Lender's
         realizing upon the Collateral and likely Costs of Collection).

                           (ii) Reasonably indicates that any report or
         financial information delivered to the Lender by or on behalf of any
         Borrower is incomplete, inaccurate, or misleading in any material
         manner or was not prepared in accordance with the requirements of this
         Agreement.

                           (iii) Reasonably suggests an increase in the
         likelihood that any Borrower will become the subject of a bankruptcy or
         insolvency proceeding.

                           (iv) Reasonably suggests that any Borrower is
         InDefault.

                  (b) In the exercise of such judgement described in Section
2:2-14(a), the Lender also may take into account any of the following factors:

                           (i) Those included in, or tested by, the definitions
         of "Eligible Inventory" and "Cost".

                           (ii) The current financial and business climate of
         the industry in which each Borrower competes (having regard for that
         Borrower's position in that industry).

                           (iii) General macroeconomic conditions which have a
         material effect on the Borrowers' cost structure.

                           (iv) Material changes in or to the mix of the
         Borrowers' Inventory.

                           (v) Seasonality with respect to the Borrowers'
         Inventory and patterns of retail sales.

                                                                         Page 38
<Page>

                           (vi) Such other factors as the Lender reasonably
         determines as having a material bearing on credit risks associated with
         the providing of loans and financial accommodations to the Borrowers.

                  (c) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in the Lender's exercise of such discretion or
its not having acted in good faith in the determination of a particular fact or
circumstance, shall be the Borrowers'.

         2-15.    PROCEDURES FOR ISSUANCE OF L/C'S.

                  (a) The Lead Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of any Borrower. Each such
request shall be in such manner as may from time to time reasonably be
acceptable to the Lender.

                  (b) The Lender will endeavor to cause the issuance of any L/C
so requested by the Lead Borrower, PROVIDED THAT, at the time that the request
is made, the Revolving Credit has not been suspended as provided in Section
2:2-7(g) and if so issued:

                           (i)  The aggregate Stated Amount of all L/C's then
         outstanding, does not exceed $10 Million Dollars.

                           (ii) Except as provided in Section 2:2-15(b)(iii),
         the expiry of the L/C is not later than the earlier of Thirty (30) days
         prior to the Maturity Date or the following:

                                    (A) Standby's: One (1) year from initial
         issuance (without regard to any evergreen feature).

                                    (B) Documentary's: Ninety (90) days from
         issuance.

                           (iii) If the expiry of an L/C is later than the
         Maturity Date, it is 103% cash collateralized at its issuance.

                           (iv) An OverLoan will not result from the issuance of
         the subject L/C.

                  (c) Each Borrower shall execute such documentation to apply
for and support the issuance of an L/C as may be required by the Issuer
generally for the issuance of like kinds of L/C's.

                  (d) There shall not be any recourse to, nor liability of, the
Lender on account of

                           (i) Any delay or refusal by an Issuer to issue an
         L/C;

                           (ii) Any action or inaction of an Issuer on account
         of or in respect to, any

                                                                         Page 39
<Page>

         L/C.

                  (e) The Borrowers shall reimburse the Issuer for the amount of
any honoring of a drawing under an L/C on the same day on which such honoring
takes place. The Lender, without the request of any Borrower, may advance under
the Revolving Credit (and charge to the Loan Account) the amount of any honoring
of any L/C and other amount for which any Borrower, the Issuer, or the Lender
becomes obligated on account of, or in respect to, any L/C. Such advance shall
be made whether or not any Borrower is InDefault or such advance would result in
an OverLoan. Such action shall not constitute a waiver of the Lender's rights
under Section 2:2-11(b) hereof.

         2-16.    FEES FOR L/C'S.

                  (a) The Borrowers shall pay to the Lender a fee, on account of
L/C's, the issuance of which had been procured by the Lender, monthly in
arrears, and on the Termination Date and on the End Date, equal to 10 basis
points of the weighted average Stated Amount of all L/C's outstanding during the
period in respect of which such fee is being paid EXCEPT THAT, following the
occurrence of any Event of Default, such fee shall be increased by 20 basis
points.

                  (b) In addition to the fee to be paid as provided in
Subsection 2:2-16(a), above, the Borrowers shall pay to the Lender (or to the
Issuer, if so requested by Lender), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts then generally
charged by the Issuer on account of, or in respect to, any L/C.

                  (c) If any change in Applicable Law after the date of this
Agreement shall either:

                           (i) impose, modify or deem applicable any reserve,
         special deposit or similar requirements against letters of credit
         heretofore or hereafter issued by any Issuer or with respect to which
         the Lender or any Issuer has an obligation to lend to fund drawings
         under any L/C; or

                           (ii) impose on any Issuer any other condition or
         requirements relating to any such letters of credit;

and the result of any event referred to in Section 2:2-16(c)(i) or
2:2-16(c)(ii), above, shall be to increase the cost to the Lender or to any
Issuer of issuing or maintaining any L/C (which increase in cost shall be the
result of such Issuer's reasonable allocation among the Lender's or Issuer's
letter of credit customers of the aggregate of such cost increases resulting
from such events), then, subject to Section 2:2-16(d), upon demand by the Lender
and delivery by the Lender to the Lead Borrower of a certificate of an officer
of the Lender or the subject Issuer describing such change in Applicable Law or
interpretation thereof, its effect on the Lender or such Issuer, and the basis
for determining such increased costs and their allocation, the Borrowers shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate the Lender

                                                                         Page 40
<Page>

or the subject Issuer for such increased cost. The Lender's or any Issuer's
determination of costs incurred under Section 2:2-16(c)(i) or 2:2-16(c)(ii),
above, and the allocation, if any, of such costs among the Borrowers and other
similarly situated letter of credit customers of the Lender or such Issuer, if
done in good faith and made on an equitable basis and in accordance with such
officer's certificate, shall be conclusive and binding on the Borrowers.

                  (d) The Borrowers shall be required to compensate the Lender
pursuant to Section 2:2-16(c)

                           (i) only if the Lender provides the Lead Borrower
         with notice thereof within ninety (90) days after the Lender has
         received actual notice of the occurrence of the relevant circumstances
         which gives rise to the Borrower's obligation to do so; and
                           (ii) only to the extent that the Lender imposes a
         like such compensation obligation on other of its customers who are
         similarly situated to the Borrowers in respect of any increased costs
         described in Section 2:2-16(c).

         2-17.    CONCERNING L/C'S.

                  (a) None of the Issuer, the Issuer's correspondents, the
Lender or any advising, negotiating, or paying bank with respect to any L/C
shall be responsible in any way for:

                           (i) The performance by any beneficiary under any L/C
         of that beneficiary's obligations to any Borrower.

                           (ii) The form, sufficiency, correctness, genuineness,
         authority of any person signing; falsification; or the legal effect of;
         any documents called for under any L/C if (with respect to the
         foregoing) such documents on their face appear to be in order.

                  (b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.

                  (c) Unless otherwise agreed to, in the particular instance,
each Borrower hereby authorizes any Issuer to:

                           (i) Select an advising bank, if any.

                           (ii) Select a paying bank, if any.

                           (iii) Select a negotiating bank.

                                                                         Page 41
<Page>

                  (d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrowers. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the Lender nor the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.

                  (e) Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.

                  (f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Lead Borrower,
documentary L/C's will be governed by the Uniform Customs and Practice for
Documentary Credits, International Chamber of Commerce, Publication No. 500, and
standby L/C's will be governed by International Standby Practices ISP98 (adopted
by the International Chamber of Commerce on April 6, 1998) and any respective
subsequent revisions thereof.

                  (g) The obligations of the Borrowers under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:

                           (i) Any lack of validity or enforceability or
         restriction, restraint, or stay in the enforcement of this Agreement,
         any L/C, or any other agreement or instrument relating thereto.

                           (ii) Any Borrower's consent to any amendment or
         waiver of, or consent to the departure from, any L/C.

                           (iii) The existence of any claim, set-off, defense,
         or other right which any Borrower may have at any time against the
         beneficiary of any L/C.

                           (iv) Any good faith honoring of a drawing under any
         L/C, which drawing possibly could have been dishonored based upon a
         strict construction of the terms of the L/C.

         2-18.    CHANGED CIRCUMSTANCES.

                  (a) The Lender may advise the Lead Borrower that the Lender
has made the good faith determination (which determination shall be final and
conclusive) of any of the following:

                           (i) Adequate and fair means do not exist for
         ascertaining the rate for

                                                                         Page 42
<Page>

         Eurodollar Loans.

                           (ii) The continuation of or conversion of any
         Revolving Credit Loan to a Eurodollar Loan has been made impracticable
         or unlawful by the occurrence of a contingency that materially and
         adversely affects the applicable market or the compliance by the Lender
         in good faith with any Applicable Law.

                           (iii) The indices on which the interest rates for
         Eurodollar Loans are based shall no longer represent the effective cost
         to the Lender for U.S. dollar deposits in the London interbank market
         for deposits in which it regularly participates.

                  (b) In the event that the Lender advises the Lead Borrower of
an occurrence described in Section 2:2-18(a), then, until the Lender notifies
the Lead Borrower that the circumstances giving rise to such notice no longer
apply (which notice the Lender shall give promptly after it has knowledge
thereof):

                           (i) The obligation of the Lender to make loans of the
         type affected by such changed circumstances or to permit the Lead
         Borrower to select the affected interest rate as otherwise applicable
         to any Revolving Credit Loans shall be suspended.

                           (ii) Any notice which the Lead Borrower had given the
         Lender with respect to any Eurodollar Loan, the time for action with
         respect to which has not occurred prior to the Lender's having given
         notice pursuant to Section 2:2-18(a), shall be deemed at the option of
         the Lender to not having been given.

         2-19.    DESIGNATION OF LEAD BORROWER AS BORROWERS'  AGENT.

                  (a) Each Borrower hereby irrevocably designates and appoints
the Lead Borrower as that Borrower's agent to obtain loans and advances under
the Revolving Credit, the proceeds of which shall be available to each Borrower
for those uses as those set forth in Section 2:2-1(c). As the disclosed
principal for its agent, each Borrower shall be obligated to the Lender on
account of loans and advances so made under the Revolving Credit as if made
directly by the Lender to that Borrower, notwithstanding the manner by which
such loans and advances are recorded on the books and records of the Lead
Borrower and of any Borrower.

                  (b) Each Borrower recognizes that credit available to it under
the Revolving Credit is in excess of and on better terms than it otherwise could
obtain on and for its own account and that one of the reasons therefor is its
joining in the credit facility contemplated herein with all other Borrowers.
Consequently, each Borrower hereby assumes and agrees to discharge all
Liabilities of each of the other Borrowers as if that Borrower so assuming and
agreeing was each of the other Borrowers.

                                                                         Page 43
<Page>

                  (c) The Lead Borrower shall act as a conduit for each Borrower
(including itself, as a "Borrower") on whose behalf the Lead Borrower has
requested a Revolving Credit Loan.

                  (d) The proceeds of each loan and advance provided under the
Revolving Credit which is requested by the Lead Borrower shall be deposited into
the Operating Account or as otherwise indicated by the Lead Borrower. The Lead
Borrower shall cause the transfer of the proceeds thereof to the (those)
Borrower(s) on whose behalf such loan and advance was obtained. The Lender shall
not have any obligation to see to the application of such proceeds.

ARTICLE 3: CONDITIONS PRECEDENT:

         As a condition to the First Funding, each of the documents respectively
described in Sections 3:3-1 through and including 3:3-3, (each in form and
substance reasonably satisfactory to the Lender) shall have been delivered to
the Lender, and the conditions respectively described in Sections 3:3-7 through
and including 3:3-11, shall have been satisfied:

         3-1.     CORPORATE DUE DILIGENCE.

                  (a) Certificates of corporate good standing for each Borrower,
respectively issued by the Secretary of State for the state in which that
Borrower is incorporated.

                  (b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature a
Borrower's business conducted or assets owned could reasonably be expected to
require such qualification.

                  (c) Certificates of each Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.

         3-2.     OPINION. An opinion of counsel to the Borrowers in form and
substance reasonably satisfactory to the Lender in the form annexed hereto as
EXHIBIT 3:3-2.

         3-3.     OFFICERS' CERTIFICATES. Certificates executed by the President
and the Chief Financial Officer of the Lead Borrower which state that

                  (a) Such officer, acting on behalf of the Borrowers, has
reviewed each of the Loan Documents and has had the benefit of independent
counsel (Attorneys Proskauer Rose LLP) of the Lead Borrower's selection in
connection with the review and negotiation of the Loan Documents.

                                                                         Page 44
<Page>

In particular, and without limiting the generality of such review, the following
provisions of the Loan Documents have been brought to the attention of the
undersigned by such counsel:

                           (i) The waiver of the right to a trial by jury in
         connection with controversies arising out of the loan arrangement
         contemplated by the Loan Documents.

                           (ii) The designation of, and submission to the
         exclusive jurisdiction and venue of, certain courts.

                           (iii) Various other waivers and indemnifications
         included therein.

                           (iv) The circumstances under which the Liabilities
         could be accelerated and the grace periods available with respect to
         certain Events of Default.

                  (b) The representations and warranties made by the Borrowers
to the Lender in the Loan Documents are true and complete in all material
respects as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.

         3-4.     ADDITIONAL DOCUMENTS. SATISFACTION OF CONDITIONS. The
execution of such additional instruments and documents and the satisfaction
of such additional conditions respective as the Lender or its counsel
reasonably may require or request.

         3-5.     PAYOFF LETTER FROM CONGRESS. A payoff letter, from Congress
Financial Corporation, in the form (without material change as to its substance)
which the Lender has received in other "take-outs" of Congress.

         3-6.     CASH MANAGEMENT REQUIREMENTS. All actions required under
Article 7:7- 1(b) to be taken prior to the First Funding shall have been so
taken.

         3-7.     REPRESENTATIONS AND WARRANTIES. Each of the representations
made by or on behalf of each Borrower in this Agreement or in any of the other
Loan Documents or in any other report, statement, document, or paper provided by
or on behalf of each Borrower shall be true and complete in all material
respects as of the date as of which such representation or warranty was made.

         3-8.     MINIMUM DAY ONE EXCESS AVAILABILITY. After giving effect to
the first funding under the Revolving Credit and L/C's to be issued at, or
immediately subsequent to, the execution of this Agreement, Excess Availability
is not less than $5 Million.

                                                                         Page 45
<Page>

         3-9.     ALL FEES AND EXPENSES PAID. All fees due at or immediately
after the first funding under the Revolving Credit and all costs and expenses
incurred by the Lender in connection with the establishment of the credit
facility contemplated hereby (including the expenses and reasonable fees of
counsel to the Lender to the extent to which the Lead Borrower has agreed to be
responsible therefor) shall have been paid in full.

         3-10.    NO BORROWER INDEFAULT. No Borrower is InDefault.

         3-11.    NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, which occurrence or failure is or could reasonably be expected to have a
materially adverse effect upon the Borrowers' financial Consolidated condition
when compared with such financial condition at July 7, 2001.

         3-12.    BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in
this Article 3: are for the sole benefit of the Lender and may be waived by the
Lender in whole or in part without prejudice to the Lender.

No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its offices in Boston, Massachusetts. Under no circumstances
shall this Agreement take effect until executed and accepted by the Lender at
said offices.

ARTICLE 4: - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

         To induce the Lender to establish the credit facility contemplated
herein and to induce the Lender to provide loans and advances under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrowers, in addition to all other representations,
warranties, and covenants made by any Borrower in any other Loan Document, make
those representations, warranties, and covenants included in this Agreement.

         4-1.     PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall
pay each payment Liability in accordance with its respective terms, after giving
effect to any applicable grace period, and shall promptly, punctually, and
faithfully perform each other Liability.

         4-2.     DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.

                  (a) Each Borrower presently is and hereafter shall remain in
good standing as a

                                                                         Page 46
<Page>

corporation under the laws of the State in which it is organized, as set forth
in the Preamble to this Agreement and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of each Borrower's assets or operation of each Borrower's
business, such qualification may be necessary, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.

                  (b) Each Borrower's respective organizational identification
number assigned to it by the State of its incorporation and its respective
federal employer identification number is stated on EXHIBIT 4:4-2, annexed
hereto.

                  (c) No Borrower shall change its State of organization; any
organizational identification number assigned to that Borrower by that State; or
that Borrower's federal taxpayer identification number.

                  (d) Each Affiliate is listed on EXHIBIT 4:4-2. The Lead
Borrower shall provide the Lender with prior written notice of any entity's
becoming or ceasing to be an Affiliate.

                  (e) Each Borrower has all requisite power and authority to
execute and deliver all Loan Documents to which that Borrower is a party and has
and will hereafter retain all requisite power to perform all Liabilities.

                  (f) The execution and delivery by each Borrower of each Loan
Document to which it is a party; each Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of Collateral Interests by that Borrower to secure the
Liabilities); each Borrower's performance under those of the Loan Documents to
which it is a party; the borrowings hereunder; and the use of the proceeds
thereof:

                           (i) Have been duly authorized by all necessary
         action.

                           (ii) Do not, and will not, contravene in any material
         respect any provision of any Requirement of Law or obligation of that
         Borrower.

                           (iii) Will not result in the creation or imposition
         of, or the obligation to create or impose, any Encumbrance upon any
         assets of that Borrower pursuant to any Requirement of Law or
         obligation, except pursuant to the Loan Documents.

                  (g) The Loan Documents have been duly executed and delivered
by each Borrower and are the legal, valid and binding obligations of each
Borrower, enforceable against each Borrower in accordance with their respective
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws and equitable principles which
affect the rights of creditors generally.

         4-3.     TRADE NAMES.

                                                                         Page 47
<Page>

                  (a)      EXHIBIT 4:4-3, annexed hereto, is a listing of:

                           (i) All names under which any Borrower conducted its
         business since September 1, 1996.

                           (ii) All Persons with whom any Borrower ever
         consolidated or merged, or from whom any Borrower ever acquired in a
         single transaction or in a series of related transactions substantially
         all of such Person's assets.

                  (b) The Lead Borrower will provide the Lender with not less
than twenty-one (21) days prior written notice (with reasonable particularity)
of any change to any Borrower's name from that under which that Borrower is
conducting its business at the execution of this Agreement and will not effect
such change unless each Borrower is then in compliance in all material respects
with all provisions of this Agreement.

         4-4.     INFRASTRUCTURE.

                  (a) Except as described on EXHIBIT 4:4-4, annexed hereto, each
Borrower has and will maintain a sufficient infrastructure to conduct its
business as presently conducted and as contemplated to be conducted following
its execution of this Agreement.

                  (b) Each Borrower owns and possesses, or has the right to use
(and will hereafter own, possess, or have such right to use) all patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person necessary for
that Borrower's conduct of that Borrower's business substantially in accordance
with the Business Plan.

                  (c) The conduct by each Borrower of that Borrower's business
does not presently infringe (nor will any Borrower conduct its business in the
future so as to infringe) the patents, industrial designs, trademarks, trade
names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, or other intellectual or
proprietary property of any third Person except where such infringement could
not reasonably be expected to have a Material Adverse Effect.

         4-5.     LOCATIONS.

                  (a) The Collateral, and the books, records, and papers of
Borrowers' pertaining thereto, are kept and maintained solely at the following
locations:

                           (i) The Lead Borrower's chief executive offices which
         are at 435 Hudson Street, New York, New York 10014.

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<Page>

                           (ii) Those locations which are listed on EXHIBIT
         4:4-5, annexed hereto, which EXHIBIT includes, with respect to each
         such location, the name and address of the landlord on the Lease which
         covers such location (or an indication that a Borrower owns the subject
         location) and of all service bureaus with which any such records are
         maintained.

                  (b) No Borrower shall remove any of the Collateral from said
chief executive office or those locations listed on EXHIBIT 4:4-5 except:

                           (i) To accomplish sales of Inventory in the ordinary
         course of business.

                           (ii) To move Inventory from one such location to
         another such location.

                           (iii) To utilize such of the Collateral as is removed
         from such locations in the ordinary course of business (such as motor
         vehicles).

                           (iv) To dispose of such Collateral as otherwise
         permitted by this Agreement.

                           (v) For Eligible In-Transit Inventory.

                  (c) The Lead Borrower shall obtain and deliver to the Lender a
consent, waiver and subordination (each reasonably satisfactory to the Lender)
by the landlord of each Borrower's warehouse and distribution center locations
of which, prior to the date of execution hereof, such Borrower is a tenant and
by the mortgagee or each Borrower's warehouse and distribution center locations
of which, prior to the date of execution hereof, such Borrower is the owner.

                  (d) The Lead Borrower shall expend commercially reasonable
efforts to obtain and deliver to the Lender a consent, waiver and subordination
(each reasonably satisfactory to the Lender) by the landlord for each Borrower's
store locations within thirty (30) days of the date of execution hereof.

                  (e) At the execution of this Agreement and at any time
thereafter, the Lender may establish an Availability Reserve for up to thirty
(30) days rent for each of the Borrowers' locations in any state in which the
claim of a landlord against Inventory may be senior to the Collateral Interest
of the Lender for which a satisfactory consent, waiver and subordination has not
been received. Such Availability Reserve may be reduced or eliminated upon the
furnishing to the Lender of a consent, waiver and subordination (in form
reasonably satisfactory to the Lender) by the landlord for the subject location.

                  (f) Without duplication of any Availability Reserve described
above, the Lender may establish an Availability Reserve for past due rent.

                  (g) Except as otherwise disclosed pursuant to, or permitted
by, this Section 4:4-5,

                                                                         Page 49
<Page>

or by Section 4:4-6, no tangible personal property of any Borrower is in the
care or custody of any third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such care, custody,
storage, or entrustment.

         4-6.     LEASE AMENDMENTS. NEW STORES. STORE CLOSINGS.

                  (a) No Borrower will alter, modify, or amend any Lease in any
material respected other than

                           (i) for the subject Borrower's benefit, PROVIDED,
         HOWEVER, in no event may such alternation, modification, or amendment
         have an adverse effect on the Lender's ability to exercise the Lender's
         Rights and Remedies; or

                           (ii) to exercise options included therein (in which
         event, such exercise shall be made only upon not less than ten (10)
         days prior written notice to Lender (with reasonable specificity of the
         facts and circumstances thereof)).

                  (b) No Borrower will commit to, or open any Store, EXCEPT THAT
the Borrowers (taken as a whole) may commit to and open new locations as
provided in this Section 4:4-6(b).

                           (i) Subject to the conditions set forth in Section
         4:4-6(b)(ii), the Borrowers may open up to the following number of
         Stores:

                                    (A) The Borrowers' Fiscal year ending in
                           January 2002: Eleven (11).

                                    (B) During each Fiscal year ending after the
                           Borrowers' Fiscal year ending in January 2002: 125%
                           of the number of new Stores as reflected in the
                           Borrowers' Business Plan for the relevant Fiscal year
                           (which number shall be rounded upward or downward
                           based on a single decimal place).

                           (ii) The Borrowers' commitment to and its opening of
         new Stores respectively are subject, in each instance, to the following
         conditions:

                                    (A) At the time that any Borrower becomes
                  contractually obligated on the Lease for such new Store, no
                  Event of Default has occurred.

                                    (B) Neither any Borrower's becoming so
                  contractually obligated nor its opening of such Store will
                  result in the occurrence of an Event of Default.

                                    (C) The Lead Borrower shall have provided
                  not less than fifteen (15) days prior written notice to Lender
                  (with reasonable specificity of the facts and circumstances
                  thereof) of the opening of that location.

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<Page>

                  (c) No Borrower may close any Store except as provided in this
Section 4:4-6(c).

                           (i) Subject to the conditions set forth in Section
         4:4-6(c)(ii), the Borrowers may close up to five Stores in any Fiscal
         Year.

                           (ii) The Lead Borrower shall provide not less than
         thirty (30) days prior written notice to Lender (with reasonable
         specificity of the facts and circumstances thereof) of such closing.

                           (iii) If the relevant Borrower determines to employ
         an inventory liquidation agent to effect any such closing (whether on a
         guarantee, fee or other basis), then the Lead Borrower shall provide
         the Lender with the following:

                                    (A) Not less than five (5) Business Days
                           advance notice of the initiation of any bidding
                           process (which notice includes a summary, with
                           reasonable particularity, of such process).

                                    (B) Within not less than a reasonable period
                           prior to its execution within which to review and
                           provide the Lead Borrower with the Lender's comments
                           thereon, a copy of the agreement pursuant to which
                           such agent is employed. The Borrowers shall not be
                           under any affirmative obligation to take any action
                           on account of such comments, if any, provided by the
                           Lender.

         4-7.     TITLE TO ASSETS.

                  (a) The Borrowers are, and shall hereafter remain, the owners
of the Collateral free and clear of all Encumbrances with the exceptions of the
following:

                           (i) Encumbrances in favor of the Lender.

                           (ii) Permitted Encumbrances.

                  (b) No Borrower has, and none shall have, possession of any
property on consignment to that Borrower.

                  (c) No Borrower shall acquire or obtain the right to use any
Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for the following:

                           (i) Equipment which is not material to the conduct of
         that Borrower's business.

                                                                         Page 51
<Page>

                           (ii) Equipment, the acquisition or right to use of
         which has been consented to by the Lender, which consent may be
         conditioned upon the Lender's receipt of an agreement (substantially in
         the form of EXHIBIT 4:4-7(c)(ii), annexed hereto) with the third party
         which has an interest in such Equipment.

         4-8.     INDEBTEDNESS.

                  (a) The Borrowers do not and shall not hereafter have any
Indebtedness with the exceptions of:

                           (i) Any Indebtedness on account of the Revolving
         Credit.

                           (ii) Permitted Indebtedness.

                  (b) Each Borrower shall observe and comply with the following
covenants, which are applicable with respect to the Hanover Property
Indebtedness:

                           (i) No Borrower, other than dELiA*s Distribution
         Company, may make any payment, directly or indirectly, in respect of
         the Hanover Property Indebtedness.

                           (ii) The only payments in respect of the Hanover
         Property Indebtedness which dELiA*s Distribution Company may make are
         regularly scheduled payments of principal and interest and other
         mandatory payments of principal or interests, in each instance when due
         in accordance with the terms of the Hanover Property Loan Documents as
         in effect on the date hereof.

                           (iii) No term of the Hanover Property Indebtedness
         may be amended, modified, altered or changed other than the following
         (with prior written notice (with reasonable particularity) in each
         instance, to the Lender):

                                    (A)     Extension of the maturity thereof.

                                    (B)     Deferral of the timing of any
                           payments in respect thereof.

                                    (C)     Forgiveness or cancellation of any
                           portion of such Indebtedness.

                                    (D)     Reduction of the interest rate or
                           any fees in connection therewith.

                           (iv) Except as otherwise permitted by this Section
         4:4-8(b), no Borrower may redeem, retire, defease, purchase, or
         otherwise acquire the Hanover Property

                                                                         Page 52
<Page>

         Indebtedness nor set aside or deposit or invest funds for such purpose.

                           (v) The Lead Borrower shall furnish the Lender with
         all notices, demands or other materials concerning such Indebtedness
         either received by any Borrower or on its behalf, promptly after
         receipt thereof, or sent by any Borrower or on its behalf, concurrently
         with the sending thereof, as applicable.

                  (c) Each Borrower shall observe and comply with the following
covenants, which are applicable with respect to Indebtedness described on
EXHIBIT 4:4-8, annexed hereto and any refinancing thereof:

                           (i) The Borrowers may only make regularly scheduled
         or other mandatory payments of principal and interest in respect of
         such Indebtedness when due in accordance with the terms of the
         agreement or instrument evidencing or giving rise to such Indebtedness
         as in effect on the date hereof.

                           (ii) The Borrowers shall not directly or indirectly
         undertake any of the following:

                                    (A) The amendment, modification, alteration,
                  or change of the terms of such Indebtedness or any agreement,
                  document or instrument related thereto as in effect on the
                  date hereof in any material respect EXCEPT, THAT, the
                  Borrowers, after prior written notice to Lender (with
                  reasonable particularity), may amend, modify, alter or change
                  the terms thereof, so as to forgive or cancel any portion of
                  such Indebtedness (other than pursuant to payments thereof),
                  or to reduce the interest rate or any fees in connection
                  therewith.

                                    (B) Except as permitted by Section
                  4:4-8(c)(ii)(A), the redemption, retirement, defeasance,
                  purchase, or other acquisition of such Indebtedness or the
                  setting aside or deposit or investment of funds for such
                  purpose.

         4-9.     INSURANCE.

                  (a) EXHIBIT 4:4-9, annexed hereto, is a schedule of all
insurance policies owned by the Borrowers or under which any Borrower is the
named insured as of the date of this Agreement. Each of such policies is in full
force and effect. Neither the issuer of any such policy (to the knowledge of the
Borrowers) nor any Borrower is in default or violation in any material respect
of any such policy.

                  (b) The Borrowers shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as is customary in their
industry and is reasonably satisfactory to the Lender.

                                                                         Page 53
<Page>

                  (c) All insurance carried by the Borrowers shall provide for a
minimum of thirty (30) days' prior written notice of cancellation to the Lender
and all such insurance which covers the Collateral shall

                           (i) Include an endorsement in favor of the Lender,
         which endorsement shall provide that the insurance, to the extent of
         the Lender's interest therein, shall not be impaired or invalidated, in
         whole or in part, by reason of any act or neglect of any Borrower or by
         the failure of any Borrower to comply with any warranty or condition of
         the policy.

                           (ii) Except as disclosed on EXHIBIT 4:4-9, not
         include an endorsement in favor of any other Person.

                  (d) The coverage reflected on EXHIBIT 4:4-9 presently
satisfies the foregoing requirements, IT BEING RECOGNIZED BY EACH BORROWER AND
THE LENDER, HOWEVER, that such requirements may change hereafter to reflect
changing circumstances.

                  (e) The Lead Borrower shall furnish the Lender from time to
time with certificates or other evidence reasonably satisfactory to the Lender
regarding compliance by the Borrowers with the foregoing requirements.

                  (f) In the event of the failure by the Borrowers to maintain
insurance as required herein, the Lender, at its option, may obtain such
insurance, PROVIDED, HOWEVER, the Lender's obtaining of such insurance shall not
constitute a cure or waiver of any Event of Default occasioned by the Borrowers'
failure to have maintained such insurance.

         4-10.    LICENSES. Each material license, distributorship, franchise,
and similar agreement issued to, or to which any Borrower is a party is in full
force and effect. To the Borrowers' knowledge, no party to any such license or
agreement is in default or violation thereof. No Borrower has received any
written notice or threat of cancellation of any such license or agreement.

         4-11. LEASES. EXHIBIT 4:4-11, annexed hereto, is a schedule of all
presently effective material Capital Leases. (Exhibit 4:4-5 includes a list of
all other presently effective Leases). Each of such Leases and Capital Leases is
in full force and effect. To the Borrowers' knowledge, no party to any such
Lease or Capital Lease is in default or violation of any such Lease or Capital
Lease. No Borrower has received any written notice or threat of cancellation of
any such Lease or Capital Lease. Each Borrower hereby authorizes the Lender at
any time and from time to time, on prior notice to the Lead Borrower, to contact
any of the Borrowers' respective landlords in order to confirm the Borrowers'
continued compliance with the terms and conditions of the Lease(s) between the
subject Borrower and that landlord and to discuss such issues, concerning the
subject Borrower's occupancy under such Lease(s), as the Lender may determine.

                                                                         Page 54
<Page>

         4-12.    REQUIREMENTS OF LAW.

                  (a) Subject to Section 4:4-12(b), each Borrower is in
compliance with, and shall hereafter comply with and use its assets in
compliance with, all Requirements of Law except where the failure of such
compliance is otherwise permitted by this Agreement and could not reasonably be
expected to have a Material Adverse Effect. No Borrower has received any notice
of any violation of any Requirement of Law (other than of a violation which
could not reasonably be expected to have a Material Adverse Effect), which
violation has not been cured or otherwise remedied.

                  (b) The representations, covenants, and warranties which are
made and undertaken in Section 4:4-12(a) do not include the separately made and
undertaken representations, covenants, and warranties included in the following
Sections of this Agreement:

<Table>
<Caption>

                              SECTION                        RELATES TO
                  ----------------------------------------------------------
<S>                                                  <C>
                           4:4-13                    Labor Relations
                           4:4-15                    Taxes
                           4:4-17                    ERISA
                           4:4-18                    Hazardous Materials
</Table>

         4-13.    LABOR RELATIONS.

                  (a) As of the date of this Agreement, no Borrower has been,
and none is presently a party to any collective bargaining or other labor
contract.

                  (b) As of the date of this Agreement, there is not presently
pending and, to any Borrower's knowledge, there is not threatened any of the
following:

                           (i)  Any strike, slowdown, picketing, work stoppage,
or employee grievance process.

                           (ii) Any proceeding against or affecting any Borrower
relating to the alleged violation of any Applicable Law pertaining to labor
relations or before National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable governmental body, organizational
activity, or other labor or employment dispute against or affecting any
Borrower, which, if determined adversely to that Borrower could reasonably be
expected to have a Material Adverse Effect.

                           (iii) Any lockout of any employees by any Borrower
(and no such action is contemplated by any Borrower).

                           (iv)  Any application for the certification of a
collective bargaining agent.

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                  (c)      Each Borrower:

                           (i)   Has complied with all Applicable Law relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and plant closing except
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.

                           (ii)  Is not liable for the payment of any amount of
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for that Borrower's failure to comply with any Applicable Law
referenced in Section 4:4-13(c)(i) except where the failure to make payment
thereof could not reasonably be expected to have a Material Adverse Effect.

         4-14.    MAINTAIN PROPERTIES. The Borrowers shall:

                  (a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted and to the extent that
the Collateral consists of Leasehold Interests, subject to the obligations of
the respective Borrowers under the applicable Lease).

                  (b) Not suffer or cause the waste or destruction of any
material part of the Collateral (insured casualty excepted).

                  (c) Not use any of the Collateral in violation of any policy
of insurance thereon, which violation could reasonably be expected to result in
cancellation thereof or denial of coverage thereunder..

                  (d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:

                           (i)   The sale of Inventory in compliance with this
Agreement.

                           (ii)  The disposal of Equipment which is obsolete,
                  outmoded, worn out, or damaged beyond repair, which Equipment
                  is replaced to the extent necessary to preserve or improve the
                  operating efficiency of any Borrower.

                           (iii) The turning over to the Lender of all Receipts
                  as provided herein.

                           (iv)  The disposal of Leasehold Interests as
                  permitted by Section 4:4-6(a).

                           (v)   Dispositions of Collateral in any Fiscal year
                  having a net book value (if Equipment) or Cost (if Inventory),
                  which, when aggregated with "Collateral" so disposed of by the
                  Guarantors pursuant to a "basket" accorded to the Guarantors
                  in

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                  their respective Security Agreements in favor of the Lender,
                  does not exceed $100,000.00.

         4-15.    TAXES.

                  (a) With respect to the Borrowers' federal, state, and local
tax liability and obligations:

                           (i) Except as described on EXHIBIT 4:4-15: the Lead
         Borrower, in compliance with all Applicable Law, has properly filed all
         returns due to be filed up to the date of this Agreement with the
         exception of any return, the failure to timely file will not have a
         Material Adverse Effect (all of which excepted returns ultimately will
         be filed).

                           (ii) As of the date of this Agreement, except as
         described on EXHIBIT 4:4-15:

                                    (A) At no time has any Borrower received
                  from any taxing authority any request to perform any
                  examination of or with respect to any Borrower nor any other
                  written or verbal notice in any way relating to any claimed
                  failure by any Borrower to comply with all Applicable Law
                  concerning payment of any taxes or other amounts in the nature
                  of taxes.

                                    (B) No agreement is extant which waives or
                  extends any statute of limitations applicable to the right of
                  any taxing authority to assert a deficiency or make any other
                  claim for or in respect to federal income taxes.

                                    (C) No issue has been raised in any tax
                  examination of any Borrower which, by application of similar
                  principles, reasonably could be expected to result in the
                  assertion of a deficiency for any fiscal year open for
                  examination, assessment, or claim by any taxing authority.

                  (b) The Borrowers have, and hereafter shall: pay, as they
become due and payable, all taxes and unemployment contributions and other
charges of any kind or nature levied, assessed or claimed against any Borrower
or the Collateral by any person or entity whose claim could reasonably be
expected to result in an Encumbrance upon any asset of any Borrower or by any
governmental authority, except where such purported obligation to pay is being
contested in good faith by appropriate proceedings in respect of which adequate
reserves have been established and no lien is filed with respect thereto;
properly exercise any trust responsibilities imposed upon any Borrower by reason
of withholding from employees' pay or by reason of any Borrower's receipt of
sales tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by any Borrower; and timely file all
tax and other returns and other reports with each governmental

                                                                         Page 57
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authority to whom any Borrower is obligated to so file.

         4-16. NO MARGIN STOCK. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.

         4-17.    ERISA.

                  (a) Neither any Borrower nor any ERISA Affiliate has ever
engaged, committed, suffered, or caused any of the following where the result
thereof could reasonably be expected to have a Material Adverse Effect:

                           (i)   Violated or failed to be in full compliance
         with any Borrower's Employee Benefit Plan.

                           (ii)  Failed timely to file all periodic and other
         reports and filings required by ERISA to be filed by any Borrower.

                           (iii) Engaged in any nonexempt "prohibited
         transactions" or "reportable events" (respectively as described in
         ERISA).

                           (iv)  Engaged in, or committed, any act such that a
         tax or penalty reasonably could be imposed upon any Borrower on account
         thereof pursuant to ERISA.

                           (v)   Accumulate any material cumulative funding
         deficiency within the meaning of ERISA.

                           (vi)  Terminated any Employee Benefit Plan such that
         a lien could be asserted against any assets of any Borrower on account
         thereof pursuant to ERISA.

                           (vii) Been a member of, contributed to, or have any
         obligation under any Employee Benefit Plan which is a multiemployer
         plan within the meaning of Section 4001(a) of ERISA under which any
         Borrower or any ERISA Affiliate could have any withdrawal liability.

                  (b) Neither any Borrower nor any ERISA Affiliate shall engage
in any action of the type described in Section 4:4-17(a) where the result
thereof could reasonably be expected to have a Material Adverse Effect.

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         4-18.    HAZARDOUS MATERIALS.

                  (a) Except as described on EXHIBIT 4:4-18, annexed hereto, no
Borrower has ever engaged, committed, suffered, or caused any of the following
where the result thereof could reasonably be expected to have a Material Adverse
Effect:

                           (i)   Been legally responsible for any release or
         threat of release of any Hazardous Material.

                           (ii)  Received notification of the incurrence of any
         expense in connection with the assessment, containment, or removal of
         any Hazardous Material for which that Borrower would be responsible.

                  (b) Each Borrower shall: (i) dispose of any Hazardous Material
only in compliance with all Environmental Laws and (ii) have possession of any
Hazardous Material only in the ordinary course of that Borrower's business and
in compliance with all Environmental Laws.

         4-19.    LITIGATION. As of the date of this Agreement, except as
described in EXHIBIT 4:4-19, annexed hereto, there is not presently pending or
threatened by or against any Borrower any suit, action, proceeding, or
investigation which, if determined adversely to any Borrower, could reasonably
be expected to have a Material Adverse Effect.

         4-20.    DIVIDENDS. INVESTMENTS. CORPORATE ACTION. No Borrower shall:

                  (a) Pay any cash dividend or make any other distribution in
respect of any class of that Borrower's capital stock other than by way of a
Permitted Distribution.

                  (b) Own, redeem, retire, purchase, or acquire any of any
Borrower's capital stock other than by way of a Permitted Distribution..

                  (c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any Person other than Permitted
Investments.

                  (d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.

                  (e) Consolidate any of that Borrower's operations with those
of any other Person other than of another Borrower.

                  (f) Organize or create any Affiliate.

                  (g) Subordinate any debts or obligations owed to that Borrower
by any third party to any other debts owed by such third party to any other
Person.

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                  (h) Acquire any assets other than in the ordinary course and
conduct of that Borrower's business as conducted at the execution of this
Agreement.

         4-21.    LOANS. No Borrower shall make any loans or advances to, nor
acquire the Indebtedness of, any Person, PROVIDED, HOWEVER, the foregoing does
not prohibit any of the following:

                  (a) Advance payments made to that Borrower's suppliers in the
ordinary course.

                  (b) Advances to that Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of that Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by that Borrower.

                  (c) Loans, not the exceed $ 500,000.00  in the aggregate
outstanding at any one time to employees.

         4-22.    PROTECTION OF ASSETS. The Lender, in the Lender's discretion,
and from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action which the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral, but only to the extent that the Borrowers have failed to comply
with their respective obligations hereunder with respect thereto. The Lender
shall not have any obligation to undertake any of the foregoing and shall have
no liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding by a court of competent jurisdiction
(in which the Lender has been given an opportunity to be heard), from which
finding no further appeal is available, that the Lender had acted in actual bad
faith or in a grossly negligent manner or in wilful misconduct. The Borrowers
shall pay to the Lender, on demand, or the Lender, in its discretion, may add to
the Loan Account, all amounts paid or incurred by the Lender pursuant to this
section 4:4-22.

         4-23.    LINE OF BUSINESS. No Borrower shall engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.

         4-24.    AFFILIATE TRANSACTIONS. No Borrower shall make any payment,
nor give any value to any Affiliate except for the following: (a) Transactions
which are in the ordinary course of such Borrower's business,

                           (i)   upon fair and reasonable terms prior written
         disclosure of which (with

                                                                         Page 60
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         reasonable particularity) has been made by the Lead Borrower to the
         Lender; and

                           (ii)  that are no less favorable to such Borrower
         than would be obtained in an arm's length transaction with a
         non-Affiliate of such Borrower.

                  (b)      Transactions between any Borrower, on the one hand,
and any other Borrower or guarantor of the Liabilities, on the other hand.

         4-25.    FURTHER ASSURANCES.

                  (a) Except as provided in Section 4:4-25(g), no Borrower is
the owner of, nor has it any interest in, any property or asset which,
immediately upon the satisfaction of the conditions precedent to the
effectiveness of the credit facility contemplated hereby (Article 3:) will not
be subject to a prior perfected Collateral Interest in favor of the Lender
(subject only to Permitted Encumbrances) to secure the Liabilities.

                  (b) Except as provided in Section 4:4-25(g), no Borrower will
hereafter acquire any asset or any interest in property which is not,
immediately upon such acquisition, subject to such a perfected Collateral
Interest in favor of the Lender to secure the Liabilities (subject only to
Permitted Encumbrances).

                  (c) Each Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's Collateral
Interests in the Collateral; and to comply with all applicable statutes and
laws, and facilitate the collection of the Receivables Collateral. Each Borrower
shall execute all such instruments as reasonably may be required by the Lender
with respect to the recordation and/or perfection of the Collateral Interests
created or contemplated herein.

                  (d) Each Borrower hereby designates the Lender as and for that
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Lender's
Collateral Interests in the Collateral.

                  (e) This Agreement constitutes an authenticated record which
authorizes the Lender to file such financing statements as the Lender reasonably
determines as appropriate to perfect or protect the Collateral Interests created
by this Agreement.

                  (f) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4:4-25 shall be sufficient for filing to perfect the security
interests granted herein.

                  (g) The requirements of Sections 4:4-25(a) and 4:4-25(b) are
subject to the following:

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                           (i)   Such requirements shall not apply to any
         Excluded Asset.

                           (ii)  Except as provided in Sections4:4-25(g)(iii),
         such requirements shall not apply to any Borrower's right to use
         property which is not material to the conduct of that Person's
         business.

                           (iii) Such requirements shall apply in all events to
         the following:

                                    (A) Any Permitted Investments.

                                    (B) Any trademark or service mark becomes
                           "active" after the execution of this Agreement.

         4-26.    ADEQUACY OF DISCLOSURE.

                  (a) The Consolidated financial statements furnished to the
Lender by the Lead Borrower have been prepared (except as otherwise disclosed
thereon) in accordance with GAAP consistently applied and present fairly the
condition of the Borrowers and their respective subsidiaries at the date(s)
thereof and the results of operations and cash flows for the period(s) covered
therein (PROVIDED HOWEVER, that unaudited financial statements are subject to
normal year end adjustments and to the absence of footnotes). Except as
reflected on such financial statements, there has been no change in the
Consolidated financial condition, results of operations, or cash flows of the
Borrowers and their respective subsidiaries since July 7, 2001, other than
changes in the ordinary course of business, which changes have not been
materially adverse, either singularly or in the aggregate.

                  (b) No Borrower has any contingent obligations or obligation
under any Lease or Capital Lease which is required by GAAP to be disclosed and
which is not noted in the Borrowers' Consolidated financial statements furnished
to the Lender prior to the execution of this Agreement.

                  (c) No document, instrument, agreement, or paper, when taken
as a whole in light of all written information delivered to the Lender by and on
behalf of each Borrower, now or hereafter given to the Lender by or on behalf of
each Borrower or any guarantor of the Liabilities in connection with the
execution of this Agreement by the Lender contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading, PROVIDED,
HOWEVER, the foregoing representation does not include any projections or
so-called forward looking statements which might have been provided to the
Lender. Taken as a whole, in light of all information delivered to the Lender by
or on behalf of each Borrower, there is no fact known to any Borrower which has,
or which, in the foreseeable future could reasonably be expected to have, a
material adverse effect on the financial condition of any Borrower or any such
guarantor which has not been disclosed in writing to the Lender.

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         4-27.    NO RESTRICTIONS ON LIABILITIES. No Borrower shall enter into
or directly or indirectly become subject to any agreement which prohibits or
restricts, in any manner, any Borrower's:

                  (a) Creation of, and granting of Collateral Interests in favor
of the Lender.

                  (b) Incurrence of Liabilities.

         4-28.    OTHER COVENANTS. No Borrower shall indirectly do or cause to
be done any act which, if done directly by that Borrower, would breach any
covenant contained in this Agreement.

ARTICLE 5: FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

         5-1.     MAINTAIN RECORDS. The Borrowers shall:

                  (a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrowers' financial
transactions, all in accordance with GAAP applied consistently with prior
periods to fairly reflect the Consolidated financial condition of the Borrowers
at the close of, and its results of operations for, the periods in question,
SUBJECT, HOWEVER to usual year end adjustments and, with the exception of the
Borrower's Consolidated annual statement, the absence of footnotes.

                  (b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5: or otherwise, each of
which reports, statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with prior periods to
fairly reflect the Consolidated financial condition of the Borrowers at the
close of, and the results of operations for, the period(s) covered therein.

                  (c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.

                  (d) At all times, retain independent certified public
accountants who are either one of the so-called "Big 5" accounting firms (or any
successor thereto) or are otherwise reasonably satisfactory to the Lender and
instruct such accountants reasonably to cooperate with, and be available to, the
Lender to discuss the Borrowers' financial performance, financial condition,
operating results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Lender.

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                  (e) Not change any Borrower's fiscal year.

         5-2.     ACCESS TO RECORDS.

                  (a) Upon reasonable prior notice during normal business hours,
each Borrower shall accord the Lender with access from time to time as the
Lender reasonably may require to all properties owned by or over which any
Borrower has control. The Lender shall have the right, and each Borrower will
permit the Lender from time to time as Lender may request, to examine, inspect,
copy, and make extracts from any and all of the Borrowers' books, records,
electronically stored data, papers, and files. Each Borrower shall make all of
that Borrower's copying facilities reasonably available to the Lender.

                  (b) Each Borrower hereby authorizes the Lender:

                           (i) Upon reasonable prior notice during normal
         business hours, to inspect, copy, duplicate, review, cause to be
         reduced to hard copy, run off, draw off, and otherwise use any and all
         computer or electronically stored information or data which relates to
         any Borrower, or any service bureau, contractor, accountant, or other
         person, and directs any such service bureau, contractor, accountant, or
         other person reasonably to cooperate with the Lender with respect
         thereto.

                           (ii) Verify at any time the Collateral or any portion
         thereof, including verification with Account Debtors, and/or with each
         Borrower's computer billing companies, collection agencies, and
         accountants and to sign the name of each Borrower on any notice to each
         Borrower's Account Debtors or verification of the Collateral.

                  (c) The Lender from time to time may designate one or more
representatives to exercise the Lender's rights under this Section 5:5-2 as
fully as if the Lender were doing so.

         5-3.     IMMEDIATE NOTICE TO LENDER.

                  (a) The Lead Borrower shall provide the Lender with written
notice promptly upon the occurrence of any of the following events, which
written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:

                           (i)  Any change in the Lead Borrower's President,
         chief executive officer, chief operating officer, and chief financial
         officer (without regard to the title(s) actually given to the Persons
         discharging the duties customarily discharged by officers with those
         titles).

                           (ii)  Any ceasing of any Borrower's making of
         material payment, in the ordinary course, to its creditors (other than
         its ceasing of making of such payments on

                                                                         Page 64
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         account of a DE MINIMIS dispute which is diligently being pursued by
         such Borrower).

                           (iii) Any failure by any Borrower to pay rent at any
         of that Borrower's locations, which failure continues for more than
         Three (3) days following the last day on which such rent was payable
         (after giving effect to any applicable grace period) without more than
         a de minimis adverse effect to that Borrower.

                           (iv)  Any material adverse change in the business,
         operations, or financial affairs of any Borrower.

                           (v)   Any Borrower's becoming InDefault.

                           (vi)  Any intention on the part of any Borrower to
         discharge that Borrower's present independent accountants or any
         withdrawal or resignation by such independent accountants from their
         acting in such capacity (as to which, SEE Subsection 5:5-1(d)).

                           (vii) Any litigation which, if determined adversely
         to any Borrower and after giving effect to any applicable insurance
         coverage could reasonably be expected to have a material adverse effect
         on the financial condition of that Borrower.

                           (viii) The reduction by any of Borrower's material
         vendors in the amount of trade credit or terms provided by such vendor
         to Borrower on the date of execution hereof.

                  (b)      The Lead Borrower shall:

                           (i) Provide the Lender, when so distributed, with
         copies of any materials distributed to the shareholders of the Lead
         Borrower (QUA such shareholders).

                           (ii)  Provide the Lender:

                                    (A) When filed, copies of all material
                  filings with the SEC (including any filing on forms 10-K,
                  10-Q, or 8-K).

                                    (B) When received, copies of all
                  correspondence from the SEC, other than routine
                  non-substantive general communications from the SEC.

                           (iii) Add the Lender as an addressee on all mailing
         lists  maintained by or for each Borrower.

                           (iv)  At the request of the Lender, from time to
         time, provide the Lender with copies of all advertising (including
         copies of all print advertising and duplicate tapes of all video and
         radio advertising).

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                           (v) Provide the Lender, promptly following receipt by
         any Borrower, with a copy of any management letter or similar
         communications from any accountant of any Borrower.

         5-4.     BORROWING BASE CERTIFICATE. The Lead Borrower shall provide
the Lender by 11:30a.m. on each Tuesday. and on each day on which the Lead
Borrower requests a loan or financial accommodation under the Revolving credit
with a Borrowing Base Certificate (in the form of EXHIBIT 5:5-4 annexed hereto,
as such form may be revised from time to time by the Lender) Such Certificate
may be sent to the Lender by facsimile transmission, PROVIDED THAT the original
thereof is forwarded to the Lender on the date of such transmission.

         5-5.     MONTHLY REPORTS. Monthly, the Lead Borrower shall provide the
Lender with those financial statements and reports described in EXHIBIT 5:5-5,
annexed hereto.

         5-6.     ANNUAL REPORTS.

                  (a) Annually, within forty five (45) days following the end of
the Borrowers' fiscal year, the Lead Borrower shall furnish the Lender with the
Borrower's internally prepared draft of its annual financial statement for the
year then just completed, which shall include, at a minimum (with comparative
information for the then prior Fiscal year) a balance sheet, income statement,
and cash flows.

                  (b) Annually, within ninety (90) days following the end of the
Borrowers' fiscal year, the Lead Borrower shall furnish the Lender with the
following:

                           (i)   An original signed counterpart of the
         Borrowers' Consolidated annual financial statement, which statement
         shall have been audited by, and bear the opinion, without material
         qualification, of, the Lead Borrower's independent certified public
         accountants (i.e. said statement shall be "certified" by such
         accountants) and shall include, at a minimum (with comparative
         information for the then prior Fiscal year) a balance sheet, income
         statement, statement of changes in shareholders' equity, cash flows,
         and schedules of consolidation.

                           (ii)  The officer's compliance certificate described
         in Section 5:5-7.

                  (c) No later than the earlier of Fifteen (15) days prior to
the end of each of the Borrowers' fiscal years or the date on which such
accountants commence their work on the preparation of the Borrowers'
Consolidated annual financial statement, the Lead Borrower shall give written
notice to such accountants (with a copy of such notice, when sent, to the
Lender) that:

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                           (i)  Such annual financial statement will be
         delivered by the Lead Borrower to the Lender.

                           (ii) It is the primary intention of the Borrowers, in
         its engagement of such accountants, to satisfy the financial reporting
         requirements set forth in this Article 5:.

                           (iii) The Lead Borrower has been advised that the
Lender will rely thereon with respect to the administration of, and transactions
under, the credit facility contemplated by this Agreement.

                  (d) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in conducting the audit for such
annual statement, nothing came to the attention of such accountants to believe
that the Borrower is not InDefault (or that if the Borrower is in Default, the
facts and circumstances thereof).

         5-7. OFFICERS' CERTIFICATES. The Lead Borrower shall cause either the
Lead Borrower's President or its Chief Financial Officer, in each instance, to
provide such Person's Certificate with those monthly financial statements
required to be filed within thirty (30) days of the end of each month, and with
those annual statements to be furnished pursuant to this Agreement, which
Certificate shall:

                  (a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the Consolidated
financial condition of the Borrowers at the close of, and the results of the
Borrowers' operations and cash flows for, the period(s) covered, SUBJECT,
HOWEVER to the following:

                           (i)   Usual year end adjustments and the absence of
         footnotes (this exception shall not be included in the Certificate
         which accompanies such annual statement).

                           (ii)  Material Accounting Changes (in which event,
         such Certificate shall include a schedule (in reasonable detail) of the
         effect of each such Material Accounting Change) not previously
         specifically taken into account in the determination of the financial
         performance covenant imposed pursuant to Section 5:5-10.

                  (b) Indicate either that (i) no Borrower is InDefault, or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrowers to be taken on account
thereof.

                  (c) Include calculations concerning the Borrowers' compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 5:5-10 hereof.

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         5-8.     INVENTORIES, APPRAISALS, AND AUDITS.

                  (a) The Lender, at the expense of the Borrowers, may
participate in and/or observe each physical count and/or inventory of so much of
the Collateral as consists of Inventory which is undertaken on behalf of any
Borrower.

                  (b) The Borrowers shall obtain (at the Borrower's expense in
all instances) financial or SKU based physical counts and/or inventories
conducted by such inventory takers as are satisfactory to the Lender and
following such methodology as is consistent with the Borrowers' practices in
effect at the execution of this Agreement and as provided in this Section
5:5-8(b).

                           (i)   Unless an Event of Default has occurred, the
         Borrowers shall cause the following number of such counts / inventories
         to be undertaken in each twelve (12) month period during which this
         Agreement is in effect:

                                 (A) Retail operations : Two (2).

                                 (B) Direct operations (catalogue and web):
         One (1).

                           (ii)  If an Event of Default occurs, the limit on the
         number of such counts and/or inventories set forth in Section
         5:5-8(b)(i) shall terminate and the Lender may require such counts
         and/or inventories (at the expense of the Borrower in each instance)
         with such frequency as the Lender, in its discretion may determine as
         being appropriate.

                           (iii) The Borrowers shall cause their accountants to
         observe the Borrowers' year end retail operations and direct operations
         counts / inventories (and such other counts / inventories as the
         accountants may require so as to permit those accountants to express
         its opinion on the Borrowers' annual Consolidated financial statement
         to the standard set out in Section 5:5-6(b)(i)).

                           (iv)  The Lead Borrower shall provide the Lender with
         a copy of the preliminary results of each such count and/or inventory
         (as well as of any other physical inventory undertaken by any Borrower)
         within ten (10) days following the completion of such inventory.

                           (v)   The Lead Borrower, within thirty (30) days
         following the completion of such inventory, shall provide the Lender
         with a reconciliation of the results of each such count and/or
         inventory (as well as of any other physical inventory undertaken by any
         Borrower) and shall post such results to the Borrowers' stock ledger
         and, as applicable to the Borrowers' other financial books and records.

                  (c) The Lender may obtain appraisals of Collateral consisting
of Inventory, from time to time (in all events, at the Borrowers' expense)
conducted by such appraisers as are

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satisfactory to the Lender and in the Lender's discretion may reset the Standard
Inventory Advance Rate and the Special Inventory Advance Rate following the
receipt of any such appraisal as follows:

                           (i)   Unless a ReAppraisal Event occurs, no such
         appraisal shall be required until April 1, 2003.

                           (ii)  Unless a ReAppraisal Event has occurred, not
         more than one appraisal shall be required annually, commencing with the
         annual period which begins on April 1, 2003.

                           (iii) If a ReAppraisal Event has occurred, then,
         subject to the one time application of Section 5:5-8(c)(iv), the limits
         on appraisals set forth in Sections 5:5-8(c)(i) and 5:5-8(c)(ii) shall
         terminate and the Lender may obtain such appraisals of Inventory
         Collateral thereafter, with such frequency, as the Lender, in its
         discretion, may determine as being appropriate.

                           (iv)  The limits on appraisals set forth in Sections
         5:5-8(c)(i) and 5:5- 8(c)(ii) shall be reinstated, following the
         occurrence of a ReAppraisal Event which consists of the occurrence of
         an Event of Default described only in Section 10:10-4, if (x) that
         Event of Default is duly waived by the Lender and (y) such waiver by
         the Lender is not conditioned on the Borrowers' cross waiver of the
         reinstatement of such limits on appraisals, PROVIDED, HOWEVER,

                                    (A) Such reinstatement shall not apply to
                  any inventory appraisal requested by the Lender, written
                  notice of which had been given to the Lead Borrower prior to
                  the Lead Borrower's giving of its written notice to reinstate
                  such limits; and

                                    (B) The opportunity to reinstate the limits
                  on appraisals provided for by this Section 5:5-8(c)(iv) shall
                  be available once, only.

                           (v)   In the event that an appraisal results in the
         resetting of the Standard Inventory Advance Rate to less than 70%, the
         Borrower, on written notice given the Lender within fifteen (15) days
         of such resetting, may obtain an appraisal undertaken by another
         appraiser which is reasonably satisfactory to the Lender, the results
         of which appraisal (the "SECOND APPRAISAL") shall be delivered to the
         Lender within fifteen (15) days of the engagement of the appraiser to
         undertake the Second Appraisal.

                                    (A) In the event that the Second Appraisal
                  supports a Standard Inventory Advance Rate which is in excess
                  of 70%, then the Lender, within fifteen (15) days following
                  the such delivery of the Second Appraisal to it, may either

                                            (I) Reset the Standard Inventory
                           Advance Rate to a percentage supported by the Second
                           Appraisal; or

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                                            (II) Give written notice (the "RESET
                           REJECTION") of the Lender's decling to so reset the
                           Standard Inventory Advance Rate.

                                    (B) In the event that the Lender issues a
                  Reset Rejection, then the Lead Borrower, by irrevocable
                  written notice to the Lender given no later than seventy five
                  (75) days after receipt of the Reset Rejection, may set the
                  Termination Date as a date which is no more than ninety (90)
                  days after (and counting) the date of the giving of such Reset
                  Rejection.

                  (d) The Lender may obtain commercial finance field
examinations (in each event, at the Borrowers' expense) of the Borrowers' books
and records as follows:

                           (i)   Unless an Event of Default has occurred, the
         Lender may not obtain more than three such audits during any Twelve
         (12) month period during which this Agreement is in effect.

                           (ii)  If an Event of Default occurs, the limit on
         field audits set forth in Section 5:5-8(d)(i) shall terminate and the
         Lender may obtain such field audits, with such frequency, as the
         Lender, in its discretion, may determine as being appropriate.

                  (e) In addition to those appraisals and field audits which the
Lender may obtain or cause to be undertaken at the Borrowers' expense, as
provided in Sections 5:5-8(c) and 5:5-8(d), the Lender may obtain or cause such
additional appraisals and field audits to be undertaken at its expenses with
such frequency as the Lender may determine.

                  (f) The Lender from time to time (in all events, at the
Borrowers' expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrowers' business premises.

         5-9.     ADDITIONAL FINANCIAL INFORMATION. BUSINESS PLAN.

                  (a) In addition to all other information required to be
provided pursuant to this Article 5:, the Lead Borrower promptly shall provide
the Lender (and any guarantor of the Liabilities), with such other and
additional information concerning the Borrowers, the Collateral, the operation
of the Borrowers' business, and the Borrowers' financial condition, including
original counterparts of financial reports and statements, as the Lender may
from time to time reasonably request from the Lead Borrower.

                  (b) The Borrowers have provided the Lender with their current
Business Plan, a copy of which is annexed hereto as EXHIBIT 5:5-9(b).

                           (i)   The Borrowers MAY provide the Lender, from time
         to time hereafter, with updated business plans.

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                           (ii)  In all events by (x) not later than sixty (60)
         days prior to the end of each of the Borrower's Fiscal years, the
         Borrowers SHALL furnish the Lender with an updated and extended
         business plan which shall go out at least through the end of the then
         next Fiscal year and (y) not later than thirty (30) days prior to the
         end of each of the Borrower's Fiscal years, the Borrowers SHALL furnish
         the Lender with the updated and extended final business plan , as
         approved by the Lead Borrower's Board of Directors, for the forthcoming
         Fiscal year. In each event, such updated and extended business plans
         shall be prepared pursuant to a methodology and shall include such
         assumptions as are made in good faith by the Lead Borrower.

                  (c) The Lead Borrower may furnish the Lender with a business
plan within forty five (45) days of the refinancing of the Hanover Property
Indebtedness, on which business plan the Lender shall provide its sign-off
PROVIDED THAT it was prepared pursuant to the methodology used to prepare the
Business Plan and updated from the Business Plan solely to reflect the effect of
such refinancing. In the event of such sign-off, the Lender shall likewise
revise the Required EBITDA for the then current Fiscal year to reflect such
updated Business Plan.

         5-10.    FINANCIAL PERFORMANCE COVENANTS.

                  (a) The following financial performance covenant shall take
effect on the last day of the first Test Month to occur after First Funding and
shall remain in effect for each subsequent Fiscal month (whether or not such
subsequent Fiscal month is a Test Month): The Borrowers shall not suffer or
permit their Consolidated EBITDA, tested on the last day of the relevant month,
to be less than Required EBITDA for that month.

                  (b) Compliance with such financial performance covenant set
forth in Section 5:5-10(a) shall be made as if no Material Accounting Changes
had been made (other than any Material Accounting Changes specifically taken
into account in the setting of such covenants).

                  (c) The Lender may determine the Borrowers' compliance with
such covenants based upon financial reports and statements provided by the Lead
Borrower to the Lender (whether or not such financial reports and statements are
required to be furnished pursuant to this Agreement) as well as by reference to
interim financial information provided to, or developed by, the Lender.

         5-11.    E-REPORTING. At the Lender's option all information and
reports required to be supplied to the Lender by any Borrower shall be
transmitted electronically pursuant to an electronic transmitting reporting
system and shall be in a record layout format designated by the Lender from time
to time, PROVIDED, HOWEVER,

                  (a) the Borrowers shall not be required to incur any material
expense in connection with their compliance with this Section 5:5-11; and

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                  (b) the Borrowers shall not be obligated to so transmit such
information and reports unless the Borrowers are reasonably satisfied that such
system incorporates reasonable assurances of security for the data being so
transmitted.

ARTICLE 6: - USE OF COLLATERAL:

         6-1.     USE OF INVENTORY COLLATERAL.

                  (a)      No Borrower shall engage in any of the following:

                           (i)   An sale of the Inventory other than for fair
         consideration in the conduct of the Borrowers' business in the ordinary
         course.

                           (ii)  Sales or other dispositions to creditors.

                           (iii) Sales or other dispositions in bulk.

                           (iv)  Sales of any Collateral in breach of any
         provision of this Agreement.

                           (v)   Any sale on consignment, approval, or under any
                           other circumstances such that, with the exception of
                           the Borrowers' customary return policy applicable to
                           the return of inventory purchased by the Borrowers'
                           retail customers in the ordinary course, such
                           Inventory may be returned to a Borrower without the
                           consent of the Lender.

                  (b) The Borrowers shall not transfer items of their Inventory
from one Sales Channel of their business to another Sales Channel, which
Inventory had been the subject of a prior such transfer, PROVIDED, HOWEVER, the
Borrowers may engage in multiple transfers of Inventory having an aggregate Cost
not to exceed $25,000.00 in any month or an aggregate of $150,000.00 on a
rolling 12 month basis.

         6-2.     INVENTORY QUALITY. All Inventory now owned or hereafter
acquired by each Borrower is and will be of good and merchantable quality and
free from defects (other than defects within customary trade tolerances).

         6-3.     ADJUSTMENTS AND ALLOWANCES. Each Borrower may grant such
allowances or other adjustments to that Borrower's Account Debtors (exclusive of
extending the time for payment of any material Account or material Account
Receivable, which shall not be done without first obtaining the Lender's prior
written consent in each instance) as that Borrower may reasonably deem to accord
with sound business practice, PROVIDED, HOWEVER, the authority granted the
Borrowers pursuant to this Section 6:6-3 may be limited or terminated by the
Lender at any time

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that an Event of Default has occurred.

         6-4.     VALIDITY OF ACCOUNTS.

                  (a) The amount of each Account shown on the books, records,
and invoices of the Borrowers represented as owing by each Account Debtor is and
will be the correct amount actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrowers.

                  (b) As of the date of this agreement, no Borrower has any
knowledge of any impairment of the validity or collectibility of more than a DE
MINIMIS amount of its Accounts. The Lead Borrower shall notify the Lender of any
such impairment immediately after any Borrower becomes aware of any such
impairment.

         6-5.     NOTIFICATION TO ACCOUNT DEBTORS. The Lender shall have the
right (whether or not an Event of Default has occurred) to notify any of the
Borrowers' Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.

ARTICLE 7: - CASH MANAGEMENT. PAYMENT OF LIABILITIES:

         7-1.     DEPOSITORY ACCOUNTS.

                  (a) Annexed hereto as EXHIBIT 7:7-1 is a Schedule of all
present DDA's, which Schedule includes, with respect to each depository (i) the
name and address of that depository; (ii) the account number(s) of the
account(s) maintained with such depository; and (iii) a contact person at such
depository.

                  (b) Prior to the First Funding, the Lead Borrower shall
deliver the following to the Lender:

                           (i)   Notification, executed on behalf of each
         Borrower, to each depository institution with which any DDA is
         maintained (other than any Exempt DDA and the Blocked Account), in form
         reasonably satisfactory to the Lender of the Lender's interest in such
         DDA.

                           (ii)  A Blocked Account Agreement with any depository
         institution at which either of the following conditions applies:

                                    (A) Both any DDA (other than the Operating
                  Account) and the Operating Account is maintained.

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                                    (B)     A Blocked Account is maintained.

                  (c) No Borrower will establish any DDA hereafter (other than
an Exempt DDA) unless, contemporaneous with such establishment, the Lead
Borrower delivers the following to the Lender:

                           (i)   Notification to the depository at which such
         DDA is established if the same would have been required pursuant to
         Section 7:7-1(b)(ii)(A) if the subject DDA were open on the date of
         this Agreement.

                           (ii)  A Blocked Account Agreement executed on behalf
         of the depository at which such DDA is established if the same would
         have been required pursuant to Section 7:7-1(b)(ii)(B) if the subject
         DDA were open on the date of this Agreement.

         7-2.     CREDIT CARD RECEIPTS.

                  (a) Annexed hereto as EXHIBIT 7:7-2, is a Schedule which
describes all arrangements to which any Borrower is a party with respect to the
payment to that Borrower of the proceeds of credit card charges for sales by
that Borrower.

                  (b) Prior to the First Funding, the Lead Borrower shall
deliver to the Lender, notification, executed on behalf of each Borrower, to
each of each Borrower's credit card clearinghouses and processors (other than
Discover Card) of notice (in form reasonably satisfactory to the Lender), which
notice provides that payment of all credit card charges submitted by that
Borrower to that clearinghouse or other processor and any other amount payable
to that Borrower by such clearinghouse or other processor shall be directed to
an Initial Blocked Account or as otherwise designated from time to time by the
Lender. No Borrower shall change such direction or designation except upon and
with the prior written consent of the Lender.

                  (c) On or before November 1, 2001, the Lead Borrower shall
provide the Lender with three original fully executed counterparts of an
agreement (substantially in the form provided to the Lender prior to the
execution of this Agreement) with Discover Card. No Borrower shall amend such
Agreement except upon and with the prior written consent of the Lender.

         7-3.     THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS .

                  (a) The following accounts have been or will be established
(and are so referred to herein):

                           (i)   The "INITIAL BLOCKED ACCOUNTS" (so referred to
         herein): Three (3)

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         accounts established by the Lead Borrower with The Chase Manhattan
         Bank.

                           (ii)  The "CONCENTRATION ACCOUNT"(so referred to
         herein): An account established by the Lead Borrower with The Chase
         Manhattan Bank.

                           (iii) The "LENDER'S DEPOSITORY ACCOUNT" (so referred
         to herein): Established by the Lender with The Chase Manhattan Bank.

                           (iv)  The "OPERATING ACCOUNT" (so referred to
herein): Established by the Lead Borrower with The Chase Manhattan Bank.

                  (b) The contents of each DDA (other than the Operating
Account) and of the Initial Blocked Account and the Concentration Account
constitute Collateral and Proceeds of Collateral. The contents of the Lender's
Depository Account constitutes the Lender's property.

                  (c) The Initial Blocked Accounts and the Concentration Account
shall be subject to a "Blocked Account Control Agreement ("Automatic
Sweep/Frozen Account")" substantially in the form provided by The Chase
Manhattan Bank.

                  (d) The Borrowers shall pay all fees and charges of, and
maintain such impressed balances as may be required by the depository in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Lender).

                  (e) This section 7:7-3(e) applies to the "Instructions" within
the meaning of the above referenced Blocked Account Control Agreement
("Automatic Sweep/Frozen Account").

                           (i)   Except as provided in, and subject in all
         events to, Section 7:7- 3(e)(ii), notwithstanding anything to the
         contrary in any agreement to which the Lender is a party, the Lender
         will not change the above referenced "Instructions" from those in
         effect at the execution of this Agreement nor terminate any such above
         referenced Blocked Account Control Agreement ("Automatic Sweep/Frozen
         Account") without the prior written consent of the Lead Borrower.

                           (ii)  Section 7:7-3(e)(i) is not effective to the
         extent that it results in the Lender's not having control of the
         Initial Blocked Accounts and the Concentration Account within the
         meaning of Section 9-104 of the UCC.

         7-4.     PROCEEDS AND COLLECTIONS .

                  (a) All Receipts and all cash proceeds of any sale or other
disposition of any of each Borrower's assets:

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                           (i)   Constitute Collateral and proceeds of
         Collateral.

                           (ii)  Shall be held in trust by the Borrowers for the
         Lender.

                           (iii) Shall not be commingled with any of any
         Borrower's other funds.

                           (iv)  Shall be deposited and/or transferred by the
         Borrowers only to the Initial Blocked Account, the Concentration
         Account or the Lender's Depository Account.

                  (b) Whether or not there is then an outstanding balance in the
Loan Account, the Lead Borrower shall cause the ACH or wire transfer to one of
the Initial Blocked Accounts, not less frequently than weekly (daily following
the occurrence of an Event of Default) of the following:

                           (i)   The then contents of each DDA (other than any
         Exempt DDA) which consist of available funds, each such transfer to be
         net of any minimum balance, (not to exceed $750.00, as may be required
         to be maintained in the subject DDA by the bank at which such DDA is
         maintained.

                           (ii)  The proceeds of all credit card charges not
         otherwise provided for pursuant hereto.

                  (c) Whether or not there is then an outstanding balance in the
Loan Account, not less frequently than weekly (daily following the occurrence of
an Event of Default) the then contents of each Initial Blocked Account which
consist of available funds shall be transferred to the Concentration Account,
such transfer to be net of any minimum balance, (not to exceed $750.00, as may
be required to be maintained in the subject DDA by the bank at which such DDA is
maintained.

                  (d) Whether or not there is then an outstanding balance in the
Loan Account, not less frequently than weekly (daily following the occurrence of
an Event of Default) the then contents of each Concentration Account which
consist of available funds shall be transferred to the Lender's Depository
Account, such transfer to be net of any minimum balance, (not to exceed $750.00,
as may be required to be maintained in the subject DDA by the bank at which such
DDA is maintained).

                  (e) Unless a Cash Concentration Trigger Event has occurred (in
which event, the provisions of Section 7:7-4(f) shall control), the Lender shall
transfer the then contents of the Lender's Depository Account which consist of
available funds to the Operating Account on each Business Day (such transfer to
be net of any minimum balance which is required to be maintained in the subject
DDA by the bank at which such DDA is maintained).

                  (f) This Section 7:7-4(f) deals with the effect of the
occurrence of a Cash Concentration Trigger Event.

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                           (i)   Following the occurrence of any Cash
         Concentration Trigger Event, the Lender may cease to transfer the
         contents of the Lender's Depository Account to the Operating Account as
         provided in Section 7:7-4(e).

                           (ii)  In the event that, notwithstanding the
         provisions of this Section 7:7- 4(f), any Borrower receives or
         otherwise has dominion and control of any Receipts, or any proceeds or
         collections of any Collateral following the occurrence of any Cash
         Concentration Trigger Event, such Receipts, proceeds, and collections
         shall be held in trust by that Borrower for the Lender and shall not be
         commingled with any of that Borrower's other funds or deposited in any
         account of any Borrower other than as instructed by the Lender.

                           (iii) This Section 7:7-4(f) is subject to Section
         7:7-4(g).

                  (g) In the event that, subsequent to the Lenders taking of
action pursuant to Section 7:7-4(f), a Cash Concentration Cure occurs, then the
Lender, on the written request of the Lead Borrower, shall take steps to cause
the reversal of the actions so taken, IT BEING UNDERSTOOD, HOWEVER, that
Lender's taking of such steps shall be without prejudice to the Lender's
continuing right to invoke the provisions of Section 7:7-4(f) on account of the
occurrence of a subsequent Cash Concentration Event.

         7-5.     PAYMENT OF LIABILITIES.

                  (a) On each Business Day, the Lender shall apply the then
collected balance of the Lender's Depository Account (net of fees charged, and
of such impressed balances as may be required by the bank at which the
Depository Account is maintained) which are not transferred to the Operating
Account pursuant to Section 7:7-4(e) towards the unpaid balance of the Loan
Account and all other Liabilities, PROVIDED, HOWEVER, for purposes of the
calculation of interest on the unpaid principal balance of the Loan Account,
such payment shall be deemed to have been made One (1) Business Day after such
transfer.

                  (b) The following rules shall apply to deposits and payments
under and pursuant to this Section 7:7-5:

                           (i)   Funds shall be deemed to have been deposited to
         the Lender's Depository Account on the Business Day on which deposited,
         PROVIDED THAT notice of such deposit is available to the Lender by
         2:00PM on that Business Day.

                           (ii)  Funds paid to the Lender, other than by deposit
         to the Lender's Depository Account, shall be deemed to have been
         received on the Business Day when they are good and collected funds,
         PROVIDED THAT notice of such payment is available to the Lender by
         2:00PM on that Business Day.

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                           (iii) If notice of a deposit to the Lender's
         Depository Account (Section 7:7-5(b)(i)) or payment (Section
         7:7-5(b)(ii)) is not available to the Lender until after 2:00PM on a
         Business Day, such deposit or payment shall be deemed to have been made
         at 9:00AM on the then next Business Day.

                           (iv)  All deposits to the Lender's Depository Account
         and other payments to the Lender are subject to clearance and
         collection.

                  (c) The Lender shall transfer to the Operating Account any
surplus in the Lender's Depository Account remaining after the application
towards the Liabilities referred to in Section 7:7-5(a), above (less those
amounts which are to be netted out, as provided therein) PROVIDED, HOWEVER, in
the event that

                           (i)   any Borrower is InDefault; and

                           (ii)  one or more L/C's are then outstanding,

then the Lender may establish a funded reserve of up to 110% of the aggregate
Stated Amounts of such L/C's. Such funded reserve shall either be (i) returned
to the Lead Borrower PROVIDED THAT no Borrower is InDefault or (ii) applied
towards the Liabilities following the occurrence of any Event of Default
described in Section 10:10-11 or acceleration following the occurrence of any
other Event of Default.

         7-6. THE OPERATING ACCOUNT. Except as otherwise specifically provided
in, or permitted by, this Agreement or as described on EXHIBIT 7:7-6, annexed
hereto, all checks shall be drawn by the Lead Borrower upon, and other
disbursements shall be made by the Lead Borrower solely from, the Operating
Account.

ARTICLE 8: - GRANT OF SECURITY INTEREST:

         8-1. GRANT OF SECURITY INTEREST. To secure the Borrowers' prompt,
punctual, and faithful performance of all and each of the Liabilities, each
Borrower, subject to Section 8:8-2(b), hereby grants to the Lender a continuing
security interest in and to, and assigns to the Lender the following, and each
item thereof, whether now owned or now due, or in which that Borrower has an
interest or the power to transfer rights, or hereafter acquired, arising, or to
become due, or in which that Borrower obtains an interest or the power to
transfer rights, and all products, Proceeds, substitutions, and accessions of or
to any of the following (all of which, together with any other property in which
the Lender may in the future be granted a security interest, is referred to
herein as the "COLLATERAL"):

                  (a) All Accounts and accounts receivable.

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                  (b) All Inventory.

                  (c) All General Intangibles.

                  (d) All Equipment.

                  (e) All Goods.

                  (f) All Fixtures.

                  (g) All Chattel Paper.

                  (h) All Letter-of-Credit Rights.

                  (i) All Payment Intangibles.

                  (j) All Supporting Obligations.

                  (k) All books, records, and information relating to the
                      Collateral and/or to the operation of each Borrower's
                      business, and all rights of access to such books, records,
                      and information, and all property in which such books,
                      records, and information are stored, recorded, and
                      maintained.

                  (l) All Leasehold Interests.

                  (m) All Investment Property, Instruments, Documents, Deposit
                      Accounts, money, policies and certificates of insurance,
                      deposits, impressed accounts, compensating balances, cash,
                      or other property.

                  (n) All insurance proceeds, refunds, and premium rebates,
                      including, without limitation, proceeds of fire and credit
                      insurance, whether any of such proceeds, refunds, and
                      premium rebates arise out of any of the foregoing.
                      (8:8-1(a) through 8:8-1(m)) or otherwise.

                  (o) All liens, guaranties, rights, remedies, and privileges
                      pertaining to any of the foregoing (8:8-1(a) through
                      8:8-1(n)), including the right of stoppage in transit.

         8-2.     EXTENT AND DURATION OF SECURITY INTEREST.

                  (a) The security interest created and granted herein is in
addition to, and supplemental of, any other security interest granted from time
to time by any Borrower to the

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Lender and shall continue in full force and effect applicable to all Liabilities
until both

                           (i)   all Liabilities have been paid and/or satisfied
         in full; and

                           (ii)  the security interest created herein is
         specifically terminated in writing by a duly authorized officer of the
         Lender;

                  (b) It is intended that the Collateral Interests created
herein extend to and cover all assets of each Borrower other than the Excluded
Assets.

ARTICLE 9: - LENDER AS BORROWER'S ATTORNEY-IN-FACT:

         9-1. APPOINTMENT AS ATTORNEY-IN-FACT. Each Borrower hereby irrevocably
constitutes and appoints the Lender as that (acting through any of its officers)
Borrower's true and lawful attorney, with full power of substitution, which
designation the Lender may exercise only following the occurrence of any Event
of Default, to convert the Collateral into cash at the sole risk, cost, and
expense of that Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by this appointment include but are not limited to the
right and power to:

                  (a) Prosecute, defend, compromise, or release any action
relating to the Collateral.

                  (b) Sign change of address forms to change the address to
which each Borrower's mail is to be sent to such address as the Lender shall
designate; receive and open each Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Lead Borrower or to any trustee in bankruptcy or
receiver of the Lead Borrower, or other legal representative of a Borrower whom
the Lender determines to be the appropriate person to whom to so turn over such
mail.

                  (c) Endorse the name of the relevant Borrower in favor of the
Lender upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the relevant Borrower on, and receive
as secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.

                  (d) Sign the name of the relevant Borrower on any notice to
that Borrower's Account Debtors or verification of the Receivables Collateral;
sign the relevant Borrower's name on any Proof of Claim in Bankruptcy against
Account Debtors, and on notices of lien, claims of mechanic's liens, or
assignments or releases of mechanic's liens securing the Accounts.

                  (e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which any Borrower
is a beneficiary.

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<Page>

                  (f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of each Borrower.

                  (g) Use, license or transfer any or all General Intangibles of
each Borrower.

         9-2. NO OBLIGATION TO ACT. The Lender shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 9:9-1 herein,
but if the Lender elects to do any such act or to exercise any of such powers,
it shall not be accountable for more than it actually receives as a result of
such exercise of power, and shall not be responsible to any Borrower for any act
or omission to act, except for any act or omission to act as to which there is a
final determination made in a judicial proceeding by a court of competent
jurisdiction (in which the Lender has been given an opportunity to be heard),
which determination includes a specific finding that the subject act or omission
to act had been grossly negligent or in actual bad faith or wilful misconduct.

ARTICLE 10: - EVENTS OF DEFAULT:

         The occurrence of any event described in this Article 10: respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10:10-11, any and all Liabilities shall become
due and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, the Lender may declare any and all
Liabilities shall become immediately due and payable. The occurrence of any
Event of Default shall also constitute, without notice or demand, a default
under all other agreements between the Lender and any Borrower and instruments
and papers heretofore, now, or hereafter given the Lender by any Borrower.

         10-1.    FAILURE TO PAY THE REVOLVING CREDIT. The failure by any
Borrower to pay when due any principal of, interest on, or fees in respect of,
the Revolving Credit.

         10-2.    FAILURE TO MAKE OTHER PAYMENTS. The failure by any Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than any payment liability on account of the principal of, or interest on, or
fees in respect of, the Revolving Credit.

         10-3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). The
failure by any Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability included in any of the
following provisions hereof:

                                                                         Page 81
<Page>

<Table>
<Caption>

                           SECTION             RELATES TO            :
                           ------------------------------------------
<S>                                         <C>
                           4:4-7(a)         Title to Assets
                           4:4-8            Indebtedness
                           4:4-9            Insurance
                           4:4-20           Dividends. Investments. Other
                                            Corporate Actions
                           Article 5:       Reporting Requirements and Financial
                                            Performance Covenants
                           Article 7:       Cash Management
</Table>

         10-4.    FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The
failure by any, Borrower. within twenty (20) days following the earlier of any
Borrower's knowledge of a breach of any covenant or Liability not described in
any of Sections 10:10-1, 10:10-2, or 10:10-3 or of its receipt of written notice
from the Lender of the breach of any of any of such covenants or Liabilities.

         10-5.    MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by any Borrower to the Lender was
not true or complete in all material respects when given.

         10-6.    ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of
any event such that any Indebtedness of any Borrower in excess of $500,000.00 to
any creditor other than the Lender could be accelerated or, without the consent
of any Borrower, more than five (5) Leases could then be terminated (whether or
not the subject creditor or lessor takes any action on account of such
occurrence).

         10-7.    DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach
of any covenant or Liability imposed by, or of any default under, any agreement
(including any Loan Document) between the Lender and any Borrower or instrument
given by any Borrower to the Lender and the expiry, without cure, of any
applicable grace period (notwithstanding that the Lender may not have exercised
all or any of its rights on account of such breach or default).

         10-8.    UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral.

         10-9.    ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.

                  (a) The service of process upon the Lender seeking to attach,
by trustee, mesne,

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or other process, any funds of any Borrower on deposit with, or assets of any
Borrower in the possession of, the Lender, which is attachment is not stayed
within thirty (30) days after service thereof.

                  (b) The entry of any judgment in excess of $500,000 .00
against any Borrower, which judgment is not satisfied (if a money judgment) or
appealed from (with execution or similar process stayed) within thirty (30) days
of its entry.

                  (c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by any Borrower of its business in the ordinary course,
which order is not appealed from (with execution or similar process stayed)
within fifteen (15) days of its entry.

         10-10. BUSINESS FAILURE. Any act by, against, or relating to any
Borrower, or its property or assets, which act constitutes the determination, by
any Borrower, to initiate a program of partial self-liquidation (other than as
provided for in the Business Plan) or a program of total self-liquidation;
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any part of any Borrower's property; the granting of any trust mortgage or
execution of an assignment for the benefit of the creditors of any Borrower, or
the occurrence of any other voluntary or involuntary liquidation or extension of
debt agreement for any Borrower; the offering by or entering into by any
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of any Borrower; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including any
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors; and/or the initiation by or on behalf of any Borrower of the
liquidation or winding up of all or any part of any Borrower's business or
operations.

         10-11. BANKRUPTCY. The failure by any Borrower to generally pay the
debts of that Borrower as they mature; adjudication of bankruptcy or insolvency
relative to any Borrower; the entry of an order for relief or similar order with
respect to any Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by any Borrower initiating any matter in which any Borrower is or may
be granted any relief from the debts of that Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against any Borrower initiating any matter in which
that Borrower is or may be granted any relief from the debts of that Borrower
pursuant to the Bankruptcy Code or any other insolvency statute or procedure,
which complaint, application, or petition is not timely contested in good faith
by that Borrower by appropriate proceedings or, if so contested, is not
dismissed within thirty (30) days of when filed.

         10-12. INDICTMENT - FORFEITURE. The criminal conviction of any
Borrower,

                                                                         Page 83
<Page>

under any Applicable Law where the relief, penalties, or remedies sought or
available include the forfeiture of any material property of any Borrower and/or
the imposition of any stay or other order, the effect of which could be to
restrain in any material way the conduct by any Borrower of its business in the
ordinary course.

         10-13. GUARANTOR'S DEFAULT. The occurrence of any Guarantor's Default.

         10-14. TERMINATION OF GUARANTY. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.

         10-15.   CHALLENGE TO LOAN DOCUMENTS.

                  (a) Any challenge by or on behalf of any Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.

                  (b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.

         10-16.   CHANGE IN CONTROL. Any Change in Control.

         10-17.   MATERIAL ADVERSE CHANGE. The occurrence of any Material
Adverse Change with respect to the Borrowers, taken as a whole.

ARTICLE 11: - RIGHTS AND REMEDIES UPON DEFAULT:

         11-1     ACCELERATION. Upon the occurrence of any Event of Default as
described in Section 10:10-11, all Indebtedness of the Borrowers to the Lender
shall be immediately due and payable. Upon the occurrence of any Event of
Default other than as described in Section 10:10-11, the Lender may declare all
Indebtedness of the Borrowers to the Lender to be immediately due and payable
and may exercise all of the Lender's Rights and Remedies as the Lender from time
to time thereafter determines as appropriate.

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<Page>

         11-2.    RIGHTS OF ENFORCEMENT. The Lender shall have all of the rights
and remedies of a secured party upon default under, the UCC, in addition to
which the Lender shall have all and each of the following rights and remedies:

                  (a) To give notice to any bank at which any DDA or Blocked
Account is maintained and in which Proceeds of Collateral are deposited, to turn
over such Proceeds directly to the Lender.

                  (b) To give notice to any customs broker of any of the
Borrowers to follow the instructions of the Lender as provided in any written
agreement or undertaking of such broker in favor of the Lender.

                  (c) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.

                  (d) Without causing a breach of the peace, to take possession
of all or any portion of the Collateral.

                  (e) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.

                  (f) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.

                  (g) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.

                  (h) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.

         11-3.    SALE OF COLLATERAL.

                  (a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.

                  (b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by any Borrower.
The Lender and any such agent or contractor, in conjunction with any

                                                                         Page 85
<Page>

such sale, may augment the Inventory with other goods (all of which other goods
shall remain the sole property of the Lender or such agent or contractor). Any
amounts realized from the sale of such goods which constitute augmentations to
the Inventory (net of an allocable share of the costs and expenses incurred in
their disposition) shall be the sole property of the Lender or such agent or
contractor and neither any Borrower nor any Person claiming under or in right of
any Borrower shall have any interest therein.

                  (c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Lead Borrower such notice as
may be practicable under the circumstances), the Lender shall give the Lead
Borrower at least ten (10) days prior written notice of the date, time, and
place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. Each Borrower agrees that
such written notice shall satisfy all requirements for notice to that Borrower
which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender's rights and remedies upon default.

                  (d) The Lender may purchase the Collateral, or any portion of
it at any sale held under this Article.

                  (e) If any of the Collateral is sold, leased, or otherwise
disposed of by the Lender on credit, the Liabilities shall not be deemed to have
been reduced as a result thereof unless and until payment is finally received
thereon by the Lender.

                  (f) The Lender shall apply the proceeds of the Lender's
exercise of its rights and remedies upon default pursuant to this Article 11: in
such manner, and with such frequency, as the Lender determines.

         11-4. OCCUPATION OF BUSINESS LOCATION. In connection with the Lender's
exercise of the Lender's rights under this Article 11:, the Lender, without
causing a breach of the peace, may enter upon, occupy, and use any premises
owned or occupied by each Borrower, and may exclude each Borrower from such
premises or portion thereof as may have been so entered upon, occupied, or used
by the Lender. The Lender shall not be required to remove any of the Collateral
from any such premises upon the Lender's taking possession thereof, and may
render any Collateral unusable to the Borrowers. In no event shall the Lender be
liable to any Borrower for use or occupancy by the Lender of any premises
pursuant to this Article 11:, nor for any charge (such as wages for any
Borrower's employees and utilities) incurred in connection with the Lender's
exercise of the Lender's Rights and Remedies.

         11-5. GRANT OF NONEXCLUSIVE LICENSE. Each Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which any Borrower now or
hereafter has rights, such license being solely with respect to the Lender's
exercise of the rights hereunder including, without limitation, in

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<Page>

connection with any completion of the manufacture of Inventory or sale or other
disposition of Inventory.

         11-6. ASSEMBLY OF COLLATERAL. The Lender may require any Borrower to
assemble the Collateral and make it available to the Lender at the Borrowers'
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and the Lead Borrower.

         11-7. RIGHTS AND REMEDIES. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. The Lender's Rights and Remedies may be
exercised at such time or times and in such order of preference as the Lender
may determine. The Lender's Rights and Remedies may be exercised without resort
or regard to any other source of satisfaction of the Liabilities.

ARTICLE  12:- NOTICES:

         12-1. NOTICE ADDRESSES. All notices, demands, and other communications
made in respect of any Loan Document (other than a request for a loan or advance
or other financial accommodation under the Revolving Credit) shall be made to
the following addresses, each of which may be changed upon seven (7) days
written notice to all others given by certified mail, return receipt requested:

If to the Lender:
                                    Wells Fargo Retail Finance LLC
                                    One Boston Place - 18th Floor
                                    Boston, Massachusetts 02108
                                    Attention        :  Patrick Norton
                                                     :  Vice President
                                    Fax              :  617 523 4032

                                                                         Page 87
<Page>

         WITH A COPY TO:
                                    Riemer & Braunstein LLP
                                    Three Center Plaza
                                    Boston, Massachusetts  02108
                                    Attention      :  Richard B. Jacobs, Esquire
                                    Fax            :  617 880 3456

If to the Lead Borrower
And All Borrowers:

                                    dELiA*s Corp.
                                    435 Hudson Street
                                    New York, New York 10014
                                    Attention      :  Dennis Goldstein
                                    Fax            : 212 590 6310

         WITH A COPY TO:
                                    Proskauer Rose LLP
                                    1585 Broadway
                                    New York, New York 10036-8299
                                    Attention      : Jack P. Jackson, Esquire
                                    Fax:           : 212 969 2900

         12-2.    NOTICE GIVEN.

                  (a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):

                           (i)   By registered mail: the sooner of when actually
         received or Three (3) days following deposit in the United States mail,
         postage prepaid.

                           (ii)  By recognized overnight express delivery: the
         Business Day following the day when sent.

                           (iii) By Hand: If delivered on a Business Day after
         9:00 AM and no later than Three (3) hours prior to the close of
         customary business hours of the recipient, when delivered. Otherwise,
         at the opening of the then next Business Day.

                           (iv)  By Facsimile transmission (which must include a
         header on which the party sending such transmission is indicated): If
         sent on a Business Day after 9:00 AM and no later than Three (3) hours
         prior to the close of customary business hours of the recipient, one
         (1) hour after being sent. Otherwise, at the opening of the then next
         Business

                                                                         Page 88
<Page>

         Day.

                  (b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.

ARTICLE 13: - TERM:

         13-1.    TERMINATION OF REVOLVING CREDIT.

                  (a) The Maturity Date shall be extended for successive twelve
(12) month periods from the date set out in the Definition of "Maturity Date"
unless any of the following takes place:

                           (i)   The Termination Date has occurred.

                           (ii)  The then effective Maturity Date is set as the
         Termination Date by not less than ninety (90) days prior written notice
         by the Lead Borrower to the Lender or the Lender to the Lead Borrower.

                           (iii) The Lead Borrower sets the Termination Date by
         irrevocable written notice to the Lender as permitted by the Definition
         of "Termination Date".

                  (b) The Revolving Credit shall remain in effect (subject to
suspension as provided in Section 2:2-7(g) hereof) until the Termination Date.

         13-2.    ACTIONS ON TERMINATION.

                  (a) On the Termination Date, the Borrowers shall pay the
Lender (whether or not then due), in immediately available funds, all then
Liabilities including, without limitation: the following:

                           (i)   The entire balance of the Loan Account
         (including the unpaid principal balance of the Revolving Credit Loans).

                           (ii)  Any payments due on account of the
         indemnification obligations included in Section 2:2-11(e).

                           (iii) Any accrued and unpaid Unused Line Fee.

                           (iv)  Any applicable Early Termination Fee.

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<Page>

                           (v) All unreimbursed costs and expenses of the Lender
         for which any Borrower is responsible.

                  (b) On the Termination Date, the Borrowers shall also shall
make such arrangements concerning any L/C's then outstanding as are reasonably
satisfactory to the Lender.

                  (c) Until such payment (Section 13:13-2(a)) and arrangements
concerning L/C's (Section 13:13-2(b)), all provisions of this Agreement, other
than those included in Article 2: which place any obligation on the Lender to
make any loans or advances or to provide any financial accommodations to any
Borrower shall remain in full force and effect until all Liabilities shall have
been paid in full.

                  (d) The release by the Lender of the Collateral Interests
granted to the Lender by the Borrowers hereunder may be upon such conditions and
indemnifications as the Lender may require.

                  (e) The Lender's obligation to release the Collateral
Interests granted to the Lender by any Borrower on the End Date shall not be
affected by any Liability's then being outstanding to any Affiliate of the
Lender.

ARTICLE 14: - GENERAL:

         14-1.    PROTECTION OF COLLATERAL. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender.

         14-2.    PUBLICITY. The Lender may issue a "tombstone" notice of the
establishment of the credit facility contemplated by this Agreement and, subject
to prior review by the Borrower in each instance, may make reference to each
Borrower (and may utilize any logo or other distinctive symbol associated with
each Borrower) in connection with any advertising, promotion, or marketing
(including the inclusion of a "case study" of the financing contemplated hereby)
undertaken by the Lender.

         14-3.    SUCCESSORS AND ASSIGNS.

                  (a) This Agreement shall be binding upon the Borrowers and
their respective representatives, successors, and assigns and shall enure to the
benefit of the Lender and its successors and assigns, PROVIDED, HOWEVER, no
trustee or other fiduciary appointed with respect to any Borrower shall have any
rights hereunder.

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<Page>

                  (b) In the event that the Lender assigns or transfers its
rights under this Agreement, the assignee shall thereupon succeed to and become
vested with all rights, powers, privileges, and duties of the Lender hereunder
and the Lender shall thereupon be discharged and relieved from its duties and
obligations hereunder.

                  (c) In the event that the Lender assigns or transfers its
rights under this Agreement to an assignee which is not an Affiliate of the
Lender or a Person controlling, controlled by, or under common control with the
Lender (other than in connection with a programmed disposition, by the Lender,
of all or a material part of its portfolio of working capital loans), then the
Lead Borrower, by irrevocable written notice to such assignee given no later
than one hundred eighty (180) days after receipt of notice of such assignment
may set the Termination Date as a date which is no more than forty five (45)
days after (and counting) the date of such notice.

         14-4.    SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.

         14-5.    AMENDMENTS.  COURSE OF DEALING.

                  (a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between each Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Lead Borrower of any Borrower's
having failed to observe and comply with any warranty or covenant included in
any Loan Document shall constitute a waiver of such warranty or covenant or the
amendment of the subject Loan Document. No change made by the Lender to the
manner by which the Borrowing Base is determined shall obligate the Lender to
continue to determine the Borrowing Base in that manner.

                  (b) Each Borrower may undertake any action otherwise
prohibited hereby, and may omit to take any action otherwise required hereby,
upon and with the express prior written consent of the Lender. No consent,
modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be
charged with such modification, amendment, or waiver (and if such party is the
Lender then by a duly authorized officer thereof). Any modification, amendment,
or waiver provided by the Lender shall be in reliance upon all representations
and warranties theretofore made to the Lender by or on behalf of the Borrowers
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded in the event that any of such representations or warranties was not
true and

                                                                         Page 91
<Page>

complete in all material respects when given.

         14-6.    POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, each Borrower hereby grants unto the Lender (acting
through any of its officers) full power to do any and all things necessary or
appropriate in connection with the exercise of such powers as fully and
effectually as that Borrower might or could do, hereby ratifying all that said
attorney shall do or cause to be done by virtue of this Agreement except for any
act or omission to act as to which there is a final determination made in a
judicial proceeding by a court of competent jurisdiction (in which the Lender
has been given an opportunity to be heard), which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith or wilful misconduct.. No power of attorney set
forth in this Agreement shall be affected by any disability or incapacity
suffered by any Borrower and each shall survive the same. All powers conferred
upon the Lender by this Agreement, being coupled with an interest, shall be
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender.

         14-7.    APPLICATION OF PROCEEDS. The proceeds of any collection, sale,
or disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion, consistent, HOWEVER, with all applicable
provisions of this Agreement and the UCC. The Borrowers shall remain liable for
any deficiency remaining following such application.

         14-8.    INCREASED COSTS.

                  (a) If, as a result of any Requirement of Law, or of the
interpretation or application thereof by any court or by any governmental or
other authority or entity charged with the administration thereof, whether or
not having the force of law, which:

                           (i)   subjects the Lender to any taxes or changes the
         basis of taxation, or increases any existing taxes, on payments of
         principal, interest or other amounts payable by any Borrower to the
         Lender under this Agreement (except for taxes on the Lender based on
         net income, capital, or the franchise held by such Lender imposed by
         the jurisdiction in which the principal or lending offices of the
         Lender are located);

                           (ii)  imposes, modifies or deems applicable any
         reserve (other than a reserve included in the computation of the
         Reserve Percentage), cash margin, special deposit or similar
         requirements against assets held by, or deposits in or for the account
         of or loans by or any other acquisition of funds by the relevant
         funding office of the Lender;

                           (iii) imposes on the Lender any other condition with
         respect to any Loan

                                                                         Page 92
<Page>

         Document; or

                           (iv)  imposes on the Lender a requirement to maintain
         or allocate capital in relation to the Liabilities;

and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the cost to the Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by the Lender in
respect of any loan, advance or financial accommodation by an amount which the
Lender deems to be material, then, except as provided in Section 14:14- 8(b),
upon written notice from the Lender, from time to time, to the Lead Borrower
(such notice to set out in reasonable detail the facts giving rise to and a
summary calculation of such increased cost or reduced income), the Borrowers
shall forthwith pay to the Lender, upon receipt of such notice, that amount
which shall compensate the Lender for such additional cost or reduction in
income.

                  (b) The obligation of the Borrowers to compensate the Lender
pursuant to Section 14:14-8(a) is subject to the following conditions:

                           (i)   The Lender's giving of notice to the Lead
         Borrower of an event which gives rise to such compensation obligation
         within ninety (90) days after the Lender has received conclusive notice
         of the occurrence of the relevant circumstance giving rise to such
         obligation.

                           (ii)  The Lender's charging of its customers who are
         similarly situated to the Borrowers in respect of any increased costs
         or reduction in income on account of which an obligations under Section
         14:14-8(a) arises.

         14-9.    COSTS AND EXPENSES OF THE LENDER .

                  (a) The Borrowers shall pay the following:

                           (i)   The reasonable costs, expenses, and
         disbursements (including attorneys' reasonable fees and expenses of the
         Lender's outside counsel) which are incurred by the Lender in
         connection with the preparation, negotiation, execution, and delivery
         of this Agreement and of the other Loan Documents as part of the
         establishment of the credit facility contemplated hereby, but only to
         the extent to which the Lead Borrower has agreed to be responsible for
         such reasonable costs, expenses, and disbursements (including
         attorneys' reasonable fees and expenses of the Lender's outside
         counsel).

                           (ii)  From time to time on demand all Costs of
         Collection and, and all reasonable costs, expenses, and disbursements
         not described in Section 14:14-9(a)(i) which may be incurred in
         connection with or in respect to the credit facility contemplated
         hereby or which otherwise are incurred with respect to the Liabilities.

                                                                         Page 93
<Page>

                  (b) Each Borrower authorizes the Lender to pay all such fees
and expenses and in the Lender's discretion, to add such fees and expenses to
the Loan Account.

                  (c) The undertaking on the part of each Borrower in this
Section 14:14-9 shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Lender in favor of any Borrower, other
than a termination, release, or discharge which makes specific reference to this
Section 14:14-9.

         14-10.   COPIES AND FACSIMILES. Each Loan Document and all documents
and papers which relates thereto which have been or may be hereinafter furnished
by or to the Lender may be reproduced by the Lender by any photographic,
microfilm, xerographic, digital imaging, or other process, and the Lender may
destroy any document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.

         14-11.   MASSACHUSETTS LAW. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the law of The Commonwealth of Massachusetts.

         14-12.   CONSENT TO JURISDICTION.

                  (a) The Lender and each Borrower agrees that any legal action,
proceeding, case, or controversy against any Borrower with respect to any Loan
Document may be brought in the Superior Court of Suffolk County Massachusetts or
in the United States District Court, District of Massachusetts, sitting in
Boston, Massachusetts, as the Lender may elect in the Lender's sole discretion.
By execution and delivery of this Agreement, the Lender and each Borrower, for
itself and in respect of its property, accepts, submits, and consents generally
and unconditionally, to the jurisdiction of the aforesaid courts.

                  (b) The Lender and each Borrower WAIVES personal service of
any and all process upon it, and irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by certified mail, postage prepaid, to the Lead
Borrower at the Lead Borrower's address for notices as specified herein, such
service to become effective five (5) Business Days after such mailing.

                  (c) The Lender and each Borrower WAIVES any objection based on
FORUM NON CONVENIENS and any objection to venue of any action or proceeding
instituted under any of the Loan

                                                                         Page 94
<Page>

Documents and consents to the granting of such legal or equitable remedy as is
deemed appropriate by the Court.

                  (d) The Lender and each Borrower agrees that any action
commenced by the Lender or by any Borrower asserting any claim arising under or
in connection with this Agreement or any other Loan Document shall be brought
solely in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, and that such Courts shall have exclusive jurisdiction with
respect to any such action.

         14-13. INDEMNIFICATION. Each Borrower shall indemnify, defend, and hold
the Lender and any of their respective employees, officers, or agents (each, an
"INDEMNIFIED PERSON") harmless of and from any claim brought or threatened
against any Indemnified Person by any Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees,
expenses, and disbursements in connection therewith) on account of the
relationship of the Borrowers or of any other guarantor or endorser of the
Liabilities, including all costs, expenses, liabilities, and damages as may be
suffered by any Indemnified Person in connection with (x) the Collateral; (y)
the occurrence of any Event of Default; or (z) the exercise of any rights or
remedies under any of the Loan Documents (each of claims which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of the
Lender's selection, but at the expense of the Borrowers) other than any claim as
to which a final determination is made in a judicial proceeding by a court of
competent jurisdiction (in which the Lender has been given an opportunity to be
heard), which determination includes a specific finding that the Indemnified
Person seeking indemnification had acted in a grossly negligent manner, in
actual bad faith or in wilful misconduct. This indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrowers, other than a termination,
release, or discharge duly executed on behalf of the Lender which makes specific
reference to this Section 14:14-13.

         14-14. RULES OF CONSTRUCTION. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:

                  (a) Unless otherwise specifically provided for herein,
interest and any fee or charge which is stated as a per annum percentage shall
be calculated based on a 360 day year and actual days elapsed.

                  (b) Words in the singular include the plural and words in the
plural include the singular.

                  (c) Unless otherwise specifically provided for herein or in a
specific Loan Document (and then only to the extent so provided), as between the
parties hereto or to any Loan

                                                                         Page 95
<Page>

Document, the definitions of the following terms, as included in the UCC, are
deemed to be as follows for purposes of the performance of obligations arising
under or in respect of any Loan Document:

                           (i)   "Authenticate" means "signed".

                           (ii)  "Record" means written information in a
         tangible form.

                  (d) Cross references to Sections in this Agreement begin with
the Article in which that Section appears, followed by a colon, and then the
Section to which reference is made. (For example, a reference to "Section 5:5-6"
is to Section 5-6, which appears in Article 5 of this Agreement).

                  (e) Titles, headings (indicated by being UNDERLINED or shown
in SMALL CAPITALS) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.

                  (f) The words "includes" and "including" are not limiting.

                  (g) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.

                  (h) Text which is shown in ITALICS (except for parenthesized
italicized text), shown in BOLD, shown IN ALL CAPITAL LETTERS, or in any
combination of the foregoing, shall be deemed to be conspicuous.

                  (i) The words "may not" are prohibitive and not permissive.

                  (j) Any reference to a Person's "knowledge" (or words of
similar import) are to such Person's knowledge assuming that such Person has
undertaken reasonable and diligent investigation with respect to the subject of
such "knowledge" (whether or not such investigation has actually been
undertaken).

                  (k) Terms which are defined in one section of any Loan
Document are used with such definition throughout the instrument in which so
defined.

                  (l) The term "Dollars" and the symbol "$" each refers to
United States Dollars.

                  (m) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.

                  (n) References to "this Agreement" or to any other Loan
Document is to the

                                                                         Page 96
<Page>

subject instrument as amended to the date on which application of such reference
is being made.

                  (o) Except as otherwise specifically provided, all references
to time are to Boston time.

                  (p) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder:

                           (i)   Unless otherwise provided (I) the day of the
act, event, or default from which the designated period of time begins to run
shall not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (II) the period
so computed shall end at 5:00 PM on the relevant Business Day.

                           (ii)  The word "from" means "from and including".

                           (iii) The words "to" and "until" each mean "to, but
excluding".

                           (iv)  The word "through" means "to and including".

                  (q) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section
14:14-15 hereof, PROVIDED, HOWEVER, in the event of any inconsistency between
the provisions of this Agreement and any other Loan Document, the provisions of
this Agreement shall govern and control.

         14-15.   INTENT. It is intended that:

                  (a) This Agreement take effect as a sealed instrument.

                  (b) The scope of all Collateral Interests created by any
Borrower to secure the Liabilities be broadly construed in favor of the Lender
and that they cover all assets of each Borrower other than any Excluded Assets.

                  (c) All Collateral Interests created in favor of the Lender at
any time and from time to time secure all Liabilities, whether now existing or
contemplated or hereafter arising.

                  (d) All reasonable costs, expenses, and disbursements incurred
by the Lender in connection with the Lender's relationship(s) with any Borrower
shall be borne by the Borrowers.

                  (e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of any Borrower which is prohibited unless such consent is
given may be given or refused by the Lender in its sole discretion and without
reference to Section 2:2-14 hereof.

                                                                         Page 97
<Page>

         14-16.   PARTICIPATIONS: The Lender may sell participations in the
Lender's interests herein to one or more financial institutions.

         14-17.   CONFIDENTIALITY: The Lender agrees that, except with the prior
consent of the Lead Borrower, it will not disclose any confidential information
with respect to the Borrowers which is now or in the future furnished pursuant
to this Agreement or any other Loan Document , PROVIDED, HOWEVER, that the
Lender may disclose any such information as follows:

                  (a) To the following:

                           (i)   To its employees, Affiliates, advisors or
         counsel.

                           (ii)  To any prospective or actual transferee or
         participant in connection with any contemplated transfer or
         participation of this Agreement, the Liabilities, or any interest
         therein by the Lender, which transfer or participation is permitted by
         the terms of this Agreement and which transferee or participant agrees
         to be bound by this Section 14:14-17.

                  (b) As has become generally available to the public.

                  (c) As may be required or appropriate in any report, statement
or testimony submitted to any municipal, state, or federal regulatory body
having or claiming to have jurisdiction over the Lender.

                  (d) As may be required or appropriate in respect to any
summons or subpoena or in connection with any litigation

                  (e) In order to comply with Applicable Law.

         14-18. RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to any Borrower from the Lender or from any Affiliate of any
of the foregoing, and any cash, securities, instruments or other property of any
Borrower in the possession of any of the foregoing, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of each Borrower to the Lender or such Affiliate and may be applied
or set off against the Liabilities and against such obligations at any time,
whether or not other collateral is then available to the Lender.

         14-19. PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this
Agreement shall prevent or limit the Lender, to the extent that the Lender is
subject to any of the twelve Federal Reserve Banks organized under Section 4
of the Federal Reserve Act (12 U.S.C. Section 341) from pledging all

                                                                         Page 98
<Page>

or any portion of that Lender's interest and rights under this Agreement,
PROVIDED, HOWEVER, neither such pledge nor the enforcement thereof shall release
the Lender from any of its obligations hereunder or under any of the Loan
Documents.

         14-20. MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by Applicable Law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."

         14-21. WAIVERS.

                  (a) Each Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Section
14:14-21(b), below, to the full extent permitted by Applicable Law and
knowingly, voluntarily, and intentionally, and understands that the Lender,
in establishing the facilities contemplated hereby and in providing loans and
other financial accommodations to or for the account of the Borrowers as
provided herein, whether now or in the future, is relying on such waivers.

                  (b) EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER,
AND SURETY RESPECTIVELY WAIVES THE FOLLOWING:

                           (i)   Except as otherwise specifically required
         hereby, notice of non-payment, demand, presentment, protest and all
         forms of demand and notice, both with respect to the Liabilities and
         the Collateral.

                           (ii)  Except as otherwise specifically required
         hereby, the right to notice and/or hearing prior to the Lender's
         exercising of the Lender's rights upon default.

                           (iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
         CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
         CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH
         THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
         ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
         ANY BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE WAIVES THE
         RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).

                           (iv)  Any defense, counterclaim, set-off, recoupment,
         or other basis on which the amount of any Liability, as stated on the
         books and records of the Lender, could

                                                                         Page 99
<Page>

         be reduced or claimed to be paid otherwise than in accordance with the
         tenor of and written terms of such Liability.

                           (v)   Any claim to consequential, special, or
         punitive damages.

                                                                        Page 100
<Page>

                                                                   DELIA*S CORP.
                                                               ("LEAD BORROWER")

                                               By /s/ THOMAS MURPHY
                                                 -------------------------------

                                      Print Name: Thomas Murphy
                                                 -------------------------------

                                           Title: Senior Vice President
                                                 -------------------------------

                                                                   DELIA*S CORP.
                                                       DELIA*S OPERATING COMPANY
                                                    DELIA*S DISTRIBUTION COMPANY
                                                          DELIA*S RETAIL COMPANY
                                                                    "BORROWERS":

                                               By /s/ THOMAS MURPHY
                                                 -------------------------------

                                      Print Name: Thomas Murphy
                                                 -------------------------------

                                           Title: Senior Vice President
                                                 -------------------------------

                                                               Signature Page 1
<Page>

                                                  WELLS FARGO RETAIL FINANCE LLC
                                                                      ("LENDER")

                                                      By /s/ PATRICK J. NORTON
                                                        ------------------------

                                             Print Name: Patrick J. Norton
                                                        ------------------------

                                                  Title: Vice President
                                                        ------------------------

                                                                Signature Page 2<Page>

                                                                    EXHIBIT 4.1

                                                                EXECUTION COPY

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

                         METROMEDIA FIBER NETWORK, INC.

                                  $150,000,000

                  FLOATING RATE GUARANTEED TERM NOTES DUE 2006

                          NOTE AND GUARANTEE AGREEMENT
                          dated as of September 6, 2001

                               CITICORP USA, INC.,
                             as Administrative Agent

                           SALOMON SMITH BARNEY, INC.,
              as Sole Advisor, Lead Arranger and Sole Book Manager

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

<Page>

                                TABLE OF CONTENTS

      This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only. PAGE

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

Section 1.01.  Certain Defined Terms.........................................1
Section 1.02.  Computation of Time Periods..................................25
Section 1.03.  Accounting Terms; Changes in GAAP............................25
Section 1.04.  Extended Meanings............................................25
Section 1.05.  References to Administrative Agent, Purchasers or Holders....25
Section 1.06.  Conflict with Senior Security Documents......................26
Section 1.07.  Non-Business Days............................................26
Section 1.08.  References to Time of Day....................................26
Section 1.09.  Severability.................................................26
Section 1.10.  References to Statutes.......................................26
Section 1.11.  References to Agreements.....................................26

                                   ARTICLE II

                         AMOUNTS AND TERMS OF THE NOTES

Section 2.01.  The Notes....................................................27
Section 2.02.  Issuing the Notes............................................27
Section 2.03.  Repayment....................................................29
Section 2.04.  Commitment Changes; Redemptions, Etc.........................29
Section 2.05.  Interest.....................................................31
Section 2.06.  Conversion and Continuation..................................32
Section 2.07.  Increased Costs, Illegality, Etc.............................33
Section 2.08.  Payments and Computations....................................35
Section 2.09.  Taxes........................................................36
Section 2.10.  Sharing of Payments, Etc.....................................38
Section 2.11.  Replacement of Holder........................................38

                                   ARTICLE III

                              CONDITIONS OF CLOSING

Section 3.01.  Issuance.....................................................39
Section 3.02.  Determinations Under Section 3.01............................44

<Page>

                                      -ii-

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

Section 4.01.  Representations and Warranties of the Obligors...............44
Section 4.02.  Representations and Warranties of the Purchasers.............52

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

Section 5.01.  Financial Statements, Reports, etc...........................52
Section 5.02.  Other Notices................................................54
Section 5.03.  Existence; Businesses and Properties.........................55
Section 5.04.  Guarantees of Obligations and Collateral Security;
                 Further Assurances.........................................56
Section 5.05.  Maintaining Records; Access to Properties and Inspections....57
Section 5.06.  Compliance with Terms of Private Licenses....................57
Section 5.07.  Obligations and Taxes........................................58
Section 5.08.  Employee Benefits............................................58
Section 5.09.  Insurance....................................................58
Section 5.10.  Franchises...................................................59
Section 5.11.  Licenses.....................................................59
Section 5.12.  Use of Proceeds..............................................59
Section 5.13.  Hedging Agreements...........................................59

                                   ARTICLE VI

                               NEGATIVE COVENANTS

Section 6.01.  Indebtedness.................................................60
Section 6.02.  Liens........................................................63
Section 6.03.  Unrestricted Subsidiaries....................................65
Section 6.04.  Sale and Lease-Back Transactions.............................66
Section 6.05.  Investments and Contingent Investments.......................67
Section 6.06.  Mergers, Consolidations, Assets Sales and Acquisitions.......68
Section 6.07.  Restricted Payments..........................................70
Section 6.08.  Restrictive Agreements.......................................72
Section 6.09.  Repayment of Indebtedness....................................72
Section 6.10.  Transactions with Affiliates.................................73
Section 6.11.  Lines of Business............................................73
Section 6.12.  Modifications to Certain Agreements..........................73
Section 6.13.  Financial Covenants..........................................73

                                   ARTICLE VII

               EVENTS OF DEFAULT............................................77

<Page>
                                      -iii-

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

Section 8.01.  Authorization and Action.....................................80
Section 8.02.  Administrative Agent's Reliance, Etc.........................80
Section 8.03.  Rights as a Holder...........................................81
Section 8.04.  Holder Financial Decision....................................81
Section 8.05.  Indemnification..............................................81
Section 8.06.  Collateral Duties............................................81
Section 8.07.  Successor Administrative Agent...............................82
Section 8.08.  Lead Arranger................................................83

                                   ARTICLE IX

               THE GUARANTEE................................................83

Section 9.01.  The Guarantee................................................83
Section 9.02.  Obligations Unconditional....................................83
Section 9.03.  Reinstatement................................................84
Section 9.04.  Subrogation..................................................84
Section 9.05.  Remedies.....................................................84
Section 9.06.  Instrument for the Payment of Money..........................85
Section 9.07.  Continuing Guarantee.........................................85
Section 9.08.  Rights of Contribution.......................................85
Section 9.09.  General Limitation on Guarantee Obligations..................85

                                    ARTICLE X

                                  MISCELLANEOUS

Section 10.01.  Amendments, Consents, Etc...................................86
Section 10.02.  Notices, Etc................................................88
Section 10.03.  No Waiver; Remedies.........................................88
Section 10.04.  Costs, Expenses and Indemnification.........................88
Section 10.05.  Right of Setoff.............................................90
Section 10.06.  Governing Law; Submission to Jurisdiction, Etc..............90
Section 10.07.  Waiver of Jury Trial........................................90
Section 10.08.  Successors, Assigns and Transfers...........................90
Section 10.09.  Transfer, Registration, Participations and Substitution
                  of Notes..................................................91
Section 10.10.  Execution in Counterparts...................................94
Section 10.11.  Confidentiality.............................................94
Section 10.12.  Survival and Termination....................................94
Section 10.13.  Captions....................................................95

<Page>

                                      -iv-

                                    SCHEDULES
                                    ---------

Schedule 2.01                  Information Relating to the Purchasers
Schedule 4.01(e)               List of Required Governmental Approvals
Schedule 4.01(i)               Subsidiaries and other Equity Investments
Schedule 4.01(k)               Material Agreements
Schedule 4.01(r)               Insurance
Schedule 4.01(t)               Licenses
Schedule 4.01(u)               Franchises
Schedule 4.01(v)               Real Property and Leases
Schedule 6.05                  Investments

                                    EXHIBITS
                                    --------

EXHIBIT A.........         Form of Floating Rate Guaranteed Term Note
EXHIBIT B.........         Form of Senior Security Agreement
EXHIBIT C.........         Form of Opinion of Special Counsel to the Obligors
EXHIBIT D.........         Form of Opinion of Special New York Counsel to
                            Citicorp USA
EXHIBIT E.........         Form of Notice of Issuance
EXHIBIT F.........         Form of Transfer and Acceptance
EXHIBIT G.........         Form of Joinder Agreement
EXHIBIT H.........         Form of Warrant Agreement

<Page>

                         METROMEDIA FIBER NETWORK, INC.

            $150,000,000 Floating Rate Guaranteed Term Notes Due 2006

                                                         As of September 6, 2001

TO EACH OF THE PURCHASERS
LISTED ON SCHEDULE 2.01

                 METROMEDIA FIBER NETWORK, INC., a Delaware corporation (the
"ISSUER"), and each of the Guarantors listed on the signature pages hereto under
the caption "GUARANTORS" and each Subsidiary of the Issuer that becomes a
"Guarantor" after the date hereof pursuant to Section 5.04 (each a "GUARANTOR"
and, collectively, the "GUARANTORS", and the Guarantors collectively with the
Issuer, the "OBLIGORS"), agree with each of the purchasers whose names appear on
Schedule 2.01 (each a "PURCHASER" and, collectively, the "PURCHASERS") and
Citicorp USA, Inc., as administrative agent (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT"), as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

                  Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):

                  "ACCOUNTANTS" means Ernst & Young LLP or other independent
public accountants selected by the Issuer and satisfactory to the Administrative
Agent.

                  "ACQUIRED INDEBTEDNESS" means, with respect to any specified
Person, Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person, PROVIDED
that such Indebtedness is not incurred in connection with, or in contemplation
of, such other Person merging with or into or becoming a Subsidiary of, such
specified Person.

                  "ACQUISITION" means any transaction, or any series of related
transactions, consummated after the date hereof, by which (i) the Issuer and/or
any of its Subsidiaries acquires the business of, or all or substantially all of
the assets of, any firm, corporation or division thereof, whether through
purchase of assets, purchase of stock, merger or otherwise or (ii) any Person
that was not theretofore a Subsidiary of the Issuer becomes a Subsidiary of the
Issuer.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -2-

                  "ADJUSTED EBITDA" means, for any period, the sum (for the
Issuer and its Restricted Subsidiaries determined on a consolidated basis
without duplication in accordance with GAAP) of the following:

                  (a) Net Income for such period, adjusted to exclude any gains
or losses attributable to any Asset Sale or Casualty Event; PLUS

                  (b) the sum of (i) depreciation and amortization, but
         excluding amortization of prepaid cash expenses that were paid in a
         prior period, for such period, (ii) consolidated interest expense for
         such period and (iii) consolidated income tax expense for such period;
         PLUS

                  (c) any non-cash charges, but excluding any non-cash expense
         or loss to the extent it represents an accrual of or reserve for cash
         expenses in any future period or amortization of a prepaid cash expense
         that was paid in a prior period, for such period (or MINUS, any cash or
         non-cash gains for such period); PLUS

                  (d) the net amount, if any, by which the consolidated deferred
         revenues increased for such period (or MINUS the amount, if any, by
         which the consolidated deferred revenues of decreased for such period);
         MINUS

                  (e) cash payments made during such period which were not
         deducted in determining Net Income for such period but that were (or
         will be) a non-cash charge deducted in determining Net Income for a
         prior (or subsequent) fiscal year; MINUS

                  (f)  the aggregate amount of interest income for such period.

                  If during any period for which Adjusted EBITDA is being
determined the Issuer or any Restricted Subsidiary shall have consummated any
Acquisition or Asset Sale then, for all purposes of this Agreement, Adjusted
EBITDA shall be determined on a pro forma basis (using assumptions that the
Issuer in good faith believes are fair, accurate and reasonable at the time, and
in which assumptions the Administrative Agent concurs) as if such Acquisition or
Asset Sale had been made or consummated on the first day of such period.

                  "ADMINISTRATIVE AGENT" has the meaning specified in the
recital of parties to this Agreement.

                  "ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the
Administrative Agent maintained by the Administrative Agent at Citibank in New
York, New York, ABA # 021-00-0089 Account No. 36852248, Reference: NAIB Agency
Medium Term Finance, Attention: Nina Qureshi (or her successor), or such other
account maintained by the Administrative Agent as may be designated by the
Administrative Agent in a written notice to the Holders and the Issuer.

                  "ADMINISTRATIVE QUESTIONNAIRE" means an administrative
questionnaire in a form supplied by the Administrative Agent.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -3-

                  "AFFECTED HOLDER" has the meaning specified in Section 2.11.

                  "AFFILIATE" means, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
Person specified.

                  "AGREEMENT" means this Note and Guarantee Agreement.

                  "APPLICABLE MARGIN" means, for any day, (i) 3.50% with respect
to any Base Rate Portions and (ii) 4.50% with respect to any Eurodollar Rate
Portions.

                  "ASSET SALE" means (a) the sale, lease, transfer, conveyance
or other disposition of any assets or rights (including, without limitation, by
way of a sale and leaseback) other than sales of inventory in the ordinary
course of business and other than any sale, lease, transfer, conveyance or other
disposition in the ordinary course of business of capacity on any fiber optic or
cable system owned, controlled or operated by the Issuer or any Restricted
Subsidiary or of telecommunications capacity, transmission rights, conduit or
rights-of-way acquired by the Issuer or any Restricted Subsidiary for use in a
Telecommunications Business of the Issuer or any Restricted Subsidiary, and (b)
the issue or sale by the Issuer or any of its Restricted Subsidiaries of Equity
Interests of any Subsidiary. Notwithstanding the foregoing, the following items
shall not be deemed to be Asset Sales: (i) a transfer of assets by the Issuer to
a Restricted Subsidiary or by a Subsidiary to the Issuer or to a Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Subsidiary to the Issuer
or to a Restricted Subsidiary, (iii) Restricted Payments permitted under Section
6.07, (iv) Investments permitted under Section 6.05, (v) a disposition of
obsolete or worn out equipment or equipment that is no longer useful in the
conduct of a Telecommunications Business of the Issuer and its Restricted
Subsidiaries and that is disposed of in the ordinary course of business with an
aggregate fair market value (as to all such dispositions) not to exceed
$5,000,000, (vi) the surrender or waiver by the Issuer or any of its Restricted
Subsidiaries of contract rights or the settlement, release or surrender of
contract, tort or other claims of any kind by the Issuer or any of its
Restricted Subsidiaries or the grant by the Issuer or any of its Restricted
Subsidiaries of a Lien not prohibited by this Agreement, (vii) the sale of Cash
Equivalents in the ordinary course of business and (viii) sales, transfers,
assignments and other dispositions of assets (or related assets in related
transactions) in the ordinary course of business with an aggregate fair market
value of less than $1,000,000.

                  "ATTRIBUTABLE DEBT" means, on any date, in respect of any
lease of the Issuer entered into as a part of a sale and leaseback transaction
described in Section 6.04, (i) if such lease is a Capital Lease Obligation, the
capitalized amount thereof that would appear on a balance sheet of the Issuer
prepared as of such date in accordance with GAAP, and (ii) if such lease is not
a Capital Lease Obligation, the capitalized amount of the remaining lease
payments under such lease that would appear on a balance sheet of the Issuer
prepared as of such date in accordance with GAAP as if such lease were accounted
for as a Capital Lease Obligation.

                  "BANKRUPTCY CODE" means Title 11 of the United States Code, as
from time to time amended.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -4-

                  "BASE RATE" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be equal to
the higher of means a fluctuating interest rate per annum equal at all times to
the highest of:

                  (a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate; and

                  (b) 0.50% per annum above the latest three-week moving average
         of secondary market morning offering rates in the United States for
         three-month certificates of deposit of major United States money market
         banks, such three-week moving average being determined weekly on each
         Monday (or, if any such day is not a Business Day, on the next
         succeeding Business Day) for the three-week period ending on the next
         previous Friday by Citibank on the basis of such rates reported by
         certificate of deposit dealers to and published by the Federal Reserve
         Bank of New York or, if such publications shall be suspended or
         terminated, on the basis of quotations for such rates received by
         Citibank from three New York certificate of deposit dealers of
         recognized standing selected by Citibank, in either case adjusted to
         the nearest 1/4 of one percent or, if there is no nearest 1/4 of one
         percent, to the next higher 1/4 of one percent; and

                  (c) for any day, 1/2 of one percent per annum above the
         weighted average of the rates on overnight Federal funds transactions
         with members of the Federal Reserve System arranged by Federal funds
         brokers, as published for such day (or, if such day is not a Business
         Day, for the next preceding Business Day) by the Federal Reserve Bank
         of New York, or, if such rate is not so published for any day which is
         a Business Day, the average of the quotations for such day on such
         transactions received by Citibank from three Federal funds brokers of
         recognized standing selected by it.

                  "BASE RATE PORTION" means the portion of each Note that bears
interest as provided in Section 2.05(a)(i).

                  "BASIC DOCUMENTS" means, collectively, the Note Documents, the
Vendor Agreements, the Verizon Agreement, the Verizon Debt Agreement and the
agreements executed and delivered in connection with the issuance of the
convertible debt or equity referred to in Section 3.01(l).

                  "BENEFICIAL OWNERS" has the meaning given to such term under
the Investment Company Act and the rules and regulations thereunder.

                  "BUSINESS DAY" means any day on which banks are not required
or authorized to close in New York City, New York and, if such Business Day
relates to a Eurodollar Rate Portion, on which dealings are carried on in the
London interbank market.

                  "CAPITAL EXPENDITURES" means, for any period, expenditures of
the Issuer and its Restricted Subsidiaries incurred during such period to
construct, install, acquire or improve fixed assets, real property,
telecommunications systems and equipment (including renewals, improvements and
replacements, but excluding repairs unless such repairs are required to be
capitalized in accordance with GAAP) during such period computed in accordance
with GAAP; but excluding any such expenditures in connection with any
Acquisition and any expenditures

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -5-

made with the proceeds of condemnation awards or insurance for fixed assets,
real property or improvements thereon and telecommunications systems and
equipment.

                  "CAPITAL LEASE OBLIGATIONS" of any Person means, for any
period, the obligations (including the aggregate amount of Capital Lease
Obligations incurred during such period) of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a balance sheet
of such Person under GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.

                  "CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.

                  "CASH EQUIVALENTS" means:

                  (a) direct obligations of, or obligations the principal of and
         interest on which are unconditionally guaranteed by, the United States
         of America (or by any agency thereof to the extent such obligations are
         backed by the full faith and credit of the United States of America),
         in each case maturing within one year from the date of acquisition
         thereof;

                  (b) investments in commercial paper maturing within 270 days
         from the date of acquisition thereof and having, at such date of
         acquisition, one of the two highest credit ratings obtainable from
         Standard & Poor's or from Moody's;

                  (c) investments in certificates of deposit, banker's
         acceptances, time deposits and demand deposits maturing within one year
         from the date of acquisition thereof issued or guaranteed by or placed
         with, and money market deposit accounts issued or offered by, any
         domestic or foreign commercial bank that has a combined capital and
         surplus and undivided profits of not less than $1,000,000,000;

                  (d) repurchase obligations with a term of not more than 90
         days for, and secured by, underlying securities of the types described
         in clauses (a) through (c) above entered into with a bank meeting the
         qualifications described in clause (c) above; and

                  (e) mutual funds whose investment guidelines restrict such
funds' investments primarily to those satisfying the provisions of clauses (a)
through (c) above.

                  "CASH INTEREST EXPENSE" means, for any period, the sum (for
the Issuer and its Restricted Subsidiaries determined on a consolidated basis
without duplication in accordance with GAAP), of the excess of (a) the sum of
(i) all interest expense (including imputed interest expense in respect of
Capital Lease Obligations) for such period PLUS (ii) any interest accrued during
such period in respect of Indebtedness that is required to be capitalized rather
than

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -6-

included in consolidated interest expense for such period, PLUS (iii) any
cash payments made during such period in respect of obligations referred to in
clause (b) below that were amortized or accrued in a previous period, PLUS (iv)
the aggregate amount of regularly scheduled dividends and distributions in cash
made during such period in respect of Capital Stock MINUS (b) the sum of (i) to
the extent included in such consolidated interest expense for such period,
non-cash amounts attributable to amortization of financing costs paid in a
previous period, PLUS (ii) to the extent included in such consolidated interest
expense for such period, non-cash amounts attributable to amortization of debt
discounts or accrued interest payable in kind for such period. For purposes of
the foregoing, (A) Cash Interest Expense shall be determined taking into account
any net payments made or received by the Issuer or any Restricted Subsidiary
under Interest Rate Protection Agreements and (B) to the extent Cash Interest
Expense for any Indebtedness is being determined for a future period, the
applicable interest rate during such future period shall be deemed to be equal
to the rate of interest in effect at the beginning of such period, and the
aggregate amount of such Indebtedness to be outstanding during such period shall
be determined under the assumption that all regularly scheduled payments of
principal (but no prepayments or redemptions of principal) will be made in
respect of such Indebtedness during such period.

                  If during any period for which Cash Interest Expense is being
determined the Issuer or any Restricted Subsidiary shall have consummated any
Acquisition or Asset Sale then, for all purposes of this Agreement, Cash
Interest Expense shall be determined on a pro forma basis (using assumptions
that the Issuer in good faith believes are fair, accurate and reasonable at the
time, and in which assumptions the Administrative Agent concurs) as if such
Acquisition or Asset Sale (and any Indebtedness incurred by the Issuer or any
Restricted Subsidiary in connection with such Acquisition or repaid as a result
of such Asset Sale) had been made or consummated (and such Indebtedness incurred
or repaid) on the first day of such period.

                  "CASUALTY EVENT" means, with respect to any property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
property for which such Person or any of its Restricted Subsidiaries receives
insurance proceeds, proceeds of a condemnation award or other compensation.

                  "CHANGE OF CONTROL" means the occurrence of any one or more of
the following events:

                  (a) any "person" or "group" (as such terms are used in Section
         13(d)(3) of the Exchange Act), other than a Permitted Holder, is or
         becomes the beneficial owner, directly or indirectly, of 35% or more of
         the Voting Stock (measured by voting power rather than number of
         shares) of the Issuer and the Permitted Holders own, in the aggregate,
         a lesser percentage of the total Voting Stock (measured by voting power
         rather than by number of shares) of the Issuer than such person and do
         not have the right or ability by voting power, contract or otherwise to
         elect or designate for election a majority of the Board of Directors of
         the Issuer (for the purposes of this clause, such other person shall be
         deemed to "beneficially own" any Voting Stock of a specified
         corporation held by a parent corporation if such other person
         beneficially owns, directly or indirectly, more than 35% of the Voting
         Stock (measured by voting

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -7-

         power rather than by number of shares) of such parent corporation and
         the Permitted Holders beneficially own, directly or indirectly, in
         the aggregate a lesser percentage of Voting Stock (measured by
         voting power rather than by number of shares) of such parent
         corporation and do not have the right or ability by voting power,
         contract or otherwise to elect or designate for election a majority
         of the Board of Directors of such parent corporation),

                  (b)  during any period of two consecutive years, Continuing
         Directors cease for any reason to constitute a majority of the Board
         of Directors of the Issuer, or

                  (c) any change in control (or similar event, however
         denominated) with respect to the Issuer shall occur under and as
         defined in any indenture or agreement in respect of Indebtedness of the
         Issuer or any of its Restricted Subsidiaries (including a "Change of
         Control" applicable to any of the Senior Notes) and the Issuer shall,
         as a result thereof, be required to repay, redeem or repurchase all or
         any part of such Indebtedness (or offer to do any of the foregoing), or
         such change of control shall constitute a default under such indenture
         or agreement.

                  "CITIBANK" means Citibank, N.A., a national banking
association, and its successors.

                  "CITICORP USA" means Citicorp USA, Inc., a Delaware
corporation.

                  "CLOSING DATE" means the date upon which the conditions
specified in Section 3.01 are satisfied (or waived by each Purchaser) and the
initial Notes are issued hereunder.

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

                  "COLLATERAL" means all "Collateral" referred to in the Senior
Security Documents and all other property that is subject to any Lien created by
any Senior Security Document in favor of the Administrative Agent.

                  "COMMITMENT" with respect to each Purchaser, the commitment of
each Purchaser to purchase a Note on the Closing Date, as such commitment may be
(a) reduced from time to time pursuant to Section 2.04 and (b) reduced or
increased from time to time pursuant to transfers by or to such Purchaser
pursuant to Section 10.09. The initial amount of each Purchaser's Commitment is
set forth on Schedule 2.01, or in the Transfer and Acceptance pursuant to which
such Purchaser shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Purchasers' Commitments is $150,000,000.

                  "CONFIDENTIAL INFORMATION" means any information that the
Issuer or any of its Restricted Subsidiaries furnishes to the Administrative
Agent or any Holder, but does not include any such information once such
information has become generally available to the public or once such
information has become available to the Administrative Agent or any Holder from
a source other than the Issuer or any of its Restricted Subsidiaries (unless, in
either case, such information becomes so available as a result of the breach by
the Administrative Agent or a Holder of its duty of confidentiality set forth in
Section 10.11).

                  "CONSOLIDATING FINANCIAL STATEMENTS" means, as at the end of
and for any period, separately presented financial statements for the optical
infrastructure business and the internet

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -8-

infrastructure services business of the Issuer and its Subsidiaries, setting out
the revenues, gross margins and property, plant and equipment for each such
business as at the end of and for such period.

                  "CONTINUATION", "CONTINUE" and "CONTINUED" each refers to a
continuation of any Eurodollar Rate Portion from one Interest Period to the next
Interest Period pursuant to Section 2.06.

                  "CONTINUING DIRECTORS" means individuals who at the beginning
of the period of determination constituted the Board of Directors of the Issuer,
together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Issuer was approved by
a vote of a majority of the directors of the Issuer 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 or is the designee of any one
of the Permitted Holders or any combination thereof or was nominated or elected
by any such Permitted Holder(s) or any of their designees.

                  "CONTRIBUTED CAPITAL" means, as at any date, the sum
(determined without duplication) of (a) $2,820,001,000 PLUS (b) the net cash
proceeds received by the Issuer after December 31, 2000 in respect of the
issuance and sale of Capital Stock (other than Disqualified Stock) of the
Issuer, or from the conversion of Indebtedness of the Issuer into Capital Stock
(other than Disqualified Stock) of the Issuer, PLUS (c) the aggregate amount
deemed to have been received by the Issuer at the time of conversion of any
Indebtedness of the Issuer into Capital Stock (other than Disqualified Stock) of
the Issuer representing the principal amount of such Indebtedness so converted
and any accrued and unpaid interest thereon which is forfeited in connection
with such conversion MINUS (d) the aggregate amount of Restricted Payments made
in respect of the Capital Stock of the Issuer after December 31, 2000).

                  "CONTROL" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" shall have meanings
correlative thereto.

                  "CONTROLLED GROUP" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Issuer, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.

                  "CONVERSION", "CONVERT" and "CONVERTED" each refers to a
conversion of portions of Notes of one Type into portions of Notes of the other
Type pursuant to Section 2.06 or 2.07.

                  "DATA CENTER" means a co-location facility where entities are
able to transfer electronic data among themselves and with other parties outside
such facility.

                  "DEBT SERVICE" means, for any period, the sum of, for the
Issuer and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), the following: (a) all regularly
scheduled payments or regularly scheduled prepayments or redemptions of
principal of Indebtedness (including, without limitation, the principal
component

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -9-

of any payments in respect of Capital Lease Obligations) made or payable during
such period (or, in the event the relevant period is a future period, scheduled
to be made during such period) PLUS (b) all Cash Interest Expense for such
period.

                  "DEFAULT" means any event that would constitute an Event of
Default but for the requirement that notice be given or time elapse or both.

                  "DISQUALIFIED STOCK" means any Capital Stock or other
ownership interest that, by its terms (or by the terms of any security into
which it is convertible, or for which it is exchangeable, in each case at the
option of the holder thereof), or upon the happening of any event, (a) matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to the date that is 91 days after the maturity of the Senior
Notes, (b) is secured by any assets of the Issuer or any Restricted Subsidiary
or is Guaranteed by any Restricted Subsidiary or (c) is exchangeable or
convertible at the option of the holder into Indebtedness of the Issuer or any
Restricted Subsidiary.

                  Notwithstanding the preceding sentence, any Capital Stock or
other ownership interest that would constitute Disqualified Stock solely because
the holders thereof have the right to require the Issuer to repurchase such
Capital Stock or other ownership interest upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
such Capital Stock or other ownership interest provide that the Issuer may not
repurchase or redeem any such Capital Stock or other ownership interest pursuant
to such provisions unless such repurchase or redemption complies with the
provisions of Section 6.07.

                  "DOLLARS" and "$" means lawful money of the United States.

                  "ELIGIBLE INSTITUTION" means (a) any Holder or any Holder
Affiliate, (b) any ML Holder and (c) any other Person (other than an Affiliate
of the Issuer) approved by the Administrative Agent, such approval not to be
unreasonably withheld or delayed.

                  "ENVIRONMENTAL LAWS" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.

                  "ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities, and including any Lien filed
against any property covered by any Senior Security Document in favor of any
Governmental Authority), of the Issuer or any Restricted Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -10-

                  "ENVIRONMENTAL PERMIT" means any permit, approval,
authorization, certificate, registration, license, variance, filing, permission
or other approval required by or from any Government Authority pursuant to any
Environmental Law.

                  "EQUITY INTERESTS" means shares of Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital Stock).

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.

                  "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with the Issuer, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.

                  "ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan with respect to which notice is required to be given to the PBGC; (b) the
adoption of any amendment to a Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303 of
ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of the Issuer or any of its ERISA Affiliates from any Plan or
Multiemployer Plan; (f) the receipt by the Issuer or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or, in the case of the PBGC, to appoint a trustee to
administer any Plan; (g) the receipt by the Issuer or any ERISA Affiliate of any
notice concerning the imposition of Withdrawal Liability or a determination that
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited
transaction" with respect to which the Issuer or any of its Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which the Issuer or any Restricted Subsidiary could otherwise be
liable; and (i) any other event or condition with respect to a Plan or
Multiemployer Plan that could reasonably be expected to result in liability of
the Issuer or any of its Subsidiaries.

                  "EURODOLLAR BASE RATE" means, for any Interest Period for each
Eurodollar Rate Portion, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to U.S. dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for U.S. dollar deposits with
a maturity comparable to such Interest Period. In the event that such rate is
not available at such time for any reason, then the "Eurodollar Base Rate" with
respect to such Eurodollar Rate Portion for such Interest Period shall be the
rate at which U.S. dollar deposits of $5,000,000, and for a maturity comparable
to such Interest Period, are offered

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -11-

by the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.

                  "EURODOLLAR RATE" means, for any Interest Period for each
Eurodollar Rate Portion, an interest rate per annum equal to the rate per annum
obtained by DIVIDING (a) Eurodollar Base Rate for such Eurodollar Rate Portion
by (b) a percentage equal to 100% MINUS the Reserve Percentage for such Interest
Period.

                  "EURODOLLAR RATE PORTION" means the portion of each Note that
bears interest as provided in Section 2.05(a)(ii).

                  "EVENTS OF DEFAULT" has the meaning specified in Article VII.

                  "EXCESS CASH FLOW" means, for any fiscal year, the sum (for
the Issuer and its Restricted Subsidiaries determined on a consolidated basis
without duplication in accordance with GAAP) of the following:

                  (a) Net Income for such fiscal year, adjusted to exclude any
         gains or losses attributable to any Asset Sale or Casualty Event; PLUS

                  (b) depreciation, amortization and other non-cash charges or
         losses deducted in determining Net Income for such fiscal year; PLUS

                 (c) the sum of (i) the amount, if any, by which Working Capital
         decreased during such fiscal year PLUS (ii) the net amount, if any, by
         which the consolidated deferred revenues increased during such fiscal
         year; MINUS

                 (d) the sum of (i) any non-cash gains included in determining
         Net Income for such fiscal year PLUS (ii) the amount, if any, by which
         Working Capital increased during such fiscal year PLUS (iii) the
         amount, if any, by which the consolidated deferred revenues of
         decreased during such fiscal year; MINUS

                  (e) the sum of (i) Capital Expenditures paid in cash during
         such fiscal year (except to the extent attributable to the incurrence
         of Capital Lease Obligations or otherwise financed by incurring Funded
         Indebtedness and except to the extent paid with Net Available Proceeds
         in respect of any Asset Sale or Casualty Event or from the issuance of
         Capital Stock or other Equity Interests) PLUS (ii) cash consideration
         paid during such fiscal year to make acquisitions or other investments
         permitted hereunder (other than Cash Equivalents and except to the
         extent financed by incurring Funded Indebtedness or issuing Capital
         Stock or other Equity Interests); MINUS

                  (f) cash payments made during such fiscal year which were not
         deducted in determining Net Income for such fiscal year that will in a
         subsequent fiscal year become a non-cash charge deducted in determining
         Net Income for such subsequent fiscal year; MINUS

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -12-

                  (g) the aggregate principal amount of Funded Indebtedness
         repaid or prepaid by the Issuer and its Restricted Subsidiaries during
         such period, excluding (i) Notes redeemed pursuant to Section 2.04 and
         (ii) repayments, or prepayments or redemptions, of Funded Indebtedness
         financed by incurring other Funded Indebtedness.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

                  "EXCLUDED PERIOD" means, with respect to any additional amount
payable under Section 2.07, the period ending 180 days prior to the applicable
Holder's delivery of a certificate referenced in Section 2.07(a) or 2.07(b), as
applicable, with respect to such additional amount.

                  "FEDERAL" is used as an adjective with respect to the federal
government of the United States.

                  "FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations for such day
for such transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.

                  "FINANCIAL OFFICER" of any Person means the chief financial
officer, chief accounting officer, treasurer or controller of such Person.

                  "FOREIGN SUBSIDIARY" means any Subsidiary organized under the
laws of any country other than the United States of America, a State thereof or
the District of Columbia.

                  "FORM 10-K" means the Issuer's Annual Report on Form 10-K for
the year ended December 31, 2000, as filed with the Securities and Exchange
Commission.

                  "FRANCHISE" means a franchise, license, authorization or right
by contract or otherwise to construct, own, operate, promote and/or extend any
Telecommunications Asset operated or to be operated by the Issuer or any of its
Restricted Subsidiaries granted by any state, county, city, town, village or
other local or state government authority. The term "Franchise" shall include
each of the Franchises set forth on Schedule 4.01(u) hereto.

                  "FUNDED INDEBTEDNESS" means, as of any date, the sum (for the
Issuer and its Restricted Subsidiaries determined on a consolidated basis
without duplication in accordance with GAAP), of the sum of (a) all Indebtedness
for borrowed money of the Issuer and its Restricted Subsidiaries which by its
terms matures more than one year after such date, and any such Indebtedness for
borrowed money maturing within one year from such date which is renewable or
extendible at the option of the obligor to a date more than one year from such
date PLUS (b) the Imputed Principal Amount of all Preferred Stock outstanding on
such date.

                  "GAAP" means generally accepted accounting principles in the
United States.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -13-

                  "GOVERNMENTAL AUTHORITY" means any national, Federal, state,
provincial, territorial, municipal, regional, local or foreign judicial,
administrative or governmental agency, board, authority, instrumentality or
other law, regulatory or rule-making body.

                  "GUARANTEE" of or by any Person means any obligation,
contingent or otherwise, of such Person guaranteeing any Indebtedness of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or indirect, (a)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or to purchase (or to advance or supply funds for the purchase
of) any security for the payment of such Indebtedness, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness or (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; PROVIDED that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.

                  "GUARANTEED OBLIGATIONS" means, with respect to the Guarantee
of any Guarantor hereunder, the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of (A) the principal of and
interest on the Notes held by the Holders and all other amounts from time to
time owing to the Holders and the Administrative Agent by the Issuer under this
Agreement and (B) all amounts from time to time owing to any Holder (or any
Affiliate of any Holder) in respect of any Hedging Agreement entered into with
the Issuer or any Restricted Subsidiary of the Issuer.

                  "GUARANTORS" has the meaning specified in recital of the
parties to this Agreement.

                  "HAZARDOUS MATERIALS" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.

                  "HEDGING AGREEMENT" means any Interest Rate Protection
Agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.

                  "HOLDER AFFILIATE" means, (a) with respect to any Holder, (i)
an Affiliate of such Holder or (ii) any entity (whether a corporation,
partnership, trust or otherwise) that is engaged in making, purchasing, holding
or otherwise investing in debt securities, loans and similar extensions of
credit in the ordinary course of its business and is administered or managed by
a Holder or an Affiliate of such Holder and (b) with respect to any Holder that
is a fund which invests in debt securities, loans and similar extensions of
credit, any other fund that invests in debt securities, loans and similar
extensions of credit and is managed by the same investment advisor as such
Holder or by an Affiliate of such investment advisor.

                  "HOLDERS" means the Purchasers and each Eligible Institution
that becomes a party hereto as a "Holder" pursuant to Section 10.09.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -14-

                  "IMPUTED PRINCIPAL AMOUNT" means, with respect to any class of
Preferred Stock, the maximum amount that could be payable upon mandatory
redemption or repurchase of such Preferred Stock or, if no mandatory redemption
or repurchase is applicable, the greater of the issue price or liquidation
preference of such Preferred Stock.

                  "INDEBTEDNESS" of any Person means, without duplication: (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments; (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person; (d) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business); (e) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed; (f) all Guarantees by such Person of Indebtedness of others; (g)
all Capital Lease Obligations of such Person; (h) all net payment obligations of
such Person in respect of Interest Rate Protection Agreements and other Hedging
Agreements; and (i) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances. The Indebtedness of any
Person shall include the Indebtedness of any partnership in which such Person is
a general partner.

                  "INDEMNIFIED PARTY" means the Administrative Agent, each
Holder and each of their respective Affiliates and their officers, partners,
directors, employees, agents and advisors.

                  "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any Holder of a Note holding more than 5% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.

                  "INTEREST EXPENSE COVERAGE RATIO" means, as at any date, the
ratio of (a) Adjusted EBITDA for the period of four fiscal quarters ending on or
most recently ended prior to such date to (b) Cash Interest Expense for such
period.

                  "INTEREST PAYMENT DATE" has the meaning specified in
Section 2.05

                  "INTEREST PERIOD" means, for the Eurodollar Rate Portion of
each Note, the period commencing on the Closing Date or the date of the
Conversion of any Base Rate Portion of such Note into such Eurodollar Rate
Portion of such Note, as applicable, and ending on the last day of the period
selected by the Issuer pursuant to the provisions below and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the Issuer
pursuant to the provisions below. The duration of each such Interest Period
shall be one, two, three or six months (or, with the consent of each Holder,
nine or twelve months), as the Issuer may select; PROVIDED that:

                  (a)  no Interest Period may end after the Maturity Date;

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -15-

                  (b) whenever the last day of any Interest Period would
         otherwise occur on a day other than a Business Day, the last day of
         such Interest Period shall be extended to occur on the next succeeding
         Business Day, PROVIDED that, if such extension would cause the last day
         of such Interest Period to occur in the next following calendar month,
         the last day of such Interest Period shall occur on the next preceding
         Business Day; and

                  (c) whenever the first day of any Interest Period occurs on
         the last day of a calendar month (or on any day for which there is no
         numerically corresponding day in the appropriate subsequent calendar
         month), such Interest Period shall end on the last Business Day of the
         appropriate subsequent calendar month.

                  "INTEREST RATE PROTECTION AGREEMENT" means any interest rate
swap, cap or other agreement satisfactory to the Administrative Agent entered
into by the Issuer that is designed to protect the Issuer against fluctuations
in interest rates and not for speculation.

                  "IN-THE-MONEY" means, with respect to any Indebtedness that is
convertible into shares of common stock of the Issuer, that such Indebtedness
can be converted at the option of the holder thereof into shares of common stock
of the Issuer having a market value in excess of the accreted amount of the
Indebtedness required to effect such conversion.

                  "INVESTMENT" means, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such sale); (b)
the making of any deposit with, or advance, loan or other extension of credit
to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such Person); or (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person.

                  "INVESTMENT COMPANY ACT" means the United States Investment
Company Act of 1940, as amended.

                  "ISSUER" has the meaning specified in the recital of the
parties to this Agreement.

                  "ISSUER'S ACCOUNT" means the account maintained by the Issuer
and designated by the Issuer in a written notice to the Administrative Agent.

                  "JUNIOR INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT" means,
collectively, the junior intercreditor and collateral agency agreements referred
to in Section 3.01(n).

                  "JUNIOR SECURITY DOCUMENTS" means the Junior Security
Documents under and as defined in the Junior Intercreditor and Collateral Agency
Agreement.

                  "KNOWLEDGEABLE EMPLOYEES" has the meaning specified in Rule
3c-5 of the Investment Company Act.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -16-

                  "LICENSES" means all licenses, writs, permits, approvals,
authorizations, consents, orders, certificates, waivers, franchises and
registrations now existing or hereafter granted to or in favor of the Issuer or
any Restricted Subsidiary by any Government Authority including the licenses
described in Schedule 4.01(t).

                  "LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including the lien or retained security title of a conditional vendor and any
mortgage, easement, right of way or other encumbrance on title to real property.

                  "MARGIN STOCK" has the meaning specified in Regulations T, U
and X.

                  "MATERIAL ADVERSE EFFECT" means (a) a materially adverse
effect on the business, assets, operations, properties, condition (financial or
otherwise), contingent liabilities or Material Agreements of the Issuer and its
Restricted Subsidiaries, taken as a whole, (b) a material impairment of the
ability of either the Issuer or the Issuer and its Restricted Subsidiaries,
taken as a whole, to perform their respective obligations under the Basic
Documents, or (c) a material impairment of the rights of or benefits available
to the Administrative Agent and the Holders under the Note Documents.

                  "MATERIAL AGREEMENT" means, collectively, (a) the Senior Notes
(and any indenture relating thereto), (b) the Nortel Agreement and the other
Vendor Agreements, (c) the Verizon Agreement and Verizon Debt Agreement, (d) any
agreement with a vendor or contractor pursuant to which the Issuer reasonably
anticipates that the Issuer and its Subsidiaries will purchase in the aggregate
more than $50,000,000 of equipment or construction services, (e) any agreement
providing for the sale or lease of fiber by the Issuer or any Restricted
Subsidiary for aggregate consideration of $50,000,000 or more and (f) the other
agreements listed in Schedule 4.01(k).

                  "MATERIAL INDEBTEDNESS" means Indebtedness (excluding any
obligations under the Note Documents but including obligations in respect of
Hedging Agreements), of the Issuer or any of its Restricted Subsidiaries in an
aggregate principal amount exceeding $5,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of any Person
in respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that such Person would be
required to pay if such Hedging Agreement were terminated at such time.

                  "MATURITY DATE" means the Quarterly Date falling on or nearest
to September 30, 2006.

                  "ML HOLDERS" means each of Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Equity/Convertible Series Global Allocation Portfolio,
Merrill Lynch Variable Series Funds, Inc. (Merrill Lynch Global Allocation Focus
Fund) and Merrill Lynch Series Fund, Inc. (Global Allocation Strategy Portfolio)
and any Holder Affiliates thereof.

                  "MOODY'S" means Moody's Investors Service, Inc. and its
successors.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -17-

                  "MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

                  "NET AVAILABLE PROCEEDS" means:

                  (a) In the case of any Asset Sale, the aggregate amount of all
         cash payments as and when received by the Issuer and its Restricted
         Subsidiaries directly or indirectly in connection with such Asset Sale;
         PROVIDED that:

                           (1) such Net Available Proceeds shall be net of (x)
                  the amount of any legal, title and recording tax expenses,
                  commissions and other reasonable fees and expenses (including
                  reasonable expenses of preparing the relevant property for
                  sale) paid by the Issuer and its Restricted Subsidiaries in
                  connection with such Asset Sale, (y) any foreign, Federal,
                  state and local income or other taxes estimated in good faith
                  to be payable by the Issuer and its Restricted Subsidiaries as
                  a result of such Asset Sale and (z) the aggregate amount of
                  reserves taken by the Issuer and its Restricted Subsidiaries
                  in accordance with GAAP against indemnification obligations
                  incurred by them in connection with such Asset Sale; and

                           (2) such Net Available Proceeds shall be net of any
                  repayments of Indebtedness by the Issuer and its Restricted
                  Subsidiaries to the extent that such Indebtedness is secured
                  by a Lien (other than a Lien under, or subject to the
                  provisions of, the Junior Security Documents) on the property
                  that is the subject of such Asset Sale; and

                  (b) In the case of any Casualty Event, the aggregate amount of
         proceeds of insurance, condemnation or expropriation awards and other
         compensation received by the Issuer and its Restricted Subsidiaries in
         respect of such Casualty Event net of (1) reasonable expenses incurred
         by them in connection therewith, (2) contractually required repayments
         of Indebtedness to the extent secured by a Lien on the property
         suffering such Casualty Event and any foreign, Federal, state and local
         income or other taxes estimated in good faith to be payable by the
         Issuer and its Restricted Subsidiaries as a result of such Casualty
         Event and (3) amounts promptly (and in any case within 10 days) applied
         to or set aside for the repair or replacement of the property suffering
         such Casualty Event.

                  "NET INCOME" means, for any period, the sum (for the Issuer
and its Restricted Subsidiaries determined on a consolidated basis without
duplication in accordance with GAAP) of the net income or loss of the Issuer and
its Restricted Subsidiaries for such period; PROVIDED that there shall be
excluded (a) the income or loss attributable to any entity not constituting a
Subsidiary in which the Issuer owns an Equity Interest, (b) the portion of the
income or loss of any Restricted Subsidiary attributable to the Equity Interest
held by any other Person (other than the Issuer or any Restricted Subsidiary or
any director holding qualifying shares in compliance with applicable law), (c)
the income or loss of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Issuer or any
of its Restricted Subsidiaries or the date that such Person's assets are
acquired by the Issuer or any of its Restricted Subsidiaries, (d) the income or
loss attributable to a Foreign Subsidiary to the extent

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -18-

that the declaration or payment of dividends or similar distributions by that
Subsidiary is not at the last day of such period permitted without prior
governmental approval (that has not been obtained) or, directly or indirectly by
operation of the terms of its charter or any agreement, instrument, order or
decree to which such Subsidiary or its equityholders are subject and (e) the net
income attributable to a Foreign Subsidiary not subject to the foregoing clause
(d) shall be determined net of any income or other taxes that would be payable
in respect of any dividend or distribution made by such Foreign Subsidiary.

                  "NET TANGIBLE ASSETS" means, as at any date, (a) the aggregate
assets as at said date of the Issuer and its Restricted Subsidiaries determined
on a consolidated basis without duplication in accordance with GAAP MINUS (b)
the aggregate intangible assets as at said date of the Issuer and its Restricted
Subsidiaries determined on a consolidated basis in accordance with GAAP.

                  "NEW SUBSIDIARY" has the meaning specified in Section 5.04(a).

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

                  "NORTEL AGREEMENT" means, collectively, Vendor Agreements
between Nortel and one or more of the Obligors (other than the Issuer) providing
in the aggregate for the deferral of all presently outstanding Vendor
Obligations due from the Obligors to Nortel giving effect to a maximum cash
payment of $15,000,000 in connection with such deferral.

                  "NOTE" has the meaning specified in Section 2.01.

                  "NOTE DOCUMENTS" means, collectively, this Agreement, the
Senior Security Documents and the Warrant Documents.

                  "NOTICE OF ISSUANCE" has the meaning specified in Section
2.02(a).

                  "OBLIGORS" has the meaning specified in the recitals of
parties to this Agreement.

                  "OTHER TAXES" has the meaning specified in Section 2.09.

                  "PAYMENT DATE" means any Interest Payment Date and the
Maturity Date.

                  "PAYMENT OFFICE" means, with respect to any Holder, the office
of such Holder specified as its "Payment Office" in the Administrative
Questionnaire of such Holder or in the Transfer and Acceptance pursuant to which
it became a Holder, or such other office of such Holder as such Holder may from
time to time specify to the Administrative Agent.

                  "PBGC" means the Pension Benefit Guaranty Corporation.

                  "PERMITTED HOLDER" means Metromedia Company, a Delaware
general partnership, its general partners and their respective Related Persons
and Persons that would constitute a Class B Permitted Holder as defined in the
Issuer's Amended and Restated Certificate of Incorporation.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -19-

                  "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of
the Issuer or any Restricted Subsidiary issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Issuer or any Restricted Subsidiary (other than
intercompany Indebtedness), PROVIDED that:

                  (a) the principal amount (or accreted value, if applicable) of
         such Permitted Refinancing Indebtedness does not exceed the principal
         amount outstanding of (or accreted value, if applicable), PLUS accrued
         interest on, the Indebtedness so extended, refinanced, renewed,
         replaced, defeased or refunded (PLUS the amount of reasonable expenses
         incurred in connection therewith);

                  (b) such Permitted Refinancing Indebtedness has a final
         maturity date equal to or later than the final maturity date of, and
         has a Weighted Average Life to Maturity equal to or longer than the
         Weighted Average Life to Maturity of, the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded;

                  (c) if the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded is subordinated in right of payment to
         the Notes, such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the Maturity Date and is subordinated in
         right of payment to the Notes on terms at least as favorable to the
         Holders as those contained in the documentation governing the
         Indebtedness being extended, refinanced, renewed, replaced, defeased or
         refunded; and

                  (d) such Indebtedness is incurred either by the Issuer or by
         the Restricted Subsidiary that is the obligor on the Indebtedness being
         extended, refinanced, renewed, replaced, defeased or refunded, and is
         not Guaranteed directly or indirectly by any Restricted Subsidiary of
         the Issuer that has not Guaranteed the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded.

                  "PERSON" means any individual, corporation (including a
business trust), company, voluntary association, partnership, limited liability
company, joint venture, trust, unincorporated organization or Governmental
Authority or other entity of whatever nature.

                  "PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Issuer or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.

                  "POST-DEFAULT RATE" means a rate per annum equal to the
interest rate otherwise applicable PLUS 2%.

                  "PREFERRED STOCK" means any preferred stock issued by the
Issuer after the date hereof so long as the same does not constitute
Disqualified Stock.

                  "PRIVATE LICENSES" means an license, agreement, lease,
authorization or right by contract entered into with, or granted by, a
non-governmental Person in connection with the construction, ownership or
operation by the Issuer or any of its Restricted Subsidiaries of

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -20-

Telecommunications Assets, including, but not limited to easements, right-of-way
agreements, tunnel duct lease agreements, indefeasible right of use agreements,
transmission attachment licenses, underground license agreements and pole,
conduit and/or trench license agreements.

                  "PRO FORMA DEBT SERVICE COVERAGE RATIO" means, as at any date,
the ratio of (a) Adjusted EBITDA for the period of four fiscal quarters ending
on or most recently ended prior to such date to (b) Debt Service for the period
of four fiscal quarters immediately following the period referred to in the
foregoing clause (a).

                  "PRO RATA SHARE" of any amount means, with respect to any
Holder at any time, the product of (a) a fraction the numerator of which is the
amount of such Holder's Commitment or Notes, as the case may be, and the
denominator of which is the aggregate Commitment or Notes, as the case may be,
at such time, MULTIPLIED BY (b) such amount.

                  "PURCHASE PRICE" means with respect to any Acquisition, an
amount equal to the sum of (i) the aggregate consideration, whether cash,
property or securities (including any Indebtedness permitted by clauses (v) or
(x) of Section 6.01(a), or clauses (iv) or (viii) of 6.01(b), issued by the
respective seller and the fair market value of any property being transferred by
the Issuer or any Restricted Subsidiary in exchange for the property being
acquired in such Acquisition), paid or delivered by the Issuer and its
Restricted Subsidiaries in connection with such Acquisition PLUS (ii) the
aggregate amount of liabilities of the acquired business (net of current assets
of the acquired business) that would be reflected on a balance sheet (if such
were to be prepared) of the Issuer and its Restricted Subsidiaries after giving
effect to such Acquisition.

                  "PURCHASER" has the meaning specified in the recitals of the
parties to this Agreement.

                  "QUARTERLY DATES" means March 31, June 30, September 30 and
December 31 in each year, the first of which shall be the first such day after
the date hereof, PROVIDED that, if any such day is not a Business Day, the
relevant Quarterly Date shall be the immediately preceding Business Day.

                  "QUALIFIED PURCHASER" means a Qualified Institutional Buyer as
defined in Rule 144A under the Securities Act and the rules and regulations
thereunder.

                  "REGISTER" has the meaning specified in Section 10.09(c).

                  "REGULATION T", "REGULATION U" and "REGULATION X" mean
Regulations T, U and X of the Board of Governors of the Federal Reserve System,
respectively, as in effect from time to time.

                  "RELATED PERSON" means any Person who controls, is controlled
by or is under common control with a Permitted Holder; PROVIDED, that for
purposes of this definition, "control" means the beneficial ownership of more
than 50% of the total voting power of a Person normally entitled to vote in the
election of directors, managers or trustees, as applicable, of a Person.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -21-

                  "RELEASE" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including the movement of
Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.

                  "REPLACEMENT HOLDER" has the meaning specified in Section
2.11.

                  "REQUIRED HOLDERS" means at any time Holders of more than 50%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by any Obligor or any of their respective Affiliates), or if no Notes
are outstanding, Holders holding more than 50% of the Commitments, PROVIDED that
for purposes hereof, none of the Obligors or Vendors, nor any of their
Affiliates, shall (unless expressly consented by each other Holder) be deemed to
be "Holders" for purposes of this definition.

                  "REQUIRED SUPERMAJORITY HOLDERS" means at any time Holders of
80% or more in principal amount of the Notes at the time outstanding (exclusive
of Notes then owned by any Obligor or any of their respective Affiliates), or if
no Notes are outstanding, Holders holding 80% or more of the Commitments,
PROVIDED that for purposes hereof, none of the Obligors or Vendors, nor any of
their Affiliates, shall (unless expressly consented by each other Holder) be
deemed to be "Holders" for purposes of this definition.

                  "RESERVE PERCENTAGE" means, for any Interest Period for the
Eurodollar Rate Portion, the reserve percentage (if any) applicable two Business
Days before the first day of such Interest Period under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve requirement)
for a member bank of the Federal Reserve System in New York City with deposits
exceeding $1,000,000,000 with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Rate Portion of the Notes is determined) having a term equal to such
Interest Period.

                  "RESPONSIBLE OFFICER" means any officer of the Issuer
(including any Financial Officer of the Issuer).

                  "RESTRICTED PAYMENT" has the meaning specified in Section
6.07.

                  "RESTRICTED SUBSIDIARY" means any Subsidiary that is not an
Unrestricted Subsidiary.

                  "REVENUES" means, for any period, the revenue for the Issuer
and its Restricted Subsidiaries determined on a consolidated basis without
duplication in accordance with GAAP.

                  "SECURED PARTIES" means, collectively, the parties so
designated in the Senior Security Agreement.

                  "SECURITIES ACT" means the United States Securities Act of
1933, as amended.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -22-

                  "SENIOR MORTGAGES" means, collectively, one or more
instruments of Mortgage, Deeds of Trust, Assignment of Rents, Security Agreement
and Fixture Filings executed by the Issuer or a Guarantor in favor of the
Administrative Agent and the Holders (or in favor of a trustee for the benefit
of the Administrative Agent and/or the Holders) and covering the properties and
leasehold interests identified in Schedule 4.01(v) that are subject to the Lien
of a Senior Mortgage.

                  "SENIOR NOTES" means (a) the $650,000,000 10% Senior Notes due
2008 issued by the Issuer pursuant to an Indenture dated as of November 25, 1998
and (b) the $750,000,000 10% Senior Notes due 2009 and the 250,000,000 10%
Senior Notes due 2009, both issued by the Issuer pursuant to an Indenture dated
as of November 17, 1999.

                  "SENIOR SECURITY AGREEMENT" means a Senior Security Agreement
substantially in the form of Exhibit B between the Obligors and the
Administrative Agent.

                  "SENIOR SECURITY DOCUMENTS" means (a) the Junior Intercreditor
and Collateral Agency Agreement, (b) the Senior Security Agreement, (c) the
Senior Mortgages and (d) each other security agreement, pledge agreement,
mortgage, deed of trust, assignment agreement and other instrument (including
any Uniform Commercial Code financing statements) being executed concurrently
herewith or from time to time hereafter providing for the grant of liens and
security interests (or the recordation thereof) by any of the Obligors in favor
of the Administrative Agent on property of the Obligors as collateral security
for any of the obligations of the Obligors hereunder.

                  "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person on a going concern basis is not less than the amount that will be
required to pay the probable liability of such Person on its Indebtedness as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur Indebtedness or liabilities beyond such Person's
ability to pay as such Indebtedness and liabilities mature and (d) such Person
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would constitute an
unreasonably small amount of capital. The portion of contingent liabilities of
any Person at any time that shall be included for purposes of the above
determinations shall be the amount of such contingent liabilities that, in light
of all facts and circumstances existing at such time, could reasonably be
expected to become actual matured liabilities of such Person.

                  "STANDARD & POOR'S" means Standard & Poor's, a division of The
McGraw-Hill Companies, and its successors.

                  "SUBORDINATED INDEBTEDNESS" means Indebtedness (i) for which
the Issuer is directly and primarily liable, (ii) in respect of which none of
its Restricted Subsidiaries is contingently or otherwise obligated and (iii)
that is subordinated to the obligations of the Issuer to pay principal of and
interest on the Notes hereunder on terms, and pursuant to documentation
containing other terms (including interest, amortization, covenants and events
of default), in form and substance satisfactory to the Required Holders.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -23-

                  "SUBSIDIARY" means, with respect to any Person (herein
referred to as the "PARENT"), any corporation, partnership, limited liability
company, association or other business entity of which securities or other
ownership interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or more than 50% of the general partnership interests
are, at the time any determination is being made, owned, controlled or held
directly or indirectly by the parent. Except as the context shall otherwise
require, all references to "Subsidiaries" in this Agreement shall be deemed to
be references to Subsidiaries of the Issuer.

                  "TAX INDEMNITEE" means each Holder and the Administrative
Agent.

                  "TAXES" has the meaning specified in Section 2.09(a).

                  "TELECOMMUNICATIONS ASSETS" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible, used
or intended for use in connection with a Telecommunications Business and all
Equity Interests of a Person engaged entirely or substantially entirely in a
Telecommunications Business.

                  "TELECOMMUNICATIONS BUSINESS" means the business of (i)
transmitting, or providing services relating to the transmission of voice, video
or data through owned or leased terrestrial or submarine transmission
facilities, (ii) constructing, creating, developing or marketing 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
the foregoing clauses (i) or (ii), PROVIDED that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
board of directors of the Issuer (or an authorized committee thereof).

                  "TRANSACTIONS" means the transactions contemplated by this
Agreement and the other Basic Documents (including the execution, delivery and
performance by the Obligors of the Basic Documents, the incurrence of
liabilities by the Obligors under the Basic Documents and the issuance of the
Notes hereunder).

                  "TRANSFER AND ACCEPTANCE" means a transfer and acceptance
entered into by a Holder and an Eligible Institution, and accepted by each
Agent, in accordance with Section 10.09 and in substantially the form of Exhibit
F.

                  "TOTAL CAPITAL" means, as at any date, the sum of Funded
Indebtedness and Contributed Capital on such date.

                  "TOTAL INDEBTEDNESS" means, at any date, the sum of all
Indebtedness of the Issuer and its Restricted Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP) at such time,
PROVIDED, HOWEVER, that there shall be excluded any Indebtedness arising in
respect of any Hedging Agreement.

                  "TOTAL LEVERAGE RATIO" means, as at any date, the ratio of (a)
Total Indebtedness as at such date to (b) Adjusted EBITDA for the period of four
fiscal quarters ending on or most recently ended prior to such date.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -24-

                  "TOTAL SENIOR INDEBTEDNESS" means, as at any date, Total
Indebtedness (excluding, however, any Subordinated Indebtedness and any
Indebtedness that is not secured) as at such date.

                  "TOTAL SENIOR LEVERAGE RATIO" means, as at any date, the ratio
of (a) Total Senior Indebtedness as at such date to (b) Adjusted EBITDA for the
period of four fiscal quarters ending on or most recently ended prior to such
date.

                  "TYPE" refers to the distinction between the portion of each
Note bearing interest at the Base Rate and the portion of each Note bearing
interest at the Eurodollar Rate.

                  "UNITED STATES" or "U.S." means the United States of America.

                  "UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary designated
by the Issuer as an "Unrestricted Subsidiary" in accordance with the provisions
of Section 6.03 and (b) any Subsidiary of an Unrestricted Subsidiary.

                  "VENDOR" means Nortel and each other vendor or contractor
party to a Vendor Agreement.

                  "VENDOR AGREEMENT" mean, in the case of any vendor or
contractor, the agreements and other instruments entered into pursuant to
Section 3.01(n) between such vendor or contractor and an Obligor providing for
the incurrence of a deferred payment obligation by such Obligor to such Vendor
in whole or partial satisfaction of Vendor Obligations of such Obligor to such
vendor or contractor.

                  "VENDOR GUARANTEE INDEBTEDNESS" means Indebtedness of the
Issuer in respect of a Guarantee by it of Vendor Obligations deferred pursuant
to any Vendor Agreement.

                  "VENDOR OBLIGATIONS" means indebtedness due from an Obligor to
a Vendor.

                  "VERIZON AGREEMENT" means the Fiber Optics Private Network
Agreement dated as of October 7, 1999 between Bell Atlantic Global Networks and
Metromedia Fiber Network Services, Inc.

                  "VERIZON DEBT AGREEMENT" means the agreement or other
instrument entered into pursuant to Section 3.01(m) between Verizon, Inc. (or an
affiliate thereof) and the Issuer.

                  "VOTING STOCK" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.

                  "WARRANT AGREEMENT" means a Warrant Agreement substantially in
the form of Exhibit H between the Issuer and the Holders.

                  "WARRANT DOCUMENTS" means the Warrant Agreement, the warrants
issued thereunder, the voting agreement referred to in Section 3.01(o) and the
other agreements, instruments and documents executed and delivered pursuant to
the Warrant Agreement.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -25-

                  "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or any Attributable Indebtedness at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (i) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the due date for the making
of such payment by (b) the then outstanding principal amount of such
Indebtedness or Attributable Indebtedness.

                  "WHOLLY OWNED SUBSIDIARY" means, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person. A "WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.

                  "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

                  "WORKING CAPITAL" means, as at such date, for the Issuer and
its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) (a) current assets (excluding cash and cash
equivalents) MINUS (b) current liabilities (excluding the current portion of
long term debt and of any installments of principal payable hereunder).

                  Section 1.02. COMPUTATION OF TIME PERIODS. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
mean "to but excluding".

                  Section 1.03. ACCOUNTING TERMS; CHANGES IN GAAP. Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP as in effect from time to
time. If the Issuer notifies the Administrative Agent that the Issuer requests
an amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the Issuer
that the Required Holders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                  Section 1.04. EXTENDED MEANINGS. Words importing the singular
number only shall include the plural and VICE VERSA, and words importing any
gender shall include all genders. The term "including" means "including without
limitation".

                  Section 1.05. REFERENCES TO ADMINISTRATIVE AGENT, PURCHASERS
OR HOLDERS. Any reference in this Agreement to the Administrative Agent or a
Holder shall be construed so as to

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -26-

include its permitted successors, transfers or assigns hereunder in accordance
with their respective interests.

                  Section 1.06. CONFLICT WITH SENIOR SECURITY DOCUMENTS. In the
event that there is a conflict or inconsistency between any provision of any of
the Senior Security Documents and this Agreement, the provisions of this
Agreement shall prevail.

                  Section 1.07. NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due or any action to be taken hereunder
shall be stated to be required to be taken on a day other than a Business Day,
such payment shall be made or such action shall be taken on the next succeeding
Business Day and, in the case of the payment of any monetary amount, the
extension of time shall be included for the purposes of computation of interest
or fees thereon.

                  Section 1.08. REFERENCES TO TIME OF DAY. Except as otherwise
specified herein, a time of day shall be construed as a reference to New York,
New York time.

                  Section 1.09. SEVERABILITY. In the event that one or more of
the provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality or
enforceability of the remaining provisions hereof shall not be affected or
impaired thereby.

                  Section 1.10. REFERENCES TO STATUTES. Except as otherwise
provided herein, any reference in this Agreement to a statute shall be construed
to be a reference to such statute as the same may have been, or may from time to
time be, amended or re-enacted.

                  Section 1.11. REFERENCES TO AGREEMENTS. Except as otherwise
provided herein, any reference herein to this Agreement, any other Note Document
or any other agreement or document shall be construed to be a reference to this
Agreement, such Note Document or such other agreement or document, as the case
may be, as the same may have been, or may from time to time be, amended, varied,
novated or supplemented.

                                   ARTICLE II

                         AMOUNTS AND TERMS OF THE NOTES

                  Section 2.01.  THE NOTES.

                  (a) AUTHORIZATION OF THE NOTES. The Issuer will authorize the
issue and sale of $150,000,000 aggregate principal amount of its guaranteed term
notes ("NOTES"). As used herein, the term "NOTES" includes all notes originally
issued pursuant to this Agreement and any notes issued in substitution therefor
pursuant to Section 10.09. Payment of the principal, interest and all other
amounts owing under the Notes shall be unconditionally guaranteed by the
Guarantors as provided in Article IX.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -27-

                  (b) SALE AND PURCHASE OF NOTES. Subject to the terms and
conditions of this Agreement, on the Closing Date (as provided for in Section
2.01(e)), the Issuer will issue and sell to each Purchaser, and each Purchaser
will purchase from the Issuer, a Note in the principal amount specified opposite
such Purchaser's name in Schedule 2.01 at the purchase price of 100% of the
principal amount thereof.

                  (c) USE OF PROCEEDS. The proceeds of the Notes shall be used
by the Obligors to make payments to Vendors in respect of Vendor Obligations, to
provide financing for the working capital, capital expenditures and general
corporate purposes of the Obligors (but not for any Subsidiary of an Obligor
that is not an Obligor).

                  (d)  NO RESPONSIBILITY TO THIRD PARTIES.  Neither the
Administrative Agent nor any Purchaser shall have any responsibility as to the
application or use of any of the proceeds of any Note.

                  (e) THE CLOSING DATE PROCEEDINGS. The sale and purchase of the
Note to be purchased by each Purchaser shall occur at the offices of Milbank,
Tweed, Hadley & McCloy LLP, One Chase Manhattan Plaza, New York, New York 10005
on the Closing Date. On the Closing Date, the Issuer will deliver to each
Purchaser the Note to be purchased by such Purchaser in the form of a single
Note dated the Closing Date and registered in such Purchaser's name (or the name
of such Purchaser's nominee), against delivery by such Purchaser to the Issuer
or its order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds for the account of the
Issuer to the Administrative Agent's Account. If on the Closing Date, the Issuer
shall fail to tender any such Note to any Purchaser as provided in this Section
2.01(e), or any of the conditions specified in Article III shall not have been
fulfilled to such Purchaser's satisfaction, the Purchasers shall be relieved, as
a whole, of all further obligations under this Agreement, without thereby
waiving any rights the Purchasers may have by reason of such failure or such
nonfulfillment.

                  Section 2.02.  ISSUING THE NOTES.

                  (a) NOTICE OF ISSUANCE OF NOTES, ETC. Notice of the proposed
date of issuance of the Notes shall be given by the Issuer to the Administrative
Agent not later than (i) if no portion of the Notes shall be a Eurodollar Rate
Portion, 12:00 noon on the Business Day immediately preceding such proposed date
or (ii) otherwise, 12:00 noon on the third Business Day prior to such proposed
date (the "NOTICE OF ISSUANCE"). The Notice of Issuance shall be by telex,
telecopier or cable, confirmed immediately in writing, in substantially the form
of Exhibit E, specifying therein (1) the requested date of such issuance, (2)
the requested Type of portions of the Notes comprising such issuance and (3) if
upon issuance of the Notes all or a portion of the Notes are to be comprised of
Eurodollar Rate Portions, the requested initial Interest Period therefor.
Subject to the foregoing, the Issuer may request that the Notes are comprised of
Base Rate Portions and/or Eurodollar Rate Portions on the Closing Date.

                  The Administrative Agent shall give to each Purchaser prompt
notice of the Notice of Issuance received from the Issuer and, in the case the
Notice of Issuance specifies that the Notes are to be comprised, in whole or in
part, of Eurodollar Rate Portions, the applicable interest rate under Section
2.05(a)(ii).

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -28-

                  Each Purchaser shall before 1:00 P.M. on the Closing Date,
make available for the account of its Payment Office to the Administrative Agent
at the Administrative Agent's Account, in same day funds, such Purchaser's
ratable portion of the Notes. After the Administrative Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Administrative Agent will transfer same day funds to the Issuer's
Account.

                  (b) LIMITATIONS ON EURODOLLAR RATE PORTIONS. Anything in
paragraph (a) above to the contrary notwithstanding, (i) the Issuer may not
select a Eurodollar Rate Portion (1) for a portion of the aggregate principal
amount of the Notes of less than $5,000,000 or (2) if the obligation of the
relevant Holders to hold such Eurodollar Rate Portions shall then be suspended
pursuant to Section 2.07, and (ii) such Eurodollar Rate Portions may not be
outstanding under more than six separate Interest Periods at any one time.

                  (c) NOTICES IRREVOCABLE; BREAKFUNDING. The Notice of Issuance
shall be irrevocable and binding on the Issuer. In the case the Notice of
Issuance specifies that the Notes are to be comprised, in whole or in part, of
Eurodollar Rate Portions, the Issuer shall indemnify each relevant Holder
against any loss, cost or expense incurred by such Holder as a result of any
failure to fulfill on or before the date specified in such Notice of Issuance
the applicable conditions set forth in Article III, including any loss
(excluding loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Holder to fund the Eurodollar Rate Portion to be held by such Holder when such
Eurodollar Rate Portion, as a result of such failure, is not issued on the
Closing Date.

                  (d) PRESUMPTION BY ADMINISTRATIVE AGENT. Unless the
Administrative Agent shall have received notice from a relevant Holder prior to
1:00 p.m. on the Closing Date that such Holder will not make available to the
Administrative Agent such Holder's purchase price with respect to its Note, the
Administrative Agent may assume that such Holder has made such portion available
to the Administrative Agent on the Closing Date in accordance with Section
2.02(a) and the Administrative Agent may, in reliance upon such assumption, make
available to the Issuer on the Closing Date a corresponding amount. If and to
the extent that such Holder shall not have so made such purchase price available
to the Administrative Agent and the Administrative Agent shall have made
available such corresponding amount to the Issuer, such Holder and the Issuer
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the
Closing Date such amount is made available to the Issuer until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the Issuer,
the interest rate applicable at such time under Section 2.05 to Notes and (ii)
in the case of such Holder, the Federal Funds Rate (it being understood that
repayments by the Issuer pursuant to this sentence shall not be subject to
Sections 2.04(a) and 10.04(c)). If such Holder shall repay to the Administrative
Agent such corresponding amount, such amount so repaid shall constitute such
Holder's purchase price in respect of its Note for purposes of this Agreement.

                  (e) OBLIGATIONS OF PURCHASERS SEVERAL. The obligation of any
Purchaser to purchase on the Closing Date the Note to be purchased by it in the
principal amount set forth opposite such Purchaser's name in Schedule 2.01 is
subject to the simultaneous purchase by the other Purchasers of the Notes to be
purchased by them in the respective principal amounts set forth opposite such
other Purchasers' names in Schedule 2.01.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -29-

                  Section 2.03.  REPAYMENT.

                  (a) NOTES. The Issuer hereby promises to pay to the
Administrative Agent for the account of the each Holder the outstanding
principal amount of the Notes on the Maturity Date.

                  (b)  PAYMENTS TO INCLUDE ACCRUED INTEREST.  All repayments of
principal under this Section 2.03 shall be made together with interest accrued
to the date of such repayment on the principal amount repaid.

                  Section 2.04.  COMMITMENT CHANGES; REDEMPTIONS, ETC.

                  (a) OPTIONAL COMMITMENT REDUCTIONS. The Issuer may at any time
or from time to time prior to the Closing Date, upon notice to the
Administrative Agent, terminate in whole or reduce in part the Commitments,
PROVIDED that each partial reduction of the Commitments shall be in an aggregate
amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.

                  (b) OPTIONAL REDEMPTIONS. The Issuer may, upon at least three
Business Days' notice (in the case of redemptions of Eurodollar Rate Portions)
or upon notice given on the date of redemption (in the case of redemptions of
Base Rate Portions) to the Administrative Agent (which notice shall state the
proposed date and aggregate principal amount of the redemption), and if such
notice is given the Issuer shall, redeem the outstanding principal amount of the
Notes issued to it under the Agreement in the aggregate amount and on the date
specified in such notice, together with accrued interest to the date of such
redemption on the principal amount prepaid; PROVIDED that (w) each partial
redemption shall be in an aggregate principal amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof, (x) any such redemption of
Eurodollar Rate Portions other than on the last day of the Interest Period
therefor shall be accompanied by, and subject to, the payment of any amount
payable under Section 10.04(c) in respect of such redemption and (y) each such
notice shall be made on the relevant day not later than 12:00 noon.

                  (c) MANDATORY REDEMPTIONS AND COMMITMENT REDUCTIONS.

                  (i) ASSET SALES. Concurrently with the consummation of any
         Asset Sale after the date hereof (after obtaining any necessary consent
         of the Required Holders, to the extent such Asset Sale is not permitted
         under Section 6.06), and promptly but in any event not later than the
         third Business Day following the receipt by the Issuer or any
         Restricted Subsidiary of any Net Available Proceeds of such Asset Sale
         received after such consummation, the Commitments shall be subject to
         automatic reduction or the Issuer shall redeem the Notes, as
         applicable, in an aggregate amount equal to the Net Available Proceeds
         of such Asset Sale; PROVIDED that no reduction of Commitments or
         redemption of Notes shall be required pursuant to this clause (i) with
         respect to an amount equal to 100% (50% for any such Asset Sale that
         occurs prior to the demonstration by the Issuer of compliance with the
         provisions of Section 6.13 as at the end of and for the fiscal quarter
         ending March 31, 2003) of the Net Available Proceeds (such percentage
         of such Net Available Proceeds being herein called the "APPLICABLE NET
         AVAILABLE PROCEEDS") of any Asset Sale to the extent such Applicable
         Net Available Proceeds are reinvested in

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -30-

         Telecommunications Assets to be acquired by the Issuer or an Obligor
         (but not by any Subsidiary of an Obligor that is not an Obligor)
         within 360 days of the date of such Asset Sale (and, pending such
         reinvestment, such Applicable Net Available Proceeds to the extent
         arising out of an Asset Sale by an Obligor are either

                           (x) deposited with the Administrative Agent and held
                  as Collateral for the obligations of the Obligors hereunder
                  (it being understood that any interest or earnings realized
                  upon such Collateral during the period of such deposit shall
                  not increase the required amount of the redemption hereunder
                  required of the Issuer), PROVIDED that nothing herein shall be
                  deemed to require the Administrative Agent to release any such
                  proceeds or interest after the occurrence and during the
                  continuance of an Event of Default, or

                           (y) applied by the Issuer to the redemption of Notes
                  (in which event the Issuer agrees to advise the Administrative
                  Agent in writing at the time of such redemption of Notes that
                  such redemption is being made from the proceeds of an Asset
                  Sale).

                  (ii) CASUALTY EVENTS. Promptly but in any event not later than
         the third Business Day following the receipt by the Issuer or any
         Restricted Subsidiary of the proceeds of insurance, condemnation award
         or other compensation in respect of any Casualty Event affecting any
         property of the Issuer or any Restricted Subsidiary after the date
         hereof, the Commitments shall be subject to automatic reduction or the
         Issuer shall redeem the Notes, as applicable, in an aggregate amount
         equal to the Net Available Proceeds of such Casualty Event; PROVIDED
         that no reduction of Commitments or redemption of Notes shall be
         required pursuant to this clause (ii) to the extent such Net Available
         Proceeds are reinvested in the repair, restoration or replacement of
         such property or invested in Telecommunications Assets to be acquired
         by the Issuer or any of its Restricted Subsidiaries within 360 days of
         the date of such receipt (and, pending such reinvestment, such Net
         Available Proceeds are either (x) deposited with the Administrative
         Agent and held as collateral for the obligations of the Obligors
         hereunder (PROVIDED that nothing herein shall be deemed to require the
         Administrative Agent to release any such proceeds after the occurrence
         and during the continuance of an Event of Default) or (y) applied by
         the Issuer to the redemption of Notes hereunder (in which event the
         Issuer agrees to advise the Administrative Agent in writing at the time
         of such redemption of Notes that such redemption is being made from the
         proceeds of a Casualty Event).

                  Nothing in the immediately preceding sentence shall be deemed
         to limit any obligation of the Issuer or any of its Restricted
         Subsidiaries pursuant to any of the Senior Security Documents to remit
         to a collateral or similar account (including the "Collateral Accounts"
         under and as defined in the Senior Security Documents) maintained by
         the Administrative Agent pursuant to any of the Senior Security
         Documents the proceeds of insurance, condemnation award or other
         compensation received in respect of any Casualty Event.

                  (iii) EXCESS CASH FLOW. Not later than 90 days following the
         last day of any fiscal year ending on or after December 31, 2004 (but
         only if, on the last day of such

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -31-

         fiscal year the Total Leverage Ratio exceeds 3.50 to 1), the Issuer
         shall redeem the Notes, in an aggregate amount, if any, equal to 50%
         of Excess Cash Flow for such fiscal year.

                  (d) TERMS APPLICABLE TO ALL REDEMPTIONS. All redemptions of
Notes under this Section 2.04 shall be made together with accrued interest to
the date of such redemption on the principal amount prepaid. Each redemption of
Notes under this Section 2.04 shall be made for the account of the relevant
Holders according to their respective Pro Rata Shares of the principal amount of
the Notes then outstanding under this Agreement.

                  (e) COLLATERAL ACCOUNTS. In the event Net Available Proceeds
from more than one Asset Sale or Casualty Event are deposited with the
Administrative Agent and held as Collateral or applied to the redemption of
Notes as provided in paragraph (c)(i) or (ii) above, such Net Available Proceeds
shall be deemed to be released in the same order in which such Asset Sales
occurred or the insurance, condemnation award or other compensation in respect
of such Casualty Events were received and, accordingly, any such Net Available
Proceeds so held for more than 360 days shall be forthwith (and in any event not
later than the third Business Day following the end of such 360-day period)
applied to the redemption of Notes.

                  (f) MANDATORY TERMINATION OF COMMITMENTS. To the extent the
Closing Date shall not have occurred on or prior to 3:00 p.m., September 17,
2001, the Commitments shall be automatically and permanently reduced to zero and
this Agreement shall automatically terminate and be of no further force or
effect (except to the extent provisions hereof are stated to survive such
termination).

                  (g)  REDUCTIONS PRO RATA; NO REINSTATEMENTS.  Each reduction
of the Commitments shall be applied to the respective Commitments of the Holders
according to their respective Pro Rata Shares. Commitments once terminated or
reduced may not be reinstated.

                  Section 2.05.  INTEREST.

                  (a) ORDINARY INTEREST. The Issuer shall pay interest on the
unpaid principal amount of each Note held by each Holder on each of the dates
specified below (each date on which interest is due and payable being herein
referred to as an "INTEREST PAYMENT DATE") from the date of such Note until such
principal amount shall be paid in full, at the following rates per annum:

                  (i) BASE RATE PORTIONS. With respect to the Base Rate Portion,
         if any, of each Note, a rate per annum equal at all times to the sum of
         (1) the Base Rate in effect from time to time PLUS (2) the Applicable
         Margin in effect from time to time, payable in arrears quarterly on
         each Quarterly Date and on the date such Base Rate Portion shall be
         Converted (but only on the amount Converted) or paid in full.

                  (ii) EURODOLLAR RATE PORTIONS. With respect to each Eurodollar
         Rate Portion, if any, of each Note, a rate per annum equal at all times
         during each Interest Period for such Eurodollar Rate Portion to the sum
         of (1) the Eurodollar Rate for such Interest Period for such Eurodollar
         Rate Portion PLUS (2) the Applicable Margin in effect from time to
         time, payable in arrears on the last day of such Interest Period and,
         if such Interest Period has a

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         duration of more than three months, on each three-month anniversary of
         the first day of such Interest Period occurring during such Interest
         Period.

                  (b) POST-DEFAULT INTEREST. If an Event of Default shall have
occurred and be continuing during any period, the Issuer shall, notwithstanding
anything else in this Agreement to the contrary, pay to the Administrative Agent
for the account of each Holder interest, during such period, at the applicable
Post-Default Rate on any principal of any Note held by such Holder to the
Issuer, and on any other amount whatsoever then due and payable by the Issuer
hereunder to or for the account of such Holder, such interest to be payable from
time to time on demand.

                  Section 2.06.  CONVERSION AND CONTINUATION.

                  (a) OPTIONAL CONVERSION. The Issuer may on any Business Day,
upon notice given to the Administrative Agent not later than 12:00 noon on the
third Business Day prior to the date of the proposed Conversion and subject to
the provisions of Section 2.07, Convert all or any principal portion of the
Notes of one Type outstanding under this Agreement (and, in the case of any
Eurodollar Rate Portions, having the same Interest Period) into portions of
Notes of the other Type under this Agreement; PROVIDED that any Conversion of
Eurodollar Rate Portions into Base Rate Portions shall be made only on the last
day of an Interest Period for such Eurodollar Rate Portions, any Conversion of
Base Rate Portions into Eurodollar Rate Portions shall be in an amount not less
than $5,000,000 or integral multiples of $1,000,000 in excess thereof and no
Conversion shall result in a more than six separate Interest Periods being
outstanding. Each such notice of Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the aggregate
amount and Type of the portions of the Notes (and, in the case of Eurodollar
Rate Portions, the Interest Period therefor) to be Converted and (iii) if such
Conversion is into Eurodollar Rate Portions, the duration of the initial
Interest Period for such Eurodollar Rate Portions. Each notice of Conversion
shall be irrevocable and binding on the Issuer.

                  (b)  CERTAIN MANDATORY CONVERSIONS.

                  (i) On the date on which the aggregate unpaid principal amount
         of Eurodollar Rate Portions having the same Interest Period shall be
         reduced, by payment or redemption or otherwise, to less than $5,000,000
         such Eurodollar Rate Portions shall automatically Convert into Base
         Rate Portions.

                  (ii) If the Issuer shall fail to select the duration of any
         Interest Period for any outstanding Eurodollar Rate Portions in
         accordance with the provisions contained in the definition of "Interest
         Period" in Section 1.01 and in clause (a) or (c) of this Section 2.07,
         the Administrative Agent will forthwith so notify the Issuer and the
         relevant Holders, whereupon each such Eurodollar Rate Portions will
         automatically be Continued as a Eurodollar Rate Portions with an
         Interest Period of three months duration.

                  (iii) Upon the occurrence and during the continuance of any
         Event of Default and upon notice from the Administrative Agent to the
         Issuer at the request of the Required Holders, (x) each Eurodollar Rate
         Portion will automatically, on the last day of the then existing
         Interest Period therefor, Convert into a Base Rate Portion and (y) the
         obligation

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                                      -33-

         of the Holders to hold, or to Convert Notes into, or to Continue,
         Eurodollar Rate Portion shall be suspended.

                  (c) CONTINUATIONS. The Issuer may, on any Business Day, upon
notice given to the Administrative Agent not later than 12:00 noon on the third
Business Day prior to the date of the proposed Continuation and subject to the
provisions of Sections 2.07, continue all or any Eurodollar Rate Portions having
the same Interest Period; PROVIDED that any such Continuation shall be made only
on the last day of the Interest Period for such Eurodollar Rate Portions, any
Continuation of Eurodollar Rate Portions shall be in an amount not less than
$5,000,000 and no Continuation of any Eurodollar Rate Portions shall result in
more than six separate Interest Periods being outstanding. Each such notice of
Continuation shall, within the restrictions specified above, specify (i) the
date of such Continuation, (ii) the aggregate amount and the Interest Period
for, the Eurodollar Rate Portions being Continued and (iii) the duration of the
initial Interest Period for the Eurodollar Rate Portions subject to such
Continuation. Each notice of Continuation shall be irrevocable and binding on
the Issuer.

                  Section 2.07.  INCREASED COSTS, ILLEGALITY, ETC.

                  (a) CHANGE IN LAW. If, due to either (i) the introduction of
or any change in or in the interpretation or application of (to the extent any
such introduction or change occurs after the date hereof) any law or regulation
or (ii) the compliance with any direction, guideline or request from any central
bank or other Governmental Authority adopted or made after the date hereof
(whether or not having the force of law), there shall be any increase in the
cost to any Holder agreeing to accept for transfer, fund or maintain Eurodollar
Rate Portions, then the Issuer shall from time to time, upon demand by such
Holder (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Holder additional amounts
sufficient to compensate such Holder for such increased cost ; PROVIDED that,
before making any such demand, each Holder agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different Payment Office if the making of such a designation would
avoid the need for, or reduce the amount of, such increased cost and would not,
in the reasonable judgment of such Holder, be otherwise disadvantageous to such
Holder. A certificate as to the amount of such increased cost, submitted to the
Issuer by such Holder, shall be conclusive and binding for all purposes, absent
manifest error.

                  (b) CAPITAL REQUIREMENTS. If any Holder determines in good
faith that compliance with any law or regulation enacted or introduced after the
date hereof or any guideline or request from any central bank or other
Governmental Authority adopted or made after the date hereof (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Holder or any corporation controlling such
Holder and that the amount of such capital is increased by or based upon such
Holder's holding of its Notes, then, upon demand by such Holder (with a copy of
such demand to the Administrative Agent), the Issuer shall pay to the
Administrative Agent for the account of such Holder, from time to time as
specified by such Holder, additional amounts sufficient to compensate such
Holder in the light of such circumstances, to the extent that such Holder
reasonably determines such increase in capital to be allocable to the existence
of the Note of such

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Holder. A certificate as to such amounts submitted to the Issuer by such Holder,
shall be conclusive and binding for all purposes, absent manifest error.

                  (c) RATES NOT COVERING COSTS. If, with respect to any
Eurodollar Rate Portions, the Required Holders reasonably determine and notify
the Administrative Agent that the Eurodollar Rate for any Interest Period for
such Eurodollar Rate Portions will not adequately reflect the cost to such
Required Holders of making, funding or maintaining their respective Eurodollar
Rate Portions for such Interest Period, the Administrative Agent shall forthwith
so notify the Issuer and the Holders, whereupon (x) each Eurodollar Rate Portion
will automatically, on the last day of any then existing Interest Period
therefor, Convert to a Base Rate Portion, and (y) the obligation of the Holders
to hold, or to Convert Notes into, or to Continue, Eurodollar Rate Portions
shall be suspended until the Administrative Agent shall notify the Issuer and
such Holders that the circumstances causing such suspension no longer exist.

                  (d) ILLEGALITY. Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation of
(to the extent any such introduction or change occurs after the date hereof) any
law or regulation shall make it unlawful, or any central bank or other
Governmental Authority having appropriate jurisdiction shall assert in writing
after the date hereof that it is unlawful, for any Holder or its Payment Office
to perform its obligations hereunder to purchase or to continue to hold or
maintain Eurodollar Rate Portions hereunder, then, on notice thereof and demand
therefor by such Holder to the Issuer through the Administrative Agent, (i) each
Eurodollar Rate Portion of such Holder will automatically, upon such demand,
Convert to Base Rate Portion and (ii) the obligation of such Holder to purchase,
or to Convert Base Rate Portions into, or to Continue, Eurodollar Rate Portions
shall be suspended until the Administrative Agent shall notify the Issuer that
such Holder has determined that the circumstances causing such suspension no
longer exist; PROVIDED that, before making any such demand, such Holder agrees
to use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Payment Office if the making
of such a designation would allow such Holder or its Payment Office to continue
to perform its obligations to purchase or to continue to hold or maintain
Eurodollar Rate Portions and would not, in the reasonable judgment of such
Holder, be otherwise disadvantageous to such Holder.

                  (e) EXCLUDED PERIOD. The Issuer shall not be obligated to pay
any additional amounts arising pursuant to clauses (a) and (b) of this Section
2.07 that are attributable to the Excluded Period with respect to such
additional amount; PROVIDED that if an applicable law, rule, regulation,
guideline or request shall be adopted or made on any date and shall be
applicable to the period (a "SECTION 2.07(e) RETROACTIVE PERIOD") prior to the
date on which such law, rule, regulation, guideline or request is adopted or
made, the limitation on the Issuer's obligation to pay such additional amounts
hereunder shall not apply to the additional amounts payable in respect of such
Section 2.07(e) Retroactive Period.

                  Section 2.08.  PAYMENTS AND COMPUTATIONS.

                  (a) MANNER OF PAYMENT. The Issuer shall make each payment
hereunder not later than 12:00 Noon on the day when due in Dollars to the
Administrative Agent at the Administrative Agent's Account in same day funds and
without deduction, set-off or counterclaim. The Administrative Agent will
promptly thereafter cause to be distributed like

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                                      -35-

funds relating to the payment of principal or interest under or in respect this
Agreement (other than amounts payable pursuant to Section 2.07(a), 2.07(b), 2.09
or 10.04), to the relevant Holders for the account of their Payment Offices, and
like funds relating to the payment of any other amount payable to any Holder to
such Holder for the account of its Payment Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an Transfer
and Acceptance and recording of the information contained therein in the
Register pursuant to Section 10.09(c), from and after the effective date of such
Transfer and Acceptance, the Administrative Agent shall make all payments
hereunder in respect of the interest transferred thereby to the Holder
transferee thereunder, and the parties to such Transfer and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.

                  (b) PRESUMPTIONS AS TO APPLICATION OF PAYMENTS. If the
Administrative Agent receives funds for application to the obligations under the
Note Documents under circumstances for which the Note Documents do not specify
the Notes to which, or the manner in which, such funds are to be applied, and
the Issuer has not otherwise directed how such funds are to be applied (which
direction is consistent with the terms of the Note Documents), the
Administrative Agent may, but shall not be obligated to, elect to distribute
such funds to each Holder ratably in accordance with such Holder's proportionate
share of the principal amount of all outstanding Notes, in repayment or
redemption of such of the outstanding Notes or other obligations owed to such
Holder, as the Administrative Agent shall direct.

                  (c) AUTHORIZATION BY ISSUER. The Issuer hereby authorizes the
Administrative Agent, if and to the extent payment of principal, interest or
other amount owed to any Holder is not paid by the Issuer when due hereunder, to
charge from time to time against any or all of the Issuer's accounts with
Citicorp USA any amount so due (with notice to the Issuer promptly following
such charge).

                  (d) COMPUTATIONS. All computations of interest shall be made
by the Administrative Agent on the basis of a year of 360 days (or, in the case
of Base Rate Portions bearing interest based upon clause (a) in the definition
of "Base Rate" in Section 1.01, 365 or 366 days, as the case may be), in each
case for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable. Each
determination by the Administrative Agent of an interest rate hereunder made in
accordance with the provisions of this Agreement shall be conclusive and binding
for all purposes, absent manifest error.

                  (e) PAYMENT ON NON-BUSINESS DAYS. Whenever any payment
hereunder shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest;
PROVIDED that, if such extension would cause payment of interest on or principal
of Eurodollar Rate Portions to be made in the next following calendar month,
such payment shall be made on the immediately preceding Business Day.

                  (f) PRESUMPTION BY ADMINISTRATIVE AGENT. Unless the
Administrative Agent shall have received notice from the Issuer prior to the
date on which any payment is due to any Holder hereunder that the Issuer will
not make such payment in full, the Administrative Agent may assume that the
Issuer has made such payment in full to the Administrative Agent on such date

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                                      -36-

and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each such Holder on such due date an amount equal to the amount
then due such Holder. If and to the extent the Issuer shall not have so made
such payment in full to the Administrative Agent, each such Holder shall repay
to the Administrative Agent forthwith on demand such amount distributed to such
Holder together with interest thereon, for each day from the date such amount is
distributed to such Holder until the date such Holder repays such amount to the
Administrative Agent, at the Federal Funds Rate.

                  Section 2.09.  TAXES.

                  (a) PAYMENTS MADE FREE OF TAXES. Any and all payments by each
Obligor hereunder shall be made, in accordance with Section 2.08, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING, in the case of each Tax Indemnitee, income and franchise
taxes imposed on or measured by net income of such Tax Indemnitee by a
jurisdiction in which such Tax Indemnitee is organized or in which its principal
office or Payment Office is located (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "TAXES"). If an Obligor shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to any Tax Indemnitee, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.09) such Tax Indemnitee receives an amount equal to the sum
it would have received had no such deductions been made, (ii) such Obligor shall
make such deductions and (iii) such Obligor shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.

                  (b) OTHER TAXES. In addition, each Obligor agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made by it
hereunder or from the execution, delivery or registration of this Agreement
(hereinafter referred to as "OTHER TAXES").

                  (c) INDEMNIFICATION. Each Obligor will indemnify each Tax
Indemnitee for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.09) paid by such Tax Indemnitee and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto, whether or not correctly asserted. This indemnification shall be made
within 30 days from such date such Tax Indemnitee makes written demand therefor
and such Tax Indemnitee's determination that it is liable for such taxes shall
be conclusive absent manifest error.

                  (d) EVIDENCE OF PAYMENTS. Within 30 days after the date of any
payment of Taxes, the Issuer or Other Obligor making payment of Taxes will
furnish to the Administrative Agent, at its address referred to in Section
10.02, appropriate evidence of payment thereof.

                  (e) CERTAIN OBLIGATIONS OF NON-U.S. HOLDERS. Each Holder
organized under the laws of a jurisdiction outside the United States shall, on
or prior to the date of its execution and delivery of this Agreement (in the
case of each Purchaser) and on the date of the Transfer and

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                                      -37-

Acceptance pursuant to which it became a Holder (in the case of each other
Holder), and from time to time thereafter if requested in writing by the Issuer
or the Administrative Agent or promptly upon the occurrence of any event
requiring a change in the last form delivered by such Holder (but, in each case,
only so long as such Holder remains lawfully able to do so after the date such
Holder becomes a Holder hereunder), provide the Administrative Agent and the
Issuer with either (i) Internal Revenue Service form W8-BEN or W-8ECI, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Holder is entitled to benefits under an income tax treaty
to which the United States is a party that reduces the rate of withholding tax
on payments under this Agreement and the Notes or certifying that the income
receivable pursuant to this Agreement and the Notes is effectively connected
with the conduct of a trade or business in the United States or (ii) Internal
Revenue Service form W-8, upon which the Issuer is entitled to rely, pursuant to
Sections 881(c)(2)(B) or 871(h)(5) of the Code, or any successor form or
statement prescribed by the Internal Revenue Service in order to establish that
such Holder is entitled to treat the interest payments under this Agreement and
the Notes as portfolio interest that is exempt from withholding tax under the
Code, together with a certificate stating that such Holder is not described in
Section 881(c)(3) of the Code.

                  If the form provided by a Holder at the time such Holder first
becomes a party to this Agreement indicates a United States interest withholding
tax rate on payments of interest hereunder in excess of zero (or if the Holder
cannot provide at such time such form because it is not entitled to reduced
withholding under a treaty, the payments are not effectively connected income
and the payments do not qualify as portfolio interest), withholding tax at such
rate (or at the then existing U.S. statutory rate if the Holder cannot provide
the form) shall be excluded from Taxes unless and until such Holder provides the
appropriate form certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be excluded from Taxes for periods governed
by such form; PROVIDED that, if at the date of the Transfer and Acceptance
pursuant to which a Holder transferee becomes a party to this Agreement, the
Holder transferor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to amounts paid hereunder at such
date, then, to the extent such tax results in liability for such payments, the
term Taxes shall include (in addition to withholding taxes that may be imposed
in the future or other amounts otherwise includable in Taxes) United States
interest withholding tax, if any, applicable with respect to the Holder
transferee on such date.

                  (f) LIMITATION UPON INDEMNIFICATION OF NON-U.S. HOLDERS. For
any period with respect to which a Holder has failed to provide the Issuer and
the Administrative Agent with the appropriate form described in Section 2.09(e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form otherwise
is not required under paragraph (e) above), such Holder shall not be entitled to
indemnification under paragraph (a) or (c) above with respect to Taxes imposed
by the United States.

                  (g) MITIGATION. Any Holder claiming any additional amounts
payable pursuant to this Section 2.09 shall use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Payment Office(s) if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts that may
thereafter accrue and would not, in the reasonable judgment of such Holder, be
otherwise disadvantageous to such Holder.

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                  (h) SURVIVAL. Without prejudice to the survival of any other
agreement of the Issuer hereunder, the agreements and obligations of the Issuer
contained in this Section 2.09 shall survive the payment in full of principal
and interest hereunder.

                  Section 2.10. SHARING OF PAYMENTS, ETC. If any Holder shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Notes owing to it (including
any such payments received through the exercise of remedies under any of the
Senior Security Documents, but excluding any payments pursuant to Section
2.07(a), 2.07(b), 2.09 or 10.04) in excess of its ratable share of payments on
account of the Notes hereunder obtained by all Holders, such Holder shall
forthwith purchase from the other Holders such participations in the Notes as
shall be necessary to cause such purchasing Holder to share the excess payment
ratably with each of the other Holders; PROVIDED that if all or any portion of
such excess payment is thereafter recovered from such purchasing Holder, such
purchase from each other Holder shall be rescinded and each other Holder shall
repay to the purchasing Holder the purchase price to the extent of such recovery
together with an amount equal to such Holder's ratable share (according to the
proportion of (i) the amount of such Holder's required repayment to (ii) the
total amount so recovered from the purchasing Holder) of any interest or other
amount paid or payable by the purchasing Holder in respect of the total amount
so recovered. The Issuer agrees that any Holder so purchasing a participation
from another Holder pursuant to this Section 2.10 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Holder were the
direct creditor of the Issuer in the amount of such participation.

                  Section 2.11.  REPLACEMENT OF HOLDER.

                  (a) AFFECTED HOLDERS. Subject to clause (b) below, if any
Holder requests compensation pursuant to Section 2.07(a), 2.07(b) or 2.09, or
the obligation of any Holder to purchase, or to Convert Base Rate Portions into,
or to Continue, Eurodollar Rate Portions shall be suspended pursuant to Section
2.07(c) or 2.07(d) (such Holder being herein called an "AFFECTED HOLDER"), then,
so long as such condition exists, the Issuer may, after the date 30 days after
the date of such request or suspension, (x) designate an transferee acceptable
to the Administrative Agent (which acceptance will not be unreasonably withheld)
that is not an Affiliate of the Issuer (such transferee being herein called a
"REPLACEMENT HOLDER") to assume the Affected Holder's obligations hereunder and
to purchase the Affected Holder's Notes and other rights under the Note
Documents (all without recourse to or representation or warranty by, or expense
to, the Affected Holder) for a purchase price equal to the aggregate principal
amount of the outstanding Notes held by the Affected Holder PLUS all accrued but
unpaid interest on such Notes and accrued but unpaid fees owing to the Affected
Holder (and upon such assumption, purchase and substitution, and subject to the
execution and delivery to the Administrative Agent by the Replacement Holder of
documentation satisfactory to the Administrative Agent and compliance with the
requirements of Section 10.09(c), the Replacement Holder shall succeed to the
rights and obligations of the Affected Holder hereunder and the other Note
Documents), (y) pay to the Affected Holder all amounts payable to such Affected
Holder under Section 10.04(c), calculated as if the purchase by the Replacement
Holder constituted a mandatory redemption of Notes by the Issuer, and (z) pay to
the Administrative Agent the processing and recordation fee specified in Section
10.09(a)(v) with respect to such transfer. If the Issuer exercises its rights
under the preceding sentence, the Affected Holder shall no longer be a party
hereto or have any

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rights or obligations hereunder or under the other Note Documents; PROVIDED that
the obligations of the Issuer to the Affected Holder under Sections 2.07, 2.09
and 10.04 with respect to events occurring or obligations arising before or as a
result of such replacement shall survive such exercise.

                  (b) LIMITATION ON ISSUER' RIGHTS. The Issuer may not exercise
its rights under this Section 2.11 (i) with respect to any Affected Holder
unless the Issuer simultaneously exercises such rights with respect to all
Affected Holders, (ii) if a Default or an Event of Default has occurred and is
then continuing or (iii) with respect to any Holder that has taken action to
eliminate the need for any additional compensation under Section 2.07(a),
2.07(b) or 2.09, as applicable.

                                   ARTICLE III

                              CONDITIONS OF CLOSING

                  Section 3.01. ISSUANCE. The obligation of any Purchaser to
purchase and pay for the Note to be sold to such Purchaser on the Closing Date
is subject to the condition precedent that the Administrative Agent shall have
received the following in form and substance satisfactory to it:

                  (a) EXECUTED COUNTERPARTS. This Agreement, the Warrant
         Agreement in substantially the form of Exhibit H, the Senior Security
         Agreement in substantially the form of Exhibit B and such other Senior
         Security Documents as the Administrative Agent shall have requested be
         executed and delivered pursuant to Section 5.04, in each case duly
         executed by each of the intended parties thereto, together with:

                           (i) such appropriately completed and duly executed
                  copies of Uniform Commercial Code financing statements and
                  other registrations as the Administrative Agent or any
                  Purchaser shall have requested in order to perfect the Liens
                  created by the Senior Security Documents and covering the
                  Collateral described therein;

                           (ii) executed documents for recordation and filing of
                  or with respect to such Senior Security Documents that the
                  Administrative Agent may reasonably request, the recordation
                  or filing of which is necessary in order to perfect the Liens
                  created thereby;

                           (iii) the stock certificates required to be delivered
                  pursuant to such Senior Security Documents, each accompanied
                  by undated stock powers executed in blank; and

                           (iv) one or more Senior Mortgages covering the
                  facilities identified in Schedule 4.01(v), in each case duly
                  executed and delivered by the Issuer or respective Guarantor
                  in recordable form (in such number of copies as the
                  Administrative Agent shall have requested) together with (x)
                  one or more mortgagee policies of title insurance on forms of
                  and issued by one or more title

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                                      -40-

                  companies satisfactory to the Administrative Agent, insuring
                  the validity and priority of the Liens created under such
                  Senior Mortgages for and in amounts satisfactory to the
                  Administrative Agent, subject only to such exceptions as are
                  satisfactory to the Administrative Agent, and (y) in the case
                  of any leasehold property to be subjected to a Senior
                  Mortgage, consents of the respective landlords with respect to
                  such property in form and substance satisfactory to the
                  Administrative Agent.

                  (b) ORGANIZATIONAL DOCUMENTS, ETC. For each Obligor, such
         documents and certificates as the Administrative Agent shall have
         reasonably requested relating to the organization, existence and good
         standing of each Obligor, the authorization of the Transactions and any
         other legal matters relating to the Obligors, this Agreement, the other
         Note Documents or the Transactions, all in form and substance
         reasonably satisfactory to the Administrative Agent and its counsel.

                  (c)  FINANCIAL OFFICER'S CERTIFICATES.  A certificate of a
         Financial Officer of the Issuer to the effect that:

                           (i) the representations and warranties contained in
                  each Note Document are true and correct on and as of the
                  Closing Date, before and after giving effect to the
                  transactions contemplated hereby, as though made on and as of
                  such date (or, if any such representation or warranty is
                  expressly stated to have been made as of a specific date, as
                  of such specific date);

                           (ii) no event has occurred and is continuing that
                  constitutes a Default or an Event of Default (including,
                  without limitation, any Default or Event of Default arising
                  out of a default under or in respect of the Senior Notes); and

                           (iii) as of the Closing Date and following the
                  issuances of the Notes and after giving effect to the
                  application of the proceeds thereof, and taking into account
                  all rights of indemnity, subrogation and contribution of the
                  Obligors under applicable law and under Section 9.08, each
                  Obligor is Solvent.

         Such certificate shall also state that the financial projections and
         underlying assumptions upon which the conclusions set forth in such
         analysis in clause (iii) above were based are, on the Closing Date,
         fair and reasonable in the opinion of the Issuer and accurately
         computed and that the portion of contingent liabilities of the Issuer
         that have been included for purposes of the above determinations shall
         be the amount of such contingent liabilities that, in light of all
         facts and circumstances existing at such time, could reasonably be
         expected to become actual matured liabilities of the Issuer.

                  (d)  FINANCIAL STATEMENTS.  The following financial
         statements with respect to the Issuer and its Subsidiaries:

                           (i) the audited consolidated balance sheet of the
                  Issuer and its Subsidiaries (and, separately stated, of the
                  Issuer and its Restricted Subsidiaries), in each case as at
                  December 31, 2000 and the related audited consolidated
                  statements of income, stockholders' equity and cash flows of
                  the Issuer and its Subsidiaries

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                                      -41-

                  (and, separately stated, of the Issuer and its Restricted
                  Subsidiaries), for the fiscal year ended on such date, with
                  the opinion thereon of the Accountants,

                           (ii) the unaudited consolidated balance sheet of the
                  Issuer and its Subsidiaries (and, separately stated, of the
                  Issuer and its Restricted Subsidiaries), in each case as at
                  March 31, 2001 and June 30, 2001 and the related unaudited
                  consolidated statements of income, stockholders' equity and
                  cash flows of the Issuer and its Subsidiaries (and, separately
                  stated, of the Issuer and its Restricted Subsidiaries), for
                  the three-month and six-month periods ended on said dates, and

                           (iii)  Consolidating Financial Statements as at and
                  for the fiscal year ended December 31, 2000,

         in each case together with a certificate of a Financial Officer to the
         effect that the financial statements referred to in clauses (i) and
         (ii) above accurately present the financial position, income,
         stockholders' equity and cash flows of the Issuer and its Subsidiaries
         (and of the Issuer and its Restricted Subsidiaries, as applicable) as
         of such date and period and, in the case of the financial statements
         referred to in clause (iii) above, the respective revenues, gross
         margins and property, plant and equipment of the businesses covered
         thereby.

                  (e) FINANCIAL PROJECTIONS. Consolidated projected balance
         sheets and statements of income, stockholders' equity and cash flows of
         the Issuer and its Restricted Subsidiaries, covering the period
         commencing on January 1, 2001 through June 30, 2006 (detailed by fiscal
         quarter through December 31, 2004).

                  (f) INSURANCE. Evidence of the existence of all insurance
         required to be maintained by the Issuer and its Restricted Subsidiaries
         hereunder, together with evidence that the Administrative Agent on
         behalf of the Secured Parties is an additional insured or loss payee
         (to the extent required under Section 5.09).

                  (g) CONSENTS. Evidence of receipt of all governmental and
         third party consents and approvals (including each of the consents and
         approvals listed on Schedule 4.01(e)) necessary in connection with this
         Agreement and the other Note Documents and that the same remain in
         effect.

                  (h) OPINIONS OF COUNSEL TO THE OBLIGORS. A favorable opinion
         of Akin, Gump, Strauss, Hauer & Feld, L.L.P., special counsel for the
         Obligors, in substantially the form of Exhibit C and a favorable
         opinion of the General Counsel for the Obligors, covering such matters
         not covered by the opinion of special counsel for the Obligors as is
         satisfactory to the Administrative Agent (and for such purpose, the
         Issuer hereby authorizes each such counsel to deliver such opinions to
         the Administrative Agent and the Purchasers).

                  (i) OPINIONS OF COUNSEL TO CITICORP USA. A favorable opinion
         of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel for
         Citicorp USA, in substantially the form of Exhibit D (and for such
         purpose, Citicorp USA hereby

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                                      -42-

         authorizes such counsel to deliver such opinions to the Administrative
         Agent and the Purchasers).

                  (j) FEES. Evidence that the Issuer shall have paid all fees
         required to be paid, and all expenses for which invoices have been
         presented, on or before the Closing Date (including the reasonable fees
         and expenses of Milbank, Tweed, Hadley & McCloy LLP, special New York
         counsel to Citicorp USA, and Dilworth Paxon LLP, special counsel to the
         ML Holders) and to the extent that statements for such fees and
         expenses have been delivered to the Issuer.

                  (k)  DUE DILIGENCE.  Evidence that the Purchasers are
         reasonably satisfied in all respects with the results of their due
         diligence investigation of the Issuer and its Subsidiaries.

                  (l) ISSUANCE OF CONVERTIBLE DEBT OR EQUITY. Evidence that the
         Issuer shall have received net cash proceeds in an amount at least
         equal to $230,000,000 from the issuance at par of unsecured convertible
         debt or equity, pursuant to agreements (including all related
         shareholder, registration right and other agreements) in form and
         substance satisfactory to the Purchasers, with the terms and conditions
         applicable to such debt or equity being satisfactory in form and
         substance to each purchaser, including the condition that at least
         $180,000,000 of such net cash proceeds shall be available for general
         corporate purposes of the Issuer.

                  (m) VERIZON DEBT AGREEMENT. Evidence that the Issuer shall
         have received net cash proceeds in an amount at least equal to
         $50,000,000 from the issuance at par of secured Indebtedness, pursuant
         to agreements (including all related shareholder, registration right
         and other agreements) in form and substance satisfactory to the
         Purchasers, with the terms and conditions applicable to such
         Indebtedness being satisfactory in form and substance to each
         purchaser, it being understood that such Indebtedness shall be incurred
         by the Issuer to finance the acquisition of identified equipment and
         that such identified Telecommunications Assets may be pledged as
         collateral security for such Indebtedness and that, in connection
         therewith, Verizon, Inc. (or the respective affiliate party thereto)
         shall have entered into intercreditor arrangements satisfactory to the
         Administrative Agent with respect to such Telecommunications Assets. In
         addition, to the extent that the Verizon Agreement shall be modified or
         supplemented in connection with the execution and delivery of the
         Verizon Debt Agreement, each Purchaser shall have received a copy of
         such modification or supplement and such modification or supplement
         shall be satisfactory in form and substance to each Purchaser.

                  (n) VENDOR AGREEMENTS. Evidence that the Issuer shall have
         caused one or more of its Subsidiaries constituting Obligors hereunder
         to (i) enter into Vendor Agreements with Nortel providing in the
         aggregate for the deferral of all presently outstanding Vendor
         Obligations due from the Obligors to Nortel giving effect to a maximum
         cash payment of $15,000,000 in connection with such deferral and (ii)
         enter into Vendor Agreements with one or more other Vendors providing
         for the deferral of Vendor Obligations payable to such Vendors in an
         aggregate amount (as to all such other Vendors) of not less than
         $250,000,000, each of which Vendor Agreements with Nortel

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                                      -43-

         or any such other Vendor shall be in form and substance, and shall
         provide for a deferral of Vendor Obligations upon terms,
         satisfactory to each Purchaser. In addition, with respect to any
         Vendors that are entitled to the benefits of any collateral security
         for any of the Vendor Obligations held by them, the Obligors, such
         Vendors, the Administrative Agent and a collateral agent (acting for
         the benefit of such Vendors) shall have executed and delivered one
         or more junior intercreditor and collateral agency agreements in
         form and substance satisfactory to each of the Purchasers.

                  (o) WARRANTS, ETC. Evidence of receipt by each Purchaser of
         the warrants to be issued pursuant to the Warrant Agreement on the
         Closing Date to such Purchaser and, in that connection, evidence that
         Metromedia Company shall have executed and delivered to the Purchasers
         a voting agreement pursuant to which Metromedia Company shall have
         agreed, INTER ALIA, to vote the shares of the Issuer held by it in
         favor of the issuances of equity contemplated by the Basic Documents.

                  (p) ISSUANCE OF NOTES. Evidence that, contemporaneously on the
         Closing Date, the Issuer shall have issued to each Purchaser the Note
         or Notes to be purchased by such Purchaser on the Closing Date pursuant
         to Section 2.01.

                  (q) MECHANICS' LIENS, ETC. Evidence satisfactory to the
         Administrative Agent that no mechanics' or materialmens' Liens have
         been filed (which remains unreleased as at the Closing Date) against
         the Issuer or any Obligor other than Liens (i) filed by Vendors who
         have executed and delivered Vendor Agreements, (ii) constituting
         mechanics' or materialmens' Liens permitted under Section 6.02(d) or
         (iii) which are otherwise acceptable to each Purchaser.

                  (r) OTHER. Such other approvals, opinions and documents
         relating to this Agreement and the transactions contemplated hereby as
         the Administrative Agent or any Purchaser may reasonably request.

                  In addition to the foregoing, the obligation of each Purchaser
to purchase and pay for the Notes, shall be subject to the further conditions
precedent that on the date of such purchase and payment the following statements
shall be true:

                  (i) the representations and warranties contained in each Note
         Document are true and correct on and as of the date of such purchase
         and payment, before and after giving effect to such purchase and
         payment and to the application of the proceeds therefrom, as though
         made on and as of such date (or, if any such representation or warranty
         is expressly stated to have been made as of a specific date, as of such
         specific date); and

                  (ii) no event has occurred and is continuing, or would result
         from such purchase and payment or from the application of the proceeds
         therefrom, that constitutes a Default or an Event of Default
         (including, without limitation, any Default or Event of Default arising
         out of a default under or in respect of the Senior Notes).

                  Section 3.02. DETERMINATIONS UNDER SECTION 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Purchaser shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter

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                                      -44-

required thereunder to be consented to or approved by or acceptable or
satisfactory to the Purchasers unless an officer of the Administrative Agent
responsible for the transactions contemplated by the Note Documents shall have
received notice from such Purchaser prior to the Closing Date specifying its
objection thereto and such Purchaser shall not have made available to the
Administrative Agent such Purchaser's ratable portion of the Notes.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  Section 4.01. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
The Issuer and each other Obligor represents and warrants to the Administrative
Agent and each of the Purchasers that:

                  (a) ORGANIZATION; POWERS. Such Obligor and each of its
Subsidiaries (i) is a corporation (or, as the case may be, a limited liability
company or partnership) duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) is duly qualified
and in good standing as a foreign corporation (or limited liability company or
partnership, as the case may be) in each other jurisdiction in which it owns or
leases property or in which the conduct of its business requires it to so
qualify or be licensed and where, in each case, failure so to qualify and be in
good standing has had or could reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect and (iii) has all requisite power
(corporate or other) and authority to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be conducted.

                  (b) AUTHORIZATION. The execution, delivery and performance by
each Obligor of this Agreement and each other Basic Document to which it is or
is intended to be a party, and the consummation of the transactions contemplated
hereby, are within such Obligor's powers (corporate or other), have been duly
authorized by all necessary corporate or other action, and do not (i) contravene
such Obligor's articles, charter, by-laws, or operating or partnership agreement
or other constitutive documents, or any directors' or shareholders' resolution,
(ii) violate any applicable law, rule, regulation (including Regulation U and
Regulation X), order, writ, judgment, injunction, decree, determination or award
of any Governmental Authority, (iii) conflict with or result in the breach of,
or constitute a default or event of default under, or permit an acceleration of
any rights or benefits under, any Material Agreement, contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument binding on or
affecting any Obligor or any of its Restricted Subsidiaries or any of their
properties or (iv) except for the Liens created by the Senior Security
Documents, result in or require the creation or imposition of any Lien upon or
with respect to any of the properties of any Obligor or any of its Restricted
Subsidiaries. No Obligor or any of its Restricted Subsidiaries is in violation
of any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority or in breach of any such
Material Agreement, contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which has had or
could be reasonably expected (individually or in the aggregate) to have a
Material Adverse Effect.

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                  (c) ENFORCEABILITY This Agreement has been duly executed and
delivered by each Obligor and constitutes, and each other Basic Document when
executed and delivered by each Obligor party thereto will constitute, a legal,
valid and binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and by equitable
principles regardless of whether considered in a proceeding in equity or at law.

                  (d) PERFECTION AND PRIORITY OF LIENS. At all times after the
execution of the Senior Security Documents, the Senior Security Documents
create, in favor of the Administrative Agent for the benefit of the Secured
Parties, as security for the obligations purported to be secured thereby, a
legal, valid and enforceable perfected security interest or Lien in all of the
Collateral, superior to and prior to the rights of all third persons and subject
to no Liens except Liens expressly permitted by Section 6.02. The respective
Obligor has (or on and after the time it executes the respective Senior Security
Document, will have) good and marketable title to all items of Collateral (or,
as the case may be, collateral) covered by such Senior Security Document free
and clear of all Liens except Liens expressly permitted by Section 6.02. The
security interests created in favor of the Administrative Agent for the benefit
of the Secured Parties under the Senior Security Agreement constitute perfected
security interests in the "Pledged Securities" under and as defined in the
Senior Security Agreement and owned by each Obligor on any date on which this
representation and warranty is made or deemed made, subject to no security
interests of any other Person.

                  (e) GOVERNMENTAL APPROVALS. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
required on the date hereof or will (absent any change in any applicable law,
rule or regulation) be required after the date hereof in connection with the
Transactions, except for (a) the filing of Uniform Commercial Code financing
statements and other similar filings to perfect the interests of the Secured
Parties in the Collateral, (b) such as are listed on Schedule 4.01(e), each of
which will have been made or obtained and will be in full force and effect on
the Closing Date, (c) such as may be required in the ordinary course of business
in connection with the performance of the obligations of the Issuer hereunder
and (d) such as may be required in connection with sales of Capital Stock or
other ownership interests of the Issuer or any Restricted Subsidiary as part of
foreclosure proceedings with respect to such Capital Stock or other ownership
interests under the Senior Security Documents.

                  (f)  FINANCIAL STATEMENTS.

                  (i) FINANCIAL STATEMENTS. The consolidated financial
         statements delivered pursuant to Section 3.01(d) present fairly, in all
         material respects, the financial position, income, stockholders' equity
         and cash flows of the Issuer and its Subsidiaries (and of the Issuer
         and its Restricted Subsidiaries, as applicable) as of such date and for
         the fiscal year ended December 31, 2000, in accordance with GAAP, and
         the Consolidating Financial Statements delivered pursuant to Section
         3.01(d) present fairly, in all material respects, the respective
         revenues, gross margins and property, plant and equipment of the
         businesses covered thereby. As of the date hereof, there are no
         material contingent liabilities, material liabilities for taxes,
         material unusual forward or long-term commitments or material
         unrealized or anticipated losses from any unfavorable

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         commitments of the Issuer or any of its Restricted Subsidiaries,
         except as referred to or reflected or provided for in said unaudited
         financial statements as at December 31, 2000.

                  (ii) PROJECTED FINANCIAL STATEMENTS. The projected financial
         statements delivered pursuant to Section 3.01(e) have been prepared in
         good faith, based on estimates and assumptions that the Issuer believes
         are fair and reasonable at the time such projections have been
         furnished to the Holders.

                  (g) NO MATERIAL ADVERSE CHANGE. Since December 31, 2000,
except as set forth in the Form 10-Q for the Issuer as at June 30, 2001, there
has been no material adverse change in the business, assets, results of
operations, financial condition, liabilities or material agreements of the
Issuer and its Restricted Subsidiaries, taken as a whole.

                  (h)  PROPERTIES, ETC.

                  (i) TITLE TO PROPERTY. Each of the Issuer and its Restricted
         Subsidiaries has good title to, or valid leasehold interests in, all of
         its properties and assets which are material to the Issuer and its
         Restricted Subsidiaries, taken as a whole, except for minor defects in
         title that do not materially interfere with its ability to conduct its
         business as currently conducted or to utilize such properties and
         assets for their intended purposes. All such material properties and
         assets are free and clear of Liens, other than Liens expressly
         permitted by Section 6.02.

                  (ii) POSSESSION UNDER LEASES. Each of the Issuer and its
         Restricted Subsidiaries has complied with all obligations under all
         leases which are material to the Issuer and its Restricted
         Subsidiaries, taken as a whole, to which it is a party and all such
         leases are in full force and effect, except where failure to do so or
         failure of such leases to be in full force and effect has not had and
         could not reasonably be expected (individually or in the aggregate) to
         have a Material Adverse Effect. Each of the Issuer and its Restricted
         Subsidiaries enjoys peaceful and undisturbed possession under all such
         leases, except where failure to do so has not had and could not
         reasonably be expected (individually or in the aggregate) to have a
         Material Adverse Effect.

                  (iii) INTELLECTUAL PROPERTY. Each of the Issuer and its
         Restricted Subsidiaries owns, or is licensed to use, all trademarks,
         tradenames, copyrights, patents and other intellectual property
         material to its business, and the use thereof by the Issuer and its
         Restricted Subsidiaries does not infringe upon the rights of any other
         Person, except for any such infringements that, individually or in the
         aggregate, could not reasonably be expected (individually or in the
         aggregate) to result in a Material Adverse Effect.

                  (iv) PRIVATE LICENSES. The Private Licenses of the Issuer and
         its Restricted Subsidiaries are adequate and sufficient for the
         construction, ownership and operation of the Telecommunications Assets
         of the Issuer and its Restricted Subsidiaries and neither the Issuer
         nor any Restricted Subsidiary is in default in any manner under any
         provision of any Private License to which it is a party or by which it
         or any of its assets may be bound, where such default has had or could
         reasonably be expected (individually or in the aggregate) to have a
         Material Adverse Effect.

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                  (i) SUBSIDIARIES; OTHER EQUITY INVESTMENTS. Set forth on
Schedule 4.01(i) is a complete and accurate list of all Subsidiaries of each
Obligor as of the date hereof, showing as of such date (as to each such
Subsidiary) the jurisdiction of its organization, whether or not such Subsidiary
is a Restricted Subsidiary or Unrestricted Subsidiary, the number of shares of
each class of Capital Stock authorized, and the number outstanding and the
percentage of the outstanding shares or interests of each such class owned
(directly or indirectly) by such Obligor and the number of shares covered by all
outstanding options, warrants, rights of conversion or purchase and similar
rights. All of the outstanding Capital Stock of all of such Subsidiaries have
been validly issued, are fully paid and non-assessable and are owned by such
Obligor or one or more of its Subsidiaries free and clear of all Liens, except
those created by the Senior Security Documents and those listed in Schedule
4.01(i).

                  (j) LITIGATION; COMPLIANCE WITH LAWS.

                  (i) LITIGATION. Other than as set forth set forth on a
         Schedule to be prepared after the date hereof and on or before the
         Closing Date, the contents of which schedule shall be in form and
         substance satisfactory to each Purchaser, there are no actions, suits
         or proceedings at law or in equity or by or before any Governmental
         Authority now pending or, to the knowledge of any Obligor, threatened
         against or affecting the Issuer or any Restricted Subsidiary or any
         business, property or rights of the Issuer or any Restricted Subsidiary
         (x) that involve any Basic Document or the Transactions or (y) as to
         which there is a reasonable likelihood of an adverse determination and
         that, if adversely determined, individually or in the aggregate, has
         had or could reasonably be expected (individually or in the aggregate)
         to have a Material Adverse Effect.

                  (ii) COMPLIANCE WITH LAWS. Neither the Issuer nor any
         Restricted Subsidiary nor any of their respective properties or assets
         is in violation of, nor will the continued operation of their
         properties and assets as currently conducted violate, any law, rule or
         regulation (including any zoning, building, ordinance, code or approval
         or any building permits), or is in default with respect to any
         judgment, writ, injunction, decree or order of any Governmental
         Authority, where such violation or default has had or could reasonably
         be expected (individually or in the aggregate) to have a Material
         Adverse Effect.

                  (k) AGREEMENTS.

                  (i) NO DEFAULT UNDER AGREEMENTS, ETC. Neither the Issuer nor
         any Restricted Subsidiary is in default in any manner under any
         provision of any agreement or instrument evidencing Indebtedness, or
         any other agreement or instrument to which it is a party or by which it
         or any of its properties or assets are or may be bound, where such
         default has had or could reasonably be expected (individually or in the
         aggregate) to have a Material Adverse Effect. The consummation by the
         Issuer of the Transactions contemplated hereby will not trigger any
         redemption events or result in the creation of any Liens under any
         provision of any agreement or instrument evidencing Indebtedness, or
         any other agreement or instrument to which it is a party or by which it
         or any of its properties or assets are or may be bound.

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                  (ii) MATERIAL AGREEMENTS. Set forth on Schedule 4.01(k) is a
         list of agreements (other than those referred to in clauses (a) through
         (e) of the definition of the term "Material Agreement" in Section 1.01)
         to which the Issuer or any of its Restricted Subsidiaries is a party
         that are material to the business, assets, operations, financial
         condition or liabilities of the Issuer and its Restricted Subsidiaries,
         taken as a whole. The Issuer has heretofore delivered to the
         Administrative Agent, true and complete copies of each of the Material
         Agreements (including the Verizon Agreement and the Management
         Agreement referred to in Section 6.10). Each of the Material Agreements
         is in full force and effect and neither the Issuer nor any of its
         Subsidiaries nor any of the counterparties under any of such Material
         Agreements, (x) is in default of any of its respective obligations
         thereunder where such default has had or could reasonably be expected
         (individually or in the aggregate) to have a Material Adverse Effect or
         (y) has delivered or received notification of any default or material
         deficiency under any such Material Agreement.

                  (iii) RESTRICTIVE OR BURDENSOME AGREEMENTS. As of the date
         hereof, other than as set forth in Schedule 4.01(k) or on the Schedule
         to be delivered on or before the Closing Date pursuant to Section 6.08,
         neither the Issuer nor any Restricted Subsidiary is subject to any
         indenture, agreement, instrument or other arrangement of the type
         described in Section 6.08, nor any agreement that imposes burdensome
         requirements upon the Issuer or any Restricted Subsidiary that, singly
         or in the aggregate, would be reasonably likely (individually or in the
         aggregate) to result in a Material Adverse Effect.

                  (l) FEDERAL RESERVE REGULATIONS. Neither the Issuer nor any
Restricted Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock. No part of the proceeds of any Note will be used by the
Issuer or any Restricted Subsidiary, whether directly or indirectly, and whether
immediately, incidentally or ultimately, for any purpose that violates
Regulation T, U or X.

                  (m) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. Neither the Issuer nor any of its Subsidiaries is an "investment company,"
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. Neither the Issuer nor any of its Subsidiaries is a "holding company", or
an "affiliate" of a "holding company" or a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

                  (n) TAX RETURNS. Each of the Issuer and its Restricted
Subsidiaries has filed or caused to be filed all material foreign, Federal,
state and other tax returns, extensions or materials required to have been filed
by it and has paid or caused to be paid all taxes shown on such returns to be
due and payable by it and all assessments received by it, except (x) taxes and
assessments that are being contested in good faith by appropriate proceedings
and for which it shall have set aside on its books adequate reserves in
accordance with GAAP and (y) taxes and assessments the failure to pay which has
not had and could not reasonably be expected (individually or in the aggregate)
to result in a Material Adverse Effect.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

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                  (o) NO MATERIAL MISSTATEMENTS. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Issuer to the Administrative Agent or any Holder in connection
with the negotiation, preparation or delivery of this Agreement and the other
Basic Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole, do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading, other than a material fact the effect of which is favorable to the
Issuer; PROVIDED that to the extent any such information, report, financial
statement, exhibit or schedule was based upon or constitutes a forecast,
projection or expression of opinion, the Issuer represents only that it acted in
good faith and utilized reasonable assumptions and due care in the preparation
of such information, report, financial statement, exhibit or schedule. All
written information furnished after the date hereof by the Issuer and its
Subsidiaries to the Administrative Agent and the Holders in connection with this
Agreement and the other Basic Documents and the transactions contemplated hereby
and thereby will be true, complete and accurate in every material respect, or
(in the case of projections) based on reasonable estimates, on the date as of
which such information is stated or certified. There is no fact known to the
Issuer that has had or could reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect that has not been disclosed herein,
in the other Basic Documents or in a report, financial statement, exhibit,
schedule, disclosure letter or other writing furnished to the Administrative
Agent or the Holders for use in connection with the transactions contemplated
hereby or thereby.

                  (p) PENSION PLANS. Each of the Issuer and its ERISA Affiliates
is in compliance in all material respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder,
except where non-compliance has not had and could not reasonably be expected
(individually or in the aggregate) to have a Material Adverse Effect. No ERISA
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events, could reasonably be expected to result in
material liability of the Issuer or any of its ERISA Affiliates, except where
such liability has not had and could not reasonably be expected (individually or
in the aggregate) to have a Material Adverse Effect.

                  (q) ENVIRONMENTAL MATTERS. The operations and properties of
the Issuer and each of its Restricted Subsidiaries are in compliance in all
material respects with all Environmental Laws, all necessary Environmental
Permits have been obtained and are in effect or have been applied for in order
for the Issuer and its Restricted Subsidiaries to conduct their respective
operations and to own their respective properties, the Issuer and its Restricted
Subsidiaries are in compliance in all material respects with all such issued
Environmental Permits, no circumstances exist that could (x) form the basis of
an Environmental Claim that could reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect or (y) cause any such property to
be subject to any restrictions on ownership, occupancy, use or transferability
under any Environmental Law that has had or could reasonably be expected
(individually or in the aggregate) to have a Material Adverse Effect, and, to
the best knowledge of the Issuer and its Restricted Subsidiaries, no
investigation (other than routine investigations) of any such operation or
property has been or is being conducted by any Governmental Authority with
respect to the enforcement of any Environmental Law other than investigations
which have not had and could not reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect.

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                                      -50-

                  (r) INSURANCE. Schedule 4.01(r) sets forth a true, complete
and correct description of all material insurance maintained by the Issuer
(including insurance maintained by the Issuer for its Restricted Subsidiaries)
as of the date hereof. As of the date hereof, such insurance is in full force
and effect and all premiums which have become due and payable have been duly
paid. Each of the Issuer and its Restricted Subsidiaries maintains insurance in
such amounts and covering such risks and liabilities as are in accordance with
normal industry practice.

                  (s) SOLVENCY. Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the issuance
of each Note and after giving effect to the application of the proceeds thereof,
and taking into account all rights of indemnity, subrogation and contribution of
the Obligors under applicable law and under Section 9.08, each Obligor is
Solvent.

                  (t) LICENSES.

                  (i) REQUIRED LICENSES. As of the date hereof, except for the
         Licenses described in Schedule 4.01(t), there are no Licenses which are
         required for the operation of the business of the Issuer or any
         Restricted Subsidiary, including Licenses issuable under the United
         States Federal Communications Act of 1934, as amended. The Licenses
         described in Schedule 4.01(t) are adequate and sufficient for the
         construction, ownership and operation of the Telecommunications Assets
         of the Issuer and its Restricted Subsidiaries and neither the Issuer
         nor any Restricted Subsidiary is in default in any manner under any
         provision of any such License, where such default has had or could
         reasonably be expected (individually or in the aggregate) to have a
         Material Adverse Effect.

                  (ii) COMPLIANCE. Except as disclosed in Schedule 4.01(t), the
         Issuer and each of its Restricted Subsidiaries is in compliance with
         the terms of each of the Licenses under which it enjoys rights or
         privileges and has timely filed or caused to be filed all renewal
         applications with respect to the Licenses, no protests or competing
         applications have been filed with respect to such renewal applications
         and nothing has come to the attention of the Issuer or any of its
         Restricted Subsidiaries (after due inquiry) that would lead them to
         conclude that such renewal applications would not be granted in the
         ordinary course, in each case other than any thereof that has not had
         and could not reasonably be expected (individually or in the aggregate)
         to have a Material Adverse Effect. The Issuer and each of its
         Restricted Subsidiaries is authorized under applicable law and the
         rules and regulations promulgated thereunder to continue to provide the
         services which are the subject of such renewal applications during the
         pendency thereof.

                  (iii) NO RATE REGULATION. Except as disclosed in Schedule
         4.01(t), the business and operations conducted and proposed to be
         conducted by each Obligor in relation to its business are not regulated
         by any Federal, state or provincial utility or rate-regulating
         commission.

                  (u) FRANCHISES. Each Franchise of the Issuer and each of its
Restricted Subsidiaries is in full force and effect pursuant to each statute,
regulation, agreement or instrument of each jurisdiction set forth on Schedule
4.01(u), was lawfully issued pursuant to the

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                                      -51-

rules and regulations of such jurisdiction and authorizes the Issuer and each
such Restricted Subsidiary to operate such Franchise, and no other or further
approval, filing or other action of any Governmental Authority is or will be
necessary or advisable in order to permit the operation by the Issuer or any
Restricted Subsidiary of its Telecommunications Business in accordance with the
terms thereof. The Issuer and its Restricted Subsidiaries are in compliance with
all material terms and conditions of each of their respective Franchises and no
event has occurred or exists which permits or, after the giving of notice or the
lapse of time or both, would permit the revocation or termination of any such
Franchise, other than where any such non-compliance or revocation or termination
(i) has not had and could not reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect or (ii) has not resulted in a
notification of non-compliance or revocation or termination by or to any parties
to such Franchises. No Unrestricted Subsidiary owns or has rights to any
Franchise necessary for the ongoing operations of the Issuer and its Restricted
Subsidiaries or their respective Telecommunications Business.

                  (v) LOCATION OF BUSINESSES. As of the date hereof, the
property and assets of the Issuer and each Guarantor are located in the
jurisdictions set forth in the Senior Security Agreement (including the
schedules thereto) and in no other place or places. As of the date hereof,
neither the Issuer nor any Guarantor owns or leases any real property other than
the lands described in Schedule 4.01(v).

                  (w) NO DEFAULT.  No event has occurred and is continuing, or
would result from the issuance of the Notes or from the application of the
proceeds therefrom, that constitutes a Default or an Event of Default.

                  (x) PRIVATE OFFERING BY THE OBLIGORS. Neither the Obligors nor
anyone acting on their behalf has offered the Notes or the guarantees by the
Guarantors of the Guaranteed Obligations or any similar securities for sale to,
or solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any Person other than the Purchasers and
fewer than 99 other Institutional Investors, each of which has been offered the
Notes at a private sale for investment. Neither the Obligors nor anyone acting
on their behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes or the guarantees by the Guarantors of the
Guaranteed Obligations to the registration requirements of Section 5 of the
Securities Act.

                  Section 4.02.  REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.  Each Purchaser represents and warrants that:

                  (a) PURCHASE FOR INVESTMENT. Each Purchaser represents that
such Purchaser is purchasing the Note for its own account or for one or more
separate accounts maintained by it or for the account of one or more pension or
trust funds and not with a view to the distribution thereof, PROVIDED that the
disposition of such Purchaser's or their property and assets shall at all times
be within such Purchaser's or their control. Each Purchaser understands that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Obligors are required to register the Notes.

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                                      -52-

                  (b) QUALIFIED PURCHASER. Each Purchaser represents that it is
a Qualified Purchaser, a company each of whose Beneficial Owners is a Qualified
Purchaser or a company owned exclusively by Knowledgeable Employees with respect
to the Issuer and the Guarantors. Each Purchaser agrees that no sale, pledge or
other transfer of a Note (or any interest therein) may be made unless such
transfer is made to a transferee who is a Qualified Purchaser, a company each of
whose beneficial owners is a Qualified Purchaser or a company owned exclusively
by Knowledgeable Employees with respect to the Issuer and the Guarantors.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

                  The Issuer covenants and agrees with each Holder that so long
as this Agreement shall remain in effect, until the principal of and interest on
each Note, all fees and all other expenses or amounts (other than contingent
indemnity obligations) payable under the Note Documents shall have been paid in
full, unless the Holders shall otherwise consent in writing in accordance with
the provisions of Section 10.01:

                  Section 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. The Issuer
shall furnish to the Administrative Agent (in electronic form or with sufficient
copies thereof for each Holder):

                  (a) as soon as available and in any event within 90 days after
         the end of each fiscal year commencing with the fiscal year ending
         December 31, 2001, the audited consolidated balance sheet and related
         audited consolidated statements of income, stockholders' equity and
         cash flows of the Issuer and its Subsidiaries (and, separately stated,
         the corresponding audited consolidated balance sheet and statements of
         the Issuer and its Restricted Subsidiaries), showing the financial
         condition of the Issuer and its Subsidiaries (and, of the Issuer and
         its Restricted Subsidiaries, as applicable) as of the close of such
         fiscal year and the results of operations of the Issuer and its
         Subsidiaries (and of the Issuer and its Restricted Subsidiaries) during
         such year, and accompanied

                           (i) by an opinion of the Accountants to the effect
                  that such consolidated financial statements fairly present, in
                  all material respects, the financial condition and results of
                  operations of the Issuer and its Restricted Subsidiaries in
                  accordance with GAAP,

                           (ii) by Consolidating Financial Statements for such
                  fiscal year together with a certificate of one of the Issuer's
                  Financial Officers to the effect that such Consolidating
                  Financial Statements fairly present in all material respects
                  the respective revenues, gross margins and property, plant and
                  equipment of the businesses covered thereby and

                           (iii) at the time of delivery of the financial
                  statements set forth above for the fiscal years ending
                  December 31, 2001 or December 31, 2002, (A) management's
                  discussion of the financial performance of the Issuer and its
                  Restricted Subsidiaries for such fiscal year and the fiscal
                  quarter then ending as compared against the financial
                  projections delivered pursuant to Section 3.01(e)

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                                      -53-

                  and (B) a comparison of the financial performance of the
                  Issuer and its Restricted Subsidiaries for such fiscal year
                  and fiscal quarter showing all variances from such financial
                  projections, in the case of each of (A) and (B) in form
                  reasonably satisfactory to the Administrative Agent;

                  (b) as soon as available and in any event within 45 days after
         the end of each of the first three fiscal quarters in each fiscal year,
         the unaudited consolidated balance sheet and related unaudited
         consolidated statements of income, stockholders' equity and cash flows
         of the Issuer and its Subsidiaries (and, separately stated, of the
         corresponding unaudited consolidated balance sheet and statements of
         income, stockholders' equity and cash flows of the Issuer and its
         Restricted Subsidiaries), showing the financial condition of the Issuer
         and its Subsidiaries (and of the Issuer and its Restricted
         Subsidiaries) as of the close of such fiscal quarter and the results of
         operations of the Issuer and its Subsidiaries (and of the Issuer and
         its Restricted Subsidiaries) during such fiscal quarter and the then
         elapsed portion of the fiscal year, and accompanied

                           (i) by a certificate of one of the Issuer's Financial
                  Officers to the effect that such consolidated balance sheet
                  and statements fairly present, in all material respects, the
                  consolidated financial position and results of operations of
                  the Issuer and its Subsidiaries (and of the Issuer and its
                  Restricted Subsidiaries) in accordance with GAAP, subject to
                  normal year-end audit adjustments and lack of footnote
                  disclosures,

                           (ii) by Consolidating Financial Statements for such
                  fiscal quarter and the then elapsed portion of the fiscal year
                  together with a certificate of one of the Issuer's Financial
                  Officers to the effect that such Consolidating Financial
                  Statements fairly present in all material respects the
                  respective revenues, gross margins and property, plant and
                  equipment of the businesses covered thereby and

                           (iii) at the time of delivery of the financial
                  statements set forth above for the fiscal quarter ending June
                  30, 2001, and each fiscal quarter thereafter ending on or
                  before March 31, 2003, (A) management's discussion of the
                  financial performance of the Issuer and its Restricted
                  Subsidiaries for such fiscal quarter then ending as compared
                  against the financial projections delivered pursuant to
                  Section 3.01(e) and (B) a comparison of the financial
                  performance of the Issuer and its Restricted Subsidiaries for
                  such fiscal quarter showing all variances from such financial
                  projections, in the case of each of (A) and (B) in form
                  reasonably satisfactory to the Administrative Agent;

                  (c) concurrently with any delivery of any audited consolidated
         financial statements under paragraph (a), a certificate of the
         Accountants (which certificate may be limited to accounting matters
         relating to the provisions of 6.13, and may disclaim responsibility for
         legal matters) and concurrently with any delivery of financial
         statements under paragraph (a) or (b) above, a certificate of a
         Financial Officer of the Issuer, in each case (i) certifying that in
         making its examination in connection with rendering such opinion or
         certificate with respect to such statements, such Person has not
         obtained knowledge that an Event of Default or Default has occurred or,
         if such Financial Officer has obtained knowledge that an Event of
         Default or Default has occurred,

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<Page>

                                      -54-

         specifying the nature and extent thereof and any corrective action
         taken or proposed to be taken with respect thereto and (ii) setting
         forth computations in substantially the manner set forth in Exhibit
         I demonstrating compliance with the covenants contained in Sections
         6.01, 6.02, 6.04, 6.05, 6.06, 6.07 and 6.13;

                  (d) promptly after the same become publicly available, copies
         of all periodic and other reports, proxy statements and other materials
         filed by the Issuer or any Restricted Subsidiary with the U.S.
         Securities and Exchange Commission or any Governmental Authorities
         succeeding to any or all of the functions of said Commission, or with
         any securities exchange, or distributed by the Issuer to its
         shareholders, as the case may be;

                  (e) as soon as practicable and in any event no later than 30
         days after the beginning of each fiscal year, a copy of the annual
         business plan of the Issuer and forecasts, prepared by management of
         the Issuer, in each case in form and detail reasonably satisfactory to
         the Administrative Agent, of consolidated balance sheets and related
         statements of operations and cash flows of the Issuer and its
         Restricted Subsidiaries, in each case on a quarterly basis for such
         fiscal year and on an annual basis for each of the following fiscal
         years remaining during the term of this Agreement, PROVIDED that no
         event shall such business plan or forecasts be delivered to the ML
         Holders except upon request by the ML Holders to the Administrative
         Agent; and

                  (f) promptly, from time to time, such other information
         regarding the operations, business affairs and financial condition of
         the Issuer and its Restricted Subsidiaries, or compliance with the
         terms of any Basic Document, as the Administrative Agent or any Holder
         may reasonably request.

                  Section 5.02.  OTHER NOTICES.  The Issuer will furnish to the
Administrative Agent (in electronic form or with sufficient copies thereof for
each Holder):

                  (a) as soon as possible and in any event within five Business
         Days after any Responsible Officer knows or has reason to believe that
         a Default or Event of Default has occurred, written notice specifying
         the nature and extent thereof and the corrective action (if any) taken
         or proposed to be taken with respect thereto;

                  (b) as soon as possible and in any event within five Business
         Days after any Responsible Officer has knowledge thereof, written
         notice of the filing or commencement of, or of any threat or notice of
         intention of any Person to file or commence, any action, suit or
         proceeding, whether at law or in equity or by or before any
         Governmental Authority, against the Issuer or any Restricted Subsidiary
         that, if adversely determined, could reasonably be expected
         (individually or in the aggregate) to have a Material Adverse Effect;

                  (c) prompt written notice of the assertion of any
         Environmental Claim by any Person against, or with respect to the
         operations and properties of, such Obligor or any of its Subsidiaries,
         other than any Environmental Claim that, if adversely determined,
         either individually or in the aggregate, could not reasonably be
         expected (individually or in the aggregate) to have a Material Adverse
         Effect;

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<Page>

                                      -55-

                  (d) prompt written notice of any development known to any
         Responsible Officer that has had or could reasonably be expected
         (individually or in the aggregate) to have a Material Adverse Effect;

                  (e) as soon as possible and in any event within five Business
         Days after any Responsible Officer knows or has reason to believe that
         a Change in Control has occurred or is reasonably likely to occur,
         written notice of such Change in Control;

                  (f) as soon as possible and in any event within five Business
         Days after any Responsible Officer has knowledge thereof, written
         notice of the condemnation or casualty of any property of the Issuer or
         any Restricted Subsidiary that has or could reasonably be expected to
         result in loss to the Issuer or any Restricted Subsidiary in an amount
         exceeding $5,000,000 at any one time; and

                  (g) as soon as possible and in any event within five Business
         Days after any Responsible Officer has knowledge thereof, written
         notice of the filing of, or of any threat or notice of intention of any
         Person to file, any liens on the assets of any Obligor for obligations
         in excess of $1,000,000.

                  Section 5.03.  EXISTENCE; BUSINESSES AND PROPERTIES.  The
Issuer will, and will cause each of its Restricted Subsidiaries to:

                  (a) do or cause to be done all things necessary to
         preserve, renew and keep in full force and effect its legal existence,
         except as otherwise expressly permitted under Section 6.06; and

                  (b) do or cause to be done all things necessary to obtain,
         preserve, renew, extend and keep in full force and effect the rights,
         Licenses, Franchises, Private Licenses, patents, copyrights, trademarks
         and trade names material to the conduct of its business; comply with
         all applicable laws, rules, regulations and decrees and orders of any
         Governmental Authority (including health and welfare laws and
         Environmental Laws), whether now in effect or hereafter enacted, except
         for failures to comply which, individually or in the aggregate, have
         not had and could not reasonably be expected (individually or in the
         aggregate) to have a Material Adverse Effect; and at all times maintain
         and preserve all property material to the conduct of such business and
         keep such property in good repair, working order and condition
         (excepting ordinary wear and tear and damage due to casualty, PROVIDED
         that such damage due to casualty is repaired within a reasonable period
         of time) and from time to time make, or cause to be made, all needful
         and proper repairs, renewals, additions, improvements and replacements
         thereto necessary in order that the business carried on in connection
         therewith may be properly conducted at all times, except for failures
         to maintain and preserve property that have not had and could not
         reasonably be expected (individually or in the aggregate) to have a
         Material Adverse Effect.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -56-

                  Section 5.04.  GUARANTEES OF OBLIGATIONS AND COLLATERAL
SECURITY; FURTHER ASSURANCES.

                  (a) GUARANTEES OF OBLIGATIONS. It is the intent of the parties
hereto that the Guaranteed Obligations shall be unconditionally Guaranteed by
all of the Issuer's Wholly Owned Restricted Subsidiaries to the maximum extent
permitted under the laws of the jurisdiction of organization of any such Wholly
Owned Restricted Subsidiary, PROVIDED that in no event shall a Foreign
Subsidiary be required to Guarantee the Guaranteed Obligations. Accordingly, in
the event that any such Wholly Owned Restricted Subsidiary shall be formed,
acquired or come into existence after the date hereof (each, a "NEW
SUBSIDIARY"), the Issuer will cause such New Subsidiary to execute and deliver a
Joinder Agreement in the form of Exhibit G pursuant to which such New Subsidiary
will become a "Guarantor" and an "Obligor" hereunder and Guarantee the
Guaranteed Obligations as provided in the definition of such term in Section
1.01.

                  (b)  COLLATERAL SECURITY; FURTHER ASSURANCES.

                  (i) COLLATERAL SECURITY. It is the intent of the parties
hereto that the Guaranteed Obligations be secured (except as otherwise provided
in the Senior Security Agreement) by first Liens and prior perfected security
interests in substantially all of the tangible and intangible property of each
Obligor now owned or hereafter acquired (other than real property, including
improvements, having a book value of $2,000,000 or less), including in all
shares of stock or other ownership interest held by each Obligor in any
Restricted Subsidiary and all accounts receivable, inventory, real property
(subject to such limit), machinery, equipment, contracts, License rights,
Franchise rights, Private License rights and general intangibles PROVIDED
that in no event shall any Obligor be required to pledge more than 65% of the
voting Capital Stock of any Foreign Subsidiary except to the extent that such
pledge would not result in material adverse tax consequences to the Issuer.

                  (ii) FURTHER ASSURANCES. Each Obligor (including each New
Subsidiary formed or acquired after the date hereof), shall execute and deliver
any and all documents, financing statements, mortgages or deeds of trust
covering real property and fixtures owned or leased by such Obligor, and, to the
extent necessary with respect to any leasehold property to be subjected to a
Senior Mortgage, obtain consents of the respective landlords with respect to
such property, agreements and instruments, and take all actions (including
filing Uniform Commercial Code and other financing statements) as the Required
Holders or either Agent may from time to time reasonably request in order to
grant, preserve, protect and perfect, in favor of the Administrative Agent for
the benefit of the Secured Parties, the Liens and security interests described
above in clause (i) and in this clause (ii) (subject, in each case, to Liens
permitted under Section 6.02). Without limiting the generality of the foregoing,
to the extent deemed by the Administrative Agent to be appropriate with respect
to the pledge by any Obligor of the equity held by such Obligor in any Foreign
Subsidiary, such Obligor will execute and deliver such security agreements,
pledge agreements and other instruments under the law of the jurisdiction in
which such Foreign Subsidiary shall be organized as the Administrative Agent
shall reasonably request.

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                  (c)  CORPORATE AND OTHER ACTION, ETC.  In the event that any
New Subsidiary shall be formed or acquired after the date hereof, then the
Issuer will:

                  (i) take and cause such New Subsidiary to take any action
requested by the Administrative Agent or the Required Holders pursuant to
paragraph (a) or (b) above;

                  (ii) deliver all certificates evidencing Capital Stock or
other ownership interests in such New Subsidiary, each accompanied by undated
stock powers executed in blank; and

                  (iii) deliver such proof of corporate or other company action,
         incumbency of officers, opinions of counsel and other documents as is
         consistent with those delivered by the Issuer pursuant to Section 3.01
         on the Closing Date or as the Administrative Agent shall have
         reasonably requested.

                  Section 5.05. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. The Issuer will, and will cause each of its Restricted Subsidiaries
to, keep proper books of record and account in conformity with GAAP. The Issuer
will, and will cause each of its Restricted Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Holder to visit
and inspect the financial records and the properties of the Issuer and its
Restricted Subsidiaries at reasonable times, on reasonable notice and as often
as reasonably requested and to make extracts from and copies of such financial
records, and permit any representatives designated by the Administrative Agent
or any Holder to discuss the affairs, finances and condition of the Issuer and
its Restricted Subsidiaries with any Responsible Officer and the Accountants.

                  Section 5.06. COMPLIANCE WITH TERMS OF PRIVATE LICENSES. The
Issuer will, and will cause each of its Restricted Subsidiaries to make all
payments and otherwise perform all obligations in respect of all Private
Licenses to which the Issuer or any such Restricted Subsidiary is a party, keep
such Private Licenses in full force and effect and not allow such Private
Licenses to lapse or be terminated or any rights to renew such Private Licenses
to be forfeited or canceled, notify the Administrative Agent of any default by
any party with respect to such Private Licenses and cooperate with the
Administrative Agent in all respects to cure any such default and cause each
such Restricted Subsidiary to do so, except, in any case, where the failure to
do any of the foregoing, either individually or in the aggregate, has not had
and could not be reasonably expected (individually or in the aggregate) to have
a Material Adverse Effect.

                  Section 5.07. OBLIGATIONS AND TAXES. The Issuer will, and will
cause each of its Restricted Subsidiaries to, pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all material taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise that, if unpaid,
might give rise to a Lien upon such properties or any part thereof; PROVIDED
that such payment and discharge shall not be required with respect to any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the Issuer or
such Restricted Subsidiaries shall have set aside on its books adequate reserves
with respect thereto in

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<Page>

                                      -58-

accordance with GAAP and such contest operates to suspend collection of the
contested obligation, tax, assessment or charge and enforcement of a Lien.

                  Section 5.08.  EMPLOYEE BENEFITS.  The Issuer will, and will
cause each of its Restricted Subsidiaries to:

                  (a) comply in all material respects with the applicable
         provisions of ERISA and the Code, except where non-compliance has not
         had and could not reasonably be expected (individually or in the
         aggregate) to have a Material Adverse Effect; and

                  (b) furnish to the Administrative Agent as soon as possible
         after, and in any event within 10 days after any Responsible Officer
         knows or has reason to know that, any ERISA Event has occurred that,
         alone or together with any other ERISA Event could reasonably be
         expected (individually or in the aggregate) to result in a Material
         Adverse Effect, a statement of a Financial Officer of the Issuer
         setting forth details as to such ERISA Event and the action, if any,
         that the Issuer proposes to take with respect thereto.

                  Section 5.09.  INSURANCE.  The Issuer will, and will cause
each of its Restricted Subsidiaries to:

                  (a) keep its insurable properties adequately insured at all
         times by financially sound and reputable insurers; maintain such other
         insurance, to such extent and against such risks, including fire and
         other risks insured against by extended coverage, as is customary with
         companies in the same or similar businesses operating in the same or
         similar locations, including public liability insurance against claims
         for personal injury or death or property damage occurring upon, in,
         about or in connection with the use of any properties owned, occupied
         or controlled by it; and maintain such other insurance as may be
         required by law;

                  (b) cause all such property damage policies to be endorsed or
         otherwise amended to include a "standard" lender's loss payable
         endorsement, in form and substance satisfactory to the Administrative
         Agent, which endorsement shall provide that, from and after the Closing
         Date, if the insurance carrier shall have received written notice from
         the Administrative Agent of the occurrence of an Event of Default, the
         insurance carrier shall pay all proceeds otherwise payable to the
         Issuer or any Restricted Subsidiary under such policies directly to the
         Administrative Agent; and deliver original or certified copies of all
         such policies to the Administrative Agent; and

                  (c) if any separate or additional property, casualty or
         "umbrella" insurance policy is known by a Responsible Officer to have
         been obtained by the Issuer or any other Restricted Subsidiary, notify
         the Administrative Agent thereof promptly, and promptly deliver to the
         Administrative Agent a duplicate original copy of such policy.

                  Section 5.10. FRANCHISES. The Issuer shall, and shall cause
each of the Restricted Subsidiaries to, continue to comply with the terms of all
Franchises to which it is subject, and shall do, and cause each of the
Restricted Subsidiaries to do, everything necessary or desirable to maintain the
Franchises in good standing, to prevent the termination or forfeiture of the
Franchises and to ensure that the Franchises are renewed upon their respective
times of expiry on

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<Page>

                                      -59-

at least as favorable terms as the terms on which they were or are originally
granted, except to the extent that any such failure to comply with the terms of
such Franchises, to maintain such Franchises or to prevent the termination or
forfeiture of such Franchises could not reasonably be expected (individually or
in the aggregate) to have a Material Adverse Effect. Notwithstanding the
foregoing, the obligations of the Issuer and the Restricted Subsidiaries with
respect to their compliance with the terms of the Franchises disclosed in
Schedule 4.01(u) shall be satisfied if the Issuer and its Restricted
Subsidiaries make commercially reasonable efforts to achieve compliance in all
material respects with such terms as soon as possible and continue such
compliance thereafter.

                  Section 5.11. LICENSES. The Issuer shall, and shall cause each
Restricted Subsidiary to, continue to comply with the terms of all Licenses to
which it is subject, and shall do, and cause each Restricted Subsidiary to do,
everything necessary or desirable to maintain the Licenses in good standing, to
prevent the termination or forfeiture of the Licenses and to ensure that the
Licenses are renewed upon their respective times of expiry on at least as
favorable terms as the terms on which they were or are originally granted,
except to the extent that any such failure to comply with the terms of such
Licenses, to maintain such Licenses or to prevent the termination or forfeiture
of such Licenses could not reasonably be expected (individually or in the
aggregate) to have a Material Adverse Effect. Notwithstanding the foregoing, the
obligations of the Issuer and its Restricted Subsidiaries with respect to their
compliance with the terms of the Licenses disclosed in Schedule 4.01(t) shall be
satisfied if the Issuer and its Restricted Subsidiaries make commercially
reasonable efforts to achieve compliance in all material respects with such
terms as soon as possible and continue such compliance thereafter.

                  Section 5.12. USE OF PROCEEDS. The Issuer will use the
proceeds of the Notes hereunder solely as permitted by Section 2.01(c) (in
compliance with all applicable legal and regulatory requirements, including
Regulations T, U and X and the Securities Act of 1933 and the Securities
Exchange Act of 1934 and the regulations thereunder); PROVIDED that neither the
Administrative Agent nor any Holder shall have any responsibility as to the use
of any of such proceeds.

                  Section 5.13. HEDGING AGREEMENTS. The Issuer will within 60
days of the Closing Date enter into, and thereafter maintain in full force and
effect for a period of not less than three years from the Closing Date, one or
more Hedging Agreements with one or more Holders (and/or with a bank or other
financial institution having capital, surplus and undivided profits of at least
$500,000,000), that effectively enables the Issuer (in a manner satisfactory to
the Required Holders) to protect itself against adverse fluctuations in the
three-month London interbank offered rates as to a notional principal amount
that, taking into account the aggregate outstanding principal amount of
Indebtedness of the Issuer and its Subsidiaries bearing a fixed rate of interest
from time to time, shall in the aggregate be at least equal to 50% of the
aggregate principal amount of the Indebtedness of the Issuer and its
Subsidiaries from time to time.

                          NOTE AND GUARANTEE AGREEMENT

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                                      -60-

                                   ARTICLE VI

                               NEGATIVE COVENANTS

                  Each Obligor covenants and agrees with each Holder that so
long as this Agreement shall remain in effect, until the principal of and
interest on each Note, all fees and all other expenses or amounts (other than
contingent indemnity obligations) payable under the Note Documents shall have
been paid in full, unless the Holders shall otherwise consent in writing in
accordance with the provisions of Section 10.01:

                  Section 6.01.  INDEBTEDNESS.

                  (a)  ISSUER.  The Issuer will not create, incur or suffer to
exist any Indebtedness or any Attributable Debt except:

                  (i)  Indebtedness to the Holders hereunder;

                  (ii) existing Indebtedness of the Issuer as listed on a
         schedule to be prepared after the Closing Date, the contents of which
         schedule shall be in form and substance satisfactory to each Purchaser;

                  (iii) Indebtedness of the Issuer to any Restricted Subsidiary,
         so long as the obligations of the Issuer to such Restricted Subsidiary
         in respect of such Indebtedness are subordinated to the Obligations of
         the Issuer hereunder and under the other Note Documents upon terms in
         form and substance, and pursuant to documentation, satisfactory to the
         Administrative Agent;

                  (iv) Indebtedness in respect of Hedging Agreements entered
         into in the ordinary course of the Issuer's financial planning to hedge
         or mitigate risks to which the Issuer or any Restricted Subsidiary is
         exposed in the conduct of its business or the management of its
         liabilities;

                  (v) Indebtedness of the Issuer (including Acquired
         Indebtedness and Capital Lease Obligations, mortgage financings and
         purchase money obligations) incurred for the purpose of financing all
         or any part of the cost of construction, engineering, acquisition,
         installation, development or improvement by the Issuer or any
         Restricted Subsidiary of any Telecommunications Assets of the Issuer or
         any Restricted Subsidiary and including any related notes, Guarantees,
         collateral documents, instruments and agreements executed in connection
         therewith, and any Attributable Debt of the Issuer arising out of a
         sale and leaseback transaction with respect to one or more Data Centers
         permitted under Section 6.04, PROVIDED that

                           (A) the aggregate principal amount of such
                  Indebtedness and Attributable Debt shall not exceed
                  $50,000,000 at any one time outstanding,

                           (B) except if such Indebtedness constitutes Vendor
                  Guarantee Indebtedness, the final maturity date of any such
                  Indebtedness or Attributable

                          NOTE AND GUARANTEE AGREEMENT

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                                      -61-

                  Debt shall not be earlier than six months after the latest
                  maturity of any of the Notes hereunder outstanding at the
                  time such Indebtedness or Attributable Debt is incurred,

                           (C) except if such Indebtedness constitutes Vendor
                  Guarantee Indebtedness, the Weighted Average Life to Maturity
                  of such Indebtedness or Attributable Debt shall not be earlier
                  than the Weighted Average Life to Maturity of the Notes (the
                  determination of such Weighted Average Lives to Maturity to be
                  made by the Administrative Agent) and

                           (D) the agreements and other instruments relating to
                  such Indebtedness or Attributable Debt shall not in any way
                  restrict the payment or redemption of principal or interest on
                  the Notes, or other amounts owing hereunder, the granting of
                  Liens on property of the Issuer or any of its Subsidiaries to
                  secure the obligations of the Issuer hereunder, the Guarantee
                  by any of the Subsidiaries of the Issuer of any of the
                  obligations of the Issuer hereunder, or the execution or
                  delivery of any modification, waiver or consent entered into
                  in connection with any of the Note Documents;

                  (vi) Indebtedness of the Issuer incurred in the ordinary
         course of business in accordance with customary industry practices in
         respect of letters of credit and performance bonds in amounts and for
         the purposes customary in the Issuer's industry (so long as no such
         performance bonds or letters of credit support Indebtedness);

                  (vii) Indebtedness arising in connection with the pledge by
         the Issuer of its Equity Interest in any Unrestricted Subsidiary to
         secure Indebtedness of such Unrestricted Subsidiary, so long as the
         obligations of the Issuer in respect of such Indebtedness is limited in
         recourse to such Equity Interest;

                  (viii) Permitted Refinancing Indebtedness in exchange for, or
         the net proceeds of which are used to refund, refinance or replace,
         Indebtedness (other than intercompany Indebtedness) that is permitted
         under clauses (ii) or (v) of this Section 6.01(a), PROVIDED that any
         refinancing, renewal, replacement, defeasance or refunding of the
         Senior Notes shall contain covenants, defaults, mandatory redemption
         provisions and other terms (including maturity) no less favorable in
         any respect (from the standpoint of the Issuer) than the Issuer's 10%
         Senior Notes due 2009;

                  (ix) Indebtedness of the Issuer under the Verizon Debt
         Agreement in an aggregate principal amount up to but not exceeding
         $50,000,000; and

                  (x) additional unsecured Indebtedness so long as (A) after
         giving effect to the incurrence of such Indebtedness, the Issuer shall
         be in compliance with Section 6.13 (the determination of such
         compliance to be calculated on a pro forma basis (x) as at the end of
         and for the period of four fiscal quarters most recently ended prior to
         the date of such incurrence for which financial statements of the
         Issuer and its Restricted Subsidiaries are available and (y) on a
         projected basis until the date six months after the Maturity Date
         (using assumptions that the Issuer in good faith believes are fair,
         accurate and reasonable

                          NOTE AND GUARANTEE AGREEMENT

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                                      -62-

         at the time, and in which assumptions the Administrative Agent
         concurs), in each case under the assumption that such incurrence
         occurred at the beginning of the applicable period, and under the
         assumption that interest for such period had been or will be equal
         to the interest expected to accrue during the term of such
         Indebtedness) and, in the event that the aggregate amount of such
         Indebtedness shall exceed $5,000,000, the Issuer shall have
         delivered to the Administrative Agent a certificate of a Financial
         Officer showing calculations in reasonable detail to demonstrate
         compliance with this subclause (x) and (B) such Indebtedness shall
         not contain covenants, defaults, mandatory redemption provisions and
         other terms (including maturity) less favorable in any respect (from
         the standpoint of the Issuer) than the Issuer's 10% Senior Notes due
         2009.

                  (b) RESTRICTED SUBSIDIARIES. None of the Obligors (other than
the Issuer, as to which the provisions of Section 6.01(a) shall be applicable)
will, nor will it cause or permit any Restricted Subsidiary to, create, incur or
suffer to exist any Indebtedness except:

                  (i)  Indebtedness to the Holders hereunder;

                  (ii)  Indebtedness of the Restricted Subsidiaries existing on
         the date hereof as set forth on Schedule 6.01;

                  (iii) Indebtedness of any Restricted Subsidiary to the Issuer
         or any other Restricted Subsidiary, so long as the obligations in
         respect of such Indebtedness of any Obligor to any Restricted
         Subsidiary not an Obligor are subordinated to the Obligations of such
         Obligor hereunder and under the other Note Documents upon terms in form
         and substance, and pursuant to documentation, satisfactory to the
         Administrative Agent;

                  (iv) Indebtedness of Foreign Subsidiaries (including Acquired
         Indebtedness and Capital Lease Obligations, mortgage financings and
         purchase money obligations) incurred for the purpose of financing all
         or any part of the cost of construction, engineering, acquisition,
         installation, development or improvement by such Foreign Subsidiary or
         any of its Restricted Subsidiaries of any Telecommunications Assets of
         such Foreign Subsidiary or any of its Restricted Subsidiaries and
         including any related notes, Guarantees, collateral documents,
         instruments and agreements executed in connection therewith, PROVIDED
         that the aggregate principal amount thereof shall not exceed
         $25,000,000 and any one time outstanding;

                  (v) Indebtedness of Foreign Subsidiaries incurred in the
         ordinary course of business in accordance with customary industry
         practices in respect of letters of credit and performance bonds in
         amounts and for the purposes customary in the Issuer's industry (so
         long as no such performance bonds or letters of credit support
         Indebtedness);

                  (vi) Indebtedness arising in connection with the pledge by any
         Restricted Subsidiary of its Equity Interest in any Unrestricted
         Subsidiary to secure Indebtedness of such Unrestricted Subsidiary, so
         long as the obligations of such Restricted Subsidiary in respect of
         such Indebtedness is limited in recourse to such Equity Interest;

                          NOTE AND GUARANTEE AGREEMENT

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                                      -63-

                  (vii) Permitted Refinancing Indebtedness in exchange for, or
         the net proceeds of which are used to refund, refinance or replace,
         Indebtedness (other than intercompany Indebtedness) that is permitted
         under clauses (ii) or (iv) of this Section 6.01(b);

                  (viii) Indebtedness of one or more Restricted Subsidiaries
         under the Vendor Agreements, PROVIDED that (x) the aggregate principal
         amount of such Indebtedness shall not exceed $485,000,000 and (y) none
         of such Indebtedness shall be entitled to the benefits of any Lien
         except pursuant to the Junior Security Documents (or except as
         expressly permitted by the Junior Intercreditor and Collateral Agency
         Agreement);

                  (ix) additional Indebtedness of one or more Restricted
         Subsidiaries in respect of vendor financing for the engineering,
         construction, installation, acquisition, development or improvement of
         Telecommunications Assets up to but not exceeding $15,000,000 at any
         one time outstanding; and

                  (x) additional unsecured Indebtedness of Foreign Subsidiaries
in an aggregate amount not to exceed $50,000,000 (or the equivalent thereof in
foreign currency).

                  Section 6.02. LIENS. None of the Obligors will, nor will it
cause or permit any Restricted Subsidiary to create, incur, assume or permit to
exist any Lien on any property or assets (including stock or other securities of
any Person, including any Subsidiary of the Issuer) now owned or hereafter
acquired by it or on any income or revenues or rights in respect of thereof,
except:

                  (a) Liens created pursuant to the Senior Security Documents
         and the Junior Security Documents (or expressly permitted by the
         Junior Intercreditor and Collateral Agency Agreement);

                  (b) Liens existing on the date hereof listed on a schedule to
         be prepared after the date hereof and on or before the Closing Date,
         the contents of which schedule shall be in form and substance
         satisfactory to each Purchaser;

                  (c) Liens imposed by any Governmental Authority for taxes,
         assessments or charges not yet due or that are being contested in good
         faith and by appropriate proceedings if adequate reserves with respect
         thereto are maintained on the books of the Issuer or the affected
         Restricted Subsidiaries, as the case may be, in accordance with GAAP,
         so long as forfeiture of all or any part of the property or assets of
         any Person which is subject to such Lien, does not result from the
         failure to pay such taxes, assessments or governmental charges or
         levies during the period of such contest;

                  (d) carriers', warehousemen's, mechanics', materialmen's,
         repairmen's or other like Liens arising in the ordinary course of
         business that are not overdue for a period of more than 30 days or that
         are being contested in good faith and by appropriate proceedings so
         long as the aggregate amount of all such Liens shall not at no time
         exceed $5,000,000;

                          NOTE AND GUARANTEE AGREEMENT

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                                      -64-

                  (e) pledges or deposits under worker's compensation,
         employment insurance and other social security legislation, by reason
         only of an Obligor's deferred right to pay such amount, but which such
         Obligor is paying as such amount becomes due;

                  (f) cash deposits to secure the performance of bids, trade
         contracts (other than for Indebtedness), leases, statutory obligations,
         surety and appeal bonds, performance bonds, letters of credit, and
         other obligations of a like nature incurred in the ordinary course of
         business, PROVIDED that in the case of performance bonds and letters of
         credit the obligations in respect thereof are permitted under Section
         6.01(a)(vi) or Section 6.01(b)(v), as applicable;

                  (g) easements, rights-of-way, restrictions and other similar
         encumbrances incurred in the ordinary course of business and
         encumbrances consisting of zoning restrictions, easements, licenses,
         restrictions on the use of property or minor imperfections in title
         thereto that, in the aggregate, are not material in amount, and that do
         not in any case materially detract from the value of the property
         subject thereto or interfere with the ordinary conduct of the business
         of the Issuer or any of its Subsidiaries; and

                  (h) Liens securing Indebtedness permitted under Section
         6.01(a)(v) and (ix) and 6.01(b)(iv), so long as such Liens cover only
         the assets engineered, constructed, installed, acquired, developed or
         improved with such Indebtedness;

                  (i) Liens arising out of judgments or awards (other than any
         judgment that is described in clause (j) of Article VII which
         constitutes an Event of Default thereunder) in respect of which the
         Issuer shall in good faith be prosecuting an appeal or proceedings for
         review and in respect of which it shall have secured a subsisting stay
         of execution pending such appeal or proceedings for review, PROVIDED
         the Issuer shall have set aside on its books adequate reserves, in
         accordance with GAAP, with respect to such judgment or award;

                  (j) Liens arising from Uniform Commercial Code or financing
         statements and similar documents filed on a precautionary basis in
         respect of operating leases intended by the parties to be true leases
         (other than any such leases entered into in violation of this
         Agreement);

                  (k) Liens consisting of the pledge by the Issuer or any
         Restricted Subsidiary of its Equity Interest in any Unrestricted
         Subsidiary securing Indebtedness permitted under Section 6.01(a)(vii)
         and 6.01(b)(vi);

                  (l)  Liens in favor of the Issuer or any Obligor;

                  (m) Liens to secure any extension, renewal, refinancing or
         refunding (or successive extensions, renewals, refinancings or
         refundings), in whole or in part, of any Indebtedness secured by Liens
         referred to in the foregoing clauses (b) and (h), PROVIDED that such
         Liens do not extend to any other property of the Issuer or any
         Restricted Subsidiary and the principal amount of the Indebtedness
         secured by such Lien is not increased;

                          NOTE AND GUARANTEE AGREEMENT

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                                      -65-

                  (n) Liens securing Indebtedness permitted under Section
6.01(b)(ix), PROVIDED that each such Lien covers only the assets engineered,
constructed, installed, acquired, developed or improved with the proceeds of
such Indebtedness and does not cover any other assets of the Issuer or its
Restricted Subsidiaries;

                  (o)  any interest or title of a lessor in the property
subject to any lease other than in respect of a Capital Lease Obligation;

                  (p) lease or subleases granted in the ordinary course of
business to others that do not materially interfere with the business of the
Issuer and its Restricted Subsidiaries;

                  (q) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the
importation of goods; and

                  (r) additional Liens on property to secure Indebtedness so
long as the aggregate principal amount of such Indebtedness to which any
Obligors are subject does not at any time exceed $1,000,000.

                  Section 6.03.  UNRESTRICTED SUBSIDIARIES.  The Issuer shall
not designate any Subsidiary as an "Unrestricted Subsidiary" unless:

                  (a) such Subsidiary has no Indebtedness other than
         Indebtedness (i) as to which neither the Issuer nor any Restricted
         Subsidiary (A) provides credit support of any kind (including any
         undertaking, agreement or instrument that would constitute
         Indebtedness) or (B) is directly or indirectly liable as a guarantor or
         otherwise, and (ii) no default with respect to which (including any
         rights that the holders thereof may have to take enforcement action
         against an Unrestricted Subsidiary) would permit (upon notice, lapse of
         time or both) any holder of any other Indebtedness of the Issuer 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;

                  (b) such Subsidiary is a Person with respect to which neither
         the Issuer nor any Restricted Subsidiary has any direct or indirect
         obligation to maintain or preserve such Person's financial condition or
         to cause such Person to achieve any specified levels of operating
         results;

                  (c)  such Subsidiary has not Guaranteed or otherwise directly
         or indirectly provided credit support for any Indebtedness of the
         Issuer or any Restricted Subsidiary; and

                  (d) at the time thereof and after giving effect thereto, no
         Default or Event of Default shall have occurred or be continuing.

                  Any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary pursuant to this Section 6.03 shall constitute an Investment in such
Unrestricted Subsidiary in an amount equal to the aggregate amount of the
Investments (determined in accordance with the penultimate paragraph of Section
6.05(a)) by the Issuer and its Restricted Subsidiaries in such Unrestricted
Subsidiary at the time of such designation.

                          NOTE AND GUARANTEE AGREEMENT

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                  Any designation of a Subsidiary of the Issuer as an
Unrestricted Subsidiary shall be evidenced to the Administrative Agent by filing
with the Administrative Agent a certified copy of a resolution of the board of
directors of the Issuer giving effect to such designation and a certificate of a
Financial Officer of the Issuer certifying that such designation complied with
the preceding conditions and is permitted by Section 6.05. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding conditions (other than
clause (d)), it shall immediately cease to be an Unrestricted Subsidiary for the
purposes hereof and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Issuer as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under Section 6.01,
the Issuer shall be in default of such covenant.

                  The board of directors of the Issuer may at any time designate
an Unrestricted Subsidiary to be a Restricted Subsidiary, PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) after giving effect to such
deemed incurrence of Indebtedness, the Issuer shall be in compliance with
Section 6.13 calculated on a pro forma basis (using assumptions that the Issuer
in good faith believes are fair, accurate and reasonable at the time, and in
which assumptions the Administrative Agent concurs) as if such designation had
occurred at the beginning of the relevant fiscal period and (ii) no Default or
Event of Default would occur or be continuing following such designation, and
PROVIDED FURTHER that no such designation shall be permitted with respect to any
Unrestricted Subsidiary that has consummated an Acquisition unless the
requirements of Section 6.06(b) would have been satisfied with respect to such
Acquisition as if it had been consummated by a Restricted Subsidiary.

                  Section 6.04. SALE AND LEASE-BACK TRANSACTIONS. None of the
Obligors will, nor will it cause or permit any Restricted Subsidiary to, enter
into any arrangement, directly or indirectly, with any Person whereby it shall
sell or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred, PROVIDED that the
Issuer may enter into any such arrangement with respect to one or more Data
Centers to the extent that the Indebtedness or Attributable Debt arising in
connection therewith is permitted under Section 6.01(a)(v).

                  Section 6.05.  INVESTMENTS AND CONTINGENT INVESTMENTS.

                  (a) INVESTMENTS. None of the Obligors will, nor will it cause
or permit any Restricted Subsidiary to make or permit to remain outstanding any
Investments, except:

                  (i)  Investments outstanding on the date hereof and
identified in Schedule 6.05;

                  (ii) cash and Cash Equivalents, PROVIDED that all such cash
         and Cash Equivalents of the Obligors (other than up to $1,000,000 that
         may be held in operating deposit accounts) is held in the Collateral
         Accounts under and as defined in the Senior Security Agreement;

                  (iii) Investments by (w) any Restricted Subsidiary that is not
         an Obligor in any other Restricted Subsidiary that is not an Obligor,
         (x) any Obligor in any other Obligor,

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         (y) any Obligor in a Restricted Subsidiary that is not an Obligor,
         PROVIDED that the aggregate amount of such Investments made after
         the date hereof either in Foreign Subsidiaries, or in Subsidiaries
         that are not Wholly Owned Subsidiaries, and that are outstanding on
         any date (excluding Investments referred to in clause (iv) below)
         shall not exceed $120,000,000, shall be made in the form of loans by
         an Obligor to such Foreign Subsidiary or other Wholly Owned
         Subsidiary (except that to the extent necessary to avoid material
         adverse tax consequences such Investments may be made in the form of
         equity) and shall be made in connection with the working capital
         needs of such Foreign Subsidiary or other Wholly Owned Subsidiary in
         the ordinary course of business and (z) any Restricted Subsidiary
         that is not an Obligor in any Obligor;

                  (iv) Investments by the Obligors in Metromedia Fiber Network
         (Bermuda) Ltd., a Bermuda company and a Wholly Owned Restricted
         Subsidiary, required under the consortium arrangements for the undersea
         cables of TAT-14, APCN-2 and Japan-US Cable Network of which Metromedia
         Fiber Network (Bermuda) Ltd. is a member, in an aggregate amount (x)
         not to exceed $60,000,000 during the period commencing on the date
         hereof through and including December 31, 2001 and (y) not to exceed
         $70,000,000 during the period commencing on the date hereof through and
         including December 31, 2002;

                  (v)  Investments by the Issuer and its Restricted
         Subsidiaries constituting Acquisitions permitted under Section 6.06(b);

                  (vi) extensions of trade credit having a term not exceeding 90
         days arising in the ordinary course of business (including receivables
         owing to the Issuer and its Restricted Subsidiaries that arise in the
         ordinary course of business and are payable or dischargeable in
         accordance with customary trade terms) or Investments in the securities
         of trade creditors or customers received pursuant to any plan of
         reorganization or similar arrangement upon the bankruptcy or insolvency
         or such trade creditors or customers;

                  (vii) Investments consisting of security deposits with
         utilities and other like Persons made in the ordinary course of
         business;

                  (viii) Guarantees arising in connection with the pledge by the
         Issuer or any Restricted Subsidiary of its Equity Interest in any
         Unrestricted Subsidiary to secure Indebtedness of such Unrestricted
         Subsidiary, so long as the obligations of the Issuer and its Restricted
         Subsidiaries in respect of such Guarantee is limited in recourse to
         such Equity Interest; and

                  (ix) additional Investments (including loans and advances to
         employees of the Issuer and its Restricted Subsidiaries for travel,
         entertainment and relocation expenses in the ordinary course of their
         business), PROVIDED that the aggregate amount of such Investments made
         after the date hereof outstanding on any date shall not exceed the sum
         of $1,000,000.

                  For purposes of clauses (iii) and (ix) of this Section
6.05(a), the aggregate amount of an Investment at any time shall be deemed to be
equal to (A) the aggregate amount of cash,

                          NOTE AND GUARANTEE AGREEMENT

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together with the aggregate fair market value of property, loaned, advanced,
contributed, transferred or otherwise invested that gives rise to such
Investment MINUS (B) the aggregate amount of dividends, distributions or other
payments received in cash in respect of such Investment; the amount of an
Investment shall not in any event be reduced by reason of any write-off of such
Investment nor increased by any increase in the amount of earnings retained in
the Person in which such Investment is made that have not been dividended,
distributed or otherwise paid out.

                  As provided in Section 6.03, any designation of a Restricted
Subsidiary as an Unrestricted Subsidiary pursuant to Section 6.03 shall
constitute an Investment in such Unrestricted Subsidiary in an amount equal to
the aggregate amount of the Investments (determined in accordance with the
immediately preceding paragraph) by the Issuer and its Restricted Subsidiaries
in such Unrestricted Subsidiary at the time of such designation.

                  (b) CONTINGENT INVESTMENTS. None of the Obligors will, nor
will it permit any Restricted Subsidiary to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that requires or may
require, whether at the time of entering into such agreement or arrangement,
whether contingently or otherwise, any Investment, unless, at the time such
Obligor or Restricted Subsidiary enters into such agreement or arrangement, such
Investment (treating as Investments all other then-outstanding commitments to
make Investments) would have been permitted under Section 6.05(a).

                  Section 6.06.  MERGERS, CONSOLIDATIONS, ASSETS SALES AND
ACQUISITIONS.

                  (a) MERGERS, CONSOLIDATIONS AND ASSETS SALES. None of the
Obligors will, nor will it cause or permit any Restricted Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or conduct any Asset Sale of (in one transaction or
in a series of transactions) of all or any part of its assets (whether now owned
or hereafter acquired) if, after giving effect thereto, the aggregate net book
value of the assets sold after the date hereof shall exceed in the aggregate 10%
of Net Tangible Assets, except that:

                  (i) if at the time thereof and immediately after giving effect
         thereto no Event of Default or Default shall have occurred and be
         continuing (A) any Restricted Subsidiary of the Issuer may merge into
         the Issuer in a transaction in which the Issuer is the surviving
         corporation; and (B) any Restricted Subsidiary of the Issuer may merge
         into or consolidate with any other Restricted Subsidiary of the Issuer
         in a transaction in which (x) the surviving entity is a Restricted
         Subsidiary of the Issuer, (y) any consideration paid to any Person
         other than the Issuer or a Wholly Owned Restricted Subsidiary in
         connection therewith shall constitute a Restricted Payment permitted
         under Section 6.07, (z) if any such transaction shall be between a
         Guarantor and a Restricted Subsidiary that is not a Guarantor, and such
         Guarantor is not the continuing or surviving corporation, then the
         continuing or surviving corporation shall have assumed all of the
         obligations of such Guarantor hereunder and under the other Note
         Documents, PROVIDED that a Wholly Owned Subsidiary of the Issuer may
         only merge or consolidate with another Wholly Owned Subsidiary of the
         Issuer;

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -69-

                 (ii) the Issuer or any Restricted Subsidiary of the Issuer may
         sell, lease, transfer or otherwise dispose of any or all of its
         property (upon voluntary liquidation or otherwise) to the Issuer or a
         Restricted Subsidiary of the Issuer, PROVIDED that (A) if any such sale
         is by an Obligor to a Restricted Subsidiary of the Issuer that is not a
         Guarantor, then such Restricted Subsidiary shall have become a
         Guarantor hereunder and under the other Note Documents in accordance
         with the provisions of Section 5.04 and (B) a Wholly Owned Subsidiary
         of the Issuer may only transfer assets to another Wholly Owned
         Subsidiary of the Issuer; and

                 (iii) the Issuer and its Restricted Subsidiaries may consummate
         any merger or consolidation that constitutes an Acquisition
         permitted under Section 6.06(b).

                  (b) ACQUISITIONS. None of the Obligors will, nor will it cause
or permit any of its Restricted Subsidiaries to, acquire any business, and the
related assets, of any other Person (whether by way of purchase of assets or
stock, by merger or consolidation or otherwise), unless:

                  (i) the aggregate Purchase Price of all such Acquisitions
         (other than any such Acquisition where the sole consideration consists
         of Capital Stock (other than Disqualified Stock) of the Issuer) shall
         not, as at any date, exceed the sum of $2,000,000 PLUS the aggregate
         amount of Capital Stock (other than Disqualified Stock) issued in
         connection with such Acquisition;

                  (ii) each such Acquisition by the Issuer or any Restricted
         Subsidiary (if by purchase of assets, merger or consolidation) shall be
         effected in such manner so that the acquired business, and the related
         assets, are owned either by the Issuer or a Wholly Owned Restricted
         Subsidiary of the Issuer and, if effected by merger or consolidation
         involving the Issuer, the Issuer shall be the continuing or surviving
         entity and, if effected by merger or consolidation involving a Wholly
         Owned Restricted Subsidiary of the Issuer, the continuing or surviving
         entity shall be a Wholly Owned Restricted Subsidiary of the Issuer;

                  (iii) each such Acquisition by the Issuer or any Restricted
         Subsidiary (if by purchase of stock) shall be effected in such manner
         so that the acquired entity becomes a Wholly Owned Restricted
         Subsidiary of the Issuer;

                  (iv) after giving effect to each such Acquisition by the
         Issuer or any Restricted Subsidiary, the Issuer shall be in compliance
         with Section 6.13 (the determination of such compliance to be
         calculated on a pro forma basis, using assumptions that the Issuer in
         good faith believes are fair, accurate and reasonable at the time, and
         in which assumptions the Administrative Agent concurs) (A) as at the
         end of and for the period of four fiscal quarters most recently ended
         prior to the date of such Acquisition for which financial statements of
         the Issuer and its Restricted Subsidiaries are available and (B) on a
         projected basis until the date six months after the Maturity Date
         (using assumptions that the Issuer in good faith believes are fair,
         accurate and reasonable at the time, and in which assumptions the
         Administrative Agent concurs), in each case under the assumption that
         such Acquisition shall have occurred, and any Indebtedness in
         connection therewith shall have been incurred, at the beginning of the
         applicable period, and under the

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -70-

         assumption that interest for such period had been or will be equal
         to the actual weighted average interest rate in effect for the Notes
         hereunder on the date of such Acquisition) and, in the event that
         the aggregate consideration in respect of such Acquisition shall
         exceed $5,000,000, the Issuer shall have delivered to the
         Administrative Agent a certificate of a Financial Officer showing
         calculations in reasonable detail to demonstrate compliance with
         this subclause (iv);

                 (v) each such Acquisition is consummated with the consent of
         the board of directors (or the equivalent entity) of the Person being
         acquired; and

                 (vi) immediately prior to each such Acquisition and after
         giving effect thereto, no Default or Event of Default shall have
         occurred and be continuing.

                  Section 6.07.  RESTRICTED PAYMENTS.  None of the Obligors
will, nor will it cause or permit any Restricted Subsidiary to:

                 (a) declare or pay, directly or indirectly, any dividend or
         make any other distribution (by reduction of capital or otherwise),
         whether in cash, property, securities or a combination thereof, with
         respect to any shares of its Capital Stock (including through the
         payment to any Person other than the Issuer or a Wholly Owned
         Restricted Subsidiary in connection with a transaction described in
         Section 6.06(a)(i)) or directly or indirectly redeem, purchase, retire
         or otherwise acquire for value (or permit any Restricted Subsidiary to
         purchase or acquire) any shares of any class of its Capital Stock or
         set aside any amount for any such purpose (any such payment, a
         "RESTRICTED PAYMENT"); PROVIDED that any Subsidiary of the Issuer may
         declare and make Restricted Payments to any Obligor; and

                  (b) issue any stock, membership or partnership or other Equity
         Interest to any Person unless (i) after giving effect to such issuance,
         the Issuer shall be in compliance with Section 6.13 (determined on a
         pro forma basis, using assumptions that the Issuer in good faith
         believes are fair, accurate and reasonable at the time, and in which
         assumptions the Administrative Agent concurs); (ii) after giving effect
         to such issuance no other Default or Event of Default shall have
         occurred and be continuing; and (iii) in the case of any such issuance
         by a Restricted Subsidiary, the percentage of the issued and
         outstanding shares of Capital Stock of such Restricted Subsidiary owned
         by the Issuer and its other Restricted Subsidiaries after giving effect
         to such issuance shall be greater than or equal to such percentage
         owned by the Issuer and its Restricted Subsidiaries immediately prior
         to such issuance;

PROVIDED that the foregoing shall not prohibit:

                  (i)  the issuance by the Issuer of any additional Capital
         Stock (other than Disqualified Stock);

                  (ii) the redemption, repurchase, retirement, defeasance or
         other acquisition of any Capital Stock of the Issuer in exchange for,
         or out of the proceeds of the substantially concurrent sale (other than
         to a Subsidiary of the Issuer) of Capital Stock of the Issuer (other
         than Disqualified Stock);

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -71-

                  (iii) the repurchase, redemption or other acquisition or
         retirement for value of any Capital Stock of the Issuer pursuant to any
         management or equity subscription agreement or stock option agreement
         and the repurchase of Capital Stock of the Issuer from employees,
         officers or directors of the Issuer or their authorized representatives
         upon the death, disability or termination of employment of such
         officers, directors and employees in an aggregate amount not to exceed
         $5,000,000 during the term of this Agreement (or $1,500,000 through
         December 31, 2002) PLUS (x) the aggregate cash proceeds from any
         issuance during such calendar year of Capital Stock by the Issuer to
         employees, officers or directors of the Issuer and its Restricted
         Subsidiaries and (y) the aggregate cash proceeds received by the Issuer
         or any Restricted Subsidiary from any payments on life insurance
         policies in which the Issuer or any Restricted Subsidiary is the
         beneficiary with respect to any employees, officers or directors of the
         Issuer or any Restricted Subsidiary which proceeds are used to purchase
         Capital Stock of the Issuer held by such employees, officers or
         directors;

                  (iv) pro rata dividends or other distributions made by a
         Restricted Subsidiary of the Issuer to minority stockholders (or owners
         of an equivalent interest in the case of a Restricted Subsidiary that
         is not a corporation);

                  (v) the repurchase of Capital Stock of the Issuer deemed to
         occur upon the exercise of stock options if such Capital Stock
         represents a portion of the exercise price thereof; and

                  (vi) the payment of any dividends in respect of any class of
         Capital Stock of the Issuer through the issuance of additional
         shares of such class of Capital Stock.

                  Section 6.08. RESTRICTIVE AGREEMENTS. None of the Obligors
will, nor will it permit any Restricted Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the Issuer
or any Restricted Subsidiary to create, incur or permit to exist any Lien upon
any of its property or assets or (b) the ability of any Restricted Subsidiary to
pay dividends or other distributions with respect to any shares of its Capital
Stock or to make or repay loans or advances to the Issuer or any other
Restricted Subsidiary or to Guarantee Indebtedness of the Issuer or any other
Restricted Subsidiary; PROVIDED that:

                  (i) the foregoing shall not apply to (1) restrictions in
         effect on the date hereof and set forth on a Schedule to be prepared
         after the date hereof and on or before the Closing Date, the contents
         of which schedule shall be in form and substance satisfactory to each
         Purchaser; (2) restrictions and conditions imposed by law or by this
         Agreement or any other Note Document; (3) customary restrictions and
         conditions contained in agreements relating to the sale of a Subsidiary
         pending such sale, PROVIDED such restrictions and conditions apply only
         to the Subsidiary that is to be sold and such sale is permitted
         hereunder; (4) restrictions set forth in any instrument pursuant to
         which Indebtedness permitted under Section 6.01(a)(x) is incurred so
         long, as provided therein, such Indebtedness does not contain
         covenants, defaults, mandatory redemption provisions and other terms
         less favorable in any respect (from the standpoint of the Issuer) than
         the Issuer's 10% Senior Notes due 2009, (5) restrictions set forth in
         any instrument pursuant to which Permitted Refinancing Indebtedness
         shall be issued, PROVIDED that the

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -72-

         restrictions contained in such instruments are no more restrictive,
         taken as a whole, than those contained in the agreements governing
         the Indebtedness being refinanced; (6) customary limitations on the
         disposition or distribution of assets or property in joint venture
         agreements and other similar agreements entered into in the ordinary
         course of business; and (7) restrictions on cash or other deposits
         or net worth imposed by customers under contracts entered into in
         the ordinary course of business; and

                  (ii) clause (a) of the foregoing shall not apply to (1)
         restrictions or conditions imposed by any agreement relating to secured
         Indebtedness permitted by this Agreement if such restrictions or
         conditions apply only to the property or assets securing such
         Indebtedness; (2) customary non-assignment provisions restricting
         subletting or assignment in leases or other agreements entered into in
         the ordinary course of business and consistent with past practices; and
         (3) purchase money obligations for property acquired in the ordinary
         course of business that impose restrictions on the transfer of such
         property to the Issuer or any Restricted Subsidiary.

                  Section 6.09. REPAYMENT OF INDEBTEDNESS. None of the Obligors
will purchase, redeem, retire or otherwise acquire for value, or set apart any
money for a sinking, defeasance or other analogous fund for the purchase,
redemption, retirement or other acquisition of, or make any voluntary payment or
prepayment or redemption of the principal of or interest on, or any other amount
owing in respect of, any Indebtedness, except for (a) regularly scheduled
payments, prepayments or redemptions of principal and interest in respect
thereof required pursuant to the instruments evidencing such Indebtedness and
(b) the refinancing of any Indebtedness permitted under Section 6.01.

                  Section 6.10. TRANSACTIONS WITH AFFILIATES. Except as herein
otherwise expressly provided, the Issuer will not, nor will it permit any of its
Restricted Subsidiaries to, sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except (a) transactions in the ordinary course of business at prices and on
terms and conditions not less favorable to the Issuer or such Restricted
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Issuer and its Restricted
Subsidiaries not involving any other Affiliate and (c) transactions pursuant to
the Management Agreement dated as of January 2, 1998 between the Issuer and
Metromedia Company, as said Management Agreement shall be amended from time to
time, so long as (i) no such amendment shall result in the terms and conditions
of such Management Agreement being less favorable to the Issuer and its
Subsidiaries than could be obtained on an arm's-length basis from unrelated
third parties and (ii) such amendment shall have been approved by a majority of
the disinterested directors of the Issuer.

                  Notwithstanding the foregoing, in the case of any transaction
described in clauses (a) through (d) of the preceding paragraph involving
aggregate consideration in excess of $10,000,000, the Issuer shall obtain and
deliver a copy to the Administrative Agent (with sufficient copies thereof to be
delivered by the Administrative Agent to the Holders) of a favorable written
opinion from an accounting, appraisal or investment banking firm of national
standing as to the fairness to the Issuer of such transaction from a financial
point of view.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -73-

                  Section 6.11. LINES OF BUSINESS. None of the Obligors will,
nor will it cause or permit any of its Subsidiaries to engage to any extent in
any business other than a Telecommunications Business and business activities
reasonably incidental thereto in the sixty-seven (67) fiber markets, and
twenty-six (26) ISX markets, identified by the Issuer in the business plan dated
as of September 2, 2001, or to make any Investment, Acquisitions or Capital
Expenditures in any market other than such fiber and ISX markets.

                  Section 6.12. MODIFICATIONS TO CERTAIN AGREEMENTS. None of the
Obligors will, nor will it cause or permit any Restricted Subsidiary to permit
any waiver, supplement, modification, amendment, termination or release of (i)
the Senior Notes (or any indenture relating thereto), (ii) the Nortel Agreement,
(iii) the Verizon Debt Agreement and the Verizon Agreement, if, in the case of
any modification to the Verizon Agreement, the same would result in (or would
reasonably be expected to result in) the reduction of the aggregate amounts
payable under the Verizon Agreement to the Issuer and its Restricted
Subsidiaries during calendar years 2001 and 2002 by more than 10% in either of
such years or (iv) any other Material Agreement, or its articles, charter or
by-laws, in each case to the extent that any such waiver, supplement,
modification, amendment, termination or release under this clause (iv) could
reasonably be expected (individually or in the aggregate) to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Issuer
will not issue any shares of Disqualified Stock.

                  Section 6.13.  FINANCIAL COVENANTS.

                  (a) MAXIMUM CAPITALIZATION RATIOS. The Issuer will not permit
the ratio (expressed as a percentage) of (i) Total Indebtedness to Total Capital
to at any time prior to March 30, 2003 to exceed 55% or (ii) Total Senior
Indebtedness to Total Capital at any time prior to March 30, 2003 to exceed 9%.

                  (b) SENIOR INDEBTEDNESS TO FIXED ASSETS. The Issuer will not
permit the ratio (expressed as a percentage) of (i) Total Senior Indebtedness at
any date during any period set forth below to (ii) the aggregate amount of net
property, plant and equipment carried on the consolidated balance sheet of the
Issuer and its Restricted Subsidiaries as at the last day of the fiscal quarter
ending on or prior to March 30, 2003 to be greater than 13.5%.

                  (c) MINIMUM REVENUES. The Issuer will not permit the aggregate
amount of Revenues of the Issuer and its Restricted Subsidiaries for any period
of four fiscal quarters ending on any date set forth below to be less than the
amount set forth below opposite such date:

                           DATE                         MINIMUM NUMBER
                           ----                         --------------

                    September 30, 2001                   $310,000,000
                    December 31, 2001                    $320,000,000
                    March 31, 2002                       $355,000,000
                    June 30, 2002                        $380,000,000
                    September 30, 2002                   $435,000,000
                    December 31, 2002                    $510,000,000

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -74-

                  (d) MINIMUM ADJUSTED EBITDA. The Issuer will not permit the
aggregate Adjusted EBITDA for any period of four fiscal quarters ending on any
date set forth below to be greater in absolute amount (if the requirement set
forth below is negative) or less than the absolute amount (if the requirement
set forth below is positive) set forth below opposite such date:

                           DATE                         MINIMUM NUMBER
                           ----                         --------------

                    September 30, 2001                    $51,000,000
                    December 31, 2001                     $10,000,000
                    March 31, 2002                       $110,000,000
                    June 30, 2002                        $225,000,000
                    September 30, 2002                   $320,000,000
                    December 31, 2002                    $375,000,000

                  (e) MAXIMUM TOTAL LEVERAGE AND TOTAL SENIOR LEVERAGE RATIOS.
The Issuer will not permit the Total Leverage Ratio or Total Senior Leverage
Ratio at any time during any period set forth below to exceed the respective
ratio set forth below opposite such period:

<Table>
<Caption>
                                                                     TOTAL                 TOTAL SENIOR
                        PERIOD                                  LEVERAGE RATIO            LEVERAGE RATIO
                        ------                                  --------------            ---------------

              <S>                                                  <C>                        <C>
                From and including March 31, 2003
                  to and including June 29, 2003                    8.50 to 1                  1.25 to 1

                From and including June 30, 2003
                  to and including September 29, 2003               8.15 to 1                  1.15 to 1

                From and including September 30, 2003
                  to and including December 30, 2003                8.15 to 1                  1.15 to 1

                From and including December 31, 2003
                  to and including March 30, 2004                   8.15 to 1                  1.15 to 1

                From and including April 1, 2004
                  to and including June 29, 2004                    7.50 to 1                  1.05 to 1

                From and including June 30, 2004
                  to and including September 29, 2004               7.00 to 1                  1.00 to 1

                From and including September 30, 2004
                  to and including December 30, 2004                6.50 to 1                  0.90 to 1

                From and including December 31, 2004
                  to and including March 30, 2005                   6.00 to 1                  0.80 to 1

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -75-

<Caption>
                                                                     TOTAL                 TOTAL SENIOR
                        PERIOD                                  LEVERAGE RATIO            LEVERAGE RATIO
                        ------                                  --------------            ---------------

              <S>                                                  <C>                        <C>

                From and including March 31, 2005
                  to and including March 30, 2006                   5.25 to 1                  0.75 to 1

                From and including March 31, 2006
                  and at all times thereafter                       4.50 to 1                  0.50 to 1
</Table>

                  (f) MINIMUM INTEREST EXPENSE COVERAGE RATIO. The Issuer will
not permit the Interest Expense Coverage Ratio at any date during any period set
forth below to be less than the ratio set forth below opposite such period:

<Table>
                           PERIOD                                      MINIMUM RATIO
                           ------                                      -------------

               <S>                                                         <C>
                From and including March 31, 2003
                  to and including June 29, 2003                            1.40 to 1

                From and including June 30, 2003
                  to and including September 29, 2003                       1.50 to 1

                From and including September 30, 2003
                  to and including December 30, 2003                        1.65 to 1

                From and including December 31, 2003
                  to and including March 30, 2004                           1.40 to 1

                From and including April 1, 2004
                  to and including June 29, 2004                            1.55 to 1

                From and including June 30, 2004
                  to and including September 29, 2004                       1.70 to 1

                From and including September 30, 2004
                  to and including December 30, 2004                        1.80 to 1

                From and including December 31, 2004
                  to and including March 30, 2005                           2.00 to 1

                From and including March 31, 2005
                  to and including March 30, 2006                           2.25 to 1

                From and including March 31, 2006
                  and at all times thereafter                               2.75 to 1
</Table>

                  (g) MINIMUM PRO FORMA DEBT SERVICE COVERAGE RATIO. The Issuer
will not permit the Pro Forma Debt Service Coverage Ratio at any date on or
after September 30, 2005 to be less than 1.40 to 1.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -76-

                  (h)  MAXIMUM CAPITAL EXPENDITURES.  The Issuer will not
permit the aggregate amount of Capital Expenditures during any period set forth
below to exceed the amount set forth opposite such period:

<Table>
<Caption>
                           PERIOD                                AMOUNT
                           ------                                ------

               <S>                                           <C>
                Fiscal quarter ending September 30, 2001      $355,000,000
                Fiscal quarter ending December 31, 2001       $105,000,000
                Fiscal year ending December 31, 2002           $73,000,000
                Fiscal year ending December 31, 2003           $82,000,000
                Fiscal year ending December 31, 2004          $600,000,000
                Fiscal year ending December 31, 2005           $87,000,000
                Fiscal year ending December 31, 2006          $141,000,000
</Table>

                  If the aggregate amount of Capital Expenditures for any fiscal
quarter or fiscal year (herein, a "FISCAL PERIOD") set forth above shall be less
than the amount set forth opposite such Fiscal Period, then 50% of the shortfall
shall be added to the amount of Capital Expenditures permitted for the
immediately succeeding (but not any other) Fiscal Period and, for purposes
hereof, the amount of Capital Expenditures made during any Fiscal Period shall
be deemed to have been made first from the carryover from any previous Fiscal
Period and last from the permitted amount for such Fiscal Period.

                  The $355,000,000 figure set forth in the schedule above for
the fiscal quarter ending September 30, 2001 has been prepared under the
assumption that not less than $201,000,000 of the equipment purchased from, or
delivered by, Nortel during such fiscal quarter would be treated as Capital
Expenditures under GAAP. To the extent that, by reason of the execution and
delivery of the Nortel Agreement as provided for herein such assumption is
incorrect, then such $355,000,000 figure shall be reduced on a dollar-for-dollar
basis by the amount of such equipment so purchased or delivered that is not
treated as a Capital Expenditure under GAAP.

                                   ARTICLE VII

                                EVENTS OF DEFAULT

                  If any of the following events ("EVENTS OF DEFAULT") shall
occur and be continuing:

                  (a) the Issuer shall default in the payment of any principal
         of any Note when and as the same shall become due and payable, whether
         at the due date thereof or at a date fixed for redemption thereof or by
         acceleration thereof or otherwise; or

                  (b) the Issuer shall default in the payment of any interest on
         any Note or any fee or any other amount (other than an amount referred
         to in paragraph (a) above) due under any Note Document, when and as the
         same shall become due and payable, and such default shall continue
         unremedied for a period of three or more Business Days; or

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -77-

                  (c) any representation or warranty of the Issuer or any
         Restricted Subsidiary made or deemed made in or in connection with any
         Note Document or the Notes, or any representation or warranty contained
         in any report, certificate, financial statement or other instrument
         furnished in connection with or pursuant to any Note Document, shall
         prove to have been false or misleading in any material respect when so
         made, deemed made or furnished; or

                  (d)  any Obligor shall default in the due observance or
         performance of any covenant, condition or agreement contained in
         Section 5.03(a) or 5.04(a) or in Article VI; or

                  (e) any Obligor shall default in the due observance or
         performance of any covenant, condition or agreement contained in any
         Note Document (other than those specified in clauses (a), (b) and (d)
         above) and such default shall continue unremedied for a period of 30
         days after notice thereof from the Administrative Agent or any Holder
         to the Issuer; or

                  (f) the Issuer or any Restricted Subsidiary shall (i) fail to
         make any payment (whether of principal or interest and regardless of
         amount) in respect of any Material Indebtedness, when and as the same
         shall become due and payable (after giving effect to any grace period
         provided in the underlying documentation providing for such
         Indebtedness) or (ii) fail to observe or perform any other term,
         covenant, condition or agreement contained in any agreement or
         instrument evidencing or governing any Material Indebtedness if the
         effect of any failure referred to in this clause (ii) is to cause or
         permit such Indebtedness (without any further lapse of time or other
         action, other than the mere giving of notice) to become due prior to
         its stated maturity; or

                  (g) an involuntary proceeding shall be commenced or an
         involuntary petition shall be filed in a court of competent
         jurisdiction seeking (i) relief in respect of the Issuer or any
         Restricted Subsidiary, or of a substantial part of the property or
         assets of the Issuer or any Restricted Subsidiary, under the Bankruptcy
         Code or any other Federal, state or foreign bankruptcy, insolvency,
         receivership or similar law, (ii) the appointment of a receiver,
         trustee, custodian, sequestrator, conservator or similar official for
         the Issuer or any Restricted Subsidiary or for a substantial part of
         the property or assets of any such Obligor or (iii) the winding-up or
         liquidation of the Issuer or any Restricted Subsidiary; and such
         proceeding or petition shall continue undismissed for 60 days or an
         order or decree approving or ordering any of the foregoing shall be
         entered; or

                  (h) the Issuer or any Restricted Subsidiary shall (i)
         voluntarily commence any proceeding or file any petition seeking relief
         under the Bankruptcy Code or any other Federal, state or foreign
         bankruptcy, insolvency, receivership or similar law, (ii) consent to
         the institution of, or fail to contest in a timely and appropriate
         manner, any proceeding or the filing of any petition described in
         clause (g) above, (iii) apply for or consent to the appointment of a
         receiver, trustee, custodian, sequestrator, conservator or similar
         official for any such Obligor or for a substantial part of the property
         or assets of any such Obligor, (iv) file an answer admitting the
         material allegations of a petition filed against it in any such
         proceeding, (v) make a general assignment for the benefit of creditors
         or (vi) take any action for the purpose of effecting any of the
         foregoing; or

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -78-

                  (i) the Issuer or any Restricted Subsidiary shall admit in
         writing its inability to, or be generally unable to, pay its debts as
         such debts become due; or

                  (j) a final judgment or judgments for the payment of money in
         excess of $5,000,000 in the aggregate (exclusive of judgment amounts
         fully covered by insurance where the insurer has admitted liability in
         respect of such judgment) shall be rendered by one or more courts,
         administrative tribunals or other bodies having jurisdiction against
         the Issuer or any one or more Restricted Subsidiaries and the same
         shall not be discharged (or provision shall not be made for such
         discharge), or a stay of execution thereof shall not be procured,
         within 30 days from the date of entry thereof and the Issuer or such
         Restricted Subsidiary shall not, within such period of 30 days, or such
         longer period during which execution of the same shall have been
         stayed, appeal therefrom and cause the execution thereof to be stayed
         during such appeal, or any action shall be legally taken by a judgment
         creditor to attach or levy upon any assets of the Issuer or any
         Restricted Subsidiary to enforce any such judgment; or

                  (k) any security interest purported to be created by any
         Senior Security Document and required hereunder or thereunder to be
         perfected shall (except as otherwise expressly permitted in this
         Agreement or the other Note Documents) cease to be a valid first lien
         and prior perfected security interest in the securities, assets or
         properties covered thereby, except to the extent that any such loss of
         perfection or priority results from any action or failure to take
         action of the Administrative Agent including failure to maintain
         possession of certificates representing securities pledged under the
         Senior Security Documents; or the Issuer or any other Obligor shall
         assert in writing that any security interest purported to be created by
         any Senior Security Document and required hereunder or thereunder to be
         perfected is not (except as otherwise expressly permitted in this
         Agreement or the other Note Documents) a valid first lien and prior
         perfected security interest in the securities, assets or properties
         purported to be covered thereby; or

                  (l)  a Change in Control shall occur; or

                  (m) any Obligor shall for whatever reason lose its rights
         under any Material Agreement, such rights shall be impaired or any
         default (as defined therein) shall occur under any Material Agreement
         and, if capable of being remedied, shall continue unremedied for a
         period of 30 days, in each case that in the opinion of the Required
         Holders, has had or could reasonably be expected (individually or in
         the aggregate) to have a Material Adverse Effect on the Issuer and its
         Restricted Subsidiaries taken as a whole; or

                  (n) any ERISA Event shall occur or exist with respect to any
         Plan or Multiemployer Plan and, as a result of such event or condition,
         together with all other such events or conditions, the Issuer or any
         ERISA Affiliate shall incur or in the opinion of the Required Holders
         shall be reasonably likely to incur a liability to a Plan, a
         Multiemployer Plan or the PBGC (or any combination of the foregoing)
         that, in the determination of the Required Holders, either individually
         or in the aggregate, has had or

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         could reasonably be expected (individually or in the aggregate) to
         have a Material Adverse Effect; or

                  (o) one or more Franchises, Licenses or Private Licenses of
         the Issuer or any of its Restricted Subsidiaries shall be terminated or
         revoked such that the Issuer or such Restricted Subsidiary is no longer
         able to operate such Franchises, Licenses or Private Licenses and
         retain the revenue received therefrom, or the Issuer or such Restricted
         Subsidiary or the grantors of such Franchises, Licenses or Private
         Licenses shall fail to renew such Franchises, Licenses or Private
         Licenses at the stated expiration thereof such that the Issuer or such
         Restricted Subsidiary is no longer able to operate such Franchises,
         Licenses or Private Licenses and retain the revenue received therefrom,
         and the effect of the foregoing, individually or in the aggregate,
         could reasonably be expected (individually or in the aggregate), in the
         opinion of the Required Holders, to result in a Material Adverse
         Effect; or

                  (p) the Initial Exercise Date (as defined in the Warrant
         Agreement) shall not have occurred on or prior to the 90th day
         following the Closing Date; or

                  (q) the Issuer shall not have filed, on or prior to the fifth
         day following the Closing Date, with the Securities and Exchange
         Commission (in accordance with, and meeting the requirements of,
         Regulation 14C and Schedule 14C under the Exchange Act) an information
         statement required to be filed pursuant to Rule 14c-5 under the
         Exchange Act with respect to the issuance of common stock (or
         securities convertible into or exercisable for common stock) of the
         Issuer pursuant to the terms of the Basic Documents;

then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Required Holders, by notice to the Issuer, declare
the Notes issued by the Issuer, all interest thereon and all other amounts
payable by the Issuer under this Agreement and the other Note Documents to be
forthwith due and payable, whereupon the Notes made to the Issuer, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Issuer; PROVIDED that in the case of the
occurrence of an Event of Default referred to in clause (g) or (h) of this
Article VII with respect to any Obligor, the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Issuer.

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

                  Section 8.01. AUTHORIZATION AND ACTION. Each Holder hereby
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Note Documents to which it is a party, as are delegated to the
Administrative Agent by the terms hereof and thereof, together with such powers
and discretion as are reasonably incidental thereto. As to any matters not
expressly

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provided for by the Note Documents, the Administrative Agent shall not
be required to exercise any discretion or take any action, and shall not be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) except upon the instructions of the Required
Holders, and such instructions shall be binding upon all Holders; PROVIDED that
the Administrative Agent shall not be required to take any action that exposes
it to personal liability or that is contrary to any of the Note Documents or
applicable law. The Administrative Agent agrees to give to the Holders prompt
notice of each notice given to it by any Obligor pursuant to the terms of this
Agreement.

                  Section 8.02. ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither
the Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Note Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent (i) may treat the Holder registered in
Register with respect to any Note as the holder thereof until the Administrative
Agent receives and accepts a Transfer and Acceptance entered into by the
registered Holder, as transferor, and an Eligible Institution, as transferee, as
provided in Section 10.09; (ii) may consult with legal counsel (including
counsel for any Obligor), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Holder
and shall not be responsible to any of them for any statements, warranties or
representations made in or in connection with the Note Documents; (iv) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of any Note Document on the part of
any Obligor or to inspect the property (including the books and records) of any
Obligor; (v) shall not be responsible to any Holder for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Note Document or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of any Note Document by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telegram, telecopy, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.

                  Section 8.03. RIGHTS AS A HOLDER. With respect to its
Commitment and the Notes held by it, each Person acting as the Administrative
Agent shall have the same rights and powers under the Note Documents as any
other Holder and may exercise the same as though it were not the Administrative
Agent; and the term "Holder" or "Holders" shall, unless otherwise expressly
indicated, include such Person in its individual capacity. Such Person acting as
the Administrative Agent and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures for, accept investment banking engagements
from and generally engage in any kind of business with, any Obligor, any of its
Subsidiaries, any of its Affiliates and any Person who may do business with or
own securities of any Obligor or any such Subsidiary or Affiliate, all as if
such Person acting as Administrative Agent were not the Administrative Agent and
without any duty to account therefor to the Holders.

                  Section 8.04. HOLDER FINANCIAL DECISION. Each Holder
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Holder and based on the financial statements
referred to in Section 4.01(f) and such other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into

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                                      -81-

this Agreement. Each Holder also acknowledges that it will, independently and
without reliance upon the Administrative Agent or any other Holder and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.

                  Section 8.05. INDEMNIFICATION. The Holders agree to indemnify
the Administrative Agent (to the extent not promptly reimbursed by the
Obligors), ratably according to the principal amounts of the outstanding Notes
made by them, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against any of them in any way relating to or arising out of the Note
Documents or any action taken or omitted by any of them under the Note
Documents; PROVIDED that no Holder shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent. Without limitation of the foregoing,
each Holder agrees to reimburse (x) the Administrative Agent promptly upon
demand for its ratable share of any costs and expenses payable by the Issuer
under Section 10.04 of this Agreement and (y) the Administrative Agent under the
Senior Security Documents, in each case to the extent that the Administrative
Agent is not promptly reimbursed for such costs and expenses by the Issuer.

                  Section 8.06.  COLLATERAL DUTIES.

                  (a) NO DUTY UNLESS INDEMNIFIED. Except for action expressly
required of the Administrative Agent hereunder and under the other Note
Documents, the Administrative Agent shall in all cases be fully justified in
refusing to act hereunder and thereunder unless it shall be further indemnified
to its satisfaction by the Holders proportionately in accordance with the Notes
then due and payable to each of them against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.

                  (b) COLLECTIONS, ETC. Except as expressly provided herein or
in the other Note Documents, the Administrative Agent shall have no duty to take
any affirmative steps with respect to the collection of amounts payable in
respect of the Collateral. The Administrative Agent shall incur no liability as
a result of any private sale of the Collateral.

                  (c) RELEASE OF LIENS. The Holders hereby consent, and agree
upon written request by the Administrative Agent to execute and deliver such
instruments and other documents as the Administrative Agent may deem desirable
to confirm such consent, to the release of the Liens on any of the Collateral
that is the subject of a sale of Collateral either permitted hereunder or to
which the Holders have consented in accordance with the requirements of Section
10.01.

                  (d) STANDARD OF CARE. The parties hereto acknowledge that the
Administrative Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which the Administrative Agent
accords its own property, it being understood that neither the Administrative
Agent nor any Holder shall have responsibility for (1) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not the Administrative
Agent or any Holder has or is deemed to

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have knowledge of such matters, or (2) taking any necessary steps to preserve
rights against any parties with respect to any Collateral.

                  Section 8.07. SUCCESSOR ADMINISTRATIVE AGENT. The
Administrative Agent may resign at any time by giving written notice thereof to
the Holders and the Issuer and may be removed at any time with or without cause
by the Required Holders. Upon any such resignation or removal, the Required
Holders shall have the right to appoint a successor Administrative Agent, which
shall be a Holder or a commercial bank organized under the laws of the United
States or of any State thereof and having an office in New York City and a
combined capital and surplus of at least $500,000,000. If no successor shall
have been so appointed by the Required Holders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation or is removed, then the retiring Administrative Agent's
resignation shall nonetheless become effective and (1) the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and (2) the Required Holders shall perform the duties of the
Administrative Agent (and all payments and communications provided to be made
by, to or through the Administrative Agent shall instead be made by or to any or
each Holder directly) until such time as the Required Holders appoint a
successor agent as provided for above in this paragraph. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent such successor Administrative Agent shall succeed to and become vested
with all the rights, powers, discretion, privileges and duties of the retiring
Administrative Agent and such retiring Administrative Agent shall be discharged
from its duties and obligations under the Note Documents. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative Agent,
the provisions of this Article VIII shall inure to the benefit of the
Administrative Agent as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and under the Senior Security
Documents.

                  Section 8.08. LEAD ARRANGER. None of the Lead Arranger, the
Sole Advisor or the Sole Book Manager named on the cover page of this Agreement
shall have any duties or liabilities to any Person hereunder or under the other
Note Documents except in its separate capacity, if any, as a Holder hereunder.

                                   ARTICLE IX

                                  THE GUARANTEE

                  Section 9.01. THE GUARANTEE. Each of the Guarantors hereby
jointly and severally guarantees to each Holder (and each Affiliate thereof) and
the Administrative Agent and their respective successors and assigns the
Guaranteed Obligations. Each Guarantor hereby further agrees that if the Issuer
shall fail to pay in full when due (whether at stated maturity, by acceleration
or otherwise) any of the Guaranteed Obligations, such Guarantor will promptly
pay the same, without any demand or notice whatsoever, and that in the case of
any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.

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                  For purposes hereof, it is understood any Guaranteed
Obligations to any Person arising under an agreement entered into at the time
such Person (or an Affiliate thereof) is a "Holder" party to this Agreement
shall nevertheless continue to constitute Guaranteed Obligations for purposes
hereof, notwithstanding that such Person (or its Affiliate) may have transferred
all of its Notes and other interests in this Agreement and, therefore, at the
time a claim is to be made in respect of such Guaranteed Obligations, such
Person (or its Affiliate) is no longer a "Holder" party hereto.

                  Section 9.02. OBLIGATIONS UNCONDITIONAL. The obligations of
the Guarantors under Section 9.01 are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Issuer under this Agreement or any
other agreement or instrument referred to herein, or any substitution, release
or exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 9.02 that the obligations of the Guarantors
hereunder shall be absolute and unconditional, joint and several, under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of the Guarantors hereunder, which shall remain absolute
and unconditional as described above:

                  (i) at any time or from time to time, without notice to the
         Guarantors, the time for any performance of or compliance with any of
         the Guaranteed Obligations shall be extended, or such performance or
         compliance shall be waived;

                  (ii) any of the acts mentioned in any of the provisions of
         this Agreement or any other agreement or instrument referred to
         herein shall be done or omitted;

                  (iii) the maturity of any of the Guaranteed Obligations shall
         be accelerated, or any of the Guaranteed Obligations shall be modified,
         supplemented or amended in any respect, or any right under this
         Agreement or any other agreement or instrument referred to herein shall
         be waived or any other guarantee of any of the Guaranteed Obligations
         or any security therefor shall be released or exchanged in whole or in
         part or otherwise dealt with; or

                  (iv) any lien or security interest granted to, or in favor of,
         the Administrative Agent or any Holder or Holders as security for
         any of the Guaranteed Obligations shall fail to be perfected.

                  The Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement that
the Administrative Agent or any Holder exhaust any right, power or remedy or
proceed against the Issuer under this Agreement or any other agreement or
instrument referred to herein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.

                  Section 9.03. REINSTATEMENT. The obligations of the Guarantors
under this Article IX shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of the Issuer in respect of the
Guaranteed Obligations is rescinded or must be otherwise

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restored by any holder of any of the Guaranteed Obligations, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, and the
Guarantors jointly and severally agree that they will indemnify the
Administrative Agent and each Holder on demand for all reasonable costs and
expenses (including fees of counsel) incurred by the Administrative Agent or
such Holder in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.

                  Section 9.04. SUBROGATION. The Subsidiary Guarantors hereby
jointly and severally agree that until the payment and satisfaction in full of
all Guaranteed Obligations they shall not exercise any right or remedy arising
by reason of any performance by them of their guarantee in Section 9.01, whether
by subrogation or otherwise, against the Issuer or any other guarantor of any of
the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.

                  Section 9.05. REMEDIES. The Guarantors jointly and severally
agree that, as between the Guarantors and the Holders, the obligations of the
Issuer under this Agreement may be declared to be forthwith due and payable as
provided in Article VII (and shall be deemed to have become automatically due
and payable in the circumstances provided in said Article VII) for purposes of
Section 9.01 notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against the Issuer and that, in the event of such declaration
(or such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by the Issuer) shall forthwith
become due and payable by the Guarantors for purposes of said Section 9.01.

                  Section 9.06. INSTRUMENT FOR THE PAYMENT OF MONEY. Each
Guarantor hereby acknowledges that the guarantee in this Article IX insofar as
relating to the principal of or interest on any Note constitutes an instrument
for the payment of money, and consents and agrees that any Holder or the
Administrative Agent, at its sole option, in the event of a dispute by such
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213 with respect to such
principal or interest.

                  Section 9.07.  CONTINUING GUARANTEE.  The guarantee in this
Article IX is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.

                  Section 9.08. RIGHTS OF CONTRIBUTION. The Guarantors hereby
agree, as among themselves, that if any Guarantor shall become an Excess Funding
Guarantor (as defined below) by reason of the payment by such Guarantor of any
Guaranteed Obligations, each other Guarantor shall, on demand of such Excess
Funding Guarantor (but subject to the next sentence), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Portion (as defined below
and determined, for this purpose, without reference to the properties,
Indebtedness and liabilities of such Excess Funding Guarantor) of the Excess
Payment (as defined below) in respect of such Guaranteed Obligations. The
payment obligation of a Guarantor to any Excess Funding Guarantor under this
Section 9.08 shall be subordinate and subject in right of payment to the prior
payment in full of the obligations of such Guarantor under the other provisions
of

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this Article IX and such Excess Funding Guarantor shall not exercise any
right or remedy with respect to such excess until payment and satisfaction in
full of all of such obligations.

                  For purposes of this Section 9.08, (i) "EXCESS FUNDING
GUARANTOR" means, in respect of any Guaranteed Obligations, a Guarantor that has
paid an amount in excess of its Pro Rata Portion of such Guaranteed Obligations,
(ii) "EXCESS PAYMENT" means, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Guarantor in excess of its Pro Rata Portion of
such Guaranteed Obligations and (iii) "PRO RATA PORTION" means, for any
Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the
aggregate present fair saleable value of all assets of such Guarantor (excluding
any shares of stock of any other Guarantor) exceeds the amount of all the
Indebtedness and liabilities of such Guarantor (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder and any obligations of any other
Guarantor that have been Guaranteed by such Guarantor) to (y) the amount by
which the aggregate fair saleable value of all assets of the Issuer and all of
the Guarantors exceeds the amount of all the Indebtedness and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Issuer and the Guarantors hereunder) of the
Issuer and all of the Guarantors, all as of the Closing Date. If any Subsidiary
becomes a Guarantor hereunder subsequent to the Closing Date, then for purposes
of this Section 9.08 such subsequent Guarantor shall be deemed to have been a
Guarantor as of the Closing Date and the aggregate present fair saleable value
of the assets, and the amount of the Indebtedness and liabilities, of such
Guarantor as of the Closing Date shall be deemed to be equal to such value and
amount on the date such Guarantor becomes a Guarantor hereunder.

                  Section 9.09. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In
any action or proceeding involving any corporate law, or any state, Federal
bankruptcy, insolvency, reorganization, fraudulent conveyance or other law
affecting the rights of creditors generally, if the obligations of any Guarantor
under Section 9.01 would otherwise be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under said Section 9.01, then, notwithstanding
any other provision hereof to the contrary, the amount of such liability shall,
without any further action by such Guarantor, any Holder, the Administrative
Agent or any other Person, be automatically limited and reduced to the highest
amount that is valid and enforceable and not subordinated to the claims of other
creditors as determined in such action or proceeding.

                                    ARTICLE X

                                  MISCELLANEOUS

                  Section 10.01.  AMENDMENTS, CONSENTS, ETC.

                  (a) AMENDMENTS OF NOTE DOCUMENTS GENERALLY. No amendment or
waiver of any provision of this Agreement or the other Note Documents, nor any
consent to any departure by any Obligor from any provision of this Agreement or
the other Note Documents, shall in any event be effective unless the same shall
be in writing and signed by the Issuer and Administrative Agent and, in the case
of an amendment to this Agreement, the Required Holders and then such

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waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; PROVIDED that:

                  (i) no amendment, waiver or consent shall, unless in writing
and signed by the Required Holders and each Holder that would be adversely
affected by such amendment, waiver or consent:

                           (1) change the percentage of the Commitments or the
                  aggregate unpaid principal amount of the Notes, or the number
                  or percentage of Holders, that shall be required for the
                  Holders or any of them to take any action hereunder;

                           (2)  reduce the principal of, or interest on, any
                  Note or any fees or other amounts payable hereunder;

                           (3) postpone any date fixed for any payment of
                  principal of, or interest on, any Note or any fees or other
                  amounts payable hereunder or amend Section 2.03; or

                           (4)  subject such Holder to any additional
                  obligations; or

                           (5) change the order of application of any redemption
                  set forth in Section 2.04 in any manner that materially
                  affects such Holder;

                  (ii) no amendment, waiver or consent shall, unless in writing
          and signed by the Required Supermajority Holders:

                           (1) increase the aggregate amount of the Commitments
                  or the aggregate principal amount of the Notes that may be
                  purchased hereunder (whether on the Closing Date or
                  thereafter);

                           (2)  amend or waive Section 2.04(c), 5.04 and 6.03;
                  or

                           (3) subject to Section 10.01(b), release any of the
                  Guarantors from its obligations under Article IX, PROVIDED
                  that no release of all or substantially all of the Guarantors
                  from their respective obligations under Article IX shall be
                  effected without the consent of all Holders;

                  (iii) no amendment, waiver or consent shall, unless in writing
         and signed by each Holder, amend Section 8.06(c) or this Section 10.01;
         and

                  (iv) no amendment, waiver or consent shall, unless in writing
         and signed by the relevant Agent in addition to the Holders required
         above to take such action, affect the rights or duties of such Agent
         under this Agreement or any other Note Document.

                  Anything herein to the contrary notwithstanding, the
Administrative Agent shall be authorized, without the consent of any Holder, to
release any Guarantor from any of its obligations hereunder to the extent that
such Guarantor is the subject of either a disposition permitted hereunder or a
disposition to which the Required Holders have consented, or such

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Guarantor is to be designated as an "Unrestricted Subsidiary" hereunder in
accordance with Section 6.03.

                  (b) AMENDMENTS OF SENIOR SECURITY DOCUMENTS. Except as
otherwise provided herein in the Senior Security Documents, the Administrative
Agent shall not consent to release any Collateral or terminate any Lien under
any Senior Security Document or to any Collateral securing additional
obligations beyond those presently contemplated in the Senior Security
Documents, unless such release or termination or additional obligations shall be
consented to in writing by the Required Supermajority Holders; PROVIDED that:

                  (1) the consent of all Holders shall be required to release
         all or substantially all of the Collateral, except no consent of the
         Holders shall be required (x) for any such release upon the termination
         of the Liens created by each of the Senior Security Documents in
         accordance with the terms thereof or (y) in the event that such release
         is permitted under Section 8.06(c) or the last paragraph of 10.01(a) or
         otherwise permitted pursuant to the terms of the Note Documents;

                  (2) no such consent shall be required to release any Lien
         covering property that is the subject of an Asset Sale or other
         disposition permitted hereunder or to which the Required Holders have
         consented and, upon any such Asset Sale or disposition, such property
         shall be deemed to be transferred free and clear of the Lien of the
         Senior Security Documents without any action on the part of any party
         (and the Administrative Agent is hereby authorized to execute such
         releases and other documents, and to take such other action, as the
         Issuer may reasonably request to give effect thereto); and

                  (3) no consent, other than of the Required Holders, shall be
         required for any Collateral securing additional obligations beyond
         those presently contemplated in the Senior Security Documents, if such
         additional obligations are junior to the Lien in favor of the Holders.

                  (c) CERTAIN LIMITATIONS UPON VOTING RIGHTS. Anything herein to
the contrary notwithstanding, none of the Obligors or Vendors, nor any of their
affiliates, shall (unless expressly consented by each other Holder) be deemed to
be "Holders" for purposes of this Section 10.01.

                  Section 10.02.  NOTICES, ETC..  All notices and other
communications provided for hereunder shall be in writing telecopied or
delivered:

                  (a) if to any of the Obligors, care of Metromedia Fiber
         Network, Inc., 360 Hamilton Avenue, White Plains, New York 10601,
         attention President, telephone number (914) 421-6700, telecopier number
         914-421-7550, with a copy to General Counsel at the same address and to
         Mark Volow, Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison
         Avenue, New York New York 10022, telephone number (212) 872-8050,
         telecopier number (212) 872-1002;

                  (b)  if to any Holder, at the Payment Office specified in
         its Administrative Questionnaire;

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                  (c) if to the Administrative Agent, at its address at Citicorp
         USA, Two Penns Way, Suite 200, New Castle, DE 19720, Attention: Nina
         Qureshi (or her successor), telephone number (302) 894-6026, telecopier
         number (302) 894-6120.

or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and communications
shall, when delivered or telecopied, be effective when delivered or transmitted
by telecopier, respectively, except that notices and communications to the
Administrative Agent pursuant to Article II, III, VII or VIII shall not be
effective until received by the Administrative Agent.

                  Section 10.03. NO WAIVER; REMEDIES. No failure on the part of
any Holder or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

                  Section 10.04.  COSTS, EXPENSES AND INDEMNIFICATION.

                  (a) COSTS AND EXPENSES. The Issuer agrees to pay on demand (i)
all reasonable costs and expenses of the Administrative Agent in connection with
the preparation, execution, delivery, modification and amendment of the Note
Documents including (A) all due diligence, syndication (including printing,
distribution and bank meetings), transportation, computer, duplication,
appraisal, insurance, consultant, search, filing and recording fees and expenses
and all other reasonable out-of-pocket expenses incurred by the Administrative
Agent (including the reasonable fees and expenses of Milbank, Tweed, Hadley &
McCloy LLP, special New York counsel to Citicorp USA, and the reasonable fees
and expenses of any foreign counsel retained in connection with the pledge of
the equity of any Foreign Subsidiary) whether or not any of the transactions
contemplated by this Agreement are consummated, (B) the reasonable fees and
expenses of counsel for the Administrative Agent with respect thereto, with
respect to advising the Administrative Agent as to their rights and
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Note Documents, and (C) with respect to negotiations with
any Obligor or with other creditors of any Obligor or any of its Subsidiaries
arising out of any Default or Event of Default or any events or circumstances
that may reasonably be expected to give rise to a Default or Event of Default
and with respect to presenting claims in or otherwise participating in or
monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto and (ii) all
reasonable costs and expenses of the Administrative Agent and the Holders in
connection with the enforcement of the Note Documents, whether in any action,
suit or litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally or otherwise (including the fees and
expenses of counsel for the Administrative Agent and the Holders with respect
thereto).

                  (b) INDEMNIFICATION. The Issuer agrees to indemnify and hold
harmless each Indemnified Party from and against any and all claims, damages,
losses, liabilities and expenses (including reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or by reason of, or in
connection with the preparation for a defense of, any investigation, litigation
or proceeding arising out of, related to or in connection with the Transactions
or any Environmental Claim relating in any way to any Obligor or any of its
Subsidiaries, in each case whether or not such investigation, litigation or

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -89-

proceeding is brought by any Obligor, its directors, shareholders or creditors
or an Indemnified Party or any Indemnified Party is otherwise a party thereto
and whether or not the Transactions or the other transactions contemplated
hereby are consummated, except to the extent such claim, damage, loss, liability
or expense resulted from such Indemnified Party's gross negligence or willful
misconduct.

                  (c) BREAKFUNDING. If any payment of principal of, or
Conversion of, any Eurodollar Rate Portion is made by the Issuer to or for the
account of a relevant Holder other than on the last day of the Interest Period
for such Note, as a result of a payment or Conversion pursuant to Section 2.03,
2.04, 2.06(b)(i) or 2.07(d) or as the result of acceleration of the maturity of
the Notes pursuant to Article VII or for any other reason, or in the event the
Issuer shall fail (for any reason, including by reason of the failure of any
conditions precedent in Article III to be satisfied) to issue a Eurodollar Rate
Portion on the Closing Date, the Issuer shall, upon demand by such Holder (with
a copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Holder any amounts required to compensate such
Holder for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment, including any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by any Holder to fund or maintain such
Eurodollar Rate Portion.

                  (d) PAYMENTS BY ADMINISTRATIVE AGENT OR HOLDERS. If any
Obligor fails to pay when due any costs, expenses or other amounts payable by it
under any Note Document, including reasonable fees and expenses of counsel and
indemnities, such amount may be paid on behalf of such Obligor by the
Administrative Agent or any Holder, in its sole discretion and such payment
shall be without prejudice to the rights of the Administrative Agent or any
Holder against such Obligor or any other Obligor.

                  Section 10.05. RIGHT OF SETOFF. Each Holder is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and otherwise apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other Indebtedness at
any time owing by such Holder to or for the credit or the account of the Issuer
against any and all of the obligations of the Issuer now or hereafter existing
under this Agreement that shall not have been paid when due, irrespective of
whether such Holder shall have made any demand under this Agreement or
otherwise. Each Holder agrees promptly to notify the Issuer after any such
setoff and application; PROVIDED that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Holder
under this Section 10.05 are in addition to other rights and remedies (including
other rights of setoff) that such Holder may have.

                  Section 10.06. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC.
This Agreement and the Notes shall be governed by, and construed in accordance
with, the law of the State of New York. Each Obligor hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in New York City
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Obligor irrevocably
waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -90-

laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.

                  Section 10.07. WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE
ADMINISTRATIVE AGENT, EACH OF THE PURCHASERS AND EACH OF THE HOLDERS HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE NOTE DOCUMENTS, THE NOTES OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY PURCHASER OR ANY HOLDER, OR ANY ACTION ON BEHALF OF
ANY PURCHASER OR HOLDER, IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.

                  Section 10.08. SUCCESSORS, ASSIGNS AND TRANSFERS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns or transfers, provided
that no Obligor may assign any of its rights or obligations hereunder or under
the other Note Documents without the prior consent of all of the Holders and the
Administrative Agent unless permitted hereunder.

                  Section 10.09.  TRANSFER, REGISTRATION, PARTICIPATIONS AND
SUBSTITUTION OF NOTES.

                  (a) TRANSFER BY HOLDERS. Each Holder may transfer to one or
more Eligible Institutions all or a portion of its rights and obligations under
this Agreement (including all or a portion of the Notes owing to it); PROVIDED
that:

                  (i) except in the case of a transfer to a Person that,
         immediately prior to such transfer, was a Holder or a Holder Affiliate
         or a transfer of all of a Holder's rights and obligations under this
         Agreement, the aggregate amount of a Holder's Commitment or the Notes
         owing to the transferring Holder being transferred pursuant to each
         such transfer (determined as of the date of the Transfer and Acceptance
         with respect to such transfer) shall in no event be less than
         $5,000,000 (except as otherwise agreed by the Issuer and the
         Administrative Agent);

                  (ii) each such transfer by a Holder of its Note shall be made
         in such manner so that the same portion of its Commitment or Notes, as
         the case may be, is transferred to the respective transferee; and

                  (iii) the Issuer (and, to the extent the consent of the
         Administrative Agent is not required pursuant to the definition of
         "Eligible Institution", the Administrative Agent) shall receive notice
         of such transfer, and

                  (iv) the parties to each such transfer shall execute and
         deliver to the Administrative Agent, for its acceptance and recording
         in the Register, a Transfer and Acceptance and, except in the case of a
         transfer to a Person that, immediately prior to such transfer, was a
         Holder or a Holder Affiliate, a processing and recordation fee of
         $3,500.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -91-

Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in such Transfer and Acceptance, (x) the transferee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been transferred to it pursuant to such Transfer and
Acceptance, have the rights and obligations of a Holder hereunder and (y) the
Holder transferor thereunder shall, to the extent that rights and obligations
hereunder have been transferred by it pursuant to such Transfer and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of a Transfer and Acceptance covering all or the remaining
portion of a transferring Holder's rights and obligations under this Agreement,
such Holder shall cease to be a party hereto).

                  (b) UNDERTAKING OF TRANSFEROR AND TRANSFEREE. By executing and
delivering a Transfer and Acceptance, the Holder transferor thereunder and the
transferee thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Transfer and Acceptance,
such transferring Holder, makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; (ii) such
transferring Holder makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Obligor or the
performance or observance by the Obligors of any of their respective obligations
under this Agreement or any other instrument or document furnished pursuant
hereto; (iii) such transferee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Section 4.01(f) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Transfer and Acceptance; (iv) such transferee will, independently and without
reliance upon the Administrative Agent, such transferring Holder or any other
Holder and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such transferee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof and of the other Note Documents,
together with such powers and discretion as are reasonably incidental thereto;
(vi) such transferee agrees that it will perform in accordance with their terms
all of the obligations that by the terms of this Agreement are required to be
performed by it as a Holder; (vii) such transferee has provided the Issuer and
the Administrative Agent with the forms and documents with respect to such
transferee referred to in Section 2.09(e); and (viii) such transferee, by its
acceptance of a Note registered in its name, as set forth below in paragraph
(c), shall be deemed to have made the representations and warranties set forth
in Section 4.02.

                  (c) REGISTER. The Administrative Agent, acting for this
purpose as an agent of the Issuer, shall maintain at its address referred to in
Section 10.02 a copy of each Transfer and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Holders and principal amount of the Notes held by each Holder from time to time
(the "REGISTER"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Issuer, the Administrative
Agent and the Holders shall treat each Person whose name is recorded in the
Register as a Holder hereunder for all purposes of this Agreement. No transfer
shall be effective until it is recorded in the Register pursuant to

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -92-

this Section 10.09(c). The Register shall be available for inspection by the
Issuer or any Holder at any reasonable time and from time to time upon
reasonable prior notice. The Issuer shall give to any Holder of a Note that is
an Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered Holders of Notes.

                  (d) TRANSFER AND ACCEPTANCE. Upon its receipt of a Transfer
and Acceptance executed by a transferring Holder and an transferee and the Note
or Notes, or the portion of thereof, being surrendered for transfer, together
with the fee referred to in Section 10.09(a), the Administrative Agent shall, if
such Transfer and Acceptance has been completed and is in substantially the form
of Exhibit F hereto, (i) accept such Transfer and Acceptance, (ii) record the
information contained therein in the Register, (iii) give prompt notice thereof
to the Issuer and request that the Issuer, at its own expense (except as
provided below), execute and deliver one or more new Notes (as requested by the
Holder thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Notes, or portions thereof. Each
such new Note shall be payable to the Person as such Holder may request and
shall be substantially in the form of Exhibit A. Each such new Note shall be
dated and bear interest from the date to which such interest shall have been
paid on the surrendered Note, or portion thereof, or dated the date of the
surrendered Note, or portion thereof, if no interest shall have been paid
thereon. The Issuer may require payment by the transferee of any such Note, or
portion thereof, of a sum sufficient to cover any stamp tax, transfer tax or
governmental charge imposed in respect of any such transfer of Notes, or
portions thereof.

                  (e) PARTICIPATIONS. Each Holder may sell participations in or
to all or a portion of its rights and/or obligations under this Agreement
(including all or a portion of the Note owing to it); PROVIDED that (i) such
Holder's obligations under this Agreement shall remain unchanged, (ii) such
Holder shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Holder shall remain the registered
Holder for all purposes of this Agreement, (iv) the Obligors, the Administrative
Agent and the other Holders shall continue to deal solely and directly with such
Holder in connection with such Holder's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Note Document,
or any consent to any departure by any Obligor therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or
interest on, any Note or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, postpone any date fixed for
any payment of principal of, or interest on, any Note or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or release all or substantially all of the Guarantors from their
respective obligations under Article IX or release all or substantially all of
the Collateral (unless in each case such release is permitted pursuant to the
terms of the Note Documents).

                  (f) DISCLOSURE OF INFORMATION. Any Holder may, in connection
with any transfer or participation or proposed transfer or participation
pursuant to this Section 10.09, disclose to the transferee or participant or
proposed transferee or participant, any information relating to the Issuer
furnished to such Holder by or on behalf of the Issuer; PROVIDED that, prior to
any such disclosure, the transferee or participant or proposed transferee or
participant shall agree in writing to preserve the confidentiality of any
Confidential Information received by it from the Holders in accordance with
Section 10.11.

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -93-

                  (g) OTHER PLEDGES. Anything in this Section 10.09 to the
contrary notwithstanding, each Holder shall be permitted to pledge all or any
part of its right, title and interest in, to and under the Notes to any trustee
for the benefit of the holders of such Holder's securities.

                  (h) NO PURCHASE, TRANSFERS OR PARTICIPATIONS TO OBLIGORS OR
AFFILIATES. Anything in this Section 10.09 to the contrary notwithstanding,
neither the Issuer nor any other Obligor nor any of their respective
Subsidiaries or Affiliates may acquire (whether by purchase, redemption,
redemption, transfer, participation or otherwise) except as expressly permitted
by and in accordance with the terms of this Agreement and the Notes, and no
Holder shall sell, transfer or participate to the Issuer or any other Obligor or
any of their respective Subsidiaries or Affiliates, directly or indirectly, any
Notes. The Issuer shall promptly cancel all Notes acquired by it or any Obligor
or any of their respective Subsidiaries or Affiliates pursuant to any payment,
redemption or purchaser of Notes pursuant to any provision of this Agreement and
no Notes may be issued in substitution or exchange for any such Notes.

                  (i) REPLACEMENT OF NOTES. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the ownership of and loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft , destruction or mutilation), and

                  (a) in the case of loss, theft or destruction, of indemnity
         reasonably satisfactory to it (PROVIDED that if the Holder of such Note
         is, or is a nominee for, an original Purchaser or another Holder of a
         Note with a minimum net worth of at least $10,000,000 in excess of the
         outstanding principal amount of such Note, such Person's own unsecured
         agreement of indemnity shall be deemed to be satisfactory), or

                  (b)  in the case of mutilation, upon surrender and
         cancellation thereof,

the Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.

                  Section 10.10. EXECUTION IN COUNTERPARTS. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

                  Section 10.11. CONFIDENTIALITY. Neither the Administrative
Agent nor any Holder shall disclose any Confidential Information to any Person
without the prior consent of the Issuer, PROVIDED that nothing herein shall
limit the disclosure of any such information (a) to the extent required by
statute, rule, regulation or judicial process, (b) to counsel for any of the
Holders or the Administrative Agent, (c) to bank examiners, regulatory
authorities, auditors, accountants or, if required by law, any Governmental
Authority, (d) to the Administrative Agent or any other Holder (and their
respective officers, partners, directors, employees, agents and advisors, and to

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -94-

any of their respective independent auditors and counsel), (e) in connection
with any litigation which relates to this Agreement to which any one or more of
the Holders or the Administrative Agent is a party, (f) to a Subsidiary or
Affiliate of such Holder, (g) to any transferee or participant (or prospective
transferee or participant) or (h) any actual or prospective counterparty (or its
advisors) to any swap or derivative transaction relating to the Issuer and its
obligations, PROVIDED that such counterparty agrees to be bound by the
provisions of this Section 10.11, and, PROVIDED, FURTHER, that in no event shall
any Holder or the Administrative Agent be obligated or required to return any
materials furnished by the Issuer. The obligations of each Holder under this
Section 10.11 shall supersede and replace the obligations of such Holder under
any confidentiality letter in respect of this financing signed and delivered by
such Holder to the Issuer.

                  Section 10.12. SURVIVAL AND TERMINATION. The obligations of
the Issuer under Sections 2.07, 2.09 and 10.04, the obligations of each
Guarantor under Section 9.03, the obligations of the Holders under Section 8.05
and the obligations of the Holders and the Administrative Agent under Section
10.11 and 10.09(f), shall survive the repayment of the Notes. In addition, each
representation and warranty made, or deemed to be made by a notice of any Note
herein or pursuant hereto shall survive the making of such representation and
warranty, and no Holder shall be deemed to have waived, by reason of making any
Note hereunder, any Default or Event of Default that may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Holder or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such Note was issued.

                  Upon any termination of the Commitments of the Purchasers
hereunder prior to the purchase of Notes hereunder, this Agreement shall, except
to the extent of the obligations of the Obligors which under the preceding
paragraph are stated to survive the repayment of the Notes, forthwith terminate
and cease to be of any effect.

                  Section 10.13.  CAPTIONS.  The table of contents and captions
and section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.

                            [signature pages follow]

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -95-

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

                                                METROMEDIA FIBER NETWORK, INC.

                                                By /s/ Nick Tanzi
                                                  -----------------------------
                                                  Name:  Nick Tanzi
                                                  Title: President & COO

                                   GUARANTORS

METROMEDIA FIBER NETWORK                         METROMEDIA FIBER NATIONAL
   SERVICES, INC.                                   NETWORK, INC.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

ABOVENET COMMUNICATIONS INC.                     PAIX.NET, INC.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

METROMEDIA FIBER NETWORK                         SITESMITH INC.
  OF NEW JERSEY, INC.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -96-

MFN OF UTAH L.L.C.                               MFN OF VA, L.L.C.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

METROMEDIA FIBER NETWORK                         METROMEDIA FIBER NETWORK
   OF ILLINIOS, INC.                                INTERNATIONAL, INC.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

MFN EUROPE FINANCE, INC                          MFN INTERNATIONAL, L.L.C.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

MFN JAPAN BACKHAUL, INC.                         MFN PURCHASING, INC.

By /s/ Nick Tanzi                                By /s/ Nick Tanzi
  ------------------------------                   ----------------------------
  Name:  Nick Tanzi                                Name:  Nick Tanzi
  Title: President & COO                           Title: President & COO

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -97-

                                 THE ADMINISTRATIVE AGENT

                                 CITICORP, USA, INC., as Administrative Agent

                                 By /s/ Caesar W. Wyszomirski
                                   ----------------------------------------
                                   Name:  Caesar W. Wyszomirski
                                   Title: Vice President
1

                                 PURCHASERS
                                 ----------

                                 CITIBANK USA, INC.

                                 By /s/ Caesar W. Wyszomirski
                                   ----------------------------------------
                                   Name:  Caesar W. Wyszomirski
                                   Title: Vice President

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -98-

                          MERRILL LYNCH GLOBAL ALLOCATION
                            FUND, INC.

                          By: /s/ Lisa Ann O'Donnell
                              ----------------------
                                Lisa Ann O'Donnell
                                Director, Merrill Lynch Investment Managers
                                Authorized Signatory

                          MERRILL LYNCH EQUITY/CONVERTIBLE
                            SERIES GLOBAL ALLOCATION PORTFOLIO

                          By:  /s/ Lisa Ann O'Donnell
                               ----------------------
                                Lisa Ann O'Donnell
                                Director, Merrill Lynch Investment Managers
                                Authorized Signatory

                          MERRILL LYNCH VARIABLE SERIES
                            FUNDS, INC.
                              (MERRILL LYNCH GLOBAL ALLOCATION
                               FOCUS FUND)

                          By: /s/ Bryan N. Ison
                              ------------------------
                                Bryan N. Ison
                                First Vice President, Merrill Lynch Investment
                                   Managers
                                Authorized Signatory

                          MERRILL LYNCH SERIES FUND, INC.
                           (GLOBAL ALLOCATION STRATEGY
                           PORTFOLIO)

                          By: /s/ Lisa Ann O'Donnell
                              ----------------------
                              Lisa Ann O'Donnell
                              Director, Merrill Lynch Investment Managers
                              Authorized Signatory

                          NOTE AND GUARANTEE AGREEMENT

<Page>

                                      -99-

                                 JOHN W. KLUGE, CHASE MANHATTAN
                                   BANK AND STUART SUBOTNICK,
                                   TRUSTEES UNDER A TRUST AGREEMENT
                                   BETWEEN JOHN W KLUGE, AS GRANTOR
                                   AND JOHN W. KLUGE AND
                                   MANUFACTURERS HANOVER TRUST
                                   COMPANY, AS TRUSTEES, DATED MAY 30,
                                   1984, AS AMENDED AND RESTATED

                                 By /s/ John W. Kluge
                                   ----------------------------------
                                   Name:  John W. Kluge
                                   Title:

                          NOTE AND GUARANTEE AGREEMENT

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