Document:

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                                                                    Exhibit 10.9

                               GUARANTY AGREEMENT
                               ------------------

     This GUARANTY AGREEMENT (this "Guaranty"), dated effective as of July 28,
                                    --------
1999, is executed and delivered by NET-TEL COMMUNICATIONS, INC., a Delaware
corporation ("Guarantor"), to and in favor of NORTEL NETWORKS INC., as
              ---------
administrative agent for itself and the other Lenders (as such term is
hereinafter defined) (in such capacity, together with its successors and assigns
in such capacity, "Administrative Agent").
                   --------------------

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

     A.   NET-tel Corporation ("Borrower"), the lenders named therein (together
                                --------
with their successors and assigns, "Lenders") and Administrative Agent are,
                                    -------
concurrently herewith, entering into that certain Credit Agreement dated as of
July 28, 1999 (as the same may be amended, renewed, extended, restated,
replaced, substituted, supplemented or otherwise modified from time to time, the
"Credit Agreement") and, in connection therewith, inter alia, Borrower is,
 ----------------                                 ----- ----
concurrently herewith, executing and delivering that certain (i) Term Note A
dated July 28, 1999, in the original principal amount of $120,000,000 payable to
the order of Nortel Networks Inc., (ii) Term Note B dated July 28, 1999, in the
original principal amount of $10,000,000 payable to Allied Capital Corporation,
and (iii) Revolving Note dated July 28, 1999, in the original principal amount
of $10,000,000 payable to the order of Nortel Networks Inc. (such promissory
notes, as they may be amended, renewed, extended, restated, replaced,
substituted, supplemented or otherwise modified from time to time, are
hereinafter collectively called the "Notes"; the Credit Agreement, the Notes,
                                     -----
the Security Documents and the other Loan Documents (as such terms are defined
in the Credit Agreement), including, without limitation, any and all security
agreements, pledge agreements, assignments, guaranties, licenses, lien waivers,
collection account agreements, concentration account agreements and other
agreements, documents, instruments and certificates now or hereafter executed
and/or delivered in connection therewith, and any and all amendments,
modifications, renewals, extensions, restatements and/or supplements thereto
from time to time, are hereinafter collectively called the "Loan Documents").
                                                            --------------

     B.   Guarantor has directly and indirectly benefitted and will directly and
indirectly benefit from the loans evidenced and governed by the Credit
Agreement, the Notes and the other Loan Documents and the other transactions
evidenced by and contemplated in the Loan Documents.

     C.   Execution and delivery of this Guaranty is a condition to
Administrative Agent and Lenders entering into the Credit Agreement and the
making of Loans pursuant thereto.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows:

     1.   Definitions.   Unless otherwise defined in this Guaranty, all
          -----------
capitalized terms used in this Guaranty shall have the meanings ascribed to such
terms in the Credit Agreement.

     2.   Guaranty of Indebtedness, Liabilities and Obligations.  Guarantor
          -----------------------------------------------------
hereby absolutely, unconditionally and irrevocably guarantees (a) payment and
performance to Administrative Agent

GUARANTY AGREEMENT - Page 1
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and Lenders, as and when the same become due or performable strictly in
accordance with the terms and provisions of the Loan Documents, whether at
stated maturity, by acceleration or otherwise, of any and all Obligations (as
such term is defined in the Credit Agreement), which Obligations include,
without limitation, (i) any and all interest, penalties, fees and expenses
(specifically including, but not limited to, attorneys' fees and expenses) which
Borrower may now or at any time hereafter owe to Administrative Agent or any
Lender (whether or not such interest, penalties, fees and expenses were
originally contracted with Administrative Agent or any Lender or with another or
others and whether or not such interest, penalties, fees and expenses are
enforceable against Borrower) pursuant to the Credit Agreement, any Note or any
other Loan Document plus (ii) the principal amount of any and all indebtedness,
                    ----
liabilities and other obligations, whether primary, absolute, secondary, direct,
indirect, fixed, contingent, liquidated, unliquidated, secured or unsecured,
matured or unmatured, joint, several or joint and several, due or to become due
and whether arising by agreement, note, discount, acceptance, overdraft or
otherwise, which Borrower may now or at any time hereafter owe to Administrative
Agent or any Lender (whether or not such indebtedness, liabilities and
obligations were originally contracted with Administrative Agent or any Lender
or with another or others and whether or not such indebtedness, liabilities or
obligations are enforceable against Borrower) pursuant to the Credit Agreement,
any Note or any other Loan Document and (b) the faithful, prompt and complete
compliance by Borrower and the other Loan Parties (or any one or more of them)
with all terms, conditions, covenants, agreements and undertakings of Borrower
and the other Loan Parties (or any one or more of them) under the Credit
Agreement, any Note or any other Loan Document (the Obligations, including the
interest, penalties, fees, expenses, indebtedness, liabilities and obligations,
etc. referred to in clauses (a) and (b) preceding as to which payment,
                    ------- ---     ---
performance and compliance are guaranteed pursuant to this Guaranty are
hereinafter collectively called the "Guaranteed Obligations").
                                     ----------------------

     Notwithstanding that Borrower may not be liable or obligated to
Administrative Agent or any Lender for interest and/or attorneys' fees and
expenses on, or in connection with, the Guaranteed Obligations from and after
the Petition Date (as hereinafter defined) as a result of the provisions of the
federal bankruptcy laws or otherwise, the Guaranteed Obligations for which
Guarantor shall be liable and obligated under this Guaranty shall include (to
the extent permitted by law or a court of competent jurisdiction) interest
accruing on the Guaranteed Obligations at the highest rate provided for in the
Credit Agreement from and after the date on which Borrower files for protection
under the federal bankruptcy laws or from and after the date on which an
involuntary proceeding is filed against Borrower under the federal bankruptcy
laws (herein collectively referred to as the "Petition Date") and all attorneys'
                                              -------------
fees and expenses incurred by Administrative Agent or any Lender from and after
the Petition Date in connection with the Guaranteed Obligations.

     3.   Continuing Guaranty of Payment.  This Guaranty is and shall be an
          ------------------------------
absolute, unconditional,  irrevocable and continuing guaranty of payment, and
not merely of collection, and from time to time or at any time the Guaranteed
Obligations may be increased, reduced or paid in full without affecting the
liability or obligation of Guarantor with respect to indebtedness, liabilities
and obligations of Borrower to Administrative Agent or any Lender thereafter
incurred.  Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated (if a release or discharge has occurred), as the case
may be, if at any time any payment (or any part thereof) to Administrative Agent
or any Lender in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored by Administrative Agent or any Lender pursuant to any
bankruptcy,

GUARANTY AGREEMENT - Page 2
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insolvency, reorganization, receivership or other debtor relief granted to
Borrower or its successors or assigns. In the event that Administrative Agent or
any Lender must rescind or restore any payment received by Administrative Agent
or any Lender, respectively, in satisfaction of the Guaranteed Obligations, as
set forth herein, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Administrative Agent or such Lender, respectively, shall
be without effect, and this Guaranty shall remain in full force and effect. It
is the intention of Administrative Agent, Lenders and Guarantor that Guarantor's
liabilities and obligations hereunder shall not be discharged except by the full
and complete payment and performance of the Guaranteed Obligations and then only
to the extent of such payment and performance. Subject to Paragraph 21 hereof,
                                                          ------------
this Guaranty is independent of, and in addition and without modification to
(except as expressly provided in Paragraph 21 hereof), and does not impair or in
                                 ------------
any way affect any other guaranty, endorsement or other agreement executed in
favor of Administrative Agent or any Lender, and this Guaranty and Guarantor's
liabilities and obligations under this Guaranty shall not be impaired or
otherwise affected by the execution, delivery or performance by Guarantor or any
other Person of any other guaranty, endorsement or other agreement.

     4.   Absolute Guaranty.  Guarantor's liabilities and obligations under this
          -----------------
Guaranty shall be absolute and unconditional irrespective of, shall not be
released, impaired, limited, reduced, conditioned upon or otherwise affected by
and shall continue in full force and effect notwithstanding the occurrence of
any event (other than an event consisting of payment and performance of such
liabilities and obligations in accordance with this Guaranty) at any time or
from time to time, including, without limitation, any one or more of the
following events specified in clauses (a) through (o) of this Paragraph 4 below,
                              ------- ---         ---         -----------
and neither Administrative Agent nor any Lender shall be obligated or required
to take or to refrain from taking any of such actions or inactions specified
below and shall not have any liability, obligation or duty whatsoever with
respect to such actions or inactions, it being acknowledged and agreed by
Guarantor that all of such liabilities, obligations and duties (if any) of
Administrative Agent or any Lender otherwise existing and all rights and
remedies (if any) of Guarantor with respect thereto (whether such liabilities,
obligations, duties, rights or remedies exist by virtue of agreement, common
law, equity, statute or otherwise), and each and every defense which, under
principles of guaranty or suretyship law, would otherwise operate to eliminate,
impair, condition or restrict the liabilities and obligations of Guarantor for
the Guaranteed Obligations, are hereby expressly waived by Guarantor:

          (a) the taking or accepting of any security or other guaranty for any
     or all of the Guaranteed Obligations, whether heretofore, concurrently
     herewith or hereafter;

          (b) any failure to create or perfect or properly create or perfect any
     lien, security interest or assignment intended as security, or any release,
     surrender, exchange, substitution, subordination or loss of any security or
     guaranty at any time existing in connection with any or all of the
     Guaranteed Obligations for any reason; or any suretyship defenses,
     including, without limitation, any impairment of collateral;

          (c) any partial or full release of the liability or obligation of
     Guarantor under any other guaranty whether or not similar to this Guaranty;

GUARANTY AGREEMENT - Page 3
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          (d) the entering into, delivery of, modification of, amendment to or
     waiver of compliance with the Credit Agreement, any Note or any other Loan
     Document, or any agreement, document or instrument evidencing, securing or
     otherwise affecting all or part of the Guaranteed Obligations, without the
     notification of Guarantor, the right of such notification being hereby
     specifically waived by Guarantor;

          (e) the bankruptcy, insolvency, arrangement, adjustment, composition,
     liquidation, disability, dissolution or lack of authority (whether
     corporate, partnership or trust or relating to any other entity or Person)
     of Borrower, Guarantor or any other Loan Party or Person at any time liable
     or obligated for the payment of any or all of the Guaranteed Obligations,
     whether now existing or hereafter arising;

          (f) any increase, reduction, renewal, extension, amendment,
     modification, repayment, refunding and/or rearrangement of the payment or
     any other terms or provisions of any or all of the Guaranteed Obligations
     at any time and from time to time, whether on one or more occasions, either
     with or without notice to or consent of Guarantor, or any adjustment,
     indulgence, forbearance or compromise that might be granted or given by
     Administrative Agent or any Lender to Borrower, Guarantor or any other Loan
     Party;

          (g) any neglect, delay, omission, failure or refusal of Administrative
     Agent or any Lender (i) to exercise or properly or diligently exercise any
     right or remedy with respect to any or all of the Guaranteed Obligations or
     the collection thereof or any collateral, security or guaranty therefor,
     whether under the Credit Agreement, any Note or any other Loan Document or
     otherwise, including, without limitation, to ensure compliance with any
     term or provision of the Credit Agreement or any other Loan Document, (ii)
     to take or prosecute or properly or diligently take or prosecute any action
     for the collection of any or all of the Guaranteed Obligations against
     Borrower, Guarantor or any other guarantor of any or all of the Guaranteed
     Obligations and/or any other Loan Party or Person, (iii) to foreclose or
     prosecute or properly or diligently foreclose or prosecute any action in
     connection with any agreement, document or instrument or arrangement
     evidencing, securing or otherwise affecting all or any part of the
     Guaranteed Obligations, including, without limitation, any failure to
     conduct a commercially reasonable foreclosure sale, or (iv) to mitigate
     damages or take any other action to reduce, collect or enforce the
     Guaranteed Obligations;

          (h) any failure of Administrative Agent or any Lender to give notice
     to Borrower, Guarantor and/or any other Loan Party of, or obtain the
     consent of Borrower, Guarantor and/or any other Loan Party with respect to,
     (i) the incurrence of any of the Guaranteed Obligations, (ii) the
     occurrence of any "Default" or "Event of Default" as such terms are defined
     in the Credit Agreement or any of the other Loan Documents, (iii) demand,
     presentment, protest, nonpayment, intention to accelerate, acceleration,
     lack of diligence or delay in collection of all or any part of the
     Guaranteed Obligations or any other matter, or the absence thereof, (iv)
     any renewal, extension or assignment of the Guaranteed Obligations or any
     part thereof, (v) the disposition or release of all or any part of any
     security for the Guaranteed Obligations (whether or not such disposition is
     commercially reasonable) or (vi) any other action taken or refrained from
     being taken by Administrative Agent or any Lender against Borrower or any
     other Loan Party, it being agreed that (except as may be

GUARANTY AGREEMENT - Page 4
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     expressly provided in the other Loan Documents) neither Administrative
     Agent nor any Lender shall be required to give Borrower, Guarantor or any
     other Loan Party any notice of any kind or to obtain Borrower's,
     Guarantor's or any other Loan Party's consent under any circumstances
     whatsoever with respect to or in connection with the Guaranteed
     Obligations;

          (i) the unenforceability, illegality or uncollectibility of all or any
     part of the Guaranteed Obligations against Borrower or any other Loan Party
     by reason of (i) failure of consideration, (ii) breach of warranty, (iii)
     fraud, (iv) the fact that the interest contracted for, charged, collected
     or received in respect of the Guaranteed Obligations exceeds the amount
     permitted by law, (v) the act of creating the Guaranteed Obligations or any
     part thereof is ultra vires, (vi) the officers, directors, partners,
                     ----- -----
     trustees or representatives creating the Guaranteed Obligations acted in
     excess of their authority or lacked legal capacity, (vii) the Credit
     Agreement, any Note or any other Loan Document evidencing the Guaranteed
     Obligations has been forged or otherwise is irregular or is not genuine or
     authentic, (viii) expiration of the applicable statute of limitations of
     the Guaranteed Obligations, (ix) failure to comply with the statute of
     frauds, (x) lender liability, or (xi) accord and satisfaction;

          (j) any payment by Borrower or any other Loan Party to Administrative
     Agent or any Lender is held to constitute a preferential transfer or a
     fraudulent conveyance or transfer under any applicable law, or for any
     reason Administrative Agent or any Lender is required to refund such
     payment or pay such amount to Borrower or any other Loan Party or any other
     Person;

          (k) any merger, reorganization, consolidation or dissolution of
     Borrower or any other Loan Party, any sale, lease or transfer of any or all
     of the assets of Borrower or any other Loan Party, or any change in name,
     business, location, composition, structure or any change in the
     shareholders, partners or members (whether by accession, secession, death,
     dissolution, transfer of assets or otherwise) of Borrower or any other Loan
     Party;

          (l) any failure of Administrative Agent or any Lender to notify
     Guarantor of (i) the acceptance of this Guaranty, (ii) the making of Loans
     by any Lender in reliance on this Guaranty, (iii) the failure of Borrower
     or any other Loan Party to make any payment due by Borrower or any other
     Loan Party to Administrative Agent or any Lender, or (iv) any information
     regarding the financial condition or prospects of Borrower or any other
     Loan Party;

          (m) any existing or future offset, claim or defense of Borrower or any
     other Loan Party against Administrative Agent or any Lender or against
     payment of all or any part of the Guaranteed Obligations, whether such
     offset, claim or defense arises in connection with the Guaranteed
     Obligations (or the transactions creating the Guaranteed Obligations) or
     otherwise (other than defenses resulting from the payment and performance
     of the Guaranteed Obligations);

          (n) any full or partial release of the liability of Borrower or any
     other Loan Party, any guarantor of all or

GUARANTY AGREEMENT - Page 5
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     any part of the Guaranteed Obligations or any other Person for all or any
     part of the Guaranteed Obligations, it being acknowledged and agreed by
     Guarantor that it may be required to pay the Guaranteed Obligations in full
     without assistance or support, whether from Borrower or any other Loan
     Party, any other guarantor or any other Person; or

          (o) any other action taken or omitted to be taken with respect to any
     of the Credit Agreement, any Note or any other Loan Document, the
     Guaranteed Obligations or the security and collateral therefor, whether or
     not such action or omission prejudices Guarantor or increases the
     likelihood that Guarantor will be required to pay all or any part of the
     Guaranteed Obligations pursuant to the terms hereof.

Without limiting the foregoing or Guarantor's liability under this Guaranty, to
the extent that Administrative Agent and Lenders (or any of them) have advanced
funds or extended credit to Borrower and do not receive payments or benefits
thereon in the amounts and at the times required or provided by or in connection
with the Credit Agreement, any Note or any other Loan Document, Guarantor is
absolutely liable to make such payments and to confer such benefits on Lenders
on a timely basis.

     5.   Representations and Warranties.  In connection with this Guaranty,
          ------------------------------
Guarantor hereby represents and warrants to Administrative Agent and Lenders
that:

          (a) Guarantor is the parent corporation of Borrower; Guarantor has
     received and will receive a direct and indirect material benefit from the
     transactions evidenced by and contemplated in the Credit Agreement, the
     Notes and the other Loan Documents; this Guaranty is given by Guarantor in
     furtherance of the direct and indirect business interests and corporate
     purposes of Guarantor, and is necessary to the conduct, promotion and
     attainment of the businesses of Borrower and Guarantor; and the value of
     the consideration received and to be received by Guarantor is reasonably
     worth at least as much as the liability and obligation of Guarantor
     hereunder;

          (b) The execution and delivery of this Guaranty and the performance of
     and compliance with the terms hereof will not constitute a default (or an
     event which with notice or lapse of time or both would constitute a
     default) under, or result in the breach of, any material contract,
     agreement or instrument to which Guarantor is a party or which may be
     applicable to Guarantor or any of its assets;

          (c) This Guaranty, when executed and delivered by Guarantor, will
     constitute the legal, valid and binding obligation of Guarantor enforceable
     in accordance with its terms, except as limited by bankruptcy, insolvency
     or other laws of general application relating to the enforcement of
     creditors' rights and general principles of equity;

          (d) As of the date of this Guaranty, and after giving effect to this
     Guaranty and the contingent obligation evidenced by this Guaranty,
     Guarantor is not, on either an unconsolidated basis or a consolidated basis
     with Borrower and Guarantor's subsidiaries, insolvent, as such term is used
     or defined in any applicable bankruptcy, fraudulent conveyance, fraudulent
     transfer or similar law, and Guarantor has and will have assets which,

GUARANTY AGREEMENT - Page 6
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     fairly valued, exceed its indebtedness, liabilities and obligations;
     Guarantor is not executing this Guaranty with any intention to hinder,
     delay or defraud any present or future creditor or creditors of Guarantor;
     Guarantor is not engaged in any business or transaction (including, without
     limitation, the execution of this Guaranty) which will leave Guarantor with
     unreasonably small capital or assets which are unreasonably small in
     relation to the business or transactions engaged in by Guarantor, and
     Guarantor does not intend to engage in any such business or transaction;
     Guarantor does not intend to incur, nor does Guarantor believe that it will
     incur, debts beyond Guarantor's ability to repay such debts as they mature;

          (e) All acts and conditions required to be performed and satisfied
     prior to the creation and issuance of this Guaranty, and to constitute this
     Guaranty as the legal, valid and binding obligation of Guarantor in
     accordance with its terms, have been performed and satisfied in due and
     strict compliance with all applicable laws;

          (f) Guarantor is familiar with, and has independently received books
     and records regarding, the financial condition of Borrower and is familiar
     with the value of any and all collateral (if any) intended to secure the
     Guaranteed Obligations; however, Guarantor is not relying on such financial
     condition or any such collateral (if any) as an inducement to enter into
     this Guaranty; Guarantor has adequate means to obtain from Borrower, on a
     continuing basis, the information referred to in this clause (f) preceding
                                                           ----------
     and is not relying on Administrative Agent or any Lender to provide any
     such information at any time;

          (g) Guarantor has not been induced to enter into this Guaranty on the
     basis of a contemplation, belief, understanding or agreement that any
     Person other than Guarantor will be liable to pay the Guaranteed
     Obligations;

          (h) Except for the execution of the Credit Agreement, neither
     Administrative Agent, any Lender nor any other Person has made any
     representation, warranty or statement to, or promise, covenant or agreement
     with, Guarantor in order to induce Guarantor to execute this Guaranty;

          (i) Borrower is a wholly-owned Subsidiary of Guarantor; and

          (j) All representations and warranties in the Credit Agreement
     relating to the Guarantor are true and correct in all respects as of the
     date hereof, except to the extent made only as of a specific prior date,
     and on each date the representations and warranties thereunder are restated
     pursuant to any of the Loan Documents with the same force and effect as if
     such representations and warranties had been made on and as of such date,
     all of which are incorporated herein by reference.

     6.   Default.  Upon the occurrence and during the continuance of an Event
          -------
of Default, Guarantor shall, on demand by Administrative Agent and without
further demand and without notice of dishonor and without notice of any kind
(including, without limitation, notice of acceptance by Administrative Agent or
any Lender of this Guaranty) having been given to Borrower, Guarantor or any
other Person previous to such demand, promptly (i.e., not later than 1:00 p.m.,
New York, New York time, on the date of such demand or, if such demand is made
after 12:00 noon, on the next

GUARANTY AGREEMENT - Page 7
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succeeding Business Day) pay, in immediately available funds, the full unpaid
amount of the Guaranteed Obligations, or such lesser amount, if any, as may be
specifically demanded by Administrative Agent from time to time, to
Administrative Agent at Administrative Agent's Principal Office located in New
York, New York or at such other place as Administrative Agent may specify to
Guarantor in writing. If acceleration of the time for payment of any amount
payable by Borrower under or with respect to any of the Guaranteed Obligations
is stayed or otherwise delayed upon the insolvency, bankruptcy or reorganization
of Borrower, all such amounts otherwise subject to acceleration under the terms
of the Guaranteed Obligations shall nonetheless be payable by Guarantor
hereunder promptly on demand by Administrative Agent.

     7.   Cumulative Remedies; No Election.  If Guarantor is or becomes liable
          --------------------------------
or obligated for the Guaranteed Obligations, by endorsement or otherwise, other
than under this Guaranty, such liability or obligation shall not be in any
manner impaired or affected hereby, and the rights and remedies of
Administrative Agent or any Lender hereunder shall be cumulative of any and all
other rights and remedies that Administrative Agent or such Lender may ever have
against Guarantor.  The exercise by Administrative Agent or any Lender of any
right or remedy hereunder or under any other agreement, document or instrument,
or at law or in equity, shall not preclude the concurrent or subsequent exercise
of any other right or remedy.  Without in any way limiting the generality of the
foregoing, it is specifically understood and agreed that this Guaranty is given
by Guarantor as an additional guaranty or security to any and all other
guaranties or security heretofore, concurrently herewith or hereafter executed
and/or delivered by Guarantor to or in favor of Administrative Agent or any
Lender relating to the Guaranteed Obligations, and nothing herein shall ever be
deemed to in any way negate or replace any such other guaranties or security;
provided, however, that Administrative Agent and Lenders shall have all of their
--------  -------
rights and remedies under this Guaranty irrespective of anything to the contrary
contained in any such other guaranties or security.  This Guaranty may be
enforced from time to time as often as occasion therefor may arise, and it is
agreed and understood that it shall not be necessary for Administrative Agent or
any Lender, in order to enforce this Guaranty against Guarantor, first to
exercise any rights or remedies against Borrower or any other Person or
institute suit or exhaust any available rights or remedies against security in
Administrative Agent's or any Lender's possession or under Administrative
Agent's or any Lender's control, or to resort to any other sources or means of
obtaining payment of the Guaranteed Obligations.

     8.   Joint and Several Obligation.  Guarantor agrees that Administrative
          ----------------------------
Agent and Lenders, in their sole discretion, may (a) bring suit against all
guarantors or other Persons liable or obligated to Administrative Agent or any
Lender or against any one or more of them, for interest, penalties, expenses,
fees, indebtedness, liabilities and obligations owed to Administrative Agent or
any Lender and apply any amounts obtained by Administrative Agent or any Lender
in such a manner as Administrative Agent or any Lender may elect, (b) bring suit
against all guarantors of the Guaranteed Obligations jointly and severally or
against any one or more of them, (c) settle fully or in part with any one or
more of such guarantors for such consideration as Administrative Agent or any
Lender may deem proper, and (d) partially or fully release one or more of such
guarantors from liability under any guaranty agreement, and that no such action
shall impair the rights of Administrative Agent or any Lender to collect the
Guaranteed Obligations (or the unpaid balance thereof) from other guarantors
(including, without limitation, Guarantor), or any of them, not so sued, settled
with or released.

GUARANTY AGREEMENT - Page 8
<PAGE>

     9.   Release of Collateral, etc.  If all or any part of the Guaranteed
          ---------------------------
Obligations is at any time secured, Guarantor agrees that Administrative Agent
or any Lender may, at any time and from time to time in its discretion and with
or without valuable consideration, allow substitution or withdrawal of
collateral or other security and release collateral or other security without
impairing or diminishing the liabilities or obligations of Guarantor hereunder.
Guarantor further agrees that, if Borrower or any other Person executes in favor
of Administrative Agent or any Lender any collateral agreement, mortgage, deed
of trust, collateral assignment, security agreement or other security
instrument, the exercise by Administrative Agent or any Lender of any right or
remedy thereby conferred on Administrative Agent or any Lender shall be wholly
discretionary with Administrative Agent and such Lender, respectively, and that
the exercise or failure to exercise any such right or remedy shall in no way
impair or diminish the obligation of Guarantor hereunder. Guarantor further
agrees that (except to the extent prohibited by applicable law notwithstanding
an agreement of the parties to the contrary) neither Administrative Agent nor
any Lender shall be liable for its failure to use diligence or care in the
collection of the Guaranteed Obligations, in the creation or perfection of any
lien, security interest or assignment intended as security or in preserving the
liability of any Person liable or obligated on the Guaranteed Obligations, and
Guarantor hereby waives presentment for payment, notice of nonpayment, protest
and notice thereof, and diligence in bringing suit against any Person liable on
the Guaranteed Obligations or any part thereof.

     10.  Binding Effect.  This Guaranty is for the benefit of Administrative
          --------------
Agent and Lenders and their successors and permitted assigns, and in the event
of an assignment by Administrative Agent or any Lender or its successors or
assigns of the Guaranteed Obligations, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness, liabilities
and obligations so assigned, may be transferred with such indebtedness,
liabilities and obligations.  This Guaranty is binding, not only upon Guarantor,
but upon its successors and assigns.

     11.  TEMPORARY LIMITED WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER
          ---------------------------------------------------------------
RIGHTS.  UPON PAYMENT BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED
------
OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO
BORROWER BY GUARANTOR), ALL RIGHTS OF GUARANTOR AGAINST BORROWER OR ANY OTHER
GUARANTOR OF THE GUARANTEED OBLIGATIONS ARISING AS A RESULT THEREFROM BY WAY OF
RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION
AND/OR OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF
PAYMENT AND ENFORCEMENT TO THE PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN
FULL OF THE GUARANTEED OBLIGATIONS.  GUARANTOR SHALL NOT HAVE, AND HEREBY
IRREVOCABLY WAIVES, BUT ONLY UNLESS AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS
HAVE BEEN PAID AND PERFORMED IN FULL, ANY AND ALL RIGHTS AND REMEDIES OF
SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR
OTHERWISE AGAINST OR FROM BORROWER.  IN ADDITION TO THE FOREGOING, GUARANTOR
HEREBY IRREVOCABLY WAIVES ANY AND ALL CLAIMS OR OTHER RIGHTS AND REMEDIES IT MAY
NOW HAVE OR HEREAFTER ACQUIRE AGAINST ADMINISTRATIVE AGENT, ANY  LENDER,
BORROWER OR ANY OTHER PERSON UNDER CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE
CODE, UNDER

GUARANTY AGREEMENT - Page 9
<PAGE>

RULES 31 AND 163 OF THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF
THE TEXAS CIVIL PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY
STATE OR OTHER JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR
IMPOSING OTHER REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF
AND TO THE EXTENT THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. Except as
expressly otherwise provided in this Paragraph 11, Guarantor shall have all
                                     ------------
rights of subrogation, reimbursement, exoneration, contribution and
indemnification that may exist under currently applicable law.

     12.  Subordination of Indebtedness and Liens.  In connection with this
          ---------------------------------------
Guaranty, Guarantor hereby agrees that:

          (a) The payment of any and all principal of and interest on the
     Subordinated Indebtedness (as defined below) shall in all respects be
     subordinate and junior in right of payment and enforcement to the prior
     payment and enforcement in full of all Guaranteed Obligations as provided
     in this Paragraph 12.  The Subordinated Indebtedness shall not be payable,
             ------------
     and no payment of principal, interest or other amounts on account thereof,
     and no property or guaranty of any nature to secure, guarantee or pay the
     Subordinated Indebtedness shall be made or given, directly or indirectly by
     or on behalf of any Debtor (hereafter defined) or received, accepted,
     retained or applied by Guarantor unless and until the Guaranteed
     Obligations shall have been paid and performed in full; except that, prior
     to the occurrence and continuance of an Event of Default, Guarantor shall
     have the right to receive regularly scheduled payments, but not
     prepayments, on the Subordinated Indebtedness made in the ordinary course
     of business.  After the occurrence and during the continuance of an Event
     of Default, no payments of principal or interest may be made or given,
     directly or indirectly, by or on behalf of any Debtor or received,
     accepted, retained or applied by Guarantor unless and until the Guaranteed
     Obligations shall have been paid and performed in full.  If any sums shall
     be paid to Guarantor or any Affiliate of Guarantor by any Debtor or any
     other Person on account of the Subordinated Indebtedness when such payment
     is not permitted hereunder, such sums shall be held in trust by Guarantor
     for the benefit of Administrative Agent and Lenders and shall forthwith be
     delivered to Administrative Agent without affecting the liability of
     Guarantor under this Guaranty and may be applied by Administrative Agent
     against the Guaranteed Obligations in accordance with the Credit Agreement.
     Upon the request of Administrative Agent, Guarantor shall execute, deliver,
     and endorse to Administrative Agent such documentation as Administrative
     Agent may request to perfect, preserve and enforce its rights hereunder.
     For purposes of this Guaranty and with respect to Guarantor, the term
     "Subordinated Indebtedness" means all indebtedness, liabilities and
     --------------------------
     obligations of Borrower or any Loan Party other than Guarantor (Borrower
     and such Loan Parties are hereinafter called the "Debtors") to Guarantor,
                                                       -------
     whether such indebtedness, liabilities and obligations now exist or are
     hereafter incurred or arise, or are primary, absolute, secondary, direct,
     indirect, fixed, contingent, liquidated, unliquidated, secured or
     unsecured, matured or unmatured, joint, several, joint and several, or
     otherwise, and irrespective of whether such indebtedness, liabilities or
     obligations are evidenced by a note, contract, open account or otherwise,
     and irrespective of the Person or Persons in whose favor such indebtedness,
     obligations or liabilities may, at their inception, have been, or may

GUARANTY AGREEMENT - Page 10
<PAGE>

     hereafter be created, or the manner in which they have been or may
     hereafter be acquired by Guarantor;

          (b) Any and all Liens (including any judgment Liens) upon any Debtor's
     property or assets securing payment of any Subordinated Indebtedness (the
     "Subordinated Liens") shall be and remain inferior and subordinate to any
     -------------------
     and all Liens upon any Debtor's assets securing payment of the Guaranteed
     Obligations or any part thereof, regardless of whether such Subordinated
     Liens presently exist or are hereafter created or when such Subordinated
     Liens were created, perfected, filed or recorded. Guarantor shall not
     exercise or enforce any creditors' rights or remedies that it may have
     against any Debtor or foreclose, repossess, sequester or otherwise
     institute any action or proceeding (whether judicial or otherwise,
     including, without limitation, the commencement of, or joinder in, any
     bankruptcy, insolvency, reorganization, liquidation, receivership or other
     debtor relief law) to enforce any Subordinated Lien on any property or
     assets of any Debtor unless and until the Guaranteed Obligations shall have
     been irrevocably paid and performed in full.

          (c) In the event of any receivership, bankruptcy, reorganization,
     rearrangement, debtor's relief or other insolvency proceeding involving any
     Debtor as debtor, Administrative Agent shall have the right to prove and
     vote any claim under the Subordinated Indebtedness and to receive directly
     from the receiver, trustee or other court custodian all dividends,
     distributions and payments made in respect of the Subordinated Indebtedness
     until the Guaranteed Obligations have been paid in full.  Administrative
     Agent  may apply any such dividends, distributions and payments against the
     Guaranteed Obligations in accordance with the Credit Agreement;

          (d) All promissory notes, accounts receivable, ledgers, records or any
     other evidence of Subordinated Indebtedness, and all mortgages, deeds of
     trust, security agreements, assignments and other security documents
     evidencing the Subordinated Liens, shall contain a specific written notice
     thereon that the indebtedness and Liens evidenced thereby are subordinated
     under the terms of this Guaranty; and

          (e) The terms and provisions of this Paragraph 12 are given by
                                               ------------
     Guarantor as additional rights, remedies and benefits to any and all other
     subordination agreements heretofore, concurrently herewith or hereafter
     executed by Guarantor to or in favor of Administrative Agent or any Lender,
     and nothing in this Guaranty shall ever be deemed to in any way negate or
     replace any other such previous, concurrent or subsequent subordination
     agreements.

     13.  Right of Setoff.   Guarantor hereby grants to Administrative Agent and
          ---------------
each Lender a right of setoff upon any and all monies, securities or other
property of Guarantor, and the proceeds therefrom, now or hereafter held or
received by or in transit to Administrative Agent or any Lender from or for the
account of Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of Guarantor, and any and all claims of Guarantor against
Administrative Agent or any Lender at any time existing.  The right of setoff
granted pursuant to this Paragraph 13 shall be cumulative of and in addition to
                         ------------
Administrative Agent's and each Lender's common law right of setoff.

GUARANTY AGREEMENT - Page 11
<PAGE>

     14.  Further Assurances.  Upon the request of Administrative Agent or any
          ------------------
Lender, Guarantor will, at any time and from time to time, duly execute and
deliver to Administrative Agent any and all such further agreements, documents
and instruments, and supply such additional information, as may be necessary or
advisable, in the reasonable opinion of Administrative Agent or any Lender, to
obtain the full benefits of this Guaranty.

     15.  Invalid Provisions.  If any provision of this Guaranty is held to be
          ------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable, this Guaranty shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.  Furthermore,
in lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Guaranty a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.  No provision herein or in any other Loan Document
evidencing the Guaranteed Obligations shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable law.

     16.  Modification in Writing.  No modification, consent, amendment or
          -----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor herefrom, shall be effective unless the same shall be in writing and
signed by a duly authorized officer of Administrative Agent and Guarantor and
then shall be effective only in the specific instance and for the specific
purpose for which given.

     17.  No Waiver, Etc.  No notice to or demand on Guarantor or Administrative
          ---------------
Agent in any case shall entitle Guarantor or Administrative Agent, respectively,
to any other or further notice or demand in similar or other circumstances.  No
delay or omission by Administrative Agent, any Lender or Guarantor in exercising
any right or remedy hereunder shall impair any such right or remedy or be
construed as a waiver thereof or any acquiescence therein, and no single or
partial exercise of any such right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy hereunder.

     18.  Cumulative Rights.  All rights and remedies of Administrative Agent
          -----------------
and Lenders hereunder are cumulative of each other and of every other right or
remedy which Administrative Agent or any Lender may otherwise have at law or in
equity or under any other contract or document, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.

     19.  Expenses.  Guarantor agrees to pay on demand by Administrative Agent
          --------
all costs and expenses incurred by Administrative Agent or any Lender in
connection with the enforcement of the terms and provisions of this Guaranty
and, if and to the extent that Borrower is obligated therefor in accordance with
the Credit Agreement, any and all amendments, modifications, renewals,
restatements and/or supplements hereto from time to time, including, without
limitation, the reasonable fees and expenses of legal counsel to Administrative
Agent.  If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay to Administrative Agent all costs and expenses
incurred by Administrative Agent or any Lender in the enforcement of this

GUARANTY AGREEMENT - Page 12
<PAGE>

Guaranty from time to time, including, without limitation, the reasonable fees
and expenses of all legal counsel to Administrative Agent and Lenders.

     20.  APPLICABLE LAW.  THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
          --------------
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES).

     21.  NO ORAL AGREEMENTS.  THIS GUARANTY REPRESENTS THE FINAL AGREEMENT
          ------------------
BETWEEN GUARANTOR AND ADMINISTRATIVE AGENT AND LENDERS RELATING TO THE SUBJECT
MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG GUARANTOR AND ADMINISTRATIVE AGENT OR
ANY LENDER.  THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) ORAL AGREEMENTS, ORAL
ARRANGEMENTS OR ORAL UNDERSTANDINGS RELATING TO THE SUBJECT MATTER OF THIS
GUARANTY, AND THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) WRITTEN AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY IF AND TO THE EXTENT THAT SUCH
PRIOR AGREEMENTS ARE INCONSISTENT WITH THIS GUARANTY.

     22.  Notices.  All notices and other communications required or permitted
          -------
to be given under this Guaranty shall be given or made in writing and shall be
delivered in the manner and to the addresses, and shall be deemed to have been
duly given when, specified in the Credit Agreement.

     23.  Survival.  All representations, warranties, covenants and agreements
          --------
of Guarantor in this Guaranty shall survive the execution of this Guaranty.

     24.  Counterparts.  This Guaranty may be executed in any number of
          ------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one and the same Guaranty.

     25.  Limitation on Interest.  Notwithstanding anything to the contrary
          ----------------------
contained or referred to in this Guaranty, none of the terms and provisions of
this Guaranty, the Credit Agreement, the Notes or any other Loan Document shall
ever be construed to create a contract or obligation to pay interest at a rate
in excess of the Maximum Rate, and neither Administrative Agent nor any Lender
shall ever charge, receive, take, collect, reserve or apply, as interest on the
Obligations or the Guaranteed Obligations, any amount in excess of the Maximum
Rate.  The parties hereto agree that any interest, charge, fee, expense or other
indebtedness, liability or obligation provided for in this Guaranty, the Credit
Agreement, the Notes or any other Loan Document which constitutes interest under
applicable law shall be, ipso facto and under any and all circumstances, limited
                         ---- -----
or reduced to an amount equal to the lesser of (a) the amount of such interest,
charge, fee, expense or other indebtedness, liability or obligation that would
be payable in the absence of this Paragraph 25 or (b) an amount, which when
                                  ------------
added to all other interest payable under this Guaranty, the Credit Agreement,
the Notes and any other Loan Document, equals the Maximum Rate.  If,
notwithstanding the foregoing, Administrative Agent or any Lender ever contracts
for, charges,

GUARANTY AGREEMENT - Page 13
<PAGE>

receives, takes, collects, reserves or applies as interest any
amount in excess of the Maximum Rate, such amount which would be deemed
excessive interest shall be deemed a partial payment or prepayment of principal
of the Obligations and the Guaranteed Obligations and treated hereunder as such,
and if the Obligations and the Guaranteed Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to
Borrower, Guarantor or such other Person (as appropriate).  In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Maximum Rate, Guarantor, Borrower, Administrative Agent and Lenders shall,
to the maximum extent permitted by applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations and the
Guaranteed Obligations, or applicable portions thereof, so that the interest
rate does not exceed the Maximum Rate at any time during the term of the
Obligations and the Guaranteed Obligations; provided that, if the unpaid
                                            -------- ----
principal balance is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Administrative Agent and Lenders
shall refund to Borrower, Guarantor or such other Person (as appropriate) the
amount of such excess and, in such event, neither Administrative Agent nor any
Lender shall be subject to any penalties provided by any laws for contracting
for, charging, receiving, taking, collecting, receiving or applying interest in
excess of the Maximum Rate.

     26.  Irrevocable Nature of Guaranty.  This Guaranty may not be revoked by
          ------------------------------
Guarantor; provided, however, in the event it shall be determined that Guarantor
           --------  -------
shall have the right, in accordance with applicable law and notwithstanding its
express agreement herein to the contrary, to revoke this Guaranty, Guarantor may
deliver to Administrative Agent, at its address for notices set forth in the
Credit Agreement, written notice of Guarantor's intention not to be liable
hereunder for any Guaranteed Obligations arising, created or incurred after
Administrative Agent's receipt of such notice, whereupon such notice shall be
effective to the extent (but only to the extent) provided hereinbelow as to
Guarantor from and after (but not before) the time when such notice is actually
delivered to and received by and receipted for in writing by Administrative
Agent (the "Effective Revocation Time"); provided, further, however, that such
            -------------------------    --------  -------  -------
notice shall not be effective as to, and shall not in any way restrict, limit,
impair, release or otherwise affect, the indebtedness, liabilities or
obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed
Obligations consisting of indebtedness, liabilities or obligations under the
Credit Agreement, the Notes or any other Loan Document, whether incurred before
or after the Effective Revocation Time (including, without limitation, any
loans, advances or extensions of credit at any time made or created under the
Credit Agreement, whether or not agreed, committed or contemplated to be made by
Administrative Agent or any Lender and whether or not discretionary with
Administrative Agent or any Lender), (b) any Guaranteed Obligations arising,
created or incurred prior to the Effective Revocation Time, (c) any amendments,
modifications, renewals, extensions, restatements and/or supplements to or of
the indebtedness, liabilities or obligations referred to in clauses (a) and (b)
                                                            ------- ---     ---
preceding, whether occurring before or after the Effective Revocation Time, or
(d) any interest or costs of collection with respect to any of the indebtedness,
liabilities or obligations referred to in clauses (a), (b) or (c) preceding. Any
                                          ------- ---  ---    ---
revocation or attempted revocation of this Guaranty, whether in whole or in
part, shall not be effective except under limited circumstances (if any), and to
the limited extent, expressly provided in this Paragraph 26.
                                               ------------

GUARANTY AGREEMENT - Page 14
<PAGE>

     27.  Reinstatement of Guaranteed Obligations.  Notwithstanding anything to
          ---------------------------------------
the contrary contained in this Guaranty or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Guaranteed
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by the Administrative Agent or any Lender or otherwise for any reason
whatsoever, then the Guaranteed Obligations will be automatically reinstated and
become automatically effective and in full force and effect, all to the extent
that and as though such payment so rescinded, voided or otherwise refunded had
never been made.

     28.  Covenants and Agreements.  Guarantor covenants and agrees that, as
          ------------------------
long as the Guaranteed Obligations or any part thereof are outstanding or any
Lender has any Commitment under the Credit Agreement:

          (a) Guarantor will comply, strictly in accordance with the terms
     thereof, with all covenants and agreements specifically applicable to it as
     set forth in any one or more of the Credit Agreement and the other Loan
     Documents, all of which are incorporated herein by reference;

          (b) Financial Statements.  Guarantor will furnish to Administrative
              --------------------
     Agent and each Lender:

               (i) Annual Financial Statements.  As soon as available, and in
                   ---------------------------
          any event within 90 days after the end of each fiscal year of
          Guarantor, beginning with the fiscal year ending December 31, 1999,
          either (A) a copy of the Form 10-K (including all financial statements
          contained therein) filed by Guarantor as of the end of and for such
          fiscal year then ended, together with consolidating schedules for each
          of Guarantor and its Subsidiaries (including, without limitation,
          Borrower) with respect to the financial statements contained therein,
          or (B) a copy of the annual audit report (including the consolidated
          balance sheet) of Guarantor and its Subsidiaries as of the end of such
          year and the related consolidated statements of income or operations,
          shareholders' equity and cash flows for such fiscal year, together
          with consolidating schedules for Guarantor and its Subsidiaries
          (including, without limitation, Borrower) with respect to each of such
          financial statements, in each case setting forth in comparative form
          the figures for the previous fiscal year, and accompanied by the
          opinion of independent certified public accountants of recognized
          standing reasonably acceptable to Administrative Agent, which opinion
          shall state that such consolidated financial statements present fairly
          the financial position and results of operations for the periods
          indicated in conformity with GAAP applied on a basis consistent with
          prior years and which opinion shall not be qualified or limited
          because of a restricted or limited examination by such accountant of
          any material portion of such Person's records; and

               (ii) Quarterly Financial Statements.  As soon as available, and
                    ------------------------------
          in any event within 45 days after the end of each of the quarters of
          each fiscal year of Guarantor, beginning with the fiscal quarter
          ending June 30, 1999, either (A) a copy of the Form 10-Q (including
          all financial statements contained therein) filed by Guarantor as of
          the end of and for such fiscal quarter then ended, together with

GUARANTY AGREEMENT - Page 15
<PAGE>

          consolidating schedules for each of Guarantor and its Subsidiaries
          (including, without limitation, Borrower) with respect to each of the
          financial statements contained therein, or (B) a copy of the unaudited
          consolidated balance sheet of Guarantor and its Subsidiaries as of the
          end of such quarter and the related consolidated statements of income
          or operations, shareholders' equity and cash flows for the period
          commencing on the first day and ending on the last day of such
          quarter, together with unaudited consolidating schedules for Guarantor
          and its Subsidiaries (including, without limitation, Borrower) with
          respect to each of such financial statements, in each case setting
          forth in comparative form the information or figures for the
          corresponding period of the preceding fiscal year, and certified by an
          appropriate Responsible Officer of Guarantor as fairly presenting, in
          accordance with GAAP, the financial position and the results of
          operations of Guarantor and its Subsidiaries (including, without
          limitation, Borrower) (except for year-end adjustments and financial
          statement footnotes required by GAAP);

          (c) Guarantor shall, except as may be otherwise permitted pursuant to
     Section 8.17 of the Credit Agreement, be a holding company and shall not
     ------------
     own Telecommunications Assets used or useful in the operation of the
     Telecommunications Business; and

          (d) Guarantor will not engage in any business other than the ownership
     of Borrower and matters incidental thereto.

                  [remainder of page intentionally left blank]

GUARANTY AGREEMENT - Page 16
<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.

                              GUARANTOR:
                              ---------

                              NET-TEL COMMUNICATIONS, INC.

                                 /s/ Craig R. Bandes
                              By:______________________________
                                    Craig R. Bandes
                                    Senior Vice President

     The undersigned has executed this Guaranty solely for the purpose of
confirming receipt of this Guaranty and reliance on this Guaranty by
Administrative Agent and Lenders as of the date first written above.

                              NORTEL NETWORKS INC.,
                              as Administrative Agent

                                 /s/ Jay R. Prestipino
                              By:______________________________
                                    Jay R. Prestipino
                                    Director, Customer Finance

GUARANTY AGREEMENT - Page 17<PAGE>

                                                                   Exhibit 10.10

                         PLEDGE AND SECURITY AGREEMENT
                         -----------------------------
                         (NET-tel Communications, Inc.)

     THIS PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of July 28, 1999,
                                          ---------
is by and between NET-TEL COMMUNICATIONS, INC., a Delaware corporation
("Debtor"), whose address is 1023 31st Street N.W., Washington, D.C. 20007 and
  ------
whose Tax I.D. Number is 54-1877699 and NORTEL NETWORKS INC., a Delaware
corporation ("Secured Party"), as Administrative Agent for the "Lenders", as
              -------------
that term is defined below, whose address is 2221 Lakeside Blvd., Richardson,
Texas 75082.

                                R E C I T A L S:
                                ---------------

     A.   NET-tel Corporation ("Borrower") is, concurrently herewith, entering
                                --------
into that certain Credit Agreement dated as of  July 28, 1999, with the lenders
party thereto (each individually a "Lender" and collectively, the "Lenders") and
                                    ------                         -------
Secured Party (such agreement, as it may be amended, renewed, extended,
restated, replaced, substituted, supplemented or otherwise modified from time to
time, is referred to herein as the "Credit Agreement").
                                    ----------------

     B.   Debtor has directly and indirectly benefitted and will directly and
indirectly benefit from the Loans evidenced and governed by the Credit Agreement
and the other transactions evidenced by and contemplated in the Loan Documents
(as defined in the Credit Agreement), and execution and delivery of this
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of Debtor.

     C.   The execution and delivery of this Agreement is required by the terms
of the Credit Agreement and is a condition to the availability of the Loans to
Borrower pursuant to the Credit Agreement.

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

                                   ARTICLE 1

                                  DEFINITIONS
                                  -----------

     Section 1.1    Definitions.  As used in this Agreement, the following terms
                    -----------
have the following meanings:

          "Borrower" means NET-tel Corporation, a Florida corporation, with its
           --------
     chief executive office located at 1023 31st Street N.W., Washington, D.C.
     20007.

          "Broker" means any "broker," as such term is defined in Article or
           ------
     Chapter 8 of the UCC, and in any event shall include, but not be limited
     to, any Person defined as a broker or dealer under the federal securities
     laws, but without excluding a bank acting in that capacity.

Page 1
<PAGE>

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

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

          "Clearing Corporation" means any "clearing corporation," as such term
           --------------------
     is defined in Article or Chapter 8 of the UCC, and in any event shall
     include, but not be limited to, any (a) Person that is registered as a
     "clearing agency" under the federal securities laws, (b) federal reserve
     bank, or (c) other Person that provides clearance or settlement services
     with respect to Financial Assets that would require it to register as a
     clearing agency under the federal securities laws but for an exclusion or
     exemption from the registration requirement, if its activities as a
     clearing corporation, including, without limitation, promulgation of rules,
     are subject to regulation by a federal or state governmental authority.

          "Closing Date" means July 28, 1999, the date of the Credit Agreement.
           ------------

          "Collateral" means as specified in Section 2.1.
           ----------                        -----------

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

          "Debt" means as to any Person at any time (without duplication): (a)
           ----
     all indebtedness, liabilities and obligations of such Person for borrowed
     money; (b) all indebtedness, liabilities and obligations of such Person
     evidenced by bonds, notes, debentures or other similar instruments; (c) all
     indebtedness, liabilities and obligations of such Person to pay the
     deferred purchase price of Property or services, except trade accounts
     payable of such Person arising in the ordinary course of business that are
     not past due by more than 90 days; (d) all Capital Lease Obligations of
     such Person; (e) all Debt of others Guaranteed by such Person; (f) all
     indebtedness, liabilities and obligations secured by a Lien existing on
     Property owned by such Person, whether or not the indebtedness, liabilities
     or obligations secured thereby have been assumed by such Person or are non-
     recourse to such Person; (g) all reimbursement obligations of such Person
     (whether contingent or otherwise) in respect of letters of credit, bankers'
     acceptances, surety or other bonds and similar instruments; (h) all
     indebtedness, liabilities and obligations of such Person to redeem or
     retire shares of Capital Stock of such Person; (i) all indebtedness,
     liabilities and obligations of such Person under Interest Rate

Page 2
<PAGE>

     Protection Agreements; and (j) all indebtedness, liabilities and
     obligations of such Person in respect of unfunded vested benefits under any
     pension plans.

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

          "Financial Asset" means any "financial asset," as such term is defined
           ---------------
     in Article or Chapter 8 of the UCC, and in any event shall include, but not
     be limited to, any (a) Security, (b) obligation of a Person or a share,
     participation or other interest in a Person or in property or an enterprise
     of a Person, which is, or is of a type, dealt in or traded on financial
     markets, or which is recognized in any area in which it is issued or dealt
     in as a medium for investment, and (c) any property that is held by a
     Securities Intermediary for another Person in a Securities Account if the
     Securities Intermediary has expressly agreed with the other Person that the
     property is to be treated as a Financial Asset under Article or Chapter 8
     of the UCC.

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

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

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

          "Instrument" means any "instrument", as such term is defined in
           ----------
     Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor
     which evidences, whether in whole

Page 3
<PAGE>

     or in part, any indebtedness which constitutes a part of the Collateral,
     and, in any event, shall include the promissory notes described on Schedule
     1 and all other promissory notes, drafts, bills of exchange and trade
     acceptances of Debtor which constitute a part of the Collateral, whether
     now owned or hereafter acquired.

          "Interest Rate Protection Agreements" means, with respect to Borrower,
           -----------------------------------
     an interest rate swap, cap or collar agreement or similar arrangement
     between Borrower and one or more Lenders providing for the transfer or
     mitigation of interest rate risks either generally or under specified
     contingencies.

          "Issuer" means any "issuer," as such term is defined in Article or
           ------
     Chapter 8 of the UCC, and in any event shall include, but not be limited
     to, any Person that, with respect to an obligation on or a defense to a
     Security, (a) places or authorizes the placing of its name on a Security
     Certificate, other than as authenticating trustee, registrar, transfer
     agent or the like, to evidence a share, participation or other interest in
     its property or in an enterprise, or to evidence its duty to perform an
     obligation represented by the certificate; (b) creates a share,
     participation or other interest in its property or in an enterprise, or
     undertakes an obligation, that is an Uncertificated Security; (c) directly
     or indirectly creates a fractional interest in its rights or property, if
     the fractional interest is represented by a Security Certificate; or (d)
     becomes responsible for, or in the place of, another Issuer.

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

          "Obligations" means the "Obligations," as such term is defined in the
           -----------
     Credit Agreement, and the obligations, indebtedness and liabilities of
     Debtor under this Agreement and any other Loan Document to which Debtor may
     be a party, including, without limitation, that certain Guaranty Agreement
     dated as of July 28, 1999 executed by Debtor in favor of Secured Party.

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

          "Pledged Collateral" has the meaning specified in Section 4.7(b)(i).
           ------------------                               -----------------

          "Pledged Shares" means all Capital Stock or other equity interests in,
           --------------
     of or issued by Borrower now or hereafter owned by Debtor, including,
     without limitation, the shares of Capital Stock in, of or issued by
     Borrower described on Schedule 2.
                           ----------

Page 4
<PAGE>

          "Proceeds" means any "proceeds," as such term is defined in Article or
           --------
     Chapter 9 of the UCC and, in any event, shall include, but not be limited
     to, (a) any and all proceeds of any insurance, indemnity, warranty or
     guaranty payable to Debtor from time to time with respect to any of the
     Collateral, (b) any and all payments (in any form whatsoever) made or due
     and payable to Debtor from time to time in connection with any requisition,
     confiscation, condemnation, seizure or forfeiture of all or any part of the
     Collateral by any Governmental Authority (or any Person acting, or
     purporting to act, for or on behalf of any Governmental Authority), and (c)
     any and all other amounts from time to time paid or payable under or in
     connection with any of the Collateral.

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

          "Securities Account" means any "securities account," as such term is
           ------------------
     defined in Article or Chapter 8 of the UCC, and in any event shall include,
     but not be limited to, any account to which a Financial Asset is or may be
     credited in accordance with an agreement under which the Person maintaining
     the account undertakes to treat the Person for whom the account is
     maintained as entitled to exercise the rights that comprise the Financial
     Asset.

          "Securities Intermediary" means any "securities intermediary," as such
           -----------------------
     term is defined in Article or Chapter 8 of the UCC, and in any event shall
     include, but not be limited to, any (a) Clearing Corporation, or (b)
     Person, including a bank or Broker, that in the ordinary course of its
     business maintains Securities Accounts for others and is acting in that
     capacity.

          "Security" means any "security," as such term is defined in Article or
           --------
     Chapter 8 of the UCC and, in any event, shall include, but not be limited
     to, any obligation of an Issuer or a share, participation or other interest
     in an Issuer or in property or an enterprise of an Issuer (a) which is
     represented by a Security Certificate in bearer or registered form, or the
     transfer of which may be registered upon books maintained for that purpose
     by or on behalf of the Issuer, (b) which is one of a class or series or by
     its terms is divisible into a class or series of shares, participations,
     interests or obligations, and (c) which (i) is, or is of a type, dealt in
     or traded on securities exchanges or securities markets, or (ii) is a
     medium for investment and by its terms expressly provides that it is a
     security governed by Article or Chapter 8 of the UCC.

          "Security Certificate" means any "security certificate," as such term
           --------------------
     is defined in Article or Chapter 8 of the UCC, and in any event shall
     include, but not be limited to, any certificate representing a Security.

          "Subsidiary" means, with respect to any Person, any corporation or
           ----------
     other entity of which at least a majority of the outstanding shares of
     stock or other ownership interests having by the terms thereof ordinary
     voting power to elect a majority of the board of directors (or Persons
     performing similar functions) of such corporation or entity (irrespective
     of whether or not at the time, in the case of a corporation, stock of any
     other class or classes

Page 5
<PAGE>

     of such corporation shall have or might have voting power by reason of the
     happening of any contingency) is at the time directly or indirectly owned
     or controlled by such Person or one or more of its Subsidiaries or by such
     Person and one or more of its Subsidiaries.

          "UCC" means the Uniform Commercial Code as in effect in the State of
           ---
     New York; provided, that if, by applicable law, the perfection or effect of
               --------
     perfection or non-perfection of the security interest created hereunder in
     any Collateral is governed by the Uniform Commercial Code as in effect on
     or after the date hereof in any other jurisdiction, "UCC" means the Uniform
     Commercial Code as in effect in such other jurisdiction for purposes of the
     provisions hereof relating to such perfection or the effect of perfection
     or non-perfection.

          "Uncertificated Security" means any "uncertificated security," as such
           -----------------------
     term is defined in Article or Chapter 8 of the UCC, and in any event shall
     include, but not be limited to, any Security that is not represented by a
     certificate.

     Section 1.2    Other Definitional Provisions.  Terms used herein that are
                    -----------------------------
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings therefor specified in the Credit Agreement.  References to
"Sections," "Subsections," "Exhibits" and "Schedules" shall be to Sections,
Subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided.  All definitions contained in this Agreement
are equally applicable to the singular and plural forms of the terms defined.
All references to statutes and regulations shall include any amendments of the
same and any successor statutes and regulations.  References to particular
sections of the UCC should be read to refer also to parallel sections of the
Uniform Commercial Code as enacted in each state or other jurisdiction where any
portion of the Collateral is or may be located.

                                   ARTICLE 2

                               SECURITY INTEREST
                               -----------------

     Section 2.1    Security Interest.  As collateral security for the prompt
                    -----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as
collateral) to Secured Party, and grants to Secured Party a continuing Lien on
and security interest in, all of Debtor's right, title and interest in and to
the following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
                            ----------

     (a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of the Pledged Shares, and all rights,
interests and other property, including, without limitation, general
intangibles, relating to any or all of the Pledged Shares and such dividends,
cash, investments and other property;

     (b) all Debt from time to time owed to Debtor by Borrower and/or any
Subsidiary of Borrower and the Instruments evidencing such Debt, and all
interest, cash, instruments and other

Page 6
<PAGE>

property from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of such Debt;

     (c) all proceeds, in cash or otherwise, of any of the property described in
the foregoing clauses (a) through (b) and all liens, security, rights, remedies
              -----------         ---
and claims of Debtor with respect thereto; and

     (d) all Proceeds and products of any or all of the foregoing.

     Section 2.2    Delivery of Collateral.  All certificates or instruments
                    ----------------------
representing, evidencing or constituting the Pledged Shares, any Instrument or
any other Collateral (now owned or hereafter acquired), promptly upon Debtor
gaining any rights therein, shall be delivered to and held by or on behalf of
Secured Party pursuant hereto in suitable form for transfer by delivery, or
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Secured Party.  After the
occurrence and during the continuation of an Event of Default, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing any Pledged Collateral in its possession for
certificates or instruments of smaller or larger denominations.

                                   ARTICLE 3

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

     To induce Secured Party to enter into this Agreement, Debtor represents and
warrants to Secured Party that:

     Section 3.1    Title.  Debtor is, and with respect to Collateral acquired
                    -----
after the date hereof Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens and Liens in favor of Secured Party.

     Section 3.2    Financing Statements.  No financing statement, security
                    --------------------
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of Secured
Party pursuant to this Agreement and except for financing statements evidencing
Permitted Liens in favor of Secured Party.  Except as may be disclosed on
Schedule 3 hereto, Debtor does not do business and has not done business within
----------
the past five (5) years under a trade name or any name other than its legal name
set forth at the beginning of this Agreement.

     Section 3.3    Principal Place of Business.  The principal place of
                    ---------------------------
business and chief executive office of Debtor, and the office where Debtor keeps
its books and records, is located at the address of Debtor shown at the
beginning of this Agreement.

     Section 3.4    Perfection.  Upon the filing of Uniform Commercial Code
                    ----------
financing statements in the jurisdictions listed on Schedule 4 hereto and
                                                    ----------
Secured Party's obtaining possession of the Pledged Shares and Security
Certificates of Debtor and the Instruments, the security interest

Page 7
<PAGE>

in favor of Secured Party created herein will constitute a valid and perfected
Lien upon and security interest in the Collateral, subject to no equal or prior
Liens.

     Section 3.5    Pledged Shares and Instruments.
                    ------------------------------

     (a) The Pledged Shares have been duly authorized and validly issued and are
fully paid and nonassessable under the laws of the jurisdiction of incorporation
or organization of Borrower. To the best knowledge of Debtor, the Instruments
have been duly authorized and validly issued by Borrower and constitute legally
enforceable indebtedness of Borrower.

     (b) Debtor is the legal and beneficial owner of the Pledged Shares and the
Instruments, free and clear of any Lien (other than the Lien created by this
Agreement), and Debtor has not sold, granted any option with respect to,
assigned, transferred or otherwise disposed of any of its rights or interest in
or to the Pledged Shares or the Instruments.

     (c) On the date hereof, the Pledged Shares constitute the percentage of the
issued and outstanding shares of Capital Stock of Borrower indicated on Schedule
                                                                        --------
2, as such Schedule 2 may from time to time be supplemented, amended or
-          ----------
modified.

     Section 3.6    Consideration.  Debtor expects to derive substantial benefit
                    -------------
(and Debtor may reasonably be expected to derive substantial benefit), directly
and indirectly, from the Loans and the other transactions contemplated by the
Credit Agreement.  Debtor will receive reasonably equivalent value in exchange
for the Collateral being provided by it pursuant to the Loan Documents to which
it is a party as security for the payment and performance of the Obligations.

                                   ARTICLE 4

                                   COVENANTS
                                   ---------

     Debtor covenants and agrees with Secured Party that until the Obligations
are paid and performed in full and all Commitments under the Credit Agreement
have expired or have been terminated:

     Section 4.1    Encumbrances.  Debtor shall not create, permit or suffer to
                    ------------
exist, and shall defend the Collateral against, any Lien or other encumbrance on
the Collateral except for those Permitted Liens (if any) which are permitted to
attach to the Collateral in accordance with the Credit Agreement, and shall
defend Debtor's rights in the Collateral and Secured Party's pledge and
collateral assignment of and security interest in the Collateral against the
claims and demands of all Persons. Debtor shall do nothing to impair the rights
of Secured Party in the Collateral.

     Section 4.2    Disposition of Collateral.  Except as expressly permitted by
                    -------------------------
the terms of the Credit Agreement, Debtor shall not sell, lease, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof without the prior written consent
of Secured Party.

Page 8
<PAGE>

     Section 4.3    Further Assurances. At any time and from time to time, upon
                    ------------------
the request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further agreements, documents and
instruments and take such further action as Secured Party may reasonably deem
necessary or appropriate to preserve and perfect its security interest in and
pledge and collateral assignment of the Collateral and carry out the provisions
and purposes of this Agreement or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral,
and, to the extent any of the Collateral at any time constitutes Investment
Property, then Debtor shall cause Secured Party to obtain "control," as defined
in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if
Secured Party reasonably so requests) of the manners prescribed in Section 8-106
of the UCC.  Debtor and Secured Party agree that the grant of the security
interest in the Investment Property pursuant to this Agreement shall have the
effect of a delivery of such securities to Secured Party pursuant to Section 8-
301 of the UCC, and the effect of a taking of delivery by Secured Party of such
Collateral in accordance with Section 8-302 of the UCC.   Except as otherwise
expressly permitted by the terms of the Credit Agreement relating to disposition
of assets and except for Permitted Liens, Debtor agrees to defend the title to
the Collateral and the Lien thereon of Secured Party against the claim of any
other Person and to maintain and preserve such Lien.  Without limiting the
generality of the foregoing, Debtor shall (a) execute and deliver to Secured
Party such financing statements as Secured Party may from time to time require;
(b) deliver and pledge to Secured Party all Instruments of Debtor with any
necessary endorsements; and (c) execute and deliver to Secured Party such other
agreements, documents and instruments as Secured Party may reasonably require to
perfect and maintain the validity, effectiveness and priority of the Liens
intended to be created by the Loan Documents.  Debtor authorizes Secured Party
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
Debtor where permitted by law.  A carbon, photographic or other reproduction of
this Agreement or of any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement.

     Section 4.4    Entity Maintenance and Changes.  Debtor shall preserve and
                    ------------------------------
maintain its entity existence.  Debtor shall not change its name, identity or
corporate structure in any manner that might make any financing statement filed
in connection with this Agreement seriously misleading unless Debtor shall have
given Secured Party thirty (30) days prior written notice thereof and shall have
taken all action deemed necessary or appropriate by Secured Party to protect its
Liens and the perfection and priority thereof.  Debtor shall not change its
principal place of business, chief executive office or the place where it keeps
its books and records unless (except in the event of casualty or other
legitimate emergency which necessitates such a change, in which event Debtor
shall give Secured party prompt written notice of such change) it shall have
given Secured Party thirty (30) days prior written notice thereof and shall have
taken all action deemed necessary or reasonably appropriate by Secured Party to
cause its security interest in the Collateral to be perfected with the priority
required by this Agreement.

     Section 4.5    Books and Records; Information.  Debtor shall keep accurate
                    ------------------------------
and complete books and records of the Collateral and Debtor's business and
financial condition in accordance with GAAP.  Debtor shall from time to time at
the request of Secured Party deliver to Secured Party such information regarding
the Collateral and Debtor as Secured Party may reasonably request, including,
without limitation, lists and descriptions of the Collateral and evidence of the
identity and existence

Page 9
<PAGE>

of the Collateral. To the extent required by Section 4.4 of this Agreement,
                                             -----------
Debtor shall mark its books and records to reflect the security interest of
Secured Party under this Agreement.

     Section 4.6    Notification.  Debtor shall promptly notify Secured Party of
                    ------------
     (a) any Lien, encumbrance or claim (other than Permitted Liens) that has
attached to or been made or asserted against any of the Collateral, (b) any
material change in any of the Collateral, including, without limitation, any
material damage to or loss of Collateral and (c) the occurrence of any other
event or condition (including, without limitation, matters as to Lien priority)
that could reasonably be expected to have a material adverse effect on the
Collateral or the security interest created hereunder.

     Section 4.7    Voting Rights; Distributions, Etc.
                    ----------------------------------

     (a) So long as no Event of Default or, if and to the extent provided below,
Default shall have occurred and be continuing:

         (i) Debtor shall be entitled to exercise any and all voting and other
     consensual rights (including, without limitation, the right to give
     consents, waivers and notifications in respect of any of the Pledged
     Collateral) pertaining to any of the Pledged Collateral or any part
     thereof; provided, however, that without the prior written consent of
              --------  -------
     Secured Party, no vote shall be cast or consent, waiver or ratification
     given or action taken which would (A) be inconsistent with or violate any
     provision of this Agreement or any other Loan Document or (B) amend, modify
     or waive any term, provision or condition of the partnership agreement,
     certificate of incorporation, by-laws, certificate of formation, operating
     agreement or other charter document or other agreement relating to,
     evidencing, providing for the issuance of or securing any Collateral; and
     provided further that Debtor shall give Secured Party at least five (5)
     -------- -------
     Business Days' prior written notice in the form of an officer's certificate
     of the manner in which it intends to exercise, or the reasons for
     refraining from exercising, any voting or other consensual rights
     pertaining to the Collateral or any part thereof which might have a
     material adverse effect on the value of the Collateral or any part thereof;
     and

         (ii) Unless a Default or an Event of Default shall have occurred and
     be continuing, Debtor shall be entitled to receive and retain any and all
     dividends and interest paid in respect of any of the Collateral to the
     extent permitted by the Credit Agreement; provided, however, that any and
                                               --------  -------
     all

               (A) Restricted Payments paid or payable in violation of Section
                                                                       -------
          9.4 of the Credit Agreement,
          ---

               (B) Restricted Payments paid or payable other than in cash in
          respect of, and instruments and other property received, receivable or
          otherwise distributed in respect of, or in exchange for, any
          Collateral,

               (C) Restricted Payments hereafter paid or payable in cash in
          respect of any Collateral in connection with a partial or total
          liquidation or dissolution or in connection with a reduction of
          capital, capital surplus or paid-in-surplus, and

Page 10
<PAGE>

               (D) cash paid, payable or otherwise distributed in redemption of,
          or in exchange for, any Collateral,

     shall be, and shall be forthwith delivered to Secured Party to hold as,
     Collateral and shall, if received by Debtor, be received in trust for the
     benefit of Secured Party, be segregated from the other property or funds of
     Debtor and be forthwith delivered to Secured Party as Collateral in the
     same form as so received (with any necessary endorsement).  All amounts
     (other than amounts described in clauses (ii) (A)-(D) above which shall not
                                      --------------------
     be released to Debtor) received by Secured Party in respect of any Pledged
     Collateral shall be either (1) promptly released to Debtor, so long as no
     Default or Event of Default shall have occurred and be continuing or (2) if
     any Default or Event of Default shall have occurred and be continuing, held
     by Secured Party and (if an Event of Default shall have occurred and be
     continuing) applied as provided by the Credit Agreement.  During the
     continuance of any Default, any dividends, interest or other distributions
     (whether in cash, securities, property or otherwise) received by Debtor
     with respect to any Pledged Collateral shall be held by Debtor in trust for
     the benefit of Secured Party and, upon the request of Secured Party, shall
     be delivered promptly to Secured Party to hold as Collateral or shall be
     applied by Secured Party toward payment of the Obligations, as Secured
     Party may in its discretion determine. If such Default is waived or cured
     to the satisfaction of Secured Party, any such distributions (except those
     of the types described in clauses (ii)(A-D) above which shall not be
                               -----------------
     released to Debtor) shall be returned promptly to Debtor (provided that no
     other Default or Event of Default exists).  If such Default remains uncured
     and becomes an Event of Default, any such distributions will be applied by
     Secured Party as provided in the Credit Agreement.

     (b) Upon the occurrence and during the continuance of an Event of Default
or, if and to the extent provided below, a Default:

          (i) Secured Party may, without notice to Debtor, transfer or register
     in the name of Secured Party or any of its nominees any or all of the
     Collateral described in Section 2.1(a) or Section 2.1(b), the proceeds
                             --------------    --------------
     thereof (in cash or otherwise) and all liens, security, rights, remedies
     and claims of Debtor with respect thereto (collectively, the "Pledged
                                                                   -------
     Collateral") held by Secured Party hereunder, and Secured Party or its
     ----------
     nominee may thereafter, after delivery of notice to Debtor, exercise all
     voting and corporate rights at any meeting of any corporation, partnership
     or other business entity issuing any of the Pledged Collateral and any and
     all rights of conversion, exchange, subscription or any other rights,
     privileges or options pertaining to any of the Pledged Collateral as if it
     were the absolute owner thereof, including, without limitation, the right
     to exchange at its discretion any and all of the Pledged Collateral upon
     the merger, consolidation, reorganization, recapitalization or other
     readjustment of any corporation, partnership or other business entity
     issuing any of such Pledged Collateral or upon the exercise by any such
     issuer or Secured Party of any right, privilege or option pertaining to any
     of the Pledged Collateral, and in connection therewith, to deposit and
     deliver any and all of the Pledged Collateral with any committee,
     depositary, transfer agent, registrar or other designated agency upon such
     terms and conditions as it may determine, all without liability except to
     account for property actually received by it but Secured Party shall have
     no duty to exercise any of the aforesaid

Page 11
<PAGE>

     rights, privileges or options, and Secured Party shall not be responsible
     for any failure to do so or delay in so doing.

          (ii)  All rights of Debtor to exercise the voting and other consensual
     rights which it would otherwise be entitled to exercise pursuant to Section
                                                                         -------
     4.7(a)(i) and to receive the dividends, interest and other distributions
     ---------
     which it would otherwise be authorized to receive and retain pursuant to
     Section 4.7(a)(ii) shall be suspended until such Default or Event of
     ------------------
     Default (as applicable) shall no longer exist, and all such rights shall,
     until such Default or Event of Default (as applicable) shall no longer
     exist, thereupon become vested in Secured Party which shall thereupon have
     the sole right to exercise such voting and other consensual rights and to
     receive and hold as Collateral such dividends, interest and other
     distributions.

          (iii) All dividends, interest and other distributions which are
     received by Debtor contrary to the provisions of this Section 4.7(b) shall
                                                           --------------
     be received in trust for the benefit of Secured Party, shall be segregated
     from other funds of Debtor, and shall be forthwith paid over to Secured
     Party as Collateral in the same form as so received (with any necessary
     endorsement).

          (iv)  Debtor shall execute and deliver (or cause to be executed and
     delivered) to Secured Party all such proxies and other instruments as
     Secured Party may reasonably request for the purpose of enabling Secured
     Party to exercise the voting and other rights which it is entitled to
     exercise pursuant to this Section 4.7(b) and to receive the dividends,
                               --------------
     interest and other distributions which it is entitled to receive and retain
     pursuant to this Section 4.7(b). The foregoing shall not in any way limit
                      --------------
     Secured Party's power and authority granted pursuant to Section 5.1.
                                                             -----------

     4.8 Transfers and Other Liens; Additional Investments.
         -------------------------------------------------

     (a) Except as may be expressly permitted by the terms of the Credit
Agreement, Debtor shall not grant any option with respect to, exchange, sell or
otherwise dispose of any of the Collateral or create or permit to exist any Lien
upon or with respect to any of the Collateral except for the Liens created
hereby.

     (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged
Collateral not to issue any Capital Stock, notes or other securities or
instruments in addition to or in substitution for any of the Pledged Collateral,
except, with the written consent of Secured Party, to Debtor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all such Capital Stock, notes or other securities or instruments, and
(iii) promptly (and in any event within three Business Days) deliver to Secured
Party an Amendment, duly executed by Debtor, in substantially the form of
Exhibit A (an "Amendment"), in respect of such Capital Stock, notes or other
---------      ---------
securities or instruments, together with all certificates, notes or other
securities or instruments representing or evidencing the same.  Debtor hereby
(A) authorizes Secured Party to attach each Amendment to this Agreement, (B)
agrees that all such Capital Stock, notes or other securities or instruments
listed on any Amendment delivered to Secured Party shall for all purposes
hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon
such delivery, the representations and warranties contained in Article III with
                                                               -----------
respect to such Pledged Collateral.

Page 12
<PAGE>

     Section 4.9    Possession; Reasonable Care.  Regardless of whether a
                    ---------------------------
Default or an Event of Default has occurred or is continuing, Secured Party
shall have the right to hold in its possession all Pledged Collateral pledged,
assigned or transferred hereunder  and from time to time constituting a portion
of the Collateral.  Secured Party may, from time to time, in its sole
discretion, appoint one or more agents (which in no case shall be Debtor or an
Affiliate of Debtor) to hold physical custody, for the account of Secured Party,
of any or all of the Collateral.  Secured Party 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 Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any parties with respect to any Collateral.  Following
the occurrence and during the continuance of an Event of Default, Secured Party
shall be entitled to take possession of the Collateral.

     Section 4.10   Constitutional Documents.  Debtor will not agree or consent
                    ------------------------
to or implement or permit any termination, amendment, modification, supplement
or waiver of the articles of incorporation, bylaws or other constitutional
documents of Debtor; provided, however, that Debtor may amend, modify or
                     --------  -------
supplement the foregoing if and to the extent that such amendment or
modification is not adverse to Borrower, Debtor, Secured Party or any Lender.
Debtor will deliver to Secured Party, promptly after the execution thereof, a
true and correct copy of each and every amendment, modification or supplement to
any one or more of the articles of incorporation, bylaws or other constitutional
documents of Debtor.

                                   ARTICLE 5

                            Rights of Secured Party
                            -----------------------

     Section 5.1    Power of Attorney.  Debtor hereby irrevocably constitutes
                    -----------------
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take after the
occurrence and during the continuance of an Event of Default, any and all action
and to execute any and all documents and instruments which Secured Party at any
time and from time to time deems necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, Debtor hereby gives Secured Party the power and right on behalf of
Debtor and in its own name to do any of the following after the occurrence and
during the continuance of an Event of Default, without notice to or the consent
of Debtor:

     (a) to demand, sue for, collect or receive, in the name of Debtor or in its
own name, any money or property at any time payable or receivable on account of
or in exchange for any of the Collateral and, in connection therewith, endorse
checks, notes, drafts, acceptances, money orders, documents of title or any
other instruments for the payment of money under the Collateral or any policy of
insurance;

     (b) to pay or discharge taxes, Liens or other encumbrances levied or placed
on or threatened against the Collateral;

Page 13
<PAGE>

     (c) (i) to direct account debtors and any other parties liable for any
payment under any of the Collateral to make payment of any and all monies due
and to become due thereunder directly to Secured Party or as Secured Party shall
direct; (ii) to receive payment of and receipt for any and all monies, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (iii) to sign and endorse any drafts against debtors,
assignments, proxies, stock powers, verifications and notices in connection with
accounts and other documents relating to the Collateral; (iv) to commence and
prosecute any suit, action or proceeding at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (v) to defend any suit,
action or proceeding brought against Debtor with respect to any Collateral; (vi)
to settle, compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Secured
Party may deem appropriate; (vii) to exchange any of the Collateral for other
property upon any merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof and, in connection therewith, deposit
any of the Collateral with any committee, depositary, transfer agent, registrar
or other designated agency upon such terms as Secured Party may determine;
(viii) to add or release any guarantor, indorser, surety or other party to any
of the Collateral; (ix) to renew, extend or otherwise change the terms and
conditions of any of the Collateral; (x) to make, settle, compromise or adjust
any claims under or pertaining to any of the Collateral (including claims under
any policy of insurance); and (xi) to sell, transfer, pledge, convey, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Debtor's expense, at any
time, or from time to time, all acts and things which Secured Party deems
necessary to protect, preserve, maintain, or realize upon the Collateral and
Secured Party's security interest therein.

This power of attorney is a power coupled with an interest and shall be
irrevocable  until this Agreement is terminated in accordance with its terms.
Secured Party shall be under no duty to exercise or withhold the exercise of any
of the rights, powers, privileges and options expressly or implicitly granted to
Secured Party in this Agreement, and shall not be liable for any failure to do
so or any delay in doing so.  Neither Secured Party nor any Person designated by
Secured Party shall be liable for any act or omission or for any error of
judgment or any mistake of fact or law.  This power of attorney is conferred on
Secured Party solely to protect, preserve, maintain and realize upon its
security interest in the Collateral.  Secured Party shall not be responsible for
any decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against prior parties or to protect, preserve or
maintain any Lien given to secure the Collateral.

     Section 5.2    Set-off.  If an Event of Default shall have occurred and be
                    -------
continuing, each of Secured Party and the Lenders shall have the right to set-
off and apply against the Obligations, at any time and without notice to Debtor,
any and all deposits (general or special, time or demand, provisional or final)
or other sums at any time credited by or owing from any of Secured Party or the
Lenders to Debtor and although such Obligations may be unmatured.  The rights
and remedies of Secured Party and the Lenders hereunder are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that Secured Party and the Lenders may have.

     Section 5.3    Assignment by Secured Party.  In accordance with the
                    ---------------------------
provisions of the Credit Agreement, any of Secured Party and the Lenders may at
any time assign or otherwise transfer all

Page 14
<PAGE>

or any portion of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, the Obligations), in connection
with an assignment of the Obligations, to any other Person, and such other
Person shall thereupon become vested with all the benefits thereof granted to
Secured Party and the Lenders, respectively, herein or otherwise.

     Section 5.4    Performance by Secured Party.  If Debtor shall fail to
                    ----------------------------
perform any covenant or agreement contained in this Agreement, Secured Party may
perform or attempt to perform such covenant or agreement on behalf of Debtor.
In such event, Debtor shall, at the request of Secured Party, promptly pay any
amount expended by Secured Party in connection with such performance or
attempted performance to Secured Party, together with interest thereon at the
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that Secured Party shall not have any liability or
responsibility for the performance of any indebtedness, liability or obligation
of Debtor under this Agreement.

                                   ARTICLE 6

                                    Default

     Section 6.1    Rights and Remedies.  If an Event of Default shall have
                    -------------------
occurred and be continuing, Secured Party shall have the following rights and
remedies (subject to Section 6.3):
                     -----------

     (a) In addition to all other rights and remedies granted to Secured Party
in this Agreement or in any other Loan Document or by applicable law, Secured
Party shall have all of the rights and remedies of a secured party under the UCC
(whether or not the UCC applies to the affected Collateral) and Secured Party
may also, without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party may
deem commercially reasonable or otherwise as may be permitted by law.  Without
limiting the generality of the foregoing, Secured Party may (i) without demand
or notice to Debtor, collect, receive or take possession of the Collateral or
any part thereof and for that purpose Secured Party may enter upon any premises
on which the Collateral is located and remove the Collateral therefrom or render
it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral,
or any part thereof, in one or more parcels at public or private sale or sales,
at Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem commercially
reasonable or otherwise as may be permitted by law. Secured Party shall have the
right at any public sale or sales, and, to the extent permitted by applicable
law, at any private sale or sales, to bid (which bid may be, in whole or in
part, in the form of cancellation of indebtedness) and become a purchaser of the
Collateral or any part thereof free of any right or equity of redemption on the
part of Debtor, which right or equity of redemption is hereby expressly waived
and released by Debtor.  Upon the request of Secured Party, Debtor shall
assemble the Collateral and make it available to Secured Party at any place
designated by Secured Party that is reasonably convenient to Debtor and Secured
Party.  Debtor agrees that Secured Party shall not be obligated to give more
than five (5) days prior written notice of the time and place of any public sale
or of the time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters.  Secured Party shall not be
obligated to make any sale

Page 15
<PAGE>

of Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of Collateral may have been given. Secured Party may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. Debtor shall be liable for all expenses of
retaking, holding, preparing for sale or the like, and all attorneys' fees,
legal expenses and other costs and expenses incurred by Secured Party in
connection with the collection of the Obligations and the enforcement of Secured
Party's rights under this Agreement. Debtor shall remain liable for any
deficiency if the Proceeds of any sale or other disposition of the Collateral
applied to the Obligations are insufficient to pay the Obligations in full.
Secured Party may apply the Collateral against the Obligations in such order and
manner as Secured Party may elect in its sole discretion. Debtor waives all
rights of marshaling, valuation and appraisal in respect of the Collateral. Any
cash held by Secured Party as Collateral and all cash proceeds received by
Secured Party in respect of any sale of, collection from or other realization
upon all or any part of the Collateral may, in the discretion of Secured Party,
be held by Secured Party as collateral for, and then or at any time thereafter
applied in whole or in part by Secured Party against, the Obligations in such
order as Secured Party shall select. Any surplus of such cash or cash proceeds
and interest accrued thereon, if any, held by Secured Party and remaining after
payment in full of all the Obligations shall be paid over to Debtor or to
whoever may be lawfully entitled to receive such surplus; provided that Secured
                                                          -------- ----
Party shall have no obligation to invest or otherwise pay interest on any
amounts held by it in connection with or pursuant to this Agreement.

     (b) Secured Party may cause any or all of the Collateral held by it to be
transferred into the name of Secured Party or the name or names of Secured
Party's nominee or nominees.

     (c) Secured Party may exercise any and all rights and remedies of Debtor
under or in respect of the Collateral, including, without limitation, any and
all rights of Debtor to demand or otherwise require payment of any amount under,
or performance of any provision of, any of the Collateral and any and all voting
rights and corporate powers in respect of the Collateral.

     (d) Secured Party may collect or receive all money or property at any time
payable or receivable on account of or in exchange for any of the Collateral,
but shall be under no obligation to do so.

     (e) On any sale of the Collateral, Secured Party is hereby authorized to
comply with any limitation or restriction with which compliance is necessary, in
the view of Secured Party's counsel, in order to avoid any violation of
applicable law or in order to obtain any required approval of the purchaser or
purchasers by any applicable Governmental Authority.

     Section 6.2    Registration Rights, Private Sales, Etc.
                    ---------------------------------------

     (a) If Secured Party shall determine to exercise its right to sell all or
any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the
                                  -----------
request of Secured Party (which request may be made by Secured Party in its sole
discretion), Debtor will, at its own expense:

Page 16
<PAGE>

          (i)    execute and deliver, and cause each issuer of any of the
     Collateral contemplated to be sold and the directors and officers thereof
     to execute and deliver, all such agreements, documents and instruments, and
     do or cause to be done all such other acts and things, as may be necessary
     or, in the opinion of Secured Party, advisable to register such Collateral
     under the provisions of the Securities Act (as hereinafter defined) and to
     cause the registration statement relating thereto to become effective and
     to remain effective for such period as prospectuses are required by law to
     be furnished and to make all amendments and supplements thereto and to the
     related prospectus which, in the opinion of Secured Party, are necessary or
     advisable, all in conformity with the requirements of the Securities Act
     and the rules and regulations of the Securities and Exchange Commission
     applicable thereto;

          (ii)   if reasonably necessary or, in the reasonable opinion of
     Secured Party, advisable, use its best efforts to qualify such Collateral
     under all applicable state securities or "Blue Sky" laws and to obtain all
     necessary governmental approvals for the sale of such Collateral, as
     requested by Secured Party;

          (iii)  if reasonably necessary or, in the reasonable opinion of
     Secured Party, advisable, cause each such issuer to make available to its
     security holders, as soon as practicable, an earnings statement which will
     satisfy the provisions of Section 11(a) of the Securities Act;

          (iv)   do or cause to be done all such other acts and things as may be
     reasonably necessary to make such sale of the Collateral or any part
     thereof valid and binding and in compliance with applicable law; and

          (v)    bear all reasonable costs and expenses, including reasonable
     attorneys' fees, of carrying out its obligations under this Section 6.2.
                                                                 -----------

     (b) Debtor recognizes that Secured Party may be unable to effect a public
sale of any or all of the Collateral by reason of certain prohibitions contained
in the Securities Act of 1933, as amended from time to time (the "Securities
                                                                  ----------
Act") and applicable state securities laws but may be compelled to resort to one
---
or more private sales thereof to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Collateral for their own
account for investment and not with a view to the distribution or resale
thereof.  Debtor acknowledges and agrees that any such private sale may result
in prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall, to the extent permitted by law, be deemed to have been made
in a commercially reasonable manner.  Neither Secured Party nor the Lenders
shall be under any obligation to delay a sale of any of the Collateral for the
period of time necessary to permit the issuer of such securities to register
such securities under the Securities Act or under any applicable state
securities laws, even if such issuer would agree to do so.

     (c) Debtor further agrees to do or cause to be done, to the extent that
Debtor may do so under applicable law, all such other acts and things as may be
necessary to make such sales or resales of any portion or all of the Collateral
valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts,

Page 17
<PAGE>

arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at Debtor's expense.
Debtor further agrees that a breach of any of the covenants contained in this
Section 6.2 will cause irreparable injury to Secured Party and the Lenders and
-----------
that Secured Party and the Lenders have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant contained
in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor
        -----------
hereby waives and agrees, to the fullest extent permitted by law, not to assert
as a defense against an action for specific performance of such covenants that
(i) Debtor's failure to perform such covenants will not cause irreparable injury
to Secured Party and the Lenders or (ii) Secured Party and the Lenders have an
adequate remedy at law in respect of such breach.  Debtor further acknowledges
the impossibility of ascertaining the amount of damages which would be suffered
by Secured Party and the Lenders by reason of a breach of any of the covenants
contained in this Section 6.2 and, consequently, agrees that, if Debtor shall
                  -----------
breach any of such covenants and Secured Party or any Lender shall sue for
damages for such breach, Debtor shall pay to Secured Party or such Lender, as
liquidated damages and not as a penalty, an aggregate amount equal to the value
of the Collateral on the date Secured Party or such Lender shall demand
compliance with this Section 6.2.
                     -----------

     (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED
PARTY AND THE LENDERS AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS,
COSTS AND EXPENSES (INCLUDING REASONABLE COUNSEL FEES AND DISBURSEMENTS) ARISING
UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED,
ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY
OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE
EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON,
ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN
WRITING BY DEBTOR OR ANY OF ITS SUBSIDIARIES IN CONNECTION WITH THE SALE OR
PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON,
THE OMISSION OR ALLEGED OMISSION BY DEBTOR OR ANY OF ITS SUBSIDIARIES TO STATE A
MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE
THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE
                                    --------  -------
LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS,
COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR
ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON
AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY
OR ANY LENDER SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH.  THE FOREGOING
INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION
THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH LENDER OR ANY SUCH
CONTROLLING PERSON.

Page 18
<PAGE>

     Section 6.3    Compliance with Laws.  Notwithstanding anything to the
                    --------------------
contrary contained in any Loan Document or in any other agreement, instrument or
document executed by Debtor and delivered to Secured Party, Secured Party will
not take any action pursuant to this Agreement any document referred to herein
which would constitute or result in any assignment of any FCC license or any
change of control (whether de jure or de facto) of Debtor if such assignment of
any FCC license or change of control would require, under then existing law, the
prior approval of the FCC or any other Governmental Authority without first
obtaining such prior approval of the FCC or other Governmental Authority.  Upon
the occurrence of an Event of Default or at any time thereafter during the
continuance thereof, subject to the terms and conditions of this Agreement,
Debtor agrees to take any action which Secured Party may reasonably request in
order to obtain from the FCC or such other Governmental Authority such approval
as may be necessary to enable Secured Party to exercise and enjoy the full
rights and benefits granted to Secured Party by this Agreement and the other
documents referred to above, including specifically, at the cost and expense of
Debtor, the use of reasonable efforts to assist in obtaining approval of the FCC
or such other Governmental Authority for any action or transaction contemplated
by this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file with
the FCC or such other Governmental Authority the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license or transfer of control necessary or appropriate under the FCC's or such
other Governmental Authority's rules and regulations for approval of (a) any
sale or other disposition of the Collateral by or on behalf of Secured Party, or
(b) any assumption by Secured Party of voting rights in the Collateral effected
in accordance with the terms of this Agreement.

                                   ARTICLE 7

                                 Miscellaneous
                                 -------------

     Section 7.1    No Waiver; Cumulative Remedies.  No failure on the part of
                    ------------------------------
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.  The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.

     Section 7.2    Successors and Assigns. This Agreement shall be binding upon
                    ----------------------
and inure to the benefit of Debtor and Secured Party and their respective heirs,
successors and permitted assigns, except that Debtor may not assign any of its
rights, indebtedness, liabilities or obligations under this Agreement without
the prior written consent of Secured Party.

     Section 7.3    Entire Agreement; Amendment .  THIS AGREEMENT EMBODIES THE
                    ----------------------------
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO.  THERE ARE NO UNWRITTEN ORAL

Page 19
<PAGE>

AGREEMENTS AMONG THE PARTIES HERETO.  The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto,
except as provided in Section 4.8(b).
                      --------------

     Section 7.4    Notices.  All notices and other communications provided for
                    -------
in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof; or, as to any party at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section 7.4.  Except as otherwise provided in this Agreement, all such
          -----------
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, three
(3) Business Days after deposit in the mails, in each case given or addressed as
aforesaid; provided, however, that notices to Secured Party shall be deemed
           --------  -------
given when received by Secured Party.

     Section 7.5    Governing Law; Submission to Jurisdiction; Service of
                    -----------------------------------------------------
Process.  EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN THE CREDIT
-------
AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND EACH OF THE PARTIES HERETO CHOOSES THE LAWS OF THE STATE OF NEW
YORK TO GOVERN THIS AGREEMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401
(CONSOL. 1995) AND APPLICABLE LAWS OF THE U.S.  DEBTOR HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE
SOUTHERN  DISTRICT OF NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW
YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS,
AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS, COUNTY, TEXAS, FOR THE PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. DEBTOR
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO DEBTOR AT ITS ADDRESS FOR
NOTICES SET FORTH UNDERNEATH ITS SIGNATURE HERETO.  DEBTOR HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

     Section 7.6    Headings.  The headings, captions and arrangements used in
                    --------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.

     Section 7.7    Survival of Representations and Warranties.  All
                    ------------------------------------------
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the

Page 20
<PAGE>

execution and delivery of this Agreement, and no investigation by Secured Party
shall affect the representations and warranties or the right of Secured Party to
rely upon them.

     Section 7.8    Counterparts.  This Agreement may be executed in any number
                    ------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     Section 7.9    Waiver of Bond.  In the event Secured Party seeks to take
                    --------------
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.

     Section 7.10   Severability.  Any provision of this Agreement which is
                    ------------
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     Section 7.11   Construction.  Debtor and Secured Party acknowledge that
                    ------------
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Debtor and Secured
Party.

     Section 7.12   Termination. If all of the Obligations shall have been paid
                    -----------
and performed in full and all Commitments of the Lenders shall have expired or
terminated, Secured Party shall, upon the written request of Debtor, execute and
deliver to Debtor a proper instrument or instruments acknowledging the release
and termination of the security interests created by this Agreement, and shall
duly assign and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of Secured Party and has not previously been sold or otherwise applied pursuant
to this Agreement.

     Section 7.13   Waiver of Jury Trial.  TO THE FULLEST EXTENT PERMITTED BY
                    --------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED
PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.

                 [Remainder of page intentionally left blank.]

Page 21
<PAGE>

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

                              DEBTOR:
                              ------

                              NET-TEL COMMUNICATIONS, INC.

                              By:/s/ Craig R. Bandes
                                 -----------------------------
                                    Craig R. Bandes
                                    Senior Vice President

                              Address for Notices:
                              -------------------
                              NET-tel Communications, Inc.
                              1023 31st Street N.W.
                              Washington, D.C.  20007
                              Attention: Craig R. Bandes, Senior Vice President
                              Telecopier No.: (202) 625-0078
                              Telephone No.:  (202) 295-6600

Page 22

                      (From Pledge & Security Agreement)

<PAGE>

                              SECURED PARTY:
                              -------------

                              NORTEL NETWORKS INC.
                              as Administrative Agent

                              By:/s/ Jay R. Prestipino
                                 -----------------------------
                                    Jay R. Prestipino
                                    Director, Customer Finance

                              Address for Notices:
                              -------------------
                              Nortel Networks Inc.
                              8 Federal Street
                              Billerica, Massachusetts 01821
                              Attention: Vice President, Finance
                                         Carrier Packet Solutions
                              Telecopy No.:  (978) 916-4755
                              Telephone No.: (978) 916-1751

                              and

                              Nortel Networks Inc.
                              GMS 991 15 A40
                              2221 Lakeside Boulevard
                              Richardson, Texas 75082-4399
                              Attention:  Vice President - Customer
                                          Finance North America
                              Telecopy No.:  (972) 684-3679
                              Telephone No.: (972) 684-2271

                              and

                              Nortel Networks Inc.
                              P.O. Box 833858
                              Richardson, Texas  75083-3858
                              Mail Stop 04D/02/A40
                              Attention: Kimberly Poe,
                                         Loan Administration
                              Telecopy No.:  (972) 684-3808
                              Telephone No.: (972) 684-7687

Page 23

                         (Pledge & Security Agreement)
<PAGE>

                                   SCHEDULE 1
                                   ----------

                                PROMISSORY NOTES

None.

Page 24
<PAGE>

                                   SCHEDULE 2
                                   ----------

                                 PLEDGED SHARES

<TABLE>
<CAPTION>
                                                                                      Percentage of
                                                                         Number of    Outstanding
      Issuer                    Class of Shares    Certificate No(s).     Shares         Shares
      ------                    ---------------    ------------------    --------     ------------
<S>                             <C>                <C>                   <C>          <C>
NET-tel Corporation               Common, $.01           4                 935,001        100%
                                  par value per
                                  share

</TABLE>

Page 25
<PAGE>

                                   SCHEDULE 3
                                   ----------

                                  OTHER NAMES

1.   Debtor was formerly known as NET-tel Holding Company.

Page 26
<PAGE>

                                   SCHEDULE 4
                                   ----------

                            JURISDICTIONS FOR FILING
                           UCC-1 FINANCING STATEMENTS

1.   District of Columbia

Page 27
<PAGE>

                                   EXHIBIT A
                                   ---------

                               FORM OF AMENDMENT
                               -----------------

     This Amendment, dated ____________________, ____, is delivered pursuant to

Section 4.8(b) of the Pledge Agreement (as herein defined) referred to below.
--------------
The undersigned hereby agrees that this Amendment may be attached to the Pledge
and Security Agreement dated as of July 28, 1999, between the undersigned and
Nortel Networks Inc., as Secured Party (the "Pledge Agreement") and that the
                                             ----------------
Capital Stock or other instruments listed on Schedule 1 annexed hereto shall be
                                             ----------
and become part of the Collateral referred to in the Pledge Agreement and shall
secure payment and performance of all Obligations as provided in the Pledge
Agreement.

     Capitalized terms used herein but not defined herein shall have the
meanings therefor provided in the Pledge Agreement.

                              DEBTOR:
                              ------

                              NET-TEL COMMUNICATIONS, INC.

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

Page 28
<PAGE>

                                   Schedule 1
                                       to
                               Form of Amendment
                               -----------------

<TABLE>
<CAPTION>
                                                          Percentage of
                Class of      Certificate    Number of     Outstanding
Issuer           Shares          No(s).        Shares        Shares
---------       --------      -----------    ---------    -------------

<S>             <C>           <C>            <C>          <C>
</TABLE>

Page 29

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