Document:

<PAGE>

                                                                  CONFORMED COPY

                         CREDIT AND GUARANTY AGREEMENT

                          dated as of August 25, 2000

                                     among

                       FOCAL COMMUNICATIONS CORPORATION,

                        FOCAL FINANCIAL SERVICES, INC.

           CERTAIN SUBSIDIARIES OF FOCAL COMMUNICATIONS CORPORATION,
                                as Guarantors,

                               VARIOUS LENDERS,

                      GOLDMAN SACHS CREDIT PARTNERS L.P.,
                 as Joint Lead Arranger and Syndication Agent,

                          SALOMON SMITH BARNEY INC.,
                            as Joint Lead Arranger,

                                CITIBANK, N.A.,
                 as Administrative Agent and Collateral Agent,

                                      and

                            BANK OF AMERICA, N.A.,
                            as Documentation Agent

           ________________________________________________________

                 $300,000,000 Senior Secured Credit Facilities
           ________________________________________________________
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
SECTION 1.   DEFINITIONS AND INTERPRETATION...............................................       1
     1.1.    Definitions..................................................................       1
     1.2.    Accounting Terms.............................................................      33
     1.3.    Interpretation, etc..........................................................      34

SECTION 2.   LOANS........................................................................      34
     2.1.    Loans........................................................................      34
     2.2.    Incremental Facilities.......................................................      35
     2.3.    Pro Rata Shares; Availability of Funds.......................................      38
     2.4.    Use of Proceeds..............................................................      39
     2.5.    Evidence of Debt; Register; Lenders' Books and Records; Notes................      39
     2.6.    Interest on Loans............................................................      40
     2.7.    Conversion/Continuation......................................................      41
     2.8.    Default Interest.............................................................      42
     2.9.    Fees.........................................................................      42
     2.10.   Scheduled Payments/Commitment Reductions.....................................      43
     2.11.   Voluntary Prepayments/Commitment Reductions..................................      45
     2.12.   Mandatory Prepayments/Commitment Reductions..................................      47
     2.13.   Application of Prepayments/Reductions........................................      48
     2.14.   Charging of Accounts.........................................................      49
     2.15.   General Provisions Regarding Payments........................................      49
     2.16.   Receipt of Payments..........................................................      50
     2.17.   Making or Maintaining Eurodollar Rate Loans..................................      50
     2.18.   Increased Costs; Capital Adequacy............................................      52
     2.19.   Taxes; Withholding, etc......................................................      54
     2.20.   Obligation to Mitigate.......................................................      56
     2.21.   Defaulting Lenders...........................................................      56
     2.22.   Removal or Replacement of a Lender...........................................      57

SECTION 3.   CONDITIONS PRECEDENT.........................................................      58
     3.1.    Closing Date.................................................................      58
     3.2.    Conditions to Each Credit Extension..........................................      61

SECTION 4.   REPRESENTATIONS AND WARRANTIES...............................................      63
     4.1.    Organization; Requisite Power and Authority; Qualification...................      63
     4.2.    Capital Stock and Ownership..................................................      63
     4.3.    Due Authorization............................................................      63
     4.4.    No Conflict..................................................................      63
     4.5.    Governmental Consents........................................................      64
</TABLE>

                                      (i)
<PAGE>

<TABLE>
     <S>                                                                                        <C>
     4.6.    Binding Obligation...........................................................      64
     4.7.    Historical Financial Statements..............................................      64
     4.8.    Projections..................................................................      64
     4.9.    No Material Adverse Change...................................................      65
     4.10.   No Restricted Junior Payments................................................      65
     4.11.   Adverse Proceedings, etc.....................................................      65
     4.12.   Payment of Taxes.............................................................      65
     4.13.   Properties...................................................................      65
     4.14.   Environmental Matters........................................................      66
     4.15.   No Defaults..................................................................      66
     4.16.   Material Contracts...........................................................      66
     4.17.   Governmental Regulation......................................................      66
     4.18.   Margin Stock.................................................................      66
     4.19.   Employee Matters.............................................................      67
     4.20.   Employee Benefit Plans.......................................................      67
     4.21.   Solvency.....................................................................      67
     4.22.   Compliance with Statutes, etc................................................      68
     4.23.   Disclosure...................................................................      68

SECTION 5.   AFFIRMATIVE COVENANTS........................................................      68
     5.1.    Financial Statements and Other Reports.......................................      68
     5.2.    Existence....................................................................      72
     5.3.    Payment of Taxes and Claims..................................................      72
     5.4.    Maintenance of Properties....................................................      73
     5.5.    Insurance....................................................................      73
     5.6.    Books and Records; Inspections; Lenders Meetings.............................      73
     5.7.    Compliance with Laws.........................................................      74
     5.8.    Ownership of Telecommunications Assets.......................................      74
     5.9.    Environmental................................................................      74
     5.10.   Subsidiaries.................................................................      76
     5.11.   Material Real Estate Assets..................................................      76
     5.12.   Interest Rate Protection.....................................................      76
     5.13.   Intercompany Transactions....................................................      77
     5.14.   Further Assurances...........................................................      77
     5.15.   Certain Post-Closing Obligations.............................................      77

SECTION 6.   NEGATIVE COVENANTS...........................................................      81
     6.1.    Indebtedness.................................................................      81
     6.2.    Liens........................................................................      82
     6.3.    No Further Negative Pledges..................................................      84
     6.4.    Restricted Payments; Restrictions on Subsidiary Distributions................      84
     6.5.    Investments..................................................................      85
     6.6.    Stage 1 Financial Covenants..................................................      86
</TABLE>

                                      (ii)
<PAGE>

<TABLE>
     <S>                                                                                        <C>
     6.7.    Stage 2 Financial Covenants..................................................      87
     6.8.    Fundamental Changes; Disposition of Assets; Acquisitions.....................      88
     6.9.    Disposal of Subsidiary Interests.............................................      88
     6.10.   Sales and Lease-Backs........................................................      89
     6.11.   Sale or Discount of Receivables..............................................      89
     6.12.   Transactions with Shareholders and Affiliates................................      89
     6.13.   Conduct of Business..........................................................      89
     6.14.   Amendments or Waivers with respect to Related Agreements and
             Holdings Permitted Debt......................................................      90
     6.15.   Disposition of Licenses, etc.................................................      90
     6.16.   Fiscal Year..................................................................      90

SECTION 7.   GUARANTY.....................................................................      91
     7.1.    Guaranty.....................................................................      91
     7.2.    Contribution by Guarantors...................................................      91
     7.3.    Payment by Guarantors........................................................      92
     7.4.    Liability of Guarantors Absolute.............................................      92
     7.5.    Waivers by Guarantors........................................................      94
     7.6.    Guarantors' Rights of Subrogation, Contribution, etc.........................      95
     7.7.    Subordination of Other Obligations...........................................      96
     7.8.    Continuing Guaranty..........................................................      96
     7.9.    Authority of Guarantors or Company...........................................      96
     7.10.   Financial Condition of Company...............................................      96
     7.11.   Bankruptcy, etc..............................................................      97
     7.12.   Discharge of Guaranty Upon Sale of Guarantor.................................      97

SECTION 8.   EVENTS OF DEFAULT............................................................      98
     8.1.    Events of Default............................................................      98

 SECTION 9.  AGENTS.......................................................................     100
     9.1.    Appointment of Agents........................................................     100
     9.2.    Powers and Duties............................................................     101
     9.3.    General Immunity.............................................................     101
     9.4.    Agents Entitled to Act as Lender.............................................     102
     9.5.    Lenders' Representations, Warranties and Acknowledgment......................     102
     9.6.    Right to Indemnity...........................................................     103
     9.7.    Successor Administrative Agent...............................................     103
     9.8.    Collateral Documents and Guaranty............................................     104

SECTION 10.  MISCELLANEOUS................................................................     104
     10.1.   Notices......................................................................     104
     10.2.   Expenses.....................................................................     105
</TABLE>

                                     (iii)
<PAGE>

<TABLE>
     <S>                                                                                       <C>
     10.3.   Indemnity....................................................................     105
     10.4.   Set-Off......................................................................     106
     10.5.   Amendments and Waivers.......................................................     106
     10.6.   Successors and Assigns; Participations.......................................     108
     10.7.   Independence of Covenants....................................................     112
     10.8.   Survival of Representations, Warranties and Agreements.......................     112
     10.9.   No Waiver; Remedies Cumulative...............................................     112
     10.10.  Marshalling; Payments Set Aside..............................................     113
     10.11.  Severability.................................................................     113
     10.12.  Entire Agreement.............................................................     113
     10.13.  Obligations Several; Independent Nature of Lenders' Rights...................     113
     10.14.  Headings.....................................................................     113
     10.15.  APPLICABLE LAW...............................................................     113
     10.16.  CONSENT TO JURISDICTION......................................................     114
     10.17.  WAIVER OF JURY TRIAL.........................................................     114
     10.18.  Confidentiality..............................................................     115
     10.19.  Usury Savings Clause.........................................................     115
     10.20.  Counterparts; Effectiveness..................................................     116
</TABLE>

                                      (iv)
<PAGE>

APPENDICES: A-1        Delayed Draw Term Loan Commitments
            A-2        Revolving Commitments
            B          Notice Addresses

SCHEDULES:  3.1(e)     Certain Governmental Authorizations
            4.1        Jurisdictions of Organization and Qualification
            4.2        Capital Stock and Ownership
            4.5        Governmental Authorization and Consents
            4.7        Contingent Liabilities
            4.13       Real Estate Assets
            4.16       Material Contracts
            4.17       Governmental Regulation
            5.15(a)    Certain Material Contracts being collaterally assigned
            5.15(b)    Certain Agreements requiring Acknowledgment Letters
            6.1        Certain Indebtedness
            6.2        Certain Liens
            6.5        Certain Investments
            6.6(a)     Stage 1 Minimum Revenues
            6.6(b)     Stage 1 Minimum Access Lines
            6.6(c)     Stage 1 Minimum Consolidated EBITDA
            6.6(f)     Stage 1 and 2 Maximum Consolidated Capital Expenditures
            6.7(a)     Stage 2 Senior Leverage Ratio
            6.7(b)     Stage 2 Total Leverage Ratio
            6.7(c)     Stage 2 Interest Coverage Ratio
            6.7(d)     Stage 2 Fixed Change Coverage Ratio
            6.12       Certain Affiliate Transactions

                                      (v)
<PAGE>

EXHIBITS:   A-1     Funding Notice
            A-2     Conversion/Continuation Notice
            B-1     Delayed Draw Term Loan Note
            B-2     Revolving Note
            B-3     New Term Loan Note
            C       Compliance Certificate
            D       Opinions of Counsel
            E       Assignment Agreement
            F       Certificate Re Non-Bank Status
            G-1     Closing Date Certificate
            G-2     Solvency Certificate
            H       Counterpart Agreement
            I-1     Company Pledge and Security Agreement
            I-2     Master Pledge and Security Agreement
            J       Landlord Personal Property Collateral Access Agreement
            K       Joinder Agreement
            L       Acknowledgment Letter
            M       Approved Lease Agreement
            N       Intercompany Loan Agreement
            O       Intercompany Security Agreement

                                      (vi)
<PAGE>

                         CREDIT AND GUARANTY AGREEMENT

     This CREDIT AND GUARANTY AGREEMENT, dated as of August 25, 2000, is entered
into by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation
("Holdings"), FOCAL FINANCIAL SERVICES, INC., a Delaware corporation
("Company"), CERTAIN SUBSIDIARIES OF COMPANY, as Guarantors, the Lenders party
hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as a
Joint Lead Arranger (in such capacity, a "Joint Lead Arranger"), and as
Syndication Agent (in such capacity,"Syndication Agent"), Salomon Smith Barney
Inc. ("SSB"), as a Joint Lead Arranger (in such capacity, a "Joint Lead
Arranger"), CITIBANK, N.A. ("Citibank"), as Administrative Agent and Collateral
Agent (together with its permitted successors in such capacity,"Administrative
Agent") and as Collateral Agent (together with its permitted successor in such
capacity, "Collateral Agent"), and BANK OF AMERICA, N.A., ("Bank of America"),
as Documentation Agent (in such capacity,"Documentation Agent").

                                   RECITALS:

     WHEREAS, capitalized terms used in these Recitals shall have the respective
meanings set forth for such terms in Section 1.1 hereof;

     WHEREAS, Lenders have agreed to extend certain credit facilities to
Company, as specified herein, in an aggregate amount not to exceed $300,000,000,
consisting of $150,000,000 aggregate principal amount of Delayed Draw Term Loans
and up to $150,000,000 aggregate principal amount of Revolving Commitments, the
proceeds of which will be used for the purposes specified herein;

     WHEREAS, Company has agreed to secure all of its Obligations by granting to
Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on
(i) all Telecommunications Assets financed with the proceeds of Loans made to
Company and (ii) to the extent permitted under the terms of the Holdings Senior
Notes, substantially all of its other assets (subject to certain permitted
exceptions); and

     WHEREAS, Guarantors have agreed to guarantee the Obligations of Company
hereunder and to secure their respective guaranty Obligations by granting to
Collateral Agent, for the benefit of Secured Parties, a First Priority Lien to
the extent permitted under the terms of the Holdings Senior Notes, on
substantially all of their assets (subject to certain permitted exceptions).

     NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
<PAGE>

SECTION 1. DEFINITIONS AND INTERPRETATION

     1.1  Definitions. The following terms used herein, including in the
preamble, recitals, exhibits and schedules hereto, shall have the following
meanings:

          "Access Lines" shall mean the total number of installed DS-O business
lines (or the equivalent thereof) that are being used to provide service to a
customer of Company and its Subsidiaries, including "on-net" and "unbundled
network elements".

          "Adjusted Eurodollar Rate" means, for any Interest Rate Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (and rounding upward to the next whole multiple of
1/100 of 1%) (i) (a) the rate per annum (rounded to the nearest 1/100 of 1%)
equal to the rate determined by Administrative Agent to be the offered rate
which appears on the page of the Telerate Screen which displays an average
British Bankers Association Interest Settlement Rate (such page currently being
page number 3740 or 3750, as applicable) for deposits (for delivery on the first
day of such period) with a term equivalent to such period in Dollars, determined
as of approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, or (b) in the event the rate referenced in the preceding
clause (a) does not appear on such page or service or if such page or service
shall cease to be available, the rate per annum (rounded to the nearest 1/100 of
1%) equal to the rate determined by Administrative Agent to be the offered rate
on such other page or other service which displays an average British Bankers
Association Interest Settlement Rate for deposits (for delivery on the first day
of such period) with a term equivalent to such period in Dollars, determined as
of approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, or (c) in the event the rates referenced in the preceding
clauses (a) and (b) are not available, the rate per annum (rounded to the
nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in
the London interbank market by Citibank, N.A. for deposits (for delivery on the
first day of the relevant period) in Dollars of amounts in same day funds
comparable to the principal amount of the applicable Loan of Administrative
Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is
then being determined with maturities comparable to such period as of
approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, by (ii) an amount equal to (a) one minus (b) the Applicable
                                                       -----
Reserve Requirement.

          "Administrative Agent" as defined in the preamble hereto.

          "Adverse Proceeding" means any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration (whether or not purportedly on behalf of Holdings or any of its
Subsidiaries) at law or in equity, or before or by any Governmental Authority,
domestic or foreign (including any Environmental Claims), whether pending or, to
the knowledge of Holdings or any of its Subsidiaries, threatened in writing
against or affecting Holdings or any of its Subsidiaries or any property of
Holdings or any of its Subsidiaries.

          "Affected Lender" as defined in Section 2.17(b).

                                       2
<PAGE>

          "Affected Loans" as defined in Section 2.17(b).

          "Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power (i) to vote 10% or more of the Securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.
Neither any Agent nor any Lender shall be deemed Affiliates of any Credit Party,
by virtue of the security interests granted under the Pledge and Security
Agreement.

          "Agent" means each of the Joint Lead Arrangers, Syndication Agent,
Administrative Agent, Documentation Agent and Collateral Agent.

          "Aggregate Amounts Due" as defined in Section 10.6(j).

          "Aggregate Payments" as defined in Section 7.2.

          "Agreement" means this Credit and Guaranty Agreement, dated as of
August 25, 2000 as it may be amended, supplemented or otherwise modified from
time to time.

          "Annualized Consolidated EBITDA" means, as of any date of
determination, Consolidated EBITDA for the most recently completed Fiscal
Quarter multiplied by four.

          "Applicable Commitment Fee Percentage" means a percentage per annum,
determined by reference to the Facilities Usage from time to time as set forth
below:

           =======================================================
                                           Applicable Margin
            Facilities Usage         For Commitment Fee Percentage
           -------------------------------------------------------
                 *  1/3                         1.50%
           -------------------------------------------------------
                 ** 1/3                         1.00%
                 -
                 *  2/3
           -------------------------------------------------------
                 ** 2/3                         0.75%
                 -
           =======================================================

     "Applicable Margin'' means (i) with respect to Loans that are Eurodollar
Rate Loans (a) from the Closing Date until the date of delivery of the
Compliance Certificate and related financial statements confirming that Holdings
and its Subsidiaries have achieved positive Annualized Consolidated EBITDA,
3.50%, per annum; and (b) thereafter, a percentage, per annum, determined by
reference to the Total Leverage Ratio in effect from time to time as set forth
below:

*  denotes less than
** denotes greater than or equal to

                                       3
<PAGE>

             ==============================================
               Total Leverage
                   Ratio                 Applicable Margin
             ----------------------------------------------
               ** 15.0:1.00                    3.25%
               -
             ----------------------------------------------
               *  15.0:1.00                    3.00%
               ** 12.5:1.00
               -
             ----------------------------------------------
               *  12.5:1.00                    2.75%
               ** 10.0:1.00
               -
             ----------------------------------------------
               *  10.0:1.00                    2.50%
               **  7.5:1.00
               -
             ----------------------------------------------
               *  7.5:1.00                     2.25%
               ** 5.0:1.00
               -
             ----------------------------------------------
               *  5.0:1.00                     2.00%
             ==============================================

and (ii) with respect to Loans that are Base Rate Loans, an amount equal to the
difference of (a) the Applicable Margin for Eurodollar Rate Loans as set forth
in clause (i)(a) or (i)(b) above, as applicable, minus (b) 1.00% per annum. No
change in the Applicable Margin shall be effective until (x) three Business Days
after the date on which Administrative Agent shall have received the applicable
financial statements and a Compliance Certificate pursuant to Section 5.1(c)
calculating the Total Leverage Ratio or (y) the date of the acquisition in
respect of which the Administrative Agent shall have received the financial
information and Compliance Certificate pursuant to clause (v) of the definition
of Permitted Acquisition calculating the Total Leverage Ratio. At any time
Company has not submitted to Administrative Agent the applicable information as
and when required under Section 5.1(c), the Applicable Margin shall be
determined as if the Total Leverage Ratio were in excess of 15.0:1.00. Within
one Business Day of receipt of the applicable information under Section 5.1(c),
Administrative Agent shall give each Lender telefacsimile or telephonic notice
(confirmed in writing) of the Applicable Margin in effect from such date.

          "Applicable Reserve Requirement" means, at any time, for any
Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which
reserves (including, without limitation, any basic marginal, special,
supplemental, emergency or other reserves) are required to be maintained with
respect thereto against "Eurocurrency liabilities" (as such term is defined in
Regulation D) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System or other applicable banking regulator.
Without limiting the effect of the foregoing, the Applicable Reserve Requirement
shall reflect any other reserves required to be maintained by such member banks
with respect to (i) any category of liabilities which includes deposits by
reference to which the applicable Adjusted Eurodollar Rate or any other interest
rate of a Loan is to be determined, or (ii) any category of extensions of credit
or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan
shall be deemed to constitute Eurocurrency liabilities and as such shall be
deemed subject to reserve requirements without benefits of credit for proration,

*  denotes less than
** denotes greater than or equal to

                                       4
<PAGE>

exceptions or offsets that may be available from time to time to the applicable
Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted
automatically on and as of the effective date of any change in the Applicable
Reserve Requirement.

          "Approved Lease Agreement" means an agreement substantially in the
form of Exhibit M entered by Company and a Subsidiary of Company pursuant to
Section 5.13.

          "Asset Sale" means a sale, lease or sublease (as lessor or sublessor),
sale and leaseback, assignment, conveyance, transfer or other disposition to, or
any exchange of property with, any Person (other than Company or a Guarantor),
in one transaction or a series of transactions, of all or any part of Holdings's
or any of its Subsidiaries' businesses, assets or properties of any kind,
whether real, personal, or mixed and whether tangible or intangible, whether now
owned or hereafter acquired, including, without limitation, the Capital Stock of
any of Holdings' Subsidiaries, other than (i) inventory (or other assets) sold
or leased in the ordinary course of business, including fiber capacity sales in
the ordinary course of business, (ii) disposals of obsolete, worn out or surplus
property, (iii) sales of assets (other than Telecommunications Assets financed
with the proceeds of Loans) not in excess of $10,000,000 in the aggregate during
the term of this Agreement, (iv) transfers and dispositions consisting of
Permitted Liens, (v) payments permitted under Section 6.4 and (vi) Investments
permitted under Section 6.5.

          "Assignment Agreement" means an Assignment Agreement substantially in
the form of Exhibit E, with such amendments or modifications as may be approved
            ---------
by Administrative Agent.

          "Authorized Officer" means, as applied to any Person, any individual
holding the position of chairman of the board (if an officer), chief executive
officer, president or one of its vice presidents (or the equivalent thereof),
and such Person's chief financial officer or treasurer.

          "Bank of America" as defined in the preamble hereto.

          "Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.

          "Base Rate" means, for any day, a rate per annum (rounded to the
nearest 1/100 of 1%) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective on the effective day of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

          "Base Rate Loan" means a Loan bearing interest at a rate determined by
reference to the Base Rate.

          "Beneficiary" means each Agent, Lender and Lender Counterparty.

                                       5
<PAGE>

          "Business Day" means (i) any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the State of New York or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close and (ii) with respect to all
notices, determinations, fundings and payments in connection with the Adjusted
Eurodollar Rate or any Eurodollar Rate Loans, the term "Business Day" shall mean
any day which is a Business Day described in clause (i) and which is also a day
for trading by and between banks in Dollar deposits in the London interbank
market.

          "Capital Expenditures" means, for any period, the aggregate of all
expenditures of any Person during such period that, in accordance with GAAP, are
or should be included in "purchase of property and equipment" or similar items
reflected in the statement of cash flows of such Person. Notwithstanding the
foregoing, the term "Capital Expenditures" shall not include capital
expenditures in respect of the reinvestment of Net Asset Sale Proceeds or Net
Insurance/Condemnation Proceeds made in accordance with Sections 2.12(a) or (b).

          "Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.

          "Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
including, without limitation, partnership interests and membership interests,
and any and all warrants, rights or options to purchase or other arrangements or
rights to acquire any of the foregoing.

          "Cash" means money, currency or a credit balance in any demand or
Deposit Account.

          "Cash Equivalents" means, as at any date of determination, (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, in each case with a term of not more than one year, (ii) investments in
time deposit accounts, term deposit accounts, certificates of deposit, money-
market deposits, bankers' acceptances and obligations maturing within one year
of the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America or any state thereof,
and which bank or trust company has, or the obligation of which bank or trust
company is guaranteed by a bank or trust company which has, capital, surplus and
undivided profits aggregating in excess of $150,000,000 and has outstanding debt
which is rated "A" (or such similar equivalent rating) or higher by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 180 days after the date of acquisition, issued by a

                                       6
<PAGE>

corporation (other than an Affiliate of Holdings) organized and in existence
under the laws of the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P, (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth, territory or province of the United
States of America or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or "A-2" by Moody's, and (vi) other debt
obligations maturing in 365 days or less issued by a corporation (other than an
Affiliate of Holdings) organized under the laws of the United States or any
state thereof and rated at least "A-" by S&P or "A3" by Moody's.

          "Certificate re Non-Bank Status" means a certificate substantially in
the form of Exhibit F.
            ---------

          "Change of Control" means, at any time, (i) any Person or "group"
(within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than
Permitted Holders (a) shall have acquired beneficial ownership of 30% or more on
a fully diluted basis of the voting and/or economic interest in the Capital
Stock of Holdings or (b) shall have obtained the power (whether or not
exercised) to elect a majority of the members of the board of directors (or
similar governing body) of Holdings; (ii) Holdings shall cease to beneficially
own and control 100% on a fully diluted basis of the economic and voting
interest in the Capital Stock of Company; (iii) Permitted Holders shall cease to
own and control, directly and of record, more than 20% of the issued and
outstanding common stock of Holdings; (iv) the majority of the seats (other than
vacant seats) on the board of directors (or similar governing body) of Company
cease to be occupied by Persons who either (a) were members of the board of
directors of Company on the Closing Date or (b) were nominated for election by
the board of directors of Company, a majority of whom were directors on the
Closing Date or whose election or nomination for election was previously
approved by a majority of such directors; or (v) the occurrence of a "change of
control" or any similar event however defined under the terms of any Permitted
Holdings Debt having a principal amount in excess of $5,000,000 requiring the
prepayment, redemption or offer to repurchase of any such Permitted Holdings
Debt.

          "Citibank" as defined in the preamble hereto.

          "Class" means (i) with respect to Lenders, each of the following
classes of Lenders: (a) Lenders having Revolving Exposure, (b) Lenders having
Delayed Draw Term Loan Exposure, and (c) Lenders having New Term Loan Exposure
of each Series, if any, and (ii) with respect to Loans, each of the following
classes of Loans: (a) Revolving Loans, (b) Delayed Draw Term Loans, and (c) New
Term Loan of each Series, if any.

          "Closing Date" means the date on or before September 1, 2000 on which
the conditions set forth in Section 3.1 have being satisfied or waived in
accordance with Section 10.5.

          "Closing Date Certificate" means a Closing Date Certificate
substantially in the form of Exhibit G-1.
                             -----------

                                       7
<PAGE>

          "Collateral" means, collectively, all of the real, personal and mixed
property (including Capital Stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for any of the Obligations.

          "Collateral Agent" as defined in the preamble hereto.

          "Collateral Documents" means each of the Pledge and Security
Agreements, the Landlord Personal Property Collateral Access Agreements and all
other instruments, documents and agreements delivered by any Credit Party
pursuant to this Agreement or any of the other Credit Documents in order to
grant to Collateral Agent, for the benefit of Secured Parties, a Lien on any
real, personal or mixed property of that Credit Party as security for the
Obligations, in each case, as amended, restated, supplemented or otherwise
modified from time to time.

          "Commitment" means the commitments of Lenders to make Loans as set
forth in Section 2.1(a) of this Agreement. The amount of each Lender's
Commitment is set forth on Appendix A or in the applicable Assignment Agreement
or Joinder Agreement and is subject to any adjustment or reduction pursuant to
the terms and conditions hereof. "Company" as defined in the preamble hereto.

          "Compliance Certificate" means a Compliance Certificate substantially
in the form of Exhibit C.
               ---------

          "Consolidated EBITDA" means, for any period, an amount determined for
Holdings and its Subsidiaries on a consolidated basis equal to (i) the sum,
without duplication, of the amounts for such period of (a) Consolidated Net
Income, (b) Consolidated Interest Expense, (c) provisions for taxes based on
income and to the extent otherwise deducted in calculating Consolidated Net
Income, (i) franchise taxes and (ii) capital gains taxes, (d) total depreciation
expense, (e) total amortization expense, and (f) other non-Cash items reducing
Consolidated Net Income (excluding any such non-Cash item to the extent that it
represents an accrual or reserve for potential Cash items in any future period
or amortization of a prepaid Cash item that was paid in a prior period), minus
                                                                         -----
(ii) other non-Cash items increasing Consolidated Net Income for such period
(excluding any such non-Cash item to the extent it represents the reversal of an
accrual or reserve for potential Cash item in any prior period), all of the
foregoing as determined in conformity with GAAP.

          "Consolidated Capital Expenditures" means, for any period, the
aggregate of all Capital Expenditures of Holdings and its Subsidiaries during
such period determined on a consolidated basis, in accordance with GAAP.

          "Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense for such period, excluding any amount not payable
in Cash.

                                       8
<PAGE>

          "Consolidated Current Assets" means, as at any date of determination,
the total assets of Holdings and its Subsidiaries on a consolidated basis that
may properly be classified as current assets in conformity with GAAP, excluding
Cash and Cash Equivalents.

          "Consolidated Gross PP&E" means, as at any date of determination, the
total assets of Holdings and its Subsidiaries on a consolidated basis that may
properly be classified, in conformity with GAAP, as property, plant, equipment
or similar items reflected on the consolidated balance sheet of Holdings and its
Subsidiaries.

          "Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Holdings and its Subsidiaries on a
consolidated basis that may properly be classified as current liabilities in
conformity with GAAP, excluding the current portion of long term debt.

          "Consolidated Excess Cash Flow" means, for any period, an amount (if
positive) equal to: (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated EBITDA (after adding back any amounts deducted in
determining Consolidated Net Income for such period that was paid, incurred or
accrued in violation of any of the provisions of this Agreement), and (b) the
Consolidated Working Capital Adjustment (determined without regard to any
amounts that violate any of the provisions of this Agreement), minus (ii) the
                                                               -----
sum, without duplication, of the amounts for such period of (a) voluntary and
scheduled repayments of Consolidated Total Debt (excluding repayments of
Revolving Loans except to the extent the Commitments are permanently reduced in
connection with such repayment), to the extent permitted by the provisions of
this Agreement, (b) Consolidated Capital Expenditures (net of any proceeds of
any related financings with respect to such expenditures), to the extent
permitted by the provisions of this Agreement, (c) Consolidated Cash Interest
Expense, to the extent permitted by the provisions of this Agreement, and (d)
provisions for current taxes based on income of Holdings and its Subsidiaries
and payable in cash with respect to such period.

          "Consolidated Fixed Charges" means, for any period, the sum, without
duplication, of the amounts determined for Holdings and its Subsidiaries on a
consolidated basis equal to (i) Consolidated Cash Interest Expense, (ii)
scheduled principal payments on Consolidated Total Debt, and (iii) Capital
Expenditures.

          "Consolidated Interest Expense" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Holdings and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Holdings and
its Subsidiaries, including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, but excluding, however, any
amounts referred to in Section 2.9 payable on or before the Closing Date.

          "Consolidated Net Income" means, for any period, (i) the net income
(or loss) of Holdings and its Subsidiaries on a consolidated basis for such
period taken as a single accounting

                                       9
<PAGE>

period determined in conformity with GAAP, minus, (ii) (a) the income (or loss)
                                           -----
of any Person (other than a Subsidiary of Holdings) in which any other Person
(other than Holdings or any of its Subsidiaries) has a joint interest, except to
the extent of the amount of dividends or other distributions actually paid to
Holdings or any of its Subsidiaries by such Person during such period, (b) the
income (or loss) of any Person accrued prior to the date it becomes a Subsidiary
of Holdings or is merged into or consolidated with Holdings or any of its
Subsidiaries or that Person's assets are acquired by Holdings or any of its
Subsidiaries, (c) the income of any Subsidiary of Holdings to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary, (d) any after-tax
gains or losses attributable to Asset Sales or returned surplus assets of any
Pension Plan, and (e) (to the extent not included in clauses (a) through (d)
above) any net extraordinary gains or net extraordinary losses.

          "Consolidated Senior Secured Debt" means, as at any date of
determination, Consolidated Total Debt excluding unsecured Indebtedness of
                                       ---------
Holdings.

          "Consolidated Total Debt" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Holdings and its
Subsidiaries determined on a consolidated basis in accordance with GAAP less the
amount of any funds escrowed for the purpose of paying interest on such
Indebtedness.

          "Consolidated Working Capital" means, as at any date of determination,
the excess of Consolidated Current Assets over Consolidated Current Liabilities.

          "Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the end of such period exceeds (or is less
than) Consolidated Working Capital as of the beginning of such period.

          "Contractual Obligation" means, as applied to any Person, any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.

          "Contributing Guarantors" as defined in Section 7.2.

          "Conversion/Continuation Date" means the effective date of a
continuation or conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.

          "Conversion/Continuation Notice" means a Conversion/Continuation
Notice substantially in the form of Exhibit A-2.
                                    -----------

                                       10
<PAGE>

          "Counterpart Agreement" means a Counterpart Agreement substantially in
the form of Exhibit H.
            ---------

          "Credit Date" means the date of a Credit Extension.

          "Credit Document" means any of this Agreement, the Notes, the Joinder
Agreements, if any, the Collateral Documents, and all other documents,
instruments or agreements executed and delivered by a Credit Party for the
benefit of Agents, or any Lender in connection herewith, including Hedge
Agreements with any Lender Counterparty, in each case as may be amended,
supplemented or otherwise modified from time to time.

          "Credit Extension" means the making of a Loan.

          "Credit Party" means each Person (other than any Agent, any Lender or
any Lender Counterparty or any other representative thereof) from time to time
party to a Credit Document.

          "Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement, each of which is for the purpose of hedging
the foreign currency risk associated with Holdings' or its Subsidiaries'
operations.

          "Dark Fiber Subsidiary" means one or more special purpose Subsidiaries
of Company designated as such by Company and approved by the Syndication Agent
whose sole purpose and business shall be the entry into of dark fiber Capital
Leases and the Related Company Agreements.

          "Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default.

          "Default Excess" means, with respect to any Defaulting Lender, the
excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate
outstanding principal amount of Revolving Loans of all Lenders (calculated as if
all Defaulting Lenders (other than such Defaulting Lender) had funded all of
their respective Defaulted Loans) over the aggregate outstanding principal
amount of all Revolving Loans of such Defaulting Lender.

          "Default Period" as defined in Section 2.21.

          "Defaulting Lender" as defined in Section 2.21.

          "Defaulted Loan" as defined in Section 2.21.

          "Delayed Draw Term Loan Commitment" means the Commitment of Lender to
make or otherwise fund a Delayed Draw Term Loan to Company and "Delayed Draw
Term Loan

                                       11
<PAGE>

Commitments" means such Commitments of all Lenders in the aggregate. The amount
of each Lender's Delayed Draw Term Loan Commitment, if any, is set forth in
Appendix A-1 or in the applicable Assignment Agreement, subject to any
------------
adjustment or reduction pursuant to the terms and conditions hereof.  The
aggregate amount of the Delayed Draw Term Loan Commitments as of the Closing
Date is $150,000,000.

          "Delayed Draw Term Loan Commitment Period" means the time period
commencing on the Closing Date through and including the Delayed Draw Term Loan
Commitment Termination Date.

          "Delayed Draw Term Loan Commitment Termination Date" means the
earliest to occur of (i) the date the Delayed Draw Term Loan Commitments are
permanently reduced to zero pursuant to Sections 2.11 or 2.12, (ii) the date of
the termination of the Commitments pursuant to Section 8.1 and (iii) the date
occurring twelve months after the Closing Date.

          "Delayed Draw Term Loan Exposure" means, with respect to any Lender as
of any date of determination, the outstanding principal amount of the Delayed
Draw Term Loans of such Lender; provided, at any time prior to the making of the
                                --------
initial Delayed Draw Term Loans, the Delayed Draw Term Loan Exposure of any
Lender shall be equal to such Lender's Delayed Draw Term Loan Commitment.

          "Delayed Draw Term Loan Installment" as defined in Section 2.10(b).

          "Delayed Draw Term Loan Maturity Date" means the earlier of (i) August
25, 2007 and (ii) the date that all Delayed Draw Term Loans shall become due and
payable in full hereunder, whether by acceleration or otherwise.

          "Delayed Draw Term Loan Note" means a promissory note in the form of
Exhibit B-1, as it may be amended, restated, supplemented or otherwise modified
-----------
from time to time.

          "Delayed Draw Term Loans" means any Delayed Draw Term Loans made by a
Lender to Company pursuant to Section 2.1(a)(ii) of this Agreement and any New
Delayed Draw Term Loans made by a Lender to Company pursuant to Section 2.2 of
this Agreement.

          "Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.

          "Documentation Agent" as defined in the preamble hereto.

          "Dollars" and the sign "$" mean the lawful money of the United States
of America.

                                       12
<PAGE>

          "Domestic Subsidiary" means with respect to any Person, any Subsidiary
of such Person organized under the laws of the United States of America, any
State thereof or the District of Columbia.

          "DS-O" means the standard telecommunications industry digital signal
format having a bit rate of up to 64 kilobits per second.

          "Eligible Assignee" means (i) any Lender, any Affiliate of any Lender
and any Related Fund (any two or more Related Funds being treated as a single
Eligible Assignee for all purposes hereof), and (ii) any commercial bank,
insurance company, investment or mutual fund or other entity or trust that is an
"accredited investor" (as defined in Regulation D under the Securities Act) and
which extends credit or buys loans as one of its businesses; provided, no
                                                             --------
Affiliate of Holdings or any direct competitor of Holdings or any of its
Subsidiaries shall be an Eligible Assignee.

          "Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to
by, or required to be contributed by, Holdings, any of its Subsidiaries or any
of their respective ERISA Affiliates.

          "Environmental Claim" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law; (ii) in connection with any
Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.

          "Environmental Laws" means any and all current or future foreign or
domestic, federal or state (or any subdivision of either of them), statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of Governmental
Authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity; (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials; or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Holdings or any of its
Subsidiaries or any Facility.

          "Equipment Subsidiary" means Focal Equipment Finance, LLC or any other
one or more special purpose Subsidiaries of Company designated as such by
Company and approved by the Syndication Agent whose sole purpose and business
shall be the purchase of Telecommunica  tions Assets for sale or other transfer
to Company (pursuant to a sale and repurchase agreement or such other agreement
as appropriate, in each case, in form and substance satisfactory to the
Syndication Agent and Administrative Agent) within 180 days of such purchase.

                                       13
<PAGE>

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.

          "ERISA Affiliate" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member.  Any former ERISA Affiliate of Holdings or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or
any such Subsidiary within the meaning of this definition with respect to the
period such entity was an ERISA Affiliate of Holdings or such Subsidiary and
with respect to liabilities arising after such period for which Holdings or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.

          "ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of liability
on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its
Subsidiaries or any of their respective ERISA Affiliates in a complete or
partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from
any Multiemployer Plan if there is any potential liability therefor, or the
receipt by Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could give rise to the imposition on
Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of
fines, penalties, taxes or related charges under Chapter 43 of the Internal
Revenue Code or under Section 409, Section 502(c), (i) or

                                       14
<PAGE>

(l), or Section 4071 of ERISA in respect of any Employee Benefit Plan, which
could reasonably be expected to have a Material Adverse Effect; (ix) the
assertion of a material claim (other than routine claims for benefits) against
any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof,
or against Holdings, any of its Subsidiaries or any of their respective ERISA
Affiliates in connection with any Employee Benefit Plan; (x) receipt from the
Internal Revenue Service of notice of the failure of any Pension Plan (or any
other Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.

          "Eurodollar Rate Loan" means a Loan bearing interest at a rate
determined by reference to the Adjusted Eurodollar Rate.

          "Event of Default" means each of the conditions or events set forth in
Section 8.1.

          "Excess Equity Proceeds Amount" means, as of any date of
determination, the aggregate net Cash proceeds received by Holdings from all
issuances of common or pay-in-kind preferred equity Securities issued after the
Closing Date, less the sum of (i) the amount of any Capital Expenditures
              ----
previously made with net cash proceeds from such issuances pursuant to the
proviso set forth in Section 6.6(f) and (ii) the amount of any Investments
previously made with the net cash proceeds from such issuances pursuant to
Section 6.5(i), and (iii) the amount of any cash consideration paid by Holdings
or any of its Subsidiaries in connection with a Permitted Acquisition previously
made with net cash proceeds from such issuances pursuant to Section 6.8(c);
provided that in any Fiscal Year the aggregate of all portions of the Excess
-------------
Equity Proceeds Amount allocated to (y) Permitted Acquisitions pursuant to
Section 6.8(c) in such Fiscal Year and (z) Investments pursuant to Section
6.5(i) in such Fiscal Year shall  not exceed $150,000,000.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.

          "Facilities Usage" means a fraction, calculated as of the last day of
each Fiscal Quarter (i) prior to the Delayed Draw Term Loan Commitment
Termination Date, the numerator of which is equal to the average daily Total
Utilization of Commitments during such Fiscal Quarter (or portion thereof) and
the denominator of which is equal to the average daily aggregate Commitments for
all Lenders during such Fiscal Quarter (or portion thereof) and (ii) on and
after the Delayed Draw Term Loan Commitment Termination Date, the numerator of
which is equal to the average daily Total Utilization of Revolving Commitments
and the denominator of which is equal to the average daily aggregate Revolving
Commitments of all Lenders during such Fiscal Quarter (or portion thereof.)

                                       15
<PAGE>

          "Facility" means any real property (including all buildings, fixtures
or other improvements located thereon) now, hereafter or heretofore owned,
leased, operated or used by Holdings or any of its Subsidiaries or any of their
respective predecessors or Affiliates.

          "Fair Share Contribution Amount" as defined in Section 7.2.

          "Fair Share" as defined in Section 7.2.

          "Fair Share Shortfall" as defined in Section 7.2.

          "FCC" means the Federal Communications Commission or any successor
United States Governmental Authority exercising similar regulatory and
jurisdictional authority.

          "Federal Funds Effective Rate" means for any day, the rate per annum
(expressed, as a decimal, rounded upwards, if necessary, to the next higher
1/100 of 1%) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day; provided, (i) if such day
                                                       --------
is not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate charged to Administrative Agent, in its  capacity as a Lender, on
such day on such transactions as determined by Administrative Agent.

          "Financial Officer Certification" means, with respect to the financial
statements for which such certification is required, the certification of the
chief financial officer of Holdings that such financial statements fairly
present, in all material respects, the financial condition of Holdings and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated, subject (in the case of unaudited
financial statements) to changes resulting from audit and normal year-end
adjustments and the absence of footnotes.

          "Financial Plan" as defined in Section 5.1(i).

          "First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that such Lien is
the only Lien to which such Collateral is subject, other than Permitted Liens.

          "Fiscal Quarter" means a fiscal quarter of any Fiscal Year.

          "Fiscal Year" means the fiscal year of Holdings and its Subsidiaries
ending on December 31 of each calendar year.

                                       16
<PAGE>

          "Fixed Charge Coverage Ratio" means the ratio as of the last day of
any Fiscal Quarter of (i) Annualized Consolidated EBITDA, to (ii) Consolidated
Fixed Charges for the then-ending four-Fiscal Quarter Period.

          "Flood Hazard Property" means any Real Estate Asset subject to a
mortgage in favor of Administrative Agent, for the benefit of Lenders, and
located in an area designated by the Federal Emergency Management Agency as
having special flood or mudslide hazards.

          "Foreign Subsidiary" means, with respect to any Person, any Subsidiary
that is not a Domestic Subsidiary.

          "Free Cash Flow" means Consolidated EBITDA for the twelve-month period
most recently ended prior to the date of determination less the sum of (i)
                                                       ----
Consolidated Capital Expenditures made during such period, (ii) cash taxes paid
or payable with respect to such period, determined on a consolidated basis for
the entity being acquired, (iii) Consolidated Cash Interest Expense, and (iv)
scheduled principal payments on Consolidated Total Debt.

          "Funding Default" as defined in Section 2.21.

          "Funding Guarantors" as defined in Section 7.2.

          "Funding Notice" means a notice substantially in the form of Exhibit
                                                                       -------
A-1 and having attached thereto invoices in respect of all Telecommunications
---
Assets to be financed with the proceeds of Loans requested thereby.

          "GAAP" means, subject to the limitations on the application thereof
set forth in Section 1.2, United States generally accepted accounting principles
in effect as of the date of determination thereof.

          "Governmental Acts" means any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority.

          "Governmental Authority" means any federal, state, municipal, national
or other government, governmental department, commission, board, bureau, court,
agency or instrumentality or political subdivision thereof or any entity or
officer exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case whether associated with a state of the United States, the United
States, or a foreign entity or government.

          "Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any Governmental
Authority.

          "Grantor" as defined in the Pledge and Security Agreement.

                                       17
<PAGE>

          "GSCP" as defined in the preamble hereto.

          "Guaranteed Obligations" as defined in Section 7.1.

          "Guarantor" means each of Holdings and each Domestic Subsidiary of
Holdings (other than Company).

          "Guarantor Subsidiary" means each Subsidiary of Holdings (other than
Company) that is a Guarantor.

          "Guaranty" means the guaranty of each Guarantor set forth in Section
7.

          "Hazardous Materials" means any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority or which may or could pose a hazard to the health and safety of the
owners, occupants or any Persons in the vicinity of any Facility or to the
indoor or outdoor environment.

          "Hazardous Materials Activity" means any past, current or proposed
activity, event or occurrence involving any Hazardous Materials, including the
use, manufacture, possession, storage, holding, presence, existence, location,
Release, threatened Release, discharge, placement, generation, transportation,
processing, construction, treatment, abatement, removal, remediation, disposal,
disposition or handling of any Hazardous Materials, and any corrective action or
response action with respect to any of the foregoing.

          "Hedge Agreement" means an Interest Rate Agreement or a Currency
Agreement entered into with a Lender Counterparty in order to satisfy the
requirements of this Agreement or otherwise in the ordinary course of Holdings'
or any of its Subsidiaries' businesses and not for speculative purposes.

          "Highest Lawful Rate" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to any Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.

          "Historical Financial Statements" means as of the Closing Date, (i)
the audited financial statements of Holdings and its Subsidiaries, for the
Fiscal Year ended December 31, 1999, consisting of balance sheets and the
related consolidated statements of income, stockholders' equity and cash flows
for such Fiscal Year, and (ii) the unaudited financial statements of Holdings
and its Subsidiaries as at the most recently ended calendar month ending no less
than forty-five days prior to the Closing Date, consisting of a balance sheet
and the related consolidated statements of income, stockholders' equity and cash
flows for the relevant period since December 31, 1999, ending on such date, and,
in the case of clauses (i) and (ii), certified by the chief financial officer of
Company that

                                       18
<PAGE>

they fairly present, in all material respects, the financial condition of
Holdings and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to (in the
case of the financial statements referred to in clause (ii)) changes resulting
from audit and normal year-end adjustments.

          "Holdings" as defined in the preamble hereto.

          "Holdings Senior Notes" means each of (i) $270,000,000 12.125% Senior
Discount Notes due 2008 of Holdings and (ii) Series A and Series B of the
$275,000,000 11.875% Senior Notes Due 2010 of Holdings and any refinancing or
refunding thereof with the proceeds of Indebtedness meeting the criteria set
forth in clause (iii) of the definition of Permitted Holdings Debt.

          "Increased Amount Date" as defined in Section 2.2.

          "Increased-Cost Lenders" as defined in Section 2.22.

          "Indebtedness", as applied to any Person, means, without duplication,
(i) all indebtedness for borrowed money; (ii) that portion of obligations with
respect to Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA and ordinary course trade payables), which purchase price is (a) due
more than six months from the date of incurrence of the obligation in respect
thereof or (b) evidenced by a note or similar written instrument; (v) all
indebtedness secured by any Lien on any property or asset owned or held by that
Person regardless of whether the Indebtedness secured thereby shall have been
assumed by that Person or is nonrecourse to the credit of that Person; provided
that the amount of such Indebtedness shall equal the lesser of the amount of
Indebtedness secured and the fair market value of the encumbered property; (vi)
the face amount of any letter of credit issued for the account of that Person or
as to which that Person is otherwise liable for reimbursement of drawings; (vii)
the direct or indirect guaranty, endorsement (other than for collection or
deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of another;
(viii) any obligation of such Person the primary purpose or intent of which is
to provide assurance to an obligee that the obligation of the obligor thereof
will be paid or discharged, or any agreement relating thereto will be complied
with, or the holders thereof will be protected (in whole or in part) against
loss in respect thereof; and (ix) any liability of such Person for the
obligation of another through any agreement (contingent or otherwise) (a) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (b) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (a) or (b) of this clause (ix), the primary purpose
or intent thereof is as described in clause (viii) above; and (x) obligations of
such Person in respect of any exchange traded or over the counter derivative

                                       19
<PAGE>

transaction, including, without limitation, any Interest Rate Agreement or
Currency Agreement, whether entered into for hedging or speculative purposes;
provided, in no event shall obligations under any Interest Rate Agreement or
--------
Currency Agreement or any intercompany guarantees of Holdings and/or its
Subsidiaries be deemed "Indebtedness" for any purpose under Sections 6.6 or 6.7;
provided further that the amount of any indebtedness described in clauses (vii),
-------- ------- ----
(viii) and (ix) above shall be deemed to be the stated or determinable amount of
the obligations guaranteed or otherwise supported, or if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the obligor thereon in good faith.

          "Indemnified Liabilities" means, collectively, any and all
liabilities, obligations, losses, damages (including natural resource damages),
penalties, claims (including Environmental Claims), costs (including the costs
of any investigation, study, sampling, testing, abatement, cleanup, removal,
remediation or other response action necessary to remove, remediate, clean up or
abate any Hazardous Materials Activity), expenses and disbursements of any kind
or nature whatsoever (including the reasonable fees and disbursements of counsel
for Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened by any Person, whether or not any such
Indemnitee shall be designated as a party or a potential party thereto, and any
fees or expenses incurred by Indemnitees in enforcing this indemnity), whether
direct, indirect or consequential and whether based on any federal, state or
foreign laws, statutes, rules or regulations (including securities and
commercial laws, statutes, rules or regulations and Environmental Laws), on
common law or equitable cause or on contract or otherwise, that may be imposed
on, incurred by, or asserted against any such Indemnitee, in any manner relating
to or arising out of (i) this Agreement or the other Credit Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make Credit Extensions or the use or intended use of the proceeds thereof, or
any enforcement of any of the Credit Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranty)); (ii) the statements contained in the commitment
letter delivered by any Lender to Company with respect to the transactions
contemplated by this Agreement; or (iii) any Environmental Claim or any
Hazardous Materials Activity relating to or arising from, directly or
indirectly, any past or present activity, operation, land ownership, or practice
of Holdings or any of its Subsidiaries; provided that Indemnified Liabilities
                                        --------
shall not include liabilities incurred by a Credit Party pursuant to Section
10.2.

          "Indemnitee" as defined in Section 10.3.

          "Installment Date" as defined in Section 2.10(a).

          "Intercompany Loan Agreement" means an agreement in substantially the
form of Exhibit N entered into by each Subsidiary of Company and Company
        ---------
pursuant to Section 5.13.

          "Intercompany Security Agreement" means an agreement substantially in
the form of Exhibit O entered into by each Subsidiary of Holdings and Company
            ---------
pursuant to Section 5.13.

                                       20
<PAGE>

          "Interest Coverage Ratio" means the ratio as of the last day of any
Fiscal Quarter of (i) Consolidated EBITDA for the four-Fiscal Quarter Period
then ended, to (ii) Consolidated Cash Interest Expense for such four-Fiscal
Quarter Period, in each case as set forth in the most recent Compliance
Certificate delivered by Company to Administrative Agent pursuant to Section
5.1(c).

          "Interest Payment Date" means with respect to (i) any Base Rate Loan,
each March 31, June 30, September 30 and December 31 of each year, commencing on
the first such date to occur after the Closing Date and the final maturity date
of such Loan; and (ii) any Eurodollar Rate Loan, the last day of each Interest
Period applicable to such Loan; provided, in the case of each Interest Period of
                                --------
longer than three months "Interest Payment Date" shall also include each date
that is three months, or an integral multiple thereof, after the commencement of
such Interest Period.

          "Interest Period" means, in connection with a Eurodollar Rate Loan, an
interest period of one-, two-, three- or six months, as selected by Company in
the applicable Funding Notice or Conversion/Continuation Notice, (i) initially,
commencing on the Credit Date or Conversion/Continuation Date thereof, as the
case may be; and (ii) thereafter, commencing on the day on which the immediately
preceding Interest Period expires; provided, (a) if an Interest Period would
                                   --------
otherwise expire on a day that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day unless no further Business Day occurs
in such month, in which case such Interest Period shall expire on the
immediately preceding Business Day; (b) any Interest Period that begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clauses (c) through (e), of this definition, end on
the last Business Day of a calendar month; (c) no Interest Period with respect
to any portion of any Delayed Draw Term Loans shall extend beyond the Delayed
Draw Term Loan Maturity Date; (d) no Interest Period with respect to any portion
of the Revolving Loans shall extend beyond the Revolving Commitment Termination
Date; (e) no Interest Period with respect to any portion of any Series of New
Term Loans shall extend beyond the New Term Loan Maturity Date for that Series.

          "Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedging agreement or other similar agreement or arrangement, each of which is
for the purpose of hedging the interest rate exposure associated with Holdings'
and its Subsidiaries' operations.

          "Interest Rate Determination Date" means, with respect to any Interest
Period, the date that is two Business Days prior to the first day of such
Interest Period.

          "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.

          "Investment" means (i) any direct or indirect purchase or other
acquisition by Holdings or any of its Subsidiaries of, or of a beneficial
ownership interest in, any of the Securities of any other Person (other than a
Guarantor Subsidiary); (ii) any direct or indirect redemption,

                                       21
<PAGE>

retirement, purchase or other acquisition for value, by any Subsidiary of
Holdings from any Person (other than Holdings or any Guarantor Subsidiary), of
any Capital Stock of such Person; and (iii) any direct or indirect loan, advance
(other than advances to employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business,
trade payables in the ordinary course and other ordinary course loans and
advances not constituting Indebtedness) or capital contribution by Holdings or
any of its Subsidiaries to any other Person (other than Holdings or any
Guarantor Subsidiary), including all indebtedness and accounts receivable from
that other Person that are not current assets or did not arise from sales to
that other Person in the ordinary course of business. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.

          "Joinder Agreement" means a joinder agreement substantially in the
form of Exhibit K, or as may be amended, restated, supplemented or otherwise
        ---------
modified from time to time.

          "Joint Lead Arranger" as defined in the preamble hereto.

          "Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership, limited liability company, or
other legal form; provided, in no event shall any corporate Subsidiary of any
                  --------
Person be considered to be a Joint Venture to which such Person is a party.

          "Landlord Personal Property Collateral Access Agreement" means a
Landlord Collateral Access Agreement substantially in the form of Exhibit J with
                                                                  ---------
such amendments or modifications as may be approved by Administrative Agent.

          "Leasehold Property" means any leasehold interest of any Credit Party
as lessee under any lease of real property.

          "Lender" means each financial institution or other Person that becomes
a Lender under this Agreement as of the Closing Date or pursuant to Section 2.2,
together with each such institution's or Person's successors and permitted
assigns.

          "Lender Counterparty" means each Lender or any Affiliate thereof
counterparty to a Hedge Agreement.

          "Lien" means (i) any lien, claim, mortgage, pledge, assignment,
security interest, charge or encumbrance in the nature of the foregoing, any
conditional sale or other title retention agreement, and any lease in the nature
thereof (excluding any agreement entered into in connection with an Asset Sale
permitted hereunder) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing and (ii) in the case of
Securities, any purchase option, call or similar right of a third party with
respect to such Securities.

                                       22
<PAGE>

          "Loan" means a Delayed Draw Term Loan, a Revolving Loan or a New Term
Loan.

          "Margin Stock" as defined in Regulation T, U or X of the Board of
Governors of the Federal Reserve System as in effect from time to time.

          "Material Adverse Effect" means a material adverse effect on (i) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries (including the Company), taken as a
whole; (ii) the ability of any Credit Party to fully and timely perform the
Obligations in a manner which would not give rise to an Event of Default or
Default hereunder; (iii) the legality, validity, binding effect or
enforceability against a Credit Party of a Credit Document to which it is a
party;  (iv) the rights, remedies and benefits available to, or conferred upon,
any Agent and any Lender under any Credit Document; or (v) any material part of
the Collateral or the Collateral Agent's Liens, on behalf of Agents and Lenders
on any material part of the Collateral or the priority of such Liens.

          "Material Contract" means any contract or other arrangement to which
Holdings or any of its Subsidiaries is, at any time, a party (other than the
Credit Documents) for which breach, nonperformance, cancellation or failure to
renew could reasonably be expected to have a Material Adverse Effect, including
without limitation (other than in the case of section 4.16 itself) the contracts
listed on Schedule 4.16.

          "Material Real Estate Asset" means (a) any fee-owned Real Estate
Assets of any Credit Party having a fair market value in excess of $1,000,000 as
of the date of the acquisition thereof, and (b) all other Real Estate Assets
that the Administrative Agent has determined in its reasonable discretion are
material to the business, operations, properties, assets, condition (financial
or otherwise) or prospects of Holdings or any Subsidiary thereof, including
Company.

          "Moody's" means Moody's Investor Services, Inc.

          "Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.

          "NAIC" means The National Association of Insurance Commissioners, and
any successor thereto.

          "Net Asset Sale Proceeds" means, with respect to any Asset Sale, an
amount equal to:  (i) Cash payments (including any Cash received by way of
deferred payment pursuant to, or by monetization of, a note receivable or
otherwise, but only as and when so received) received by Holdings or any of its
Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs
                                   -----
incurred in connection with such Asset Sale, including (a) income or gains taxes
payable by the seller as a result of any gain recognized in connection with such
Asset Sale, (b) payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness (other than the Loans) that is
secured by a Lien on the stock or assets in question and that is required to be
repaid

                                       23
<PAGE>

under the terms thereof as a result of such Asset Sale and (c) a reasonable
reserve for any indemnification payments (fixed or contingent) attributable to
seller's indemnities and representations and warranties to purchaser in respect
of such Asset Sale undertaken by Holdings or any of its Subsidiaries in
connection with such Asset Sale.

          "Net Insurance/Condemnation Proceeds" means an amount equal to:  (i)
any Cash payments or proceeds received by Holdings or any of its Subsidiaries
(a) under any casualty insurance policy in respect of a covered loss thereunder
or (b) as a result of the taking of any assets of Holdings or any of its
Subsidiaries by any Person pursuant to the power of eminent domain, condemnation
or otherwise, or pursuant to a sale of any such assets to a purchaser with such
power under threat of such a taking, minus (ii) (a) any actual and reasonable
                                     -----
costs incurred by Holdings or any of its Subsidiaries in connection with the
adjustment or settlement of any claims of Holdings or such Subsidiary in respect
thereof, and (b) any bona fide direct costs incurred in connection with any sale
of such assets as referred to in clause (i)(b) of this definition, including
income or gains taxes payable as a result of any gain recognized in connection
therewith.

          "New Delayed Draw Term Loan Commitments" as defined in Section 2.2.

          "New Delayed Draw Term Loans" as defined in Section 2.2.

          "New Revolving Loan" as defined in Section 2.2.

          "New Revolving Commitments" as defined in Section 2.2.

          "New Revolving Loan Lender" as defined in Section 2.2.

          "New Term Loan" as defined in Section 2.2.

          "New Term Loan Commitments" as defined in Section 2.2.

          "New Term Loan Exposure" means, with respect to any Lender as of any
date of determination (i) prior to the funding of the New Term Loans, that
Lender's New Term Loan Commitment, if any, and (ii) after the funding of the New
Term Loans, the outstanding principal amount of the New Term Loan of that
Lender.

          "New Term Loan Lender" as defined in Section 2.2.

          "New Term Loan Maturity Date" means the date that New Term Loans of a
Series shall become due and payable in full hereunder, as specified in the
applicable Joinder Agreement.

          "New Term Loan Note" means a promissory note in the form of Exhibit B-
                                                                      ---------
3, as it may be amended, supplemented or otherwise modified from time to time.
-

                                       24
<PAGE>

          "Non-US Lender" as defined in Section 2.19(c).

          "Note" means a  Revolving Note, Delayed Draw Term Loan Note or a New
Term Loan Note, in each case, as amended, supplemented or otherwise modified
from time to time.

          "Notice" means a Funding Notice or a Conversion/Continuation Notice.

          "NTFC Agreement" means each of the Loan and Security Agreement dated
as of December 30, 1998 between Holdings, NTFC Capital Corporation and certain
subsidiaries of Holdings and all guarantees executed by subsidiaries of Holdings
in connection therewith each as amended, restated, modified or supplemented from
time to time in accordance with the terms of Section 6.14.

          "Obligations" means all obligations of every nature of each Credit
Party from time to time owed to the Agents, the Lenders or any of them or their
respective Affiliates (including, without limitation, all former Agents, Lenders
or Lender Counterparties) under any Credit Document or Hedge Agreement
(including, without limitation, with respect to a Hedge Agreement, obligations
owed thereunder to any person who was a Lender or an Affiliate of a Lender at
the time such Hedge Agreement was entered into), whether for principal, interest
(including interest which, but for the filing of a petition in bankruptcy with
respect to such Credit Party, would have accrued on any Obligation, whether or
not a claim is allowed against such Credit Party for such interest in the
related bankruptcy proceeding), payments for early termination of Hedge
Agreements, fees, expenses, indemnification or otherwise.

          "Obligee Guarantor" as defined in Section 7.7.

          "Organizational Documents" means (i) with respect to any corporation,
its certificate or articles of incorporation, as amended, and its by-laws, as
amended, (ii) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended,
(iii) with respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company, its certificate
of formation or articles of organization, as amended, and its operating
agreement, as amended.  In the event any term or condition of this Agreement or
any other Credit Document requires any Organizational Document to be certified
by a secretary of state or similar governmental official, the reference to any
such "Organizational Document" shall only be to a document of a type customarily
certified by such governmental official.

          "PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.

          "Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.

                                       25
<PAGE>

          "Permitted Acquisition" means any acquisition by Company or any of its
Wholly-Owned Subsidiaries, whether by purchase, merger or otherwise, of all or
substantially all of the assets of, all of the Capital Stock of, or a business
line or unit or a division of, any Person; provided,
                                           --------

          (i)   immediately prior to, and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or would
result therefrom;

          (ii)  all transactions in connection therewith shall be
consummated in accordance with all applicable laws and in conformity with all
applicable Governmental Authorizations;

          (iii) in the case of the acquisition of Capital Stock, all of the
Capital Stock (except for any such Securities in the nature of directors'
qualifying shares required pursuant to applicable law) acquired or otherwise
issued by such Person or any newly formed Subsidiary of Company in connection
with such acquisition shall be owned by Company or a Guarantor Subsidiary
thereof, and Holdings and Company shall have taken, or caused to be taken, as of
the date such Person becomes a Subsidiary of Company, each of the actions set
forth in Sections 5.10, as applicable;

          (iv)  Holdings and its Subsidiaries shall be in compliance immediately
before and after giving pro forma effect to such acquisition, with Section 6.6
or 6.7, as applicable;

          (v)   Company shall have delivered to Administrative Agent (which
Administrative Agent shall promptly furnish to the Lenders) (A) at least  10
Business Days prior to such proposed acquisition, a Compliance Certificate
evidencing pro forma compliance with Section 6.6 or 6.7, as applicable, as
required under clause (iv) above, together with all relevant financial
information with respect to such acquired assets, including, without limitation,
the aggregate consideration for such acquisition and any other information
required to demonstrate compliance with Section 6.6 or 6.7, as applicable; and

          (vi)  any Person or assets or division acquired in accordance
herewith shall be in the same or substantially related business or lines of
business in which Company and/or its Subsidiaries are engaged, or (as reflected
in the Projections or, as the case may be, the relevant Financial Plan) are
planning to engage, as of the Closing Date or such other lines of business as
may be consented to by Requisite Lenders.

          "Permitted Holders" means Madison Dearborn Partnership L.P., Frontenac
VI. L.P. and Battery Ventures III, L.P. and their respective Affiliates (other
than Holding and its Subsidiaries).

          "Permitted Holdings Debt" means (i) the Holdings Senior Notes, (ii)
subject to the NTFC Agreement having been amended in accordance with Section
5.15(d), the Indebtedness of

                                       26
<PAGE>

Holdings evidenced by the NTFC Agreement and (iii) other Indebtedness of
Holdings issued after the Closing Date provided (a) such Indebtedness is
unsecured, (b) Holdings is the only obligor with respect to such Indebtedness,
(c)(1) the aggregate principal amount of such Indebtedness does not exceed 200%
of the net cash proceeds received by Holdings from the issuance of equity
Securities after the Closing Date, or (2) amounts outstanding under the
Facilities are repaid, and the Commitments permanently reduced on a dollar-for-
dollar basis, with the proceeds of such Indebtedness, (d) no scheduled
repayments of principal with respect to such Indebtedness are required to be
made prior to February 25, 2008, (e) the terms and provisions of such
Indebtedness shall be no more restrictive than the Holdings Senior Notes (and,
with respect to provisions relating to the incurrence of Indebtedness,
guaranties and Liens, reasonably satisfactory to Syndication Agent in order,
inter alia, to expressly permit the Guaranty under Section 7 hereof without
restriction and to permit Liens on the assets of the Guarantors to secure such
Guaranties) and shall not provide for any mandatory prepayments or redemptions
thereof when similar prepayments are not required under the Holdings Senior
Notes, and (f) the documents evidencing such Indebtedness shall be reasonably
satisfactory to Syndication Agent.

          "Permitted Liens" means each of the Liens permitted pursuant to
Section 6.2.

          "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and Governmental Authorities.

          "Pledge and Security Agreement" means each of: (i) the "Company
Pledge and Security Agreement" being the pledge and security agreement between
Company and the Collateral Agent substantially in the form of Exhibit I-1; (ii)
                                                              -----------
the "Master Pledge and Security Agreement" being the pledge and security
agreement between each Grantor party thereto and the Collateral Agent
substantially in the form of Exhibit I-2; and (iii) the "Intercompany Security
                             -----------
Agreement" being the security agreement between  certain Subsidiaries of
Holdings and Company substantially in the form of Exhibit O; in each case, as it
                                                  ---------
may be amended, restated, supplemented or otherwise modified from time to time.

          "Prime Rate" means, as of any date of determination, the variable the
rate of interest per annum most recently publicly announced by Citibank, or any
successor thereto, as its prime lending rate in effect at its principal office
in New York City, irrespective of whether such announced rate is the best rate
available from such financial institution, and such institution may make loans
at rates of interest above or below any such announced prime lending rate.

          "Principal Office" means, for Administrative Agent, such Person's
"Principal Office" as set forth on Appendix B, or such other office as such
                                   ----------
Person may from time to time designate in writing to Company, Administrative
Agent and each  Lender.

          "Projections" as defined in Section 4.8.

                                       27
<PAGE>

          "Pro Rata Share" means (i) with respect to all payments, computations
and other matters relating to the Revolving Commitment or the Revolving Loans of
any Lender, the percentage obtained by dividing (x) the Revolving Exposure of
that Lender by (y) the aggregate Revolving Exposure of all Lenders, (ii) with
respect to all payments, computations and other matters relating to the Delayed
Draw Term Loan Commitment or the Delayed Draw Term Loans of any Lender, the
percentage obtained by dividing (x) the Delayed Draw Term Loan Exposure of that
Lender by (y) the aggregate Delayed Draw Term Loan Exposure of all Lenders,
(iii) with respect to all payments, computations and other matters relating to
the New Term Loan Commitments, if any, or the New Term Loans, if any, of any
Lender, the percentage obtained by dividing (x) the New Term Loan Exposure of
that Lender with respect for the relevant Series by (y) the sum of the aggregate
New Term Loan Exposure of all Lenders for such Series, and (iv) for all other
purposes with respect to each Lender, the percentage obtained by dividing (x)
the sum of the New Term Loan Exposure of that Lender plus the Revolving Exposure
                                                     ----
of that Lender plus the Delayed Draw Loan Exposure of that Lender by (y) the sum
               ----
of the aggregate New Term Loan Exposure of all Lenders plus the aggregate
                                                       ----
Revolving Exposure of all Lenders plus the sum of the aggregate Delayed Draw
                                  ----
Term Loan Exposure of all Lenders, in any such case as the applicable percentage
may be adjusted by assignments permitted pursuant to Section 10.6 or required by
Section 2.22.  The Pro Rata Share of each Lender as of the Closing Date for
purposes of each of clauses (i) and (ii) of the preceding sentence is set forth
opposite the name of that Lender in Appendices A-1 and A-2.
                                    --------------     ---

          "Real Estate Asset" means, at any time of determination, any interest
(fee, leasehold or otherwise) then owned by any Credit Party in any real
property.

          "Register" as defined in Section 2.5(b).

          "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.

          "Related Agreements" means (i) the Intercompany Loan Agreement, (ii)
the Intercompany Security Agreement, (iii) each Approved Lease Agreement, (iv)
the IRU Agreement dated as of April 30, 1999 between Level 3 Communications, LLC
and the Company, (v) the Fiber Optic Network Leased Fiber Agreement dated as of
May 24, 1999 between Metromedia Fiber Network Services, Inc. and the Company,
(vi) the Master Services Agreement dated April 30, 1999 between Level 3
Communications and Company, (vii) the Private Line Service Agreement dated May
3, 1999 between MCI Worldcom and Holdings, and (viii) any agreements in
existence as of the Closing Date between Company and any Subsidiary of Holdings
for the lease or otherwise making available of assets of Company to such
Subsidiary.

          "Related Company Agreements" means items (iv), (v) and (vi) of the
definition of Related Agreements above.

                                       28
<PAGE>

          "Related Fund" means, with respect to any Lender that is an investment
fund, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.

          "Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of any Hazardous Material into the environment (including
the abandonment or disposal of any barrels, containers or other closed
receptacles containing any Hazardous Material), including the movement of any
Hazardous Material through the air, soil, surface water or groundwater.

          "Replacement Lender" as defined in Section 2.22.

          "Requisite Class Lenders" means, at any time of determination (i) for
the Class of Lenders having Revolving Exposure, Lenders having or holding at
least a majority of the sum of the aggregate Revolving Exposure of all Lenders,
(ii) for the Class of Lenders having Delayed Draw Term Loan Exposure, Lenders
having or holding at least a majority of the sum of the aggregate Delayed Draw
Term Loan Exposure of all Lenders and (iii) for each Class of Lenders having New
Term Loan Exposure, if any, Lenders having or holding at least a majority of the
sum of the aggregate New Term Loan Exposure of such Lenders.

          "Requisite Lenders" means one or more Lenders having or holding
Revolving Exposure, Delayed Draw Term Loan Exposure and/or New Term Loan
Exposure representing more than 50% of the sum of (i) the aggregate Revolving
Exposure of all Lenders, (ii) the aggregate Delayed Draw Term Loan Exposure of
all Lenders and (iii) the aggregate New Term Loan Exposure of all Lenders for
all Series.

          "Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Holdings, Company or any of their respective Subsidiaries now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
to the holders of that class; (ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Holdings, Company or any of their respective
Subsidiaries now or hereafter outstanding; (iii) any payment made to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock of Holdings, Company or any of their
respective Subsidiaries now or hereafter outstanding; and (iv) any payment or
prepayment of principal of, premium, if any, or interest on, or redemption,
purchase, retirement, defeasance (including in-substance or legal defeasance),
sinking fund or similar payment with respect to, any Permitted Holdings Debt.

          "Revenues" means, for any Fiscal Quarter, the gross revenues of
Holdings and its Subsidiaries on a consolidated basis for such period taken as a
single accounting period determined in conformity with GAAP.

                                       29
<PAGE>

          "Revolving Commitment" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1(a)(i) or New Revolving
Loans pursuant to sub  section 2.2, and "Revolving Commitments" means such
commitments of all Lenders in the aggregate.  The amount of each Lender's
Revolving Commitment, if any, is set forth in Appendix A or in the applicable
                                              ----------
Assignment Agreement, subject to any adjustment or reduction pursuant to the
terms and conditions hereof.  The aggregate amount of the Revolving Commitments
as of the Closing Date is $150,000,000.

          "Revolving Commitment Period" means the period commencing on the
Closing Date to but excluding the Revolving Commitment Termination Date.

          "Revolving Commitment Termination Date" means the earliest to occur of
(i) the Revolving Maturity Date, (ii) the date the Revolving Commitments are
permanently reduced to zero pursuant to Sections 2.11 or 2.12, and (iii) the
date of the termination of the Commitments pursuant to Section 8.1.

          "Revolving Exposure" means, with respect to any Lender as of any date
of determination, (i) prior to the termination of the Revolving Commitments,
such Lender's Revolving Commitment; and (ii) after the termination of the
Revolving Commitments, the sum of the aggregate outstanding principal amount of
the Revolving Loans of that Lender.

          "Revolving Installment" as defined in Section 2.10(a).

          "Revolving Loans" means any Revolving Loans made by Lenders to Company
pursuant to Section 2.1(a)(i) of this Agreement and any New Revolving Loans made
by Lenders pursuant to Section 2.2 of this Agreement.

          "Revolving Maturity Date" means the earlier of (i) August 25, 2007 and
(ii) the date that all Revolving Loans shall become due and payable in full
hereunder, whether by acceleration or otherwise.

          "Revolving Note" means a promissory note in the form of Exhibit B-2,
                                                                  -----------
as it may be amended, restated, supplemented or otherwise modified from time to
time.

          "SSB" as defined in the preamble hereto.

          "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-
Hill Companies, Inc.

          "Secured Parties" as defined in the Pledge and Security Agreement.

          "Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options,

                                       30
<PAGE>

warrants, bonds, debentures, notes, or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.

          "Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.

          "Senior Leverage Ratio" means the ratio, as of the last day of any
Fiscal Quarter, of (i) Consolidated Senior Secured Debt as of such date to (ii)
Annualized Consolidated EBITDA, in each case as set forth in the most recent
Compliance Certificate delivered by Company to Administrative Agent pursuant to
Section 5.1(c).

          "Series" as defined in Section 2.2.

          "Solvency Certificate" means a Solvency Certificate of the chief
financial officer of Holdings substantially in the form of Exhibit G-2.
                                                           -----------

          "Solvent" means, with respect to any Person, that as of the date of
determination both (i) (a) the sum of such Person's debt (including contingent
liabilities) does not exceed all of its property, at a fair valuation; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured; (c) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (d) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (ii) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances.  For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability (irrespective of whether such contingent liabilities
meet the criteria for accrual under Statement of Financial Accounting Standard
No. 5).

          "Stage 1" means the period from the Closing Date to but not including
(i) December 31, 2003 for the purpose only of Section 6.6 (f) and (ii) June 30,
2002 for all other purposes.

          "Stage 2" means the period from the first day following the conclusion
of Stage 1 and ending on August 25, 2007.

          "Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to

                                       31
<PAGE>

the occurrence of any contingency) to vote in the election of the Person or
Persons (whether directors, managers, trustees or other Persons performing
similar functions) having the power to direct or cause the direction of the
management and policies thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof; provided, in determining the percentage of
                                 --------
ownership interests of any Person controlled by another Person, no ownership
interest in the nature of a "qualifying share" of the controlled Person shall be
deemed to be outstanding.

          "Syndication Agent" as defined in the preamble hereto.

          "Tax" means any present or future tax, levy, impost, duty, assessment,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided, "Tax on the overall net income" of a Person shall be
          --------
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's applicable principal office
(and/or, in the case of a Lender, its lending office) is located or in which
that Person (and/or, in the case of a Lender, its lending office) is deemed to
be doing business on all or part of the net income, profits or gains (whether
worldwide, or only insofar as such income, profits or gains are considered to
arise in or to relate to a particular jurisdiction, or otherwise) of that Person
(and/or, in the case of a Lender, its applicable lending office) and shall not
include franchise or similar taxes.

          "Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, real or personal, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business.

          "Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products including, without limitation, Internet access,
Internet portal, web hosting, application hosting, peering and communication
equipment collocation businesses or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii) above (in the case of this
clause (iii), however, in a manner consistent with Holdings' and its
Subsidiaries' manner of business on the Closing Date), and shall, in any event,
include all businesses in which Holdings or any of its Subsidiaries are engaged
on the Closing Date; provided that the determination of what constitutes a
                     --------
Telecommunications Business shall be made in good faith by the board of
directors of Holdings.

          "Term Loan" means Delayed Draw Term Loans and New Term Loans.

          "Terminated Lender" as defined in Section 2.22.

                                       32
<PAGE>

          "Total Capitalization" means the sum of (a) Consolidated Total Debt
and (b) paid-in-equity capital (including preferred stock but excluding
additional equity issued as pay-in-kind dividends on issued and outstanding
equity securities and excluding any accumulated deficits resulting from
operations).

          "Total Leverage Ratio" means the ratio, as of the date of any
determination, of (a) Consolidated Total Debt to (b) Annualized Consolidated
EBITDA; in each case as set forth in the most recent Compliance Certificate
delivered by Company to Administrative Agent pursuant to Section 5.1(c) or, as
the case may be, clause (v) of the definition of Permitted Acquisition.

          "Total Utilization of Commitments" means, as at any date of
determination, the sum of the aggregate principal amount of all outstanding
Loans.

          "Total Utilization of Delayed Draw Term Loan Commitments" means, as of
any date of determination, the sum of the aggregate outstanding principal amount
of all Delayed Draw Term Loans.

          "Total Utilization of Revolving Commitments" means, as at any date of
determination, the aggregate principal amount of all outstanding Revolving
Loans.

          "Transaction Costs" means the fees, costs and expenses payable by
Company on or before the Closing Date in connection with the transactions
contemplated by the Credit Documents.

          "Type of Loan" means a Base Rate Loan or a Eurodollar Rate Loan.

          "UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation, if any) as in effect in any applicable jurisdiction.

          "Unadjusted Eurodollar Rate Component" means that component of the
interest costs to Company in respect of a Eurodollar Rate Loan that is based
upon the rate obtained pursuant to clause (i) of the definition of Adjusted
Eurodollar Rate.

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

     1.2   Accounting Terms.  Except as otherwise expressly provided herein, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP.  Financial statements and other information
required to be delivered by Holdings to Lenders pursuant to Section 5.1(a) and
5.1(b) shall be prepared in accordance with GAAP as in effect at the time of
such preparation (and delivered together with the reconciliation statements
provided for in Section 5.1(e), if applicable).  Subject to the foregoing,
calculations in connection with the

                                       33
<PAGE>

definitions, covenants and other provisions hereof shall utilize accounting
principles and policies in conformity with those used to prepare the Historical
Financial Statements; provided that, if Holdings notifies Lenders that it wishes
                      -------- ----
to amend provisions of this Agreement relating to financial covenants to
eliminate the effect of a change in GAAP occurring after the Closing Date,
Holdings and Syndication Agent shall negotiate in good faith to propose for
Requisite Lenders an appropriate amendment to the extent necessary to give
effect to the intention of the parties as of the Closing Date; provided further
                                                               -------- -------
that, prior to the approval of any such amendment by Requisite Lenders
----
compliance with such financial covenants shall be determined on the basis of
GAAP as applied by Holdings, in accordance with this Agreement, immediately
prior to such request, in determining compliance with such financial covenants.

     1.3   Interpretation, etc.  Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference.  References herein to any Section, Appendix, Schedule or Exhibit
shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may
be, hereof unless otherwise specifically provided.  The use herein of the word
"include" or "including", when following any general statement, term or matter,
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.

 SECTION 2.   LOANS

     2.1.  Loans.

           (a)  Loans.
                -----

                (i)   Revolving Loans. During the Revolving Commitment Period,
                      ---------------
subject to the terms and conditions hereof, each Lender holding a Revolving
Commitment severally agrees to make Revolving Loans in the aggregate amount up
to but not exceeding such Lender's Revolving Commitment as of the Closing Date,
subject to the requirements of Section 2.4, to Company, provided that after
                                                        --------
giving effect to the making of each Revolving Loan, (y) in no event shall the
Total Utilization of Revolving Commitments exceed the Revolving Commitments then
in effect and (z) Holdings and Company shall be in compliance, on a pro forma
basis as of the last day of the most recently concluded Fiscal Quarter, with the
financial covenants set forth in Section 6.6 or 6.7, as applicable. Amounts
borrowed pursuant to this Section 2.1(a)(i) may be repaid and reborrowed during
the Revolving Commitment Period. Each Lender's Revolving Commitment shall expire
on the Revolving Commitment Termination Date and all Revolving Loans and all
other amounts owed hereunder with respect to the Revolving Loans and the
Revolving Commitments shall be paid in full no later than such date.

                                       34
<PAGE>

                (ii)     Delayed Draw Term Loans. During the Delayed Draw Term
                         -----------------------
Loan Commitment Period, subject to the terms and conditions hereof, each Lender
holding a Delayed Draw Term Loan Commitment severally agrees to make Delayed
Draw Term Loans, subject to the requirements of Section 2.4, to Company in the
aggregate amount up to but not exceeding such Lender's Delayed Draw Term Loan
Commitment; provided, after giving effect to the making of each Delayed Draw
            --------
Term Loan, Holdings and Company shall be in compliance, on a pro forma basis as
of the last day of the most recently concluded Fiscal Quarter, with the
financial covenants set forth in Section 6.6 or 6.7, as applicable.  Company may
make one or more drawings under the Delayed Draw Term Loan Commitments during
the Delayed Draw Term Loan Commitment Period.  Any amounts borrowed under this
Section 2.1(a)(ii) and subsequently repaid or prepaid may not be reborrowed.
Subject to Sections 2.10 and 2.11, all amounts owed hereunder with respect to
the Delayed Draw Term Loans shall be paid in full no later than the Delayed Draw
Term Loan Maturity Date.  Each Lender's Delayed Draw Term Loan Commitment shall
terminate immediately and without further action upon the full funding of such
Lender's Delayed Draw Term Loan Commitment.

          (b)   Borrowing Mechanics for Loans.
                --------- --------- --- -----

                (i)      Loans (other than New Term Loans) shall be made in a
minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess
thereof (when aggregated for all Lenders in connection with a single Credit
Extension).

                (ii)     Whenever Company desires that Lenders make Loans,
Company shall deliver to Administrative Agent telephonic notice, followed by a
fully executed and delivered Funding Notice no later than 10:00 a.m. (New York
City time) at least three Business Days in advance of the proposed Credit Date
in the case of a Eurodollar Rate Loan, and at least one Business Day in advance
of the proposed Credit Date in the case of a Loan that is a Base Rate Loan.
Except as otherwise provided herein, a Funding Notice for a Loan that is a
Eurodollar Rate Loan shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in accordance
therewith.

                (iii)    Notice of receipt of each Funding Notice in respect of
Loans, together with the amount of each Lender's Pro Rata Share thereof, if any,
together with the applicable interest rate and Interest Period, shall be
provided by Administrative Agent to each applicable Lender by telefacsimile with
reasonable promptness, but not later than 2:00 p.m. (New York City time) on the
same day as Administrative Agent's receipt of such Funding Notice from Company.

                (iv)     Each Lender shall make the amount of its Loan available
to Administrative Agent not later than 12:00 p.m. (New York City time) on the
applicable Credit Date by wire transfer of same day funds in Dollars, at the
Administrative Agent's Principal Office. Except as provided herein, upon
satisfaction or waiver of the conditions precedent specified herein,
Administrative Agent shall make the proceeds of such Loans available to Company
on the applicable Credit Date by causing an amount of same day funds in Dollars
equal to the proceeds of all such

                                       35
<PAGE>

Loans received by Administrative Agent from Lenders to be credited to the
account of Company at the Administrative Agent's Principal Office or such other
account as may be designated in writing to Administrative Agent by Company.

     2.2   Incremental Facilities.  Company may by written notice to Syndication
Agent elect to request (A) an increase to the existing Revolving Commitments
(any such increase, the "New Revolving Commitments"), (B) prior to the Delayed
Draw Term Loan Commitment Termination Date, an increase to the existing Delayed
Draw Term Loan Commitments ("New Delayed Draw Term Loan Commitments") and/or (C)
the establishment of one or more new term loan commitments (the "New Term Loan
Commitments"), by an amount not in excess of $300,000,000 in the aggregate and
not less than $25,000,000 individually (or such lesser amount which shall be
approved by Syndication Agent or such lesser amount that shall constitute the
difference between $300,000,000 and all previously issued New Revolving
Commitments, New Delayed Draw Term Loan Commitments and New Term Loan
Commitments), and integral multiples of $5,000,000 in excess of that amount.
Each such notice shall specify (A) the date (each, an "Increased Amount Date")
on which Company proposes that the New Revolving Commitments, New Delayed Draw
Term Loan Commitments or the New Term Loan Commitments, as applicable, shall be
effective and that Loans be made pursuant to the New Term Loan Commitments ("New
Term Loans"), which shall be a date not less than 10 Business Days after the
date on which such notice is delivered to Syndication Agent and (B) the identity
of each Lender or other Person (each, a "New Revolving Loan Lender", "New
Delayed Draw Term Loan Lender" or a "New Term Loan Lender", as applicable) to
whom Company proposes any portion of such New Revolving Commitments, New Delayed
Draw Term Loan Commitments  or New Term Loan Commitments, as applicable, be
allocated and the amounts of such allocations; provided that, any Lender
                                               --------
approached to provide all or a portion of the New Revolving Commitments, New
Delayed Draw Term Loan Commitments or New Term Loan Commitments may elect or
decline, in its sole discretion, to provide a New Revolving Commitment, New
Delayed Draw Term Loan Commitment or a New Term Loan Commitment.  Such New
Revolving Commitments, New Delayed Draw Term Loan Commitments or New Term Loan
Commitments shall become effective, as of such Increased Amount Date; provided
                                                                      --------
that (1) no Default or Event of Default shall exist on such Increased Amount
Date before or after giving effect to such New Revolving Commitments, New
Delayed Draw Term Loan Commitments or New Term Loan Commitments, as applicable;
(2) both before and after the making of New Term Loans each of the conditions
set forth in Section 3.2 shall be satisfied; (3) Holdings and its Subsidiaries
shall be in pro forma compliance with each of the covenants set forth in Section
6.6 or 6.7, as applicable, as of the last day of the most recently ended Fiscal
Quarter after giving effect to such New Revolving Commitments, New Delayed Draw
Term Loan Commitments or New Term Loan Commitments and any Loans made on the
Increased Amount Date, as applicable; (4) each increase in the Revolving
Commitments, Delayed Draw Term Loan Commitments or New Term Loan Commitments, as
applicable, shall be effected pursuant to one or more Joinder Agreements
executed and delivered to Syndication Agent and Administrative Agent, and each
shall be recorded in the Register, each of which shall be subject to the
requirements set forth in Section 2.19(c); (5) Company shall make any payments
required pursuant to Section 2.17(c) in connection with the provisions of the
New Revolving Commitments or New Delayed Draw Term Loan

                                       36
<PAGE>

Commitments, as applicable; (6) to the extent deemed necessary by Syndication
Agent, in its sole discretion, provisions shall have been made to ensure that no
less than 50% of the Revolving Commitments and Delayed Draw Term Loan
Commitments, as applicable, remain funded through the Revolving Maturity Date
and/or Delayed Draw Term Loan Maturity Date, as applicable, and (7) Company
shall deliver or cause to be delivered any legal opinions or other documents
reasonably requested by Syndication Agent or Administrative Agent in connection
with any such transaction. Each tranche of New Term Loans shall be, designated a
separate series (a "Series") of New Term Loans for all purposes of this
Agreement.

     On any Increased Amount Date on which New Revolving Commitments are
effected, subject to the satisfaction of the foregoing terms and conditions, (a)
each of the Revolving Lenders shall assign to each of the New Revolving Loan
Lenders, and each of the New Revolving Loan Lenders shall purchase from each of
the Revolving Loan Lenders, at the principal amount thereof (together with
accrued interest), such interests in the Revolving Loans outstanding on such
Increased Amount Date as shall be necessary in order that, after giving effect
to all such assignments and purchases, such Revolving Loans will be held by
existing Revolving Loan Lenders and New Revolving Loan Lenders ratably in
accordance with their Revolving Commitments after giving effect to the addition
of such New Revolving Commitments to the Revolving Commitments, (b) each New
Revolving Commitment shall be deemed for all purposes a Revolving Commitment and
each Loan made thereunder (a "New Revolving Loan") shall be deemed, for all
purposes, a Revolving Loan and (c) each New Revolving Loan Lender shall become a
Lender with respect to the Revolving Commitments and all matters relating
thereto.

     On any Increased Amount Date on which New Delayed Draw Term Loan
Commitments are effected, subject to the satisfaction of the foregoing terms and
conditions, (a) each of the Delayed Draw Term Loan Lenders shall assign to each
of the New Delayed Draw Term Loan Lenders, and each of the New Delayed Draw Term
Loan Lenders shall purchase from each of the Delayed Draw Term Loan Lenders, at
the principal amount thereof (together with accrued interest), such interests in
the Delayed Draw Term Loan outstanding on such Increased Amount Date as shall be
necessary in order that, after giving effect to all such assignments and
purchases, such Delayed Draw Term Loan will be held by existing Delayed Draw
Term Loan Lenders and New Delayed Draw Term Loan Lenders ratably in accordance
with their Delayed Draw Term Loan Commitments after giving effect to the
addition of such New Delayed Draw Term Loan Commitments to the Delayed Draw Term
Loan Commitments, (b) each New Delayed Draw Term Loan Commitment shall be deemed
for all purposes a Delayed Draw Term Loan Commitment and each Loan made
thereunder (a "New Delayed Draw Term Loan") shall be deemed, for all purposes, a
Delayed Draw Term Loan and (c) each New Delayed Draw Term Loan Lender shall
become a Lender with respect to the  Delayed Draw Term Loan Commitment and all
matters relating thereto.

     On any Increased Amount Date on which any New Term Loan Commitments of any
Series are effective, subject to the satisfaction of the foregoing terms and
conditions, (i) each New Term Loan Lender of any Series shall make a New Term
Loan to Company to the extent required to be made under such New Term Loan
Commitment on such date, and (ii) each New Term Loan Lender

                                       37
<PAGE>

of any Series shall become a Lender hereunder with respect to the New Term Loan
Commitment of such Series and the New Term Loans of such Series made pursuant
thereto.

     The Administrative Agent shall notify the Lenders promptly upon receipt of
Company's notice of each Increased Amount Date and in respect thereof the New
Revolving Commitments and the New Revolving Loan Lenders, the New Delayed Draw
Term Loan Commitments and the New Delayed Draw Term Loan Lenders or the Series
of New Term Loan Commitments and the New Term Loan Lenders of such Series, as
applicable, and, (y) in the case of each notice to any Revolving Loan Lender,
the respective interests in such Revolving Loan Lender's Revolving Loans and (z)
in the case of each notice to any Delayed Draw Term Loan Lender, the respective
interests in such Delayed Draw Term Loan Lender's Delayed Draw Term Loans, in
each case subject to the assignments contemplated by this section.

     The terms and provisions of the New Term Loans of any Series and New Term
Loan Commitments of any Series shall be, except as otherwise set forth herein or
in the Joinder Agreement, identical to Delayed Draw Term Loans; provided that,
                                                                --------
in any event (i) the amortization of the New Term Loans shall occur no sooner
than the proportional amortization of the Revolving Loans and the Delayed Draw
Term Loans, (ii) the New Term Loan Maturity Date shall be no sooner than the
final maturity of the Revolving Loans and the Delayed Draw Terms Loans, and
(iii) the rate of interest applicable to New Term Loans of any Series shall be
determined by Company and applicable new Lenders and shall be set forth in each
applicable Joinder Agreement; provided however that the applicable rate of
                              -------- -------
interest for New Term Loans of any Series shall not be greater than the highest
rate of interest applicable to any Revolving Loan or Delayed Draw Term Loan plus
                                                                            ----
0.50% per annum or, if such rate of interest is determined by reference to a
margin, such margin shall not be greater than 0.50% per annum higher than the
highest margin possibly applicable to the Revolving Loans or the Delayed Draw
Term Loans.  Each Joinder Agreement may, without the consent of any other
Lenders, effect such amendments to this Agreement and the other Credit Documents
as may be necessary or appropriate, in the opinion of the Syndication Agent and
the Administrative Agent, to effect the provision of this Section 2.2.

     2.3   Pro Rata Shares; Availability of Funds.

           (a) Pro Rata Shares.  All Loans shall be made, and all participations
               ---------------
purchased, by Lenders simultaneously and proportionately to their respective Pro
Rata Shares, it being understood that no Lender shall be responsible for any
default by any other Lender in such other Lender's obligation to make a Loan
requested hereunder or purchase a participation required hereby nor shall any
Commitment of any Lender be increased or decreased as a result of a default by
any other Lender in such other Lender's obligation to make a Loan requested
hereunder or purchase a participation required hereby.

           (b) Availability of Funds.  Unless Administrative Agent shall have
               ---------------------
been notified by any Lender prior to the applicable Credit Date that such Lender
does not intend to make available to Administrative Agent the amount of such
Lender's Loan requested on such Credit Date,

                                       38
<PAGE>

Administrative Agent may assume that such Lender has made such amount available
to Administrative Agent on such Credit Date and Administrative Agent may, in its
sole discretion, but shall not be obligated to, make available to Company a
corresponding amount on such Credit Date. If such corresponding amount is not in
fact made available to Administrative Agent by such Lender, Administrative Agent
shall be entitled to recover such corresponding amount on demand from such
Lender together with interest thereon, for each day from such Credit Date until
the date such amount is paid to Administrative Agent, at the customary rate set
by Administrative Agent for the correction of errors among banks for three
Business Days and thereafter at the Base Rate. If such Lender does not pay such
corresponding amount forthwith upon Administrative Agent's demand therefor,
Administrative Agent shall promptly notify Company and Company shall immediately
pay such corresponding amount to Administrative Agent together with interest
thereon, for each day from such Credit Date until the date such amount is paid
to Administrative Agent, at the rate payable hereunder for Base Rate Loans for
such Class of Loans. Nothing in this Section 2.3(b) shall be deemed to relieve
any Lender from its obligation to fulfill its Commitments hereunder or to
prejudice any rights that Company may have against any Lender as a result of any
default by such Lender hereunder.

     2.4   Use of Proceeds.  The proceeds of the Loans made to Company shall be
used by Company to provide purchase money financing for the hard costs
associated with the construction, acquisition or  improvement of
Telecommunications Assets by Company, including the acquisition from Equipment
Subsidiary of Telecommunications Assets purchased by Equipment Subsidiary no
earlier than 180 days prior to the making of such Loans, provided that in no
                                                         --------
event shall proceeds of Loans to Company be used to finance more than 80% of
such hard costs with respect to any Telecommunications Asset, and provided
                                                                  --------
further that no more than (i) $15,000,000 in aggregate in the two calendar years
-------
following the Closing Date and (ii) $30,000,000 in aggregate during the term of
this Agreement, of such proceeds shall be used to finance Telecommunications
Assets to be leased by Company to Focal Communications Corporation of Illinois
or any other Subsidiary of Holdings party to an Approved Lease Agreement
correctly construed as a Capital Lease.  No portion of the proceeds of any
Credit Extension shall be used by Holdings or any of its Subsidiaries in any
manner that might cause such Credit Extension or the application of such
proceeds to violate Regulation T, Regulation U or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation thereof or to
violate the Exchange Act.

     2.5   Evidence of Debt; Register; Lenders' Books and Records; Notes.

           (a) Lenders' Evidence of Debt.  Each Lender shall maintain on its
               -------------------------
internal records an account or accounts evidencing the Indebtedness of Company,
as applicable, to such Lender, including the amounts of the Loans made by it and
each repayment and prepayment in respect thereof.  Any such recordation shall be
conclusive and binding on Company, as applicable, absent manifest error;
provided, failure to make any such recordation, or any error in such
--------
recordation, shall not affect any Lender's Commitments or Company's Obligations
in respect of any applicable Loans; and provided further, in the event of any
                                        -------- -------
inconsistency between the Register and any Lender's records, the recordations in
the Register shall govern.

                                       39
<PAGE>

          (b)  Register.  Administrative Agent shall maintain at its Principal
               --------
Office  a register for the recordation of the names and addresses of Lenders and
the Commitments and Loans of each Lender from time to time (the "Register").
The Register shall be available for inspection by Company or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
Administrative Agent shall record in the Register the Commitments and the Loans,
and each repayment or prepayment in respect of the principal amount of the
Loans, and any such recordation shall be conclusive and binding on Company and
each Lender, absent manifest error (it being acknowledged that any Lender may
request any supporting documentation); provided, failure to make any such
                                       --------
recordation, or any error in such recordation, shall not affect any Lender's
Commitments or Company's Obligations in respect of any Loan.  Company hereby
designates Citibank to serve as Company's agent solely for purposes of
maintaining the Register as provided in this Section 2.5, and Company hereby
agrees that, to the extent Citibank serves in such capacity, Citibank and its
officers, directors, employees, agents and affiliates shall constitute
"Indemnitees."

          (c)  Notes. If so requested by any Lender by written notice to Company
               -----
(with a copy to Administrative Agent) at least two Business Days prior to the
Closing Date, or at any time after the Closing Date, Company shall execute and
deliver to such Lender (and/or, if applicable and if so specified in such
notice, to any Person who is an assignee of such Lender pursuant to Section
10.6) on the Closing Date (or, if such notice is delivered after the Closing
Date, promptly after Company's receipt of such notice) a Note or Notes to
evidence such Lender's Loans.

     2.6   Interest on Loans.

           (a) Except as otherwise set forth herein, each Loan shall bear
interest on the unpaid principal amount thereof from the date made through
repayment (whether by acceleration or otherwise) thereof as follows:

               (i)  if a Base Rate Loan, at the Base Rate plus the Applicable
Margin; or

               (ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate
plus the Applicable Margin.

           (b) The basis for determining the rate of interest with respect to
any Loan, and the Interest Period with respect to any Eurodollar Rate Loan,
shall be selected by Company and notified to Administrative Agent and Lenders
pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as
the case may be. If on any day a Loan is outstanding with respect to which a
Funding Notice or Conversion/Continuation Notice has not been delivered to
Administrative Agent in accordance with the terms hereof specifying the
applicable basis for determining the rate of interest, then for that day such
Loan shall be a Base Rate Loan.

           (c) In connection with Eurodollar Rate Loans there shall be no more
than ten (10) Interest Periods outstanding at any time except to the extent that
New Term Loans are outstanding

                                       40
<PAGE>

in which case there shall be no more than twelve (12) Interest Periods
outstanding at such time. In the event Company fails to specify between a Base
Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or
Conversion/Continuation Notice, such Loan (if outstanding as a Eurodollar Rate
Loan) will be automatically converted into a Base Rate Loan on the last day of
the then-current Interest Period for such Loan (or if outstanding as a Base Rate
Loan will remain as, or (if not then outstanding) will be made as, a Base Rate
Loan). (i) In the event Company fails to specify an Interest Period for any
Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation
Notice, and (ii) in any event until termination of syndication of the Facilities
as determined by the Syndication Agent, Company shall select or be deemed to
have selected an Interest Period of one month. As soon as practicable after
10:00 a.m. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof and of the applicable Interest Period (in writing or by telephone
confirmed in writing) to Company and each Lender.

           (d) Interest payable pursuant to Section 2.6(a) shall be computed (i)
in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the
case may be, and (ii in the case of Eurodollar Rate Loans, on the basis of a
360-day year, in each case for the actual number of days elapsed in the period
during which it accrues.  In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate
Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
case may be, shall be excluded; provided, if a Loan is repaid on the same day on
                                --------
which it is made, one day's interest shall be paid on that Loan.

           (e) Except as otherwise set forth herein, interest on each Loan shall
be payable in arrears on and to (i) each Interest Payment Date applicable to
that Loan; (ii any prepayment of that Loan, whether voluntary or mandatory, to
the extent accrued on the amount being prepaid; and (ii at maturity, including
final maturity; provided, however, with respect to any voluntary prepayment of a
                --------
Base Rate Loan, accrued interest shall instead be payable on the applicable
Interest Payment Date.

     2.7.  Conversion/Continuation.

           (a) Subject to Section 2.17 and so long as no Default or Event of
Default shall have occurred and then be continuing, Company shall have the
option:

               (i) to convert at any time all or any part of any Loan equal to
$5,000,000 and integral multiples of $1,000,000 (when aggregated for all Lenders
holding Loans of one Type) in

                                       41
<PAGE>

excess of that amount from one Type of Loan to another Type of Loan; provided, a
                                                                     --------
Eurodollar Rate Loan may only be converted into a Base Rate Loan on the
expiration of the Interest Period applicable to such Eurodollar Rate Loan unless
Company shall pay all amounts due under Section 2.17(c) in connection with any
such conversion; or

               (ii) upon the expiration of any Interest Period applicable to any
Eurodollar Rate Loan, to continue all or any portion of such Loan equal to
$5,000,000 and integral multiples of $1,000,000 (when aggregated for all Lenders
holding such Loan) in excess of that amount as a Eurodollar Rate Loan.

          (b)  Company shall deliver a Conversion/Continuation Notice to
Administrative Agent no later than 10:00 a.m. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan).  Except as otherwise provided herein,
a Conversion/Continuation Notice for conversion to, or continuation of, any
Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and
Company shall be bound to effect a conversion or continuation in accordance
therewith.  Notice of receipt of each Conversion/Continuation Notice in respect
of Loans, together with the amount of each Lender's Pro Rata Share thereof, if
any, together with the applicable interest rate and Interest Period, shall be
provided by Administrative Agent to each applicable Lender by telefacsimile with
reasonable promptness, but not later than 2:00 PM (New York City time) on the
same day as Administrative Agent's receipt of such Conversion/Continuation
Notice from Company.

     2.8  Default Interest.  Upon the occurrence and during the continuance of
an Event of Default described in Section 8.1(a), the principal amount of all
Loans and, to the extent permitted by applicable law, any interest payments on
the Loans or any fees or other amounts owed hereunder or under any of the other
Credit Documents not paid when due, in each case whether at stated maturity, by
notice of prepayment, by acceleration or otherwise, shall thereafter bear
interest (including post-petition interest in any proceeding under the
Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate
that is 2% per annum in excess of the interest rate otherwise payable hereunder
with respect to the applicable Loans (or, in the case of any such fees and other
amounts, at a rate which is 2% per annum in excess of the interest rate
otherwise payable hereunder for Base Rate Loans); provided, in the case of
                                                  --------
Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at
the time any such increase in interest rate is effective such Eurodollar Rate
Loans shall thereupon become Base Rate Loans and shall thereafter bear interest
payable upon demand at a rate which is 2% per annum in excess of the interest
rate otherwise payable hereunder for Base Rate Loans.  Payment or acceptance of
the increased rates of interest provided for in this Section 2.8 is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of
Administrative Agent or any Lender.

                                       42
<PAGE>

     2.9  Fees.

          (a) Company agrees to pay to Lenders having Revolving Exposure and/or
Delayed Draw Term Loan Exposure through Administrative Agent a commitment fee
equal to (1) the average daily unused Commitments of such Lender during the
preceding quarter multiplied by (2) the Applicable Commitment Fee Percentage.
The fees referred to in this Section 2.9(a) shall be paid to Administrative
Agent at its Principal Office and upon receipt, Administrative Agent shall
promptly distribute to each Lender its Pro Rata Share thereof.

          (b) All fees referred to in Section 2.9(a) shall be calculated on the
basis of a 360-day year and the actual number of days elapsed and shall be
payable (i) quarterly in arrears on March 31, June 30, September 30 and December
31 of each year commencing on the first such date to occur after the Closing
Date, (ii) on the Delayed Draw Term Loan Commitment Termination Date, and (iii)
on the Revolving Commitment Termination Date.

          (c) In addition to any of the foregoing fees, Company agrees to pay to
Agents such other fees in the amounts and at the times separately agreed upon by
Company and such Agents thereby.

          (d) In addition, Company agrees to pay such commitment and other fees
as may be payable in connection with New Term Loans as set forth in the
applicable Joinder Agreement or otherwise agreed to in writing by Company.

     2.10 Scheduled Payments/Commitment Reductions.

          (a) Scheduled Revolving Installments. The Revolving Commitments
              --------------------------------
hereunder shall be permanently reduced in the aggregate annual percentages set
forth below in equal consecutive quarterly installments (each, a "Revolving
Installment") on February 28/29, May 31, August 31, November 30 (each, an
"Installment Date") occurring in each of the Fiscal Years set forth below,
commencing November 30, 2003.

              ================================================
                    Installment             Revolving Loan
                       Date             Commitment Reductions
              ------------------------------------------------
               November 30, 2003                2.5%
              ------------------------------------------------
               February 29, 2004                2.5%
              ------------------------------------------------
               May 31, 2004                     2.5%
              ------------------------------------------------
               August 31, 2004                  2.5%
              ------------------------------------------------
               November 30, 2004                5.0%
              ------------------------------------------------
               February 28, 2005                5.0%
              ------------------------------------------------

                                       43
<PAGE>

              ================================================
                    Installment             Revolving Loan
                       Date             Commitment Reductions
              ------------------------------------------------
               May 31, 2005                     5.0%
              ------------------------------------------------
               August 31, 2005                  5.0%
              ------------------------------------------------
               November 30, 2005                7.5%
              ------------------------------------------------
               February 28, 2006                7.5%
              ------------------------------------------------
               May 31, 2006                     7.5%
              ------------------------------------------------
               August 31, 2006                  7.5%
              ------------------------------------------------
               November 30, 2006               10.0%
              ------------------------------------------------
               February 28, 2007               10.0%
              ------------------------------------------------
               May 31, 2007                    10.0%
              ------------------------------------------------
               August 31, 2007                 10.0%
              ================================================

; provided, in the event any New Revolving Commitments are made, such New
  --------
Revolving Commitments shall be reduced on each Installment Date occurring on or
after the applicable Increased Amount Date in an amount equal to (i) the
aggregate amount of New Revolving Loan Commitments as of such Increased Amount
Date times (ii) the ratio (expressed as a percentage) of (y) the amount of other
Revolving Commitments being reduced on such Installment Date and (z) the total
aggregate amount of other Revolving Credit Commitments in effect on such
Increased Amount Date.

Notwithstanding the foregoing, (i) Revolving Installments shall be reduced in
connection with any voluntary or mandatory reductions of the Revolving
Commitments in accordance with Sections 2.11, 2.12 and 2.13 and (ii) all
Revolving Loans, together with all other amounts owed hereunder with respect
thereto, shall be permanently repaid in full no later than the Revolving
Maturity Date.

          (b) Scheduled Delayed Draw Term Loan Installments.  The principal
              ---------------------------------------------
amount of the Delayed Draw Term Loans outstanding on the Delayed Draw Term Loan
Commitment Termination Date shall be repaid in the aggregate annual percentages
set forth below in equal consecutive quarterly installments (each, a "Delayed
Draw Term Loan Installment") on each Installment Date occurring in each of the
Fiscal Years set forth below, commencing November 30, 2003:

                                       44
<PAGE>

              ================================================
                    Installment           Delayed Draw Term
                       Date                Loan Repayments
              ------------------------------------------------
               November 30, 2003                 2.5%
              ------------------------------------------------
               February 29, 2004                 2.5%
              ------------------------------------------------
               May 31, 2004                      2.5%
              ------------------------------------------------
               August 31, 2004                   2.5%
              ------------------------------------------------
               November 30, 2004                 5.0%
              ------------------------------------------------
               February 28, 2005                 5.0%
              ------------------------------------------------
               May 31, 2005                      5.0%
              ------------------------------------------------
               August 31, 2005                   5.0%
              ------------------------------------------------
               November 30, 2005                 7.5%
              ------------------------------------------------
               February 28, 2006                 7.5%
              ------------------------------------------------
               May 31, 2006                      7.5%
              ------------------------------------------------
               August 31, 2006                   7.5%
              ------------------------------------------------
               November 30, 2006                10.0%
              ------------------------------------------------
               February 28, 2007                10.0%
              ------------------------------------------------
               May 31, 2007                     10.0%
              ------------------------------------------------
               August 31, 2007                  10.0%
              ================================================

          Notwithstanding the foregoing, (i) such Delayed Draw Term Loan
Installments shall be reduced in connection with any voluntary or mandatory
reduction or prepayments of the Delayed Draw Term Loan Commitments and/or the
Delayed Draw Term Loans in accordance with Sections 2.11, 2.12 and 2.13 and (ii)
all Delayed Draw Term Loans, together with all other amounts owed hereunder with
respect thereto, shall be permanently repaid in full no later than the Delayed
Draw Term Loan Maturity Date.

          (c) Scheduled New Term Loan Installments.  Provisions with respect to
              ------------------------------------
scheduled repayments of New Term Loans shall be as set forth in the applicable
Joinder Agreement.

                                       45
<PAGE>

     2.11 Voluntary Prepayments/Commitment Reductions.

          (a)  Voluntary Prepayments.
               ---------------------

               (i)  Any time and from time to time:

                    (1)  with respect to Base Rate Loans, Company may prepay,
     without premium or penalty, any such Loans on any Business Day in whole or
     in part, in an aggregate minimum amount of $5,000,000 and integral
     multiples of $1,000,000 in excess of that amount (or a lesser amount if
     such lesser amount constitutes the entire outstanding principal amount of
     such Loan); and

               (2)  with respect to Eurodollar Rate Loans, Company may prepay,
     without premium or penalty (but subject to Section 2.17(c)), any such Loans
     on any Business Day in whole or in part in an aggregate minimum amount of
     $5,000,000 and integral multiples of $1,000,000 in excess of that amount
     (or a lesser amount if such lesser amount constitutes the entire
     outstanding principal amount of such Loan).

          (ii) All such prepayments shall be made:

               (1)  upon not less than one Business Day's prior written or
     telephonic notice, in the case of Base Rate Loans; and

               (2)  upon not less than three Business Days' prior written or
     telephonic notice, in the case of Eurodollar Rate Loans;

in each case given to Administrative Agent, as the case may be, by 12:00 p.m.
(New York City time) on the date required and, if given by telephone, promptly
confirmed in writing to Administrative Agent (and Administrative Agent will
promptly transmit such telephonic or original notice by telefacsimile or
telephone confirmed in writing to each Lender).  Upon the giving of any such
notice, the principal amount of the Loans specified in such notice shall become
due and payable on the prepayment date specified therein.

          (b)  Voluntary Commitment Reductions.
               -------------------------------

               (i)  Company may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative Agent (which
original written or telephonic notice Administrative Agent will promptly
transmit by telefacsimile or telephone confirmed in writing to each applicable
Lender), at any time and from time to time terminate in whole or permanently
reduce in part, without premium or penalty, the Revolving Commitments in an
amount up to the amount by which the Revolving Commitments exceed the Total
Utilization of Revolving Commitments at the time of such proposed termination or
reduction; provided that any such partial reduction of the Revolving Commitments
           --------
shall be in an aggregate minimum amount of $5,000,000

                                       46
<PAGE>

and integral multiples of $1,000,000 in excess of that amount; provided further
                                                               -------- -------
that in the event that Company fails to specify otherwise any such termination
or permanent reduction shall be applied against the scheduled Reductions set
forth in Section 2.10 on a pro rata basis (in accordance with the outstanding
Revolving Commitments at such time).

           (ii)  Company may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative Agent (which
original written or telephonic notice Administrative Agent will promptly
transmit by telefacsimile or telephone confirmed in writing to each applicable
Lender), at any time and from time to time terminate in whole or permanently
reduce in part, without premium or penalty, the Delayed Draw Term Loan
Commitments in an amount up to the amount by which the Delayed Draw Term Loan
Commitments exceed the Total Utilization of Delayed Draw Term Loan Commitments
at the time of such proposed termination or reduction; provided, any such
                                                       --------
partial reduction of the Delayed Draw Term Loan Commitments shall be in an
aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount.

           (iii) Company's notice to Administrative Agent shall designate the
date (which shall be a Business Day) of such termination or reduction and the
amount of any partial reduction, and whether such termination or reduction of
the Revolving Commitments and/or Delayed Draw Term Loan Commitments, as
applicable, shall be effective on the date specified in Company's notice and
shall reduce the Revolving Commitment and/or Delayed Draw Term Loan Commitment,
as applicable, of each Lender proportionately to its Pro Rata Share thereof.

     2.12. Mandatory Prepayments/Commitment Reductions.

           (a) Asset Sales.  If, within the period of two hundred seventy days
               -----------
after the receipt by Holdings, Company or any of their respective Subsidiaries
of Net Asset Sale Proceeds, Holdings or Company has not invested such Net Asset
Sale Proceeds in long term productive assets of the general type used in the
business of Holdings and its Subsidiaries, as certified to Administrative Agent
by Holdings, then, to the extent Company has not previously done so, Company
shall prepay Loans and the Commitments shall be permanently reduced as set forth
in Section 2.13, in either case in an amount equal to the excess of such Net
Asset Sale Proceeds over amounts invested as aforesaid.  Pending a determination
whether any Net Asset Sale Proceeds will be applied to prepay Loans and/or
reduce Commitments pursuant to the preceding sentence, an amount equal to such
Net Asset Sale Proceeds shall be applied to prepay outstanding Revolving Loans
(without a reduction in the Revolving Commitments).  In addition,
notwithstanding the foregoing and in any event, the Company shall prepay Loans
in the amount of any Net Asset Sale Proceeds arising from the sale of any
Telecommunications Assets financed with the proceeds of such Loans.

           (b) Insurance/Condemnation Proceeds.  If, within the period of two
               -------------------------------
hundred seventy days after the receipt by Holdings or Company or any of their
respective Subsidiaries of Net Insurance/Condemnation Proceeds, Holdings or
Company has not invested such Net Insurance/Condemnation Proceeds in long term
productive assets of general type used in the business of

                                       47
<PAGE>

Holdings and its Subsidiaries, as certified to Administrative Agent by Holdings,
then, to the extent Company has not previously done so, Company shall prepay
Loans and the Commitments shall be permanently reduced as set forth in Section
2.13, in either case in an amount equal to the excess of such Net
Insurance/Condemnation Proceeds over amounts invested as aforesaid. Pending a
determination on whether any Net Insurance/Condemnation Proceeds shall be
applied to prepay outstanding Loans and/or reduce Commitments pursuant to the
preceding sentence, an amount equal to such Net Insurance/Condemnation Proceeds
shall be applied to prepay any outstanding Revolving Loans (without a reduction
in the Revolving Commitments).

           (c) Consolidated Excess Cash Flow.  In the event that there shall be
               -----------------------------
Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal
Year ending December 31, 2004), Company shall, no later than 100 days after the
end of such Fiscal Year, prepay the Loans and/or the Commitments shall be
permanently reduced as set forth in Section 2.13 in an aggregate amount equal to
50% of such Consolidated Excess Cash Flow.

           (d) Commitment Limits.  Company shall from time to time prepay the
               -----------------
Revolving Loans to the extent necessary so that the Total Utilization of
Revolving Commitments shall not at any time exceed the Revolving Commitments
then in effect. Company shall also from time to time prepay the Delayed Draw
Term Loans to the extent necessary so that the Total Utilization of Delayed Draw
Term Loan Commitments shall not at any time exceed the Delayed Draw Term Loan
Commitments then in effect.

           (e) Prepayment Certificate.  Concurrently with any prepayment of the
               ----------------------
Loans and/or reduction of the Commitments pursuant to Sections 2.12(a) through
2.12(c), Company shall deliver to Administrative Agent (which Administrative
Agent shall promptly furnish to each Lender) a certificate of an Authorized
Officer demonstrating the calculation of the amount of the applicable net
proceeds or Consolidated Excess Cash Flow, as the case may be.  In the event
that Company shall subsequently determine that the actual amount received
exceeded the amount set forth in such certificate, Company shall promptly make
an additional prepayment of the Loans and/or the Commitments shall be
permanently reduced in an amount equal to such excess, and Company shall
concurrently therewith deliver to Administrative Agent (which Administrative
Agent shall promptly furnish to each Lender) a certificate of an Authorized
Officer demonstrating the derivation of such excess.

     2.13. Application of Prepayments/Reductions.

           (a) Application of Voluntary Prepayments/Commitment Reductions by
               -------------------------------------------------------------
Type of Loans.  Any prepayment of any Loan pursuant to Section 2.11(a) shall be
-------------
applied as specified by Company in the applicable notice of prepayment; provided
                                                                        --------
that New Term Loans may only be prepaid on a pro rata basis with Revolving Loans
and Delayed Draw Term Loans; provided further, in the event Company fails to
                             ----------------
specify the Loans to which any such prepayment shall be applied, such prepayment
shall be applied as follows:

                                       48
<PAGE>

               first, to repay outstanding Revolving Loans on a pro rata basis;

               second, to prepay the Delayed Draw Term Loans on a pro rata
           basis; and

               third, to prepay the New Term Loans if any, on a pro rata basis.

           Any voluntary prepayments of Delayed Draw Term Loans or voluntary
reductions of the Revolving Commitment shall be further applied to reduce, on a
pro rata basis, each remaining scheduled Delayed Draw Term Loan Installment
and/or Revolving Installment, as the case may be.

           (b) Application of Mandatory Prepayments by Type of Loans. Any amount
               -----------------------------------------------------
required to be paid pursuant to Sections 2.12(a) through 2.12(c) shall be
applied, subject to the requirements of the final sentence of Sections 2.12(a)
and 2.12(b), on a pro rata basis to repay Revolving Loans, Delayed Draw Term
Loans and New Term Loans, if any, in accordance with the respective principal
amount thereof, and shall be further applied to reduce the Revolving Commitments
by the amount allocable to Revolving Loans and to reduce the Delayed Draw Term
Loan Commitments by an amount, if any, equal to the excess of the amount
allocable to the Delayed Draw Term Loans over the amount of the Delayed Draw
Term Loans outstanding immediately prior to the making of any such mandatory
prepayment; provided that any such reduction of Revolving Commitments shall be
            --------
further applied to reduce the remaining scheduled Revolving Installment set
forth in Section 2.10(a) on a pro rata basis; provided further that, with
                                              -------- -------
respect to Delayed Draw Term Loans, the amount of such repayment shall be
further applied pro rata to reduce the remaining Scheduled Delayed Draw Term
Loan Installments; provided further that, with respect to New Term Loans, a
                   -------- -------
lesser amount may be required to be prepaid or such prepayment requirement
waived as set forth in the applicable Joinder Agreement; provided further that,
                                                         --------
any such amounts waived or not used to prepay New Term Loans shall be used to
further prepay, on a pro rata basis as set forth above, Revolving Loans and
Delayed Draw Term Loans.

           (c) Application of Prepayments of Loans to Base Rate Loans and
               ----------------------------------------------------------
Eurodollar Rate Loans.  Considering each Class of Loans being prepaid
---------------------
separately, any prepayment thereof shall be applied first to Base Rate Loans to
the full extent thereof before application to Eurodollar Rate Loans, in each
case in a manner which minimizes the amount of any payments required to be made
by Company pursuant to Section 2.17(c).

     2.14. Charging of Accounts.  To the extent not violative of the provisions
of the Holdings Senior Notes, Company hereby authorizes Administrative Agent to
charge  Company's accounts with Administrative Agent in order to cause timely
payment to be made to Administrative Agent of all principal, interest, fees and
expenses due by Company hereunder or under any of the other Credit Documents
(subject to sufficient funds being available in its accounts for that purpose).

                                       49
<PAGE>

     2.15. General Provisions Regarding Payments.

           (a) All payments by Company of principal, interest, fees and other
Obligations shall be made in Dollars in same day funds, without defense, setoff
or counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 12:00 p.m. (New York City time) on the date
due at the Administrative Agent's Principal Office for the account of Lenders;
funds received by Administrative Agent after that time on such due date shall be
deemed to have been paid by Company, as applicable, on the next succeeding
Business Day.

           (b) All payments in respect of the principal amount of any Loan shall
include payment of accrued interest on the principal amount being repaid or
prepaid, and all such payments (and, in any event, any payments in respect of
any Loan on a date when interest is due and payable with respect to such Loan)
shall be applied to the payment of interest before application to principal.

           (c) Administrative Agent shall promptly distribute by wire transfer
to each Lender at such address as such Lender shall indicate in writing, such
Lender's applicable Pro Rata Share, giving effect to any adjustments in Pro Rata
Shares on and after the Closing Date, of all payments and prepayments of
principal and interest due hereunder, together with all other amounts due
thereto hereunder or under any of the other Credit Documents, including, without
limitation, all fees payable with respect thereto, to the extent received by
Administrative Agent.

           (d) Notwithstanding the foregoing provisions hereof, if any
Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.

           (e) Subject to the provisos set forth in the definition of "Interest
Period", whenever any payment to be made hereunder shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder and of the Commitment fees
payable hereunder.

     2.16. Receipt of Payments.  Administrative Agent shall deem any payment by
or on behalf of Company hereunder that is not made in same day funds prior to
12:00 p.m. (New York City time) on or before the due date to be a non-conforming
payment.  Any such payment shall not be deemed to have been received by
Administrative Agent until the later of (i) the time such funds become available
funds, and (ii) the applicable next Business Day.  Administrative Agent shall
give prompt telephonic notice to Company and each applicable Lender (confirmed
in writing) if any payment is non-conforming.  Any non-conforming payment may
constitute or become a Default or Event of Default in accordance with the terms
of Section 8.1(a).  Interest shall continue to accrue on any principal as to
which a non-conforming payment is made until such funds become available funds
(but in no event less than the period from the date of such payment to the next
succeeding applicable

                                       50
<PAGE>

Business Day) at the rate determined pursuant to Section 2.8 from the date such
amount was due and payable until the date such amount is paid in full.

     2.17.  Making or Maintaining Eurodollar Rate Loans.

            (a) Inability to Determine Applicable Interest Rate.  In the event
                -----------------------------------------------
that Administrative Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Company and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans until such time as
Administrative Agent notifies Company and Lenders that the circumstances giving
rise to such notice no longer exist, and (ii any Funding Notice or
Conversion/Continuation Notice given by Company with respect to the Loans in
respect of which such determination was made shall be deemed to be rescinded by
Company (without penalty to Company).

            (b) Illegality or Impracticability of Eurodollar Rate Loans.  In the
                -------------------------------------------------------
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Administrative Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans (i) has become
unlawful as a result of compliance by such Lender in good faith with any law,
treaty, governmental rule, regulation, guideline or order (or would conflict
with any such treaty, governmental rule, regulation, guideline or order not
having the force of law even though the failure to comply therewith would not be
unlawful), or (ii has become impracticable, as a result of contingencies
occurring after the date hereof which materially and adversely affect the London
interbank market or the position of such Lender in that market, then, and in any
such event, such Lender shall be an "Affected Lender" and it shall on that day
give notice (by telefacsimile or by telephone confirmed in writing) to Company
and Administrative Agent of such determination (which notice Administrative
Agent shall promptly transmit to each other Lender).  Thereafter (1) the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by
the Affected Lender, (2) to the extent such determination by the Affected Lender
relates to a Eurodollar Rate Loan then being requested by Company pursuant to a
Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall
make such Loan as (or continue such Loan as or convert such Loan to, as the case
may be) a Base Rate Loan, (3) the Affected Lender's obligation to maintain its
outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at
the earlier to occur of the expiration of the Interest Period then in effect
with respect to the Affected Loans or when required by law, and (4) the Affected
Loans shall automatically convert into Base Rate Loans on the date of such
termination. Notwithstanding the foregoing, to the extent a determination by an
Affected Lender as described above relates to a Eurodollar Rate Loan then being
requested by Company pursuant to a Funding Notice or a Conversion/Continuation
Notice, Company shall have the option, subject to the

                                       51
<PAGE>

provisions of Section 2.17(c), to rescind such Funding Notice or
Conversion/Continuation Notice as to all Lenders by giving notice (by
telefacsimile or by telephone confirmed in writing) to Administrative Agent of
such rescission on the date on which the Affected Lender gives notice of its
determination as described above (which notice of rescission Administrative
Agent shall promptly transmit to each other Lender). Except as provided in the
immediately preceding sentence, nothing in this Section 2.17(b) shall affect the
obligation of any Lender other than an Affected Lender to make or maintain Loans
as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms
hereof.

          (c) Compensation for Breakage or Non-Commencement of Interest Periods.
              -----------------------------------------------------------------
Company shall compensate each Lender, upon written request by such Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by such
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Loans and any loss, expense or liability sustained by such Lender in connection
with the liquidation or re-employment of such funds but excluding loss of
anticipated profits) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender or by reason of an illegality of a type described
in Section 2.17 but not generally affecting substantially all Lenders similarly
situated) a borrowing of any Eurodollar Rate Loan does not occur on a date
specified therefor in a Funding Notice or a telephonic request for borrowing, or
a conversion to or continuation of any Eurodollar Rate Loan does not occur on a
date specified therefor in a Conversion/Continuation Notice or a telephonic
request for conversion or continuation; (ii if any prepayment or other principal
payment or any conversion of any of its Eurodollar Rate Loans occurs on a date
prior to the last day of an Interest Period applicable to that Loan; or (ii if
any prepayment of any of its Eurodollar Rate Loans is not made on any date
specified in a notice of prepayment given by Company.

          (d) Booking of Eurodollar Rate Loans.  Subject to Section 2.20, any
              --------------------------------
Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the
account of any of its branch offices or the office of an Affiliate of such
Lender.

          (e) Assumptions Concerning Funding of Eurodollar Rate Loans.
              -------------------------------------------------------
Calculation of all amounts payable to a Lender under this Section 2.17 and under
Section 2.18 shall be made as though such Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of such
Lender to a domestic office of such Lender in the United States of America;
provided, however, subject to Section 2.20, each Lender may fund each of its
--------  -------
Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions
shall be utilized only for the purposes of calculating amounts payable under
this Section 2.17 and under Section 2.18.

                                       52
<PAGE>

     2.18. Increased Costs; Capital Adequacy.

           (a) Compensation For Increased Costs and Taxes.  Subject to the
               ------------------------------------------
provisions of Section 2.19 (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
Governmental Authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law): (i)
subjects such Lender (or its applicable lending office) to any additional Tax
(other than any Tax on the overall net income of such Lender) with respect to
this Agreement or any other Credit Document or any of its obligations hereunder
or thereunder or any payments to such Lender (or its applicable lending office)
of principal, interest, fees or any other amount payable hereunder;  (ii
imposes, modifies or holds applicable any reserve (including any marginal,
emergency, supplemental, special or other reserve), special deposit, compulsory
loan, Federal Deposit Insurance Corporation insurance or similar requirement
against assets held by, or deposits or other liabilities in or for the account
of, or advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of such Lender (other than any such reserve
or other requirements with respect to Eurodollar Rate Loans that are reflected
in the definition of Adjusted Eurodollar Rate); or (ii imposes any other
condition (other than with respect to a Tax matter) on or affecting such Lender
(or its applicable lending office) or its obligations hereunder or the London
interbank market; and the result of any of the foregoing is to increase the cost
to such Lender of agreeing to make, making or maintaining Loans hereunder or to
reduce any amount received or receivable by such Lender (or its applicable
lending office) with respect thereto; then, in any such case, Company shall
promptly pay to Administrative Agent for delivery to such Lender, upon receipt
of the statement referred to in the next sentence, such additional amount or
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as may be necessary to compensate such Lender for any such increased
cost or reduction in amounts received or receivable hereunder.  Such Lender
shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis for calculating the
additional amounts owed to such Lender under this Section 2.18(a), which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.

           (b) Capital Adequacy Adjustment.  In the event that any Lender shall
               ---------------------------
have determined that the adoption, effectiveness, phase-in or applicability
after the date hereof of any law, rule or regulation (or any provision thereof)
regarding capital adequacy, or any change therein or in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, central bank or

                                       53
<PAGE>

comparable agency, has or would have the effect of reducing the rate of return
on the capital of such Lender or any corporation controlling such Lender as a
consequence of, or with reference to, such Lender's Loans or Commitments, or
participations therein or other obligations hereunder or under any of the other
Credit Documents with respect to the Loans to a level below that which such
Lender or such controlling corporation could have achieved but for such
adoption, effectiveness, phase-in, applicability, change or compliance (taking
into consideration the policies of such Lender or such controlling corporation
with regard to capital adequacy), then from time to time, within five Business
Days after receipt by Company, from such Lender of the statement referred to in
the next sentence, Company shall pay to such Lender such additional amount or
amounts as will compensate such Lender or such controlling corporation on an
after-tax basis for such reduction. Such Lender shall deliver to Company (with a
copy to Administrative Agent) a written statement, setting forth in reasonable
detail the basis for calculating the additional amounts owed to Lender under
this Section 2.18(b), which statement shall be conclusive and binding upon all
parties hereto absent manifest error.

     2.19. Taxes; Withholding, etc.

           (a) Payments to Be Free and Clear.  All sums payable by any Credit
               -----------------------------
Party hereunder and under the other Credit Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net income
of any Lender) imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of the United States
of America or any other jurisdiction from or to which a payment is made by or on
behalf of any Credit Party or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time of
payment.

           (b) Withholding of Taxes.  If Company or any other Person is required
               --------------------
by law to make any deduction or withholding on account of any such Tax from any
sum paid or payable by Company to Administrative Agent or any Lender under any
of the Credit Documents:  (i) Company shall notify Administrative Agent of any
such requirement or any change in any such requirement as soon as Company
becomes aware of it; (ii Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to pay is
imposed on any Credit Party) for its own account or (if that liability is
imposed on Administrative Agent or such Lender, as the case may be) on behalf of
and in the name of Administrative Agent or such Lender; (ii the sum payable by
such Credit Party in respect of which the relevant deduction, withholding or
payment is required shall be increased to the extent necessary to ensure that,
after the making of that deduction, withholding or payment, Administrative Agent
or such Lender, as the case may be, receives on the due date a net sum equal to
what it would have received had no such deduction, withholding or payment been
required or made; and (iv within thirty (30) days after paying any sum from
which it is required by law to make any deduction or withholding, and within
thirty (30) days after the due date of payment of any Tax which it is required
by clause (ii) above to pay, Company shall deliver to Administrative Agent
evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant taxing or
other

                                       54
<PAGE>

authority; provided, no such additional amount shall be required to be paid to
any Lender under clause (iii) above except to the extent that any change after
the date hereof (in the case of each Lender listed on the signature pages hereof
on the Closing Date) or after the effective date of the Assignment Agreement or
Joinder Agreement pursuant to which such Lender became a Lender (in the case of
each other Lender) in any such requirement for a deduction, withholding or
payment as is mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date hereof or at
the date of such Assignment Agreement or Joinder Agreement, as the case may be,
in respect of payments to such Lender.

          (c) Evidence of Exemption From U.S. Withholding Tax.  Each Lender that
              -----------------------------------------------
is not a United States Person (as such term is defined in Section 7701(a)(30) of
the Internal Revenue Code) for U.S. federal income tax purposes (a "Non-US
Lender") shall deliver to Administrative Agent for transmission to Company, on
or prior to the Closing Date (in the case of each Lender listed on the signature
pages hereof on the Closing Date) or on or prior to the date of the Assignment
Agreement pursuant to which it becomes a Lender (in the case of each other
Lender), and at such other times as may be necessary in the determination of
Company or Administrative Agent (each in the reasonable exercise of its
discretion), (i) two original copies of Internal Revenue Service Form W-8BEN or
W-8ECI (or any successor forms), properly completed and duly executed by such
Lender, and such other documentation required under the Internal Revenue Code
and reasonably requested by Administrative Agent, Company to establish that such
Lender is not subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of principal, interest,
fees or other amounts payable under any of the Credit Documents, or (ii if such
Lender is not a "bank" or other Person described in Section 881(c)(3) of the
Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-
8BEN or W-8ECI pursuant to clause (i) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service Form W-8 (or any
successor form), properly completed and duly executed by such Lender, and such
other documentation required under the Internal Revenue Code and reasonably
requested by Company to establish that such Lender is not subject to deduction
or withholding of United States federal income tax with respect to any payments
to such Lender of interest payable under any of the Credit Documents.  Each
Lender required to deliver any forms, certificates or other evidence with
respect to United States federal income tax withholding matters pursuant to this
Section 2.19(c) hereby agrees, from time to time after the initial delivery by
such Lender of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such Lender shall
promptly deliver to Administrative Agent for transmission to Company two new
original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a
Certificate re Non-Bank Status and two original copies of Internal Revenue
Service Form W-8, as the case may be, properly completed and duly executed by
such Lender, and such other documentation required under the Internal Revenue
Code and reasonably requested by Company to confirm or establish that such
Lender is not subject to deduction or withholding of United States federal
income tax with respect to payments to such Lender under the Credit Documents,
or notify Administrative Agent and Company of its inability to deliver any such
forms, certificates or other evidence.   Company shall not be required to pay
any additional amount to any Non-US Lender under Section

                                       55
<PAGE>

2.19(b)(iii) if such Lender shall have failed (1) to deliver the forms,
certificates or other evidence referred to in the second sentence of this
Section 2.19(c), or (2) to notify Administrative Agent and Company of its
inability to deliver any such forms, certificates or other evidence, as the case
may be; provided, if such Lender shall have satisfied the requirements of the
        --------
first sentence of this Section 2.19(c) on the Closing Date or on the date of the
Assignment Agreement or Joinder Agreement pursuant to which it became a Lender,
as applicable, nothing in this last sentence of Section 2.19(c) shall relieve
Company of its obligation to pay any additional amounts pursuant to Section
2.19(a) in the event that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is not subject to
withholding as described herein.

           (d) If any Tax is refunded to Administrative Agent or an Affected
Lender, it will pay such refund to Company to the extent Administrative Agent or
an Affected Lender  determines in its sole discretion that such refund is
attributable to any Tax paid by Company and to the extent Company has previously
indemnified the Administrative Agent or Affected Lender therefor pursuant to
this Section 2.19, net of expenses and without interest except any interest (net
of taxes) included in such refund.  Company shall return such refund (together
with any taxes, penalties or other charges) in the event any Agent or any Lender
is required to repay such refund.  Notwithstanding the foregoing, nothing in
this Section 2.19 shall be construed to (i) entitle Company or any other Persons
to (A) any information determined by any Agent or Lender, in each case, in its
sole discretion, to be confidential or proprietary information of such Agent or
Lender, (B) any tax or financial information of such Agent or Lender, or (C)
inspect or review any books and records of any Agent or Lender, or (ii)
interfere with the rights of any Agent or Lender to conduct its fiscal or tax
affairs in such matter as it deems fit.  A certificate as to the amount of such
payment or liability delivered to Company by Administrative Agent on its own
behalf or on behalf of any Lender or Agent shall be conclusive absent manifest
error.

     2.20. Obligation to Mitigate.  Each Lender agrees that, as promptly as
practicable after the officer of such Lender responsible for administering its
Loans becomes aware of the occurrence of an event or the existence of a
condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender to receive payments under Section 2.17, 2.18 or 2.19,
it will, to the extent not inconsistent with the internal policies of such
Lender and any applicable legal or regulatory restrictions, use reasonable
efforts (a) to make, fund or maintain its applicable Commitment or Loans,
including any Affected Loans, through another office of such Lender, or (b) take
such other measures as such Lender may deem reasonable, if as a result thereof
the circumstances which would cause such Lender to be an Affected Lender would
cease to exist or the additional amounts which would otherwise be required to be
paid to such Lender pursuant to Section 2.17, 2.18 or 2.19 would be materially
reduced and if, as determined by such Lender in its sole discretion, the making,
funding or maintaining of such Commitments or Loans through such other office or
in accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitments or Loans or the interests of such Lender;
provided, such Lender will not be obligated to utilize such other office
--------
pursuant to this Section 2.20 unless Company agrees

                                       56
<PAGE>

to pay all incremental expenses incurred by such Lender as a result of utilizing
such other office as described in clause (i) above. A certificate as to the
amount of any such expenses payable by Company pursuant to this Section 2.20
(setting forth in reasonable detail the basis for requesting such amount)
submitted by such Lender to Company (with a copy to Administrative Agent) shall
be conclusive absent manifest error.

     2.21. Defaulting Lenders.  Anything contained herein to the contrary
notwithstanding, in the event that any Lender defaults (a "Defaulting Lender")
in its obligation to fund (a "Funding Default") any Loan (a "Defaulted Loan"),
then (a) during any such period when such default is continuing with respect to
such Defaulting Lender (the "Default Period"), such Defaulting Lender shall not
be deemed to be a "Lender" for purposes of voting on any matters (including the
granting of any consents or waivers) with respect to any of the Credit
Documents; (b) to the extent permitted by applicable law, until such time as the
Default Excess with respect to such Defaulting Lender shall have been reduced to
zero, (i) any voluntary prepayment of the Loans shall, if Company so directs at
the time of making such voluntary prepayment, be applied to the Loans of other
Lenders as if such Defaulting Lender had no Loans outstanding and the Revolving
Exposure and Delayed Draw Term Loan Exposure of such Defaulting Lender were
zero, and (ii any mandatory prepayment of the Loans shall, if Company so directs
at the time of making such mandatory prepayment, be applied to the Loans of
other Lenders (but not to the Loans of such Defaulting Lender) as if such
Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it
being understood and agreed that Company shall be entitled to retain any portion
of any mandatory prepayment of the Loans otherwise payable by such Credit Party
that is not paid to such Defaulting Lender solely as a result of the operation
of the provisions of this clause (b); (c) such Defaulting Lender's Revolving
Commitment and Delayed Draw Term Loan Commitment and outstanding Loans shall be
excluded for purposes of calculating the commitment fee payable to Lenders in
respect of any day during any Default Period with respect to such Defaulting
Lender, and such Defaulting Lender shall not be entitled to receive any
commitment fee pursuant to Section 2.9 with respect to such Defaulting Lender's
Revolving Commitment and Delayed Draw Term Loan Commitment in respect of any
Default Period with respect to such Defaulting Lender; and (d) the Total
Utilization of Commitments as at any date of determination shall be calculated
as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting
Lender.  No Revolving Commitment of any Lender shall be increased or otherwise
affected, and, except as otherwise expressly provided in this Section 2.21,
performance by Company of its obligations hereunder and the other Credit
Documents shall not be excused or otherwise modified as a result of any Funding
Default or the operation of this Section 2.21.  The rights and remedies against
a Defaulting Lender under this Section 2.21 are in addition to other rights and
remedies which Company may have against such Defaulting Lender with respect to
any Funding Default and which Administrative Agent or any Lender may have
against such Defaulting Lender with respect to any Funding Default.

     2.22. Removal or Replacement of a Lender.  Anything contained herein to the
contrary notwithstanding, in the event that: (a) any Lender (an "Increased-Cost
Lender") shall give notice to Company that such Lender is an Affected Lender or
that such Lender is entitled to receive payments under Section  2.17, 2.18 or
2.19, the circumstances which have caused such Lender to be

                                       57
<PAGE>

an Affected Lender or which entitle such Lender to receive such payments shall
remain in effect, and such Lender shall fail to withdraw such notice within five
Business Days after Company's request for such withdrawal; or (b) any Lender
shall become a Defaulting Lender, the Default Period for such Defaulting Lender
shall remain in effect, and such Defaulting Lender shall fail to cure the
default as a result of which it has become a Defaulting Lender within five
Business Days after Company's request that it cure such default; or (c) in
connection with any proposed amendment, modification, termination, waiver or
consent with respect to any of the provisions hereof as contemplated by Section
10.5(b), the consent of Requisite Lenders shall have been obtained but the
consent of one or more of such other Lenders (each a "Non-Consenting Lender")
whose consent is required shall not have been obtained; then, with respect to
each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the
"Terminated Lender"), Company may, by giving written notice to Administrative
Agent and any Terminated Lender of its election to do so, elect to cause such
Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to
assign its outstanding Loans and its Revolving Commitments, if any, in full to
one or more Eligible Assignees (each a "Replacement Lender") in accordance with
the provisions of Section 10.6 and Terminated Lender shall pay any fees payable
thereunder in connection with such assignment; provided, (1) on the date of such
                                               --------
assignment, the Replacement Lender shall pay to Terminated Lender an amount
equal to the sum of (A) an amount equal to the principal of, and all accrued
interest on, all outstanding Loans of the Terminated Lender and (B) an amount
equal to all accrued, but theretofore unpaid fees owing to such Terminated
Lender pursuant to Section 2.9; (2) on the date of such assignment, Company
shall pay any amounts payable to such Terminated Lender pursuant to Section
2.17(c), 2.18 or 2.19 or otherwise as if it were a prepayment; and (3) in the
event such Terminated Lender is a Non-Consenting Lender, Borrower may not make
such election unless it also makes such election with respect to each other
Lender which is a Non-Consenting Lender. Upon the prepayment of all amounts
owing to any Terminated Lender and the termination of such Terminated Lender's
Revolving Commitments, if any, such Terminated Lender shall no longer constitute
a "Lender" for purposes hereof; provided, any rights of such Terminated Lender
                                --------
to indemnification hereunder shall survive as to such Terminated Lender.

SECTION 3.  CONDITIONS PRECEDENT

     3.1  Closing Date.  The obligation of Lenders to make a Credit Extension
on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 10.5, of the following conditions on or before the Closing Date:

          (a) Credit Documents and Related Agreements.  Administrative Agent and
              ---------------------------------------
Syndication Agent shall have received sufficient copies of each Credit Document
originally executed and delivered by each applicable Credit Party for each
Lender, the Intercompany Loan Agreement, Intercompany Security Agreement and
Approved Lease Agreements.

          (b) Organizational Documents; Incumbency.  Administrative Agent and
              ------------------------------------
Syndication Agent shall have received (i) sufficient copies of each
Organizational Document originally executed

                                       58
<PAGE>

and delivered by each Credit Party, as applicable, and, to the extent
applicable, certified as of a recent date by the appropriate governmental
official, for each Lenders and its counsel, each dated the Closing Date or a
recent date prior thereto; (ii) signature and incumbency certificates of the
officers of such Person executing the Credit Documents to which it is a party,
dated as of the Closing Date; (iii) resolutions of the Board of Directors or
similar governing body of each Credit Party approving and authorizing the
execution, delivery and performance of this Agreement and the other Credit
Documents to which it is a party or by which it or its assets may be bound as of
the Closing Date, certified as of the Closing Date by its secretary or an
assistant secretary as being in full force and effect without modification or
amendment; (iv) a good standing certificate from the applicable Governmental
Authority of each Credit Party's jurisdiction of incorporation, organization or
formation and in each jurisdiction in which it is qualified as a foreign
corporation or other entity to do business, each dated a recent date prior to
the Closing Date; and (v) such other related documents as Administrative Agent
or Syndication Agent may reasonably request.

          (c) Organizational and Capital Structure.  The organizational
              ------------------------------------
structure and the capital structure of Holdings and its Subsidiaries shall be as
set forth on Schedule 4.1.
             ------------

          (d) Environmental Information.  Syndication Agent and Administrative
              -------------------------
Agent shall have received reports and other information, in form, scope and
substance satisfactory to Syndication Agent and Administrative Agent, regarding
environmental matters relating to the Facilities.

          (e) Governmental Authorizations and Consents.  Except to the extent
              ----------------------------------------
described in Schedule 3.1(e), each Credit Party shall have obtained all
             ---------------
Governmental Authorizations and all consents of other Persons, in each case that
are necessary or advisable in connection with the transactions contemplated by
the Credit Documents and each of the foregoing shall be in full force and effect
and in form and substance reasonably satisfactory to Syndication Agent and
Administrative Agent.  All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on the
transactions contemplated by the Credit Documents and no action, request for
stay, petition for review or rehearing, reconsideration, or appeal with respect
to any of the foregoing shall be pending, and the time for any applicable agency
to take action to set aside its consent on its own motion shall have expired.

          (f) Personal and Mixed Property Collateral.  In order to create in
              --------------------------------------
favor of Collateral Agent, for the benefit of Secured Parties, a valid and
perfected First Priority security interest in the personal property Collateral,
Collateral Agent shall have received:

              (i) (1) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Collateral Agent) representing all
certificated shares or other interests (however designated) with respect to
Capital Stock pledged pursuant to the Pledge and Security Agreement and (2) all
instruments and promissory notes (which instruments shall be accompanied by
instruments of transfer or assignment duly endorsed in blank and otherwise in
form and substance satisfactory to

                                       59
<PAGE>

Collateral Agent) evidencing all Indebtedness pledged pursuant to the Pledge and
Security Agreement;

               (ii)  (1) the results of a recent search, by a Person
satisfactory to Syndication Agent and Collateral Agent, of UCC financing
statements and fixture filings and all judgment and tax lien filings made with
respect to any personal or mixed property of any Credit Party, together with
copies of all such filings disclosed by such search, and (2) UCC termination
statements duly executed by all applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective UCC financing
statements or fixture filings disclosed in such search (other than any such
financing statements or fixture filings in respect of Permitted Liens);

               (iii) UCC financing statements, including fixture filings, duly
executed by each applicable Credit Party with respect to all personal and mixed
property Collateral of such Credit Party, for filing in all jurisdictions as may
be necessary or, in the opinion of Collateral Agent, desirable to perfect the
security interests created in such Collateral pursuant to the Collateral
Documents under the UCC;

               (iv)  all releases, cover sheets or other documents or
instruments required to be filed in order to create or perfect Liens in respect
of any intellectual property Collateral;

               (v)   opinions of counsel (which counsel shall be reasonably
satisfactory to Collateral Agent) with respect to the creation and perfection of
the security interests in favor of Collateral Agent in such Collateral and such
other matters governed by the laws of each jurisdiction in which any Credit
Party or any personal property Collateral is located as Collateral Agent may
reasonably request, in each case, addressed to the Agents and each Lender and in
form and substance reasonably satisfactory to Collateral Agent;

               (vi)  delivery to the Collateral Agent, in the case of each
Leasehold Property, a Landlord Personal Property Collateral Access Agreement
with respect thereto; and

               (vii) evidence that each Credit Party shall have taken or caused
to be taken any other action, executed and delivered or caused to be executed
and delivered any other agreement, document and instrument (including, without
limitation, any agreements governing deposit and/or security accounts), and made
or caused to be made any other filing and recording (other than as set forth
herein) required pursuant to the Pledge and Security Agreement or otherwise
reasonably required by Collateral Agent.

          (g)  Financial Statements; Projections.  Lenders shall have received
               ---------------------------------
from Holdings (i) the Historical Financial Statements, (ii) a financial forecast
dated July 2000 for Holdings and its Subsidiaries for the period from Fiscal
Year 2000 through and including Fiscal Year 2008 (with Fiscal Years 2000, 2001,
2002 and 2003 detailed by Fiscal Quarter); and all of the foregoing financial
statements and other information will not be inconsistent, in any material
respect, with any information previously provided to Lenders.

                                       60
<PAGE>

          (h) Evidence of Insurance.  Syndication Agent and Administrative Agent
              ---------------------
shall have received a certificate from Holding's and Company's insurance broker
or other evidence satisfactory to them that all insurance required to be
maintained pursuant to Section 5.5 is in full force and effect and that
Administrative Agent, for the benefit of Lenders has been named as additional
insured and loss payee thereunder to the extent required under Section 5.5.

          (i) Opinions of Counsel to Credit Parties.  Lenders and their
              -------------------------------------
respective counsel shall have received originally executed copies of the
favorable written opinions of McDermott, Will & Emery, Swidler Berlin Shereff
Friedman, LLP and Renee M. Martin, Esq., as counsel for Credit Parties, in the
forms of Exhibit D and as to such other matters as Administrative Agent or
         ---------
Syndication Agent may reasonably request, and addressed to the Agents and the
Lenders and otherwise in form and substance reasonably satisfactory to
Administrative Agent and Syndication Agent and its counsel, dated the Closing
Date.

          (j) Opinions of Counsel to Syndication Agent.  Lenders shall have
              ----------------------------------------
received originally executed copies of one or more favorable written opinions of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent, dated as
of the Closing Date, in form and substance reasonably satisfactory to
Syndication Agent.

          (k) Fees.  Company shall have paid to Agents the fees payable on the
              ----
Closing Date referred to in Section 2.9(c).

          (l) Solvency Certificate.  On the Closing Date, Syndication Agent,
              --------------------
Administrative Agent and Lenders shall have received a Solvency Certificate from
Holdings and Company.

          (m) Closing Date Certificate.  Company shall have delivered to
              ------------------------
Syndication Agent and Administrative Agent an originally executed Closing Date
Certificate, together with all attachments thereto.

          (n) Material Contracts.  Holdings and its Subsidiaries shall have
              ------------------
delivered to Syndication Agent and Administrative Agent copies of all Material
Contracts in effect on the Closing Date.

          (o) Completion of Proceedings.  All partnership, corporate and other
              -------------------------
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent or Syndication Agent and its counsel shall be
satisfactory in form and substance to Administrative Agent and Syndication Agent
and such counsel, and Administrative Agent, Syndication Agent and such counsel
shall have received all such counterpart originals or certified copies of such
documents as Administrative Agent or Syndication Agent may reasonably request.

                                       61
<PAGE>

          Each Lender, by delivering its signature page to this Agreement (other
than in escrow for later release upon the instruction of such Lender) on the
Closing Date or by giving instructions for the release of its signature pages
previously delivered by it in escrow (as the case may be) or such date, shall be
deemed to have acknowledged receipt of, and consented to and approved, each
Credit Document and each other document required to be approved by any Agent,
Requisite Lenders or Lenders, as applicable, on or prior to the Closing Date.

     3.2. Conditions to Each Credit Extension.

          (a) Conditions Precedent.  The obligation of each Lender to make any
              --------------------
Loan on any Credit Date, including the Closing Date, are subject to the
satisfaction, or waiver in accordance with Section 10.5, of the following
conditions precedent (in addition to those conditions precedent set forth in
Section 3.1 hereof):

              (i)    Administrative Agent shall have received a fully executed
and delivered Funding Notice;

              (ii)   after making any Revolving Loans requested on such Credit
Date, the Total Utilization of Revolving Commitments shall not exceed the
Revolving Commitments then in effect;

              (ii)   after making any Delayed Draw Term Loans requested on such
Credit Date, the Total Utilization of Delayed Draw Term Loan Commitments shall
not exceed the Delayed Draw Term Loan Commitments then in effect;

              (iv)   after giving effect to the making of each Loan, Holdings
and Company shall be in compliance, on a pro forma basis as of the last day of
the most recently ended Fiscal Quarter, with the financial covenants set forth
in Section 6.6 or 6.7, as applicable.

              (v)    as of such Credit Date, the representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects on and as of that Credit Date to the same extent as though
made on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date;

              (vi)   as of such Credit Date, no event shall have occurred and be
continuing or would result from the consummation of the applicable Credit
Extension that would constitute an Event of Default or a Default;

              (vii)  as of such Credit Date, Company shall have provided
Administrative Agent and Syndication Agent such information, as either may
reasonably request, confirming the use of proceeds of Loan in accordance with
Section 2.4; and

                                       62
<PAGE>

              (viii) on or before such Credit Date, Company shall have satisfied
any and all post-closing obligations required to have been satisfied by such
Credit Date pursuant to Section 5.15.

          (b) Notices.  Any Notice shall be executed by an Authorized Officer in
              -------
a writing delivered to Administrative Agent.  In lieu of delivering a Notice,
Company may give Administrative Agent telephonic notice by the required time
of any proposed borrowing or conversion/continuation, as the case may be;
provided each such notice shall be promptly confirmed in writing by delivery of
--------
the applicable Notice to Administrative Agent on or before the applicable date
of borrowing or continuation/conversion.  Neither Administrative Agent nor any
Lender shall incur any liability to Company in acting upon any telephonic notice
referred to above that Administrative Agent believes in good faith to have been
given by a duly authorized officer or other person authorized on behalf of
Company or for otherwise acting in good faith.

 SECTION 4.   REPRESENTATIONS AND WARRANTIES

     In order to induce Lenders to enter into this Agreement and to make each
Credit Extension to be made thereby, each Credit Party represents and warrants
to each Lender, on the Closing Date and on each Credit Date, that the following
statements are true and correct:

     4.1.  Organization; Requisite Power and Authority; Qualification.  Each of
Holdings and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization as identified
in Schedule 4.1, (b) has all requisite power and authority to own and operate
   ------------
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Credit Documents to which it is a party and to
carry out the transactions contemplated thereby, and (c) is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had, and could not be reasonably expected to have, a Material Adverse Effect.

     4.2.  Capital Stock and Ownership.  The Capital Stock of each of Holdings
and its Subsidiaries has been duly authorized and validly issued and is fully
paid and non-assessable. Except as set forth on Schedule 4.2, as of the date
                                                ------------
hereof, there is no existing option, warrant, call, right, commitment or other
agreement to which Holdings or any of its Subsidiaries is a party requiring, and
there is no membership interest or other Capital Stock of Holdings or any of its
Subsidiaries outstanding which upon conversion or exchange would require, the
issuance by Holdings or any of its Subsidiaries of any additional membership
interests or other Capital Stock of Holdings or any of its Subsidiaries or other
Securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase, a membership interest or other Capital Stock of
Holdings or any of its Subsidiaries.  Schedule 4.2 correctly sets forth the
                                      ------------
ownership interest of Holdings and each of its Subsidiaries as of the Closing
Date.

                                       63
<PAGE>

     4.3.  Due Authorization.  The execution, delivery and performance of the
Credit Documents have been duly authorized by all necessary action on the part
of each Credit Party that is a party thereto.

     4.4.  No Conflict.  The execution, delivery and performance by Credit
Parties of the Credit Documents to which they are parties and the consummation
of the transactions contemplated by the Credit Documents do not and will not (a)
violate any provision of any law or any governmental rule or regulation
applicable to Holdings or any of its Subsidiaries, any Governmental
Authorization, any of the Organizational Documents of Holdings or any of its
Subsidiaries, or any order, judgment or decree of any court or other agency of
government binding on Holdings or any of its Subsidiaries; (b) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation under any Material Contract of Holdings
or any of its Subsidiaries; (c) result in or require the creation or imposition
of any Lien upon any of the properties or assets of Holdings or any of its
Subsidiaries (other than any Liens created under any of the Credit Documents in
favor of Collateral Agent, on behalf of Secured Parties); or (d) require any
approval of stockholders or members or any approval or consent of any Person
under any Contractual Obligation of Holdings or any of its Subsidiaries, except
for such approvals or consents which will be obtained on or before the Closing
Date and disclosed in writing to Administrative Agent.

     4.5.  Governmental Consents.  The execution, delivery and performance by
Credit Parties of the Credit Documents to which they are parties and the
consummation of the transactions contemplated by the Credit Documents do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority except as otherwise set
forth on Schedule 4.5, and except for filings and recordings with respect to the
         ------------
Collateral to be made, or otherwise delivered to Collateral Agent, as of the
Closing Date.

     4.6.  Binding Obligation.  Each Credit Document has been duly executed and
delivered by each Credit Party that is a party thereto and is the legally valid
and binding obligation of such Credit Party, enforceable against such Credit
Party in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.

     4.7.  Historical Financial Statements.  The Historical Financial Statements
were prepared in conformity with GAAP and fairly present, in all material
respects, the financial position, on a consolidated basis, of the Persons
described in such financial statements as at the respective dates thereof and
the results of operations and cash flows, on a consolidated basis, of the
entities described therein for each of the periods then ended, subject, in the
case of any unaudited financial statements, to changes resulting from audit and
normal year-end adjustments.  As of the Closing Date, except as set forth on
Schedule 4.7, neither Holdings nor any of its Subsidiaries has any contingent
------------
liability or liability for taxes, long-term lease or unusual forward or long-
term commitment that is not reflected in the Historical Financial Statements or
the notes thereto and which in any such case is material in relation to the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Holdings and any of its Subsidiaries taken as a whole.

                                       64
<PAGE>

     4.8.  Projections.  On and as of the Closing Date, the financial forecast
of Holdings and its Subsidiaries delivered pursuant to Section 3.1(g) (the
"Projections") is based on good faith estimates and assumptions made by the
management of Holdings; provided, the Projections are not to be viewed as facts
                        --------
and that actual results during the period or periods covered by the Projections
may differ from such Projections and that the differences may be material;
provided further, as of the Closing Date, management of Holdings believed that
-------- -------
the Projections were reasonable and attainable.

     4.9.  No Material Adverse Change.  Since December 31, 1999, no event or
change has occurred that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect.

     4.10. No Restricted Junior Payments.  Since December 31, 1999, neither
Holdings nor any of its Subsidiaries has directly or indirectly declared,
ordered, paid or made, or set apart any sum or property for, any Restricted
Junior Payment or agreed to do so except as permitted pursuant to Section 6.4.

     4.11. Adverse Proceedings, etc.  There are no Adverse Proceedings,
individually or in the aggregate, that could reasonably be expected to have a
Material Adverse Effect.  Neither Holdings nor any of its Subsidiaries (a) is in
violation of any applicable laws (including Environmental Laws) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, or (b) is subject to or in default with respect to any
final judgments, writs, injunctions, decrees, rules or regulations of any court
or any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

     4.12. Payment of Taxes.  Except as otherwise permitted under Section 5.3,
all tax returns and reports of Holdings and its Subsidiaries required to be
filed by any of them have been timely filed, and all taxes shown on such tax
returns to be due and payable and all assessments, fees and other governmental
charges upon Holdings and its Subsidiaries and upon their respective properties,
assets, income, businesses and franchises which are due and payable have been
paid when due and payable.  Holdings knows of no proposed tax assessment against
Holdings or any of its Subsidiaries which is not being actively contested by
Holdings or such Subsidiary in good faith and by appropriate proceedings;
provided, such reserves or other appropriate provisions, if any, as shall be
--------
required in conformity with GAAP shall have been made or provided therefor.

     4.13. Properties.

           (a) Title.  Each of Holdings and its Subsidiaries has (i) good,
               -----
sufficient and marketable legal title to (in the case of fee interests in real
property), and (ii) valid leasehold interests in (in the case of leasehold
interests in real property), all of their respective properties and assets
reflected in their respective Historical Financial Statements referred to in
Section 4.7 or, if later, in

                                       65
<PAGE>

the most recent financial statements delivered pursuant to Section 5.1, in each
case except for assets disposed of since the date of such financial statements
in the ordinary course of business or as otherwise permitted under Section 6.8.
Except as permitted by this Agreement, all such properties and assets are free
and clear of Liens.

           (b) Real Estate.  As of the Closing Date, Schedule 4.13 contains a
               -----------                           -------------
true, accurate and complete list of (i) all Real Estate Assets, and (ii) all
material leases, subleases or assignments of leases (together with all
amendments, modifications, supplements, renewals or extensions of any thereof)
affecting each Real Estate Asset of any Credit Party, regardless of whether such
Credit Party is the landlord or tenant (whether directly or as an assignee or
successor in interest) under such lease, sublease or assignment.  Except as
specified in Schedule 4.13, each agreement listed in clause (ii) of the
             -------------
immediately preceding sentence is in full force and effect and Holdings or the
Company does not have knowledge of any default that has occurred and is
continuing thereunder which has had and could reasonably be expected to have a
Material Adverse Effect, and each such agreement constitutes the legally valid
and binding obligation of each applicable Credit Party, enforceable against such
Credit Party in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles.

     4.14. Environmental Matters.  Neither Holdings nor any of its Subsidiaries
is subject to any Environmental Claim which could reasonably be expected to have
a Material Adverse Effect, nor to their knowledge have there been any Hazardous
Material Activities which could reasonably be expected to lead to Environmental
Claims having a Material Adverse Effect.

     4.15. No Defaults.  Neither Holdings nor any of its Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists which, with the giving of notice or the lapse of time or both,
could constitute such a default, except where the consequences, direct or
indirect, of such default or defaults, if any, could not reasonably be expected
to have a Material Adverse Effect.

     4.16. Material Contracts.  Schedule 4.16 contains a true, correct and
                                -------------
complete list of all the Material Contracts in effect on the Closing Date, and
except as described thereon, all such Material Contracts are in full force and
effect and no defaults currently exist thereunder which defaults could
reasonably be expected to have a Material Adverse Effect.

     4.17. Governmental Regulation.  Neither Holdings nor any of its
Subsidiaries (except to the extent disclosed on Schedule 4.17) is subject to
                                                -------------
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or the Investment Company Act of 1940 or under any other federal or
state statute or regulation which may limit its ability to incur Indebtedness or
which may otherwise render all or any portion of the Obligations unenforceable.
Neither Holdings nor any of its Subsidiaries is a "registered investment
company" or company "controlled" by a "registered

                                       66
<PAGE>

investment company" or a "principal underwriter" of a "registered investment
company" as such terms are defined in the Investment Company Act of 1940.

     4.18.  Margin Stock.  Neither Holdings nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.  No
part of the proceeds of the Loans made to Company will be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock or for any purpose that violates, or is
inconsistent with, the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System.

     4.19.  Employee Matters.  Neither Holdings nor any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
Material Adverse Effect.  There is (a) no unfair labor practice complaint
pending against Holdings or any of its Subsidiaries, or to the knowledge of
Holdings and Company, threatened against any of them before the National Labor
Relations Board and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement that is so pending against Holdings or
any of its Subsidiaries or to the knowledge of Holdings and Company, threatened
against any of them, (b) no strike or work stoppage in existence or threatened
involving Holdings or any of its Subsidiaries and (c) to the knowledge of
Holdings and Company, no union representation question existing with respect to
the employees of Holdings or any of its Subsidiaries and, to the knowledge of
Holdings and Company, no union organization activity that is taking place,
except (with respect to any matter specified in clause (a), (b) or (c) above,
either individually or in the aggregate) such as is not reasonably likely to
have a Material Adverse Effect.

     4.20.  Employee Benefit Plans.  Holdings, each of its Subsidiaries and each
of their respective ERISA Affiliates are in compliance with all applicable
provisions and requirements of ERISA and the Internal Revenue Code and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan except for such violations which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
Each Employee Benefit Plan which is intended to qualify under Section 401(a) of
the Internal Revenue Code is so qualified.  No material liability to the PBGC
(other than required premium payments), the Internal Revenue Service, any
Employee Benefit Plan or any Trust established under Title IV of ERISA has been
or is expected to be incurred by Holdings, any of its Subsidiaries or any of
their ERISA Affiliates.  No ERISA Event has occurred or is reasonably expected
to occur.  Except to the extent required under Section 4980B of the Internal
Revenue Code or similar state laws, no Employee Benefit Plan provides health or
welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employee of Holdings, any of its Subsidiaries or any of their
respective ERISA Affiliates.  As of the most recent valuation date for any
Pension Plan, the amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect to
which assets exceed benefit liabilities), does not exceed $1,000,000.  As of the
most recent valuation date for each Multiemployer Plan for which the actuarial
report is available, the potential liability of Holdings, its

                                       67
<PAGE>

Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $1,000,000. Holdings, each of its Subsidiaries and
each of their ERISA Affiliates have complied with the requirements of Section
515 of ERISA with respect to each Multiemployer Plan and are not in material
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan.

     4.21.  Solvency.  Each Credit Party is and, upon the incurrence of any
Obligation by such Credit Party on any date on which this representation and
warranty is made, will be, Solvent.

     4.22.  Compliance with Statutes, etc.  Each of Holdings and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all Governmental
Authorities, in respect of the conduct of its business and the ownership of its
property (including compliance with all applicable Environmental Laws with
respect to any Real Estate Asset or governing its business and the requirements
of any permits issued under such Environmental Laws with respect to any such
Real Estate Asset or the operations of Holdings or any of its Subsidiaries),
except such non-compliance that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

     4.23.  Disclosure.  No representation or warranty of any Credit Party
contained in any Credit Document or in any other documents, certificates or
written statements furnished to Lenders by or on behalf of Holdings or any of
its Subsidiaries for use in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact (known to Holdings or Company, in the case of any document not furnished by
either of them) necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which the same were
made.  Any projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by
Holdings and Company to be reasonable at the time made, it being recognized by
Lenders that such projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results.  There are no facts known (or
which should, upon the reasonable exercise of diligence, be known) to Holdings
or Company (other than matters of a general economic nature) that, individually
or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect and that have not been disclosed herein or in such other
documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.

 SECTION 5. AFFIRMATIVE COVENANTS

     Each Credit Party covenants and agrees that so long as any Commitment is in
effect and until payment in full in same day funds of all Obligations, each
Credit Party shall perform, and shall cause each of its Subsidiaries to perform,
all covenants in this Section 5.

                                       68
<PAGE>

     5.1. Financial Statements and Other Reports.  Holdings will deliver to
Administrative Agent and Lenders:

          (a) Quarterly Financial Statements.  As soon as available, and in any
              ------------------------------
event within forty-five days after the end of each Fiscal Quarter of each Fiscal
Year, the consolidated balance sheet of Holdings and its Subsidiaries as at the
end of such Fiscal Quarter and the related consolidated statements of income,
stockholders' equity and cash flows of Holdings and its Subsidiaries for such
Fiscal Quarter and for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter, setting forth in each case in
comparative form the corresponding figures for the corresponding periods of the
previous Fiscal Year and the corresponding figures from the Financial Plan for
the current Fiscal Year, all in reasonable detail, together with (1) a Financial
Officer Certification, (2) a copy of Holdings' Form 10-Q or 10-K, as
appropriate, as filed for such Fiscal Quarter and (3) revised Schedules 4.1 and
                                                              -------------
4.2 (if necessary) reflecting all changes in the organizational structure and
---
capital structure of Holdings and its Subsidiaries since the delivery of the
last quarterly financial information, which revised Schedules 4.1 and 4.2 will
                                                    -------------     ---
be deemed to amend the then-existing Schedules 4.1 and 4.2 for all purposes
                                     -------------     ---
under this Agreement;

          (b) Annual Financial Statements.  As soon as available, and in any
              ---------------------------
event within ninety days after the end of each Fiscal Year, (i) the consolidated
balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year
and the related consolidated statements of income, stockholders' equity and cash
flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in
each case in comparative form the corresponding figures for the previous Fiscal
Year and the corresponding figures from the Financial Plan for the Fiscal Year
covered by such financial statements, in reasonable detail, together with a
Financial Officer Certification and a copy of Holdings' Form 10-K as filed for
such Fiscal Year; (ii) with respect such consolidated financial statements a
report thereon of Arthur Andersen LLP or other independent certified public
accountants of recognized national standing selected by Holdings, and reasonably
satisfactory to Administrative Agent (which report shall be unqualified as to
going concern and scope of audit, and shall state that such consolidated
financial statements fairly present, in all material respects, the consolidated
financial position of Holdings and its Subsidiaries as at the dates indicated
and the results of their operations and their cash flows for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
(except as otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards) together with a written statement by such independent certified
public accountants stating (1) that their audit examination has included a
review of the terms of the Credit Documents, (2) whether, in connection
therewith, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof, and
(3) that nothing has come to their attention that causes them to believe that
the information contained in any Compliance Certificate is not correct or that
the matters set forth in such Compliance Certificate are not stated in
accordance with the terms hereof; and (iii) revised Schedules 4.1 and 4.2 (if
                                                    -------------     ---
necessary) reflecting all changes in the organizational structure and capital
structure of Holdings and its Subsidiaries since the delivery of the last
quarterly financial

                                       69
<PAGE>

information, which revised Schedules 4.1 and 4.2 will be deemed to amend the
                           -------------     ---
then-existing Schedules 4.1 and 4.2 for all purposes under this Agreement;
              -------------     ---

          (c) Compliance Certificate.  Together with each delivery of financial
              ----------------------
statements of Holdings and its Subsidiaries pursuant to Sections 5.1(a) and
5.1(b), a duly executed and completed Compliance Certificate;

          (d) Statements of Reconciliation after Change in Accounting
              -------------------------------------------------------
Principles.  If, as a result of any change in accounting principles and policies
----------
from those used in the preparation of the Historical Financial Statements, the
consolidated financial statements of Holdings and its Subsidiaries delivered
pursuant to Section 5.1(a) or 5.1(b) will differ in any material respect from
the consolidated financial statements that would have been delivered pursuant to
such subdivisions had no such change in accounting principles and policies been
made, then, together with the first delivery of such financial statements after
such change, one or more a statements of reconciliation for the immediately
preceding quarterly and annual prior financial statements in form and substance
reasonably satisfactory to Administrative Agent;

          (e) promptly upon their becoming available, copies of (i) all
financial statements, reports, notices and proxy statements sent or made
available generally by Holdings to its security holders acting in such capacity
or by any Subsidiary of Holdings to its security holders other than Holdings or
another Subsidiary of Holdings, (ii) all regular and periodic reports (but not
including, unless requested by Administrative Agent, routine reports regularly
filed with the Federal and state commissions with jurisdiction over
telecommunications matters) and all registration statements (other than on Form
S-8 or a similar form) and prospectuses, if any, filed by Company, Holdings or
any of their Subsidiaries with any securities exchange or with the Securities
and Exchange Commission or any governmental or private regulatory authority, and
(iii) all press releases and other statements made available generally by
Holdings or any of its Subsidiaries to the public concerning material
developments in the business of Holdings or any of its Subsidiaries;

          (f) Notice of Default.  Promptly upon any executive officer of
              -----------------
Holdings or Company obtaining knowledge (i) of any condition or event that
constitutes a Default or an Event of Default or that notice has been given to
Company with respect thereto; (ii) that any Person has given any notice to
Holdings or any of one of its Subsidiaries or taken any other action with
respect to any event or condition set forth in Section 8.1(b); (iii) of any
condition or event of a type required to be disclosed in a current report on
Form 8-K of the Securities and Exchange Commission; or (iv) of the occurrence of
any event or change that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect, a certificate of one of its Authorized
Officers specifying the nature and period of existence of such condition, event
or change, or specifying the notice given and action taken by any such Person
and the nature of such claimed Event of Default, Default, default, event or
condition, and what action Company has taken, is taking and proposes to take
with respect thereto;

                                       70
<PAGE>

          (g) Notice of Litigation.  Promptly upon any officer of Holdings or
              --------------------
Company obtaining knowledge of (i) the institution of, or non-frivolous written
threat of, any Adverse Proceeding not previously disclosed in writing by Company
to Lenders, or (ii any material development in any Adverse Proceeding that, in
the case of either (i) or (ii) if adversely determined, could be reasonably
expected (taking into account reasonably likely as opposed to merely asserted
damages and/or relief sought) to have a Material Adverse Effect, or seeks to
enjoin or otherwise prevent the consummation of, or to recover any damages or
obtain relief as a result of, the transactions contemplated hereby, written
notice thereof together with such other information as may be reasonably
available to Holdings or Company to enable Lenders and their counsel to evaluate
such matters;

          (h) ERISA.   (i) Promptly upon becoming aware of the occurrence of or
              -----
forthcoming occurrence of any ERISA Event, a written notice specifying the
nature thereof, what action Holdings, any of its Subsidiaries or any of their
respective ERISA Affiliates has taken, is taking or proposes to take with
respect thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto; and
(ii with reasonable promptness, copies of (1) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by Holdings, any of
its Subsidiaries or any of their respective ERISA Affiliates with the Internal
Revenue Service with respect to each Pension Plan; (2) all notices received by
Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates
from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of
such other documents or governmental reports or filings relating to any Employee
Benefit Plan as Administrative Agent shall reasonably request;

          (i) Financial Plan.  As soon as practicable and in any event no later
              --------------
than sixty days after the beginning of each Fiscal Year, a consolidated plan and
financial forecast for such Fiscal Year and the next three succeeding Fiscal
Years (a "Financial Plan"), including (i) a forecasted consolidated balance
sheet and forecasted consolidated statements of income and cash flows of
Holdings and its Subsidiaries for each such Fiscal Year, together with pro forma
Compliance Certificates for each such Fiscal Year and an explanation of the
assumptions on which such forecasts are based and (ii forecasted consolidated
statements of income and cash flows of Holdings and its Subsidiaries for each
month of each such Fiscal Year, together with an explanation of the assumptions
on which such forecasts are based;

          (j) Insurance Report.  As soon as practicable following receipt and in
              ----------------
any event by the last day of September in each Fiscal Year, a report in form and
substance satisfactory to Administrative Agent outlining all material insurance
coverage maintained as of the date of such report by Holdings and its
Subsidiaries and all material insurance coverage planned to be maintained by
Holdings and its Subsidiaries in the immediately succeeding Fiscal Year;

          (k) Notice of Change in Board of Directors.  With reasonable
              --------------------------------------
promptness, written notice of any change in the board of directors (or similar
governing body) of Holdings or Company;

                                       71
<PAGE>

          (l) Notice Regarding Material Contracts.  Promptly, and in any event
              -----------------------------------
within ten (10) Business Days (i) after any Material Contract of Holdings or any
of its Subsidiaries is terminated prior to its scheduled term or amended in a
manner that could reasonably be expected to have a Material Adverse Effect, or
(ii) any new Material Contract is entered into, a written statement describing
such event, with copies of such material amendments or new contracts, delivered
to Administrative Agent (to the extent such delivery is permitted by the terms
of any such Material Contract, provided, no such prohibition on delivery shall
be effective if it were bargained for by Holdings or its applicable Subsidiary
with the intent of avoiding compliance with this Section 5.1(l)), and, in the
case of clause (i), an explanation of any actions being taken with respect
thereto;

          (m) Environmental Reports and Audits.  As soon as practicable
              --------------------------------
following receipt thereof, copies of all environmental audits and reports with
respect to environmental matters at any Facility or which relate to any
environmental liabilities of Holdings or its Subsidiaries which, in any such
case, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect;

          (n) Projections and Financial Plans.  Promptly upon any officer of
              -------------------------------
Holdings or Company obtaining knowledge thereof, written notice of any material
change in (i) the operations, activities or business of Holdings and its
Subsidiaries or (ii) any other material assumption, in each case from those upon
which the forecasts contained in the Projections delivered pursuant to Section
3.1(g) or any Financial Plan delivered pursuant to Section 5.1(i) were based;
and

          (o) Intercompany Transactions.  With reasonable promptness, such
              -------------------------
information as may reasonably be requested by Administrative Agent, Syndication
Agent or any Lender in respect of the Intercompany Loan Agreement, Approved
Lease Agreement or Intercompany Security Agreement or the transactions
contemplated thereby or the underlying documentation (including purchase
agreements and invoices) in relation thereto, and in any event on a quarterly
basis:  (i) the amount of  Indebtedness owing by each Subsidiary to Company
thereunder, and (ii) the description, location and relevant lessee of all
Telecommunications Assets leased thereunder (which obligation, unless otherwise
requested, shall be satisfied by the provision of all relevant lease schedules
which shall be maintained in form and substance satisfactory to the
Administrative Agent).

          (p) Other Information.  With reasonable promptness, such other
              -----------------
information and data with respect to Holdings or any of its Subsidiaries as from
time to time may be reasonably requested by Administrative Agent, Syndication
Agent or any Lender.

     5.2. Existence.  Except as otherwise permitted under Section 6.8, each
Credit Party will, and will cause each of its Subsidiaries to, at all times
preserve and keep in full force and effect its existence and all rights and
franchises, licenses and permits material to its business; provided, no Credit
                                                           --------
Party nor any of its Subsidiaries shall be required to preserve any such
existence, right or franchise, licenses and permits if such Person's board of
directors (or similar governing body) shall determine that the preservation
thereof is no longer desirable in the conduct of the business of such

                                       72
<PAGE>

Person, and that the loss thereof is not disadvantageous in any material respect
to such Person or to Lenders.

     5.3.  Payment of Taxes and Claims.  Each Credit Party will, and will cause
each of its Subsidiaries to, pay all Taxes imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty or fine accrues thereon, and all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, no such Tax or claim need be paid if it
                               --------
is being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted, so long as (a) adequate reserve or other appropriate
provision, as shall be required in conformity with GAAP shall have been made
therefor, and (b) in the case of a charge or claim which has or may become a
Lien against any of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral to satisfy such Tax or
claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income Tax return with any Person
(other than Holdings or any of its Subsidiaries).

     5.4.  Maintenance of Properties.  Each Credit Party will, and will cause
each of its Subsidiaries to, maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of Holdings and its Subsidiaries and
from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof.

     5.5.  Insurance.  Holdings will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and workers'
compensation insurance and casualty insurance with respect to liabilities,
losses or damage in respect of the assets, properties and businesses of Holdings
and its Subsidiaries as may customarily be carried or maintained under similar
circumstances by Persons of established reputation engaged in similar
businesses, in each case in such amounts (giving effect to self-insurance), with
such deductibles and limits, covering such risks and otherwise on such terms and
conditions as shall be customary for such Persons.  Without limiting the
generality of the foregoing, Holdings will maintain or cause to be maintained
(a) flood insurance with respect to each Flood Hazard Property that is located
in a community that participates in the National Flood Insurance Program, in
each case in compliance with any applicable regulations of the Board of
Governors of the Federal Reserve System, and (b) replacement value casualty
insurance on an all-risks basis on the Collateral under such policies of
insurance, with such insurance companies, in such amounts, with such
deductibles, and covering such risks and otherwise on such terms and conditions
as are at all times carried or maintained under similar circumstances by Persons
of established reputation engaged in similar businesses.  Each such policy of
insurance shall (i) name Administra  tive Agent, on behalf of Lenders, as an
additional insured thereunder as its interests may appear and (ii in the case of
each business interruption and casualty insurance policy, contain a standard
lender's loss payable clause or endorsement, reasonably satisfactory in form and
substance to Administrative Agent.

                                       73
<PAGE>

     5.6.  Books and Records; Inspections; Lenders Meetings.  Each Credit Party
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. Each Credit Party will,
and will cause each of its Subsidiaries to, permit any authorized representa
tives designated by any Lender to visit and inspect any of the facilities of any
Credit Party and any of its respective Subsidiaries, to inspect, copy and take
extracts from its and their financial and accounting records, and to discuss its
and their affairs, finances and accounts with its and their officers and
independent public accountants, all upon reasonable notice and at such
reasonable times during normal business hours and as often as may reasonably be
requested.  Holdings and Company will, upon the request of Administrative Agent
or Requisite Lenders, participate in a meeting of Administrative Agent and
Lenders once during each Fiscal Year to be held at Holdings' corporate offices
(or at such other location as may be agreed to by Holdings, Company and
Administrative Agent) at such time as may be agreed to by Holdings, Company and
Administrative Agent.

     5.7.  Compliance with Laws.  Each Credit Party will comply, and shall cause
each of its Subsidiaries and all other Persons, if any, on or occupying any
Facilities to comply, with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority (including all
Environmental Laws), noncompliance with which could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

     5.8   Ownership of Telecommunications Assets.  Each Credit Party shall take
such actions as may be required to ensure that, subject to dispositions
permitted under Section 6.8, all Telecommunications Assets owned by Company as
of the Closing Date, or acquired by any Credit Party after the Closing Date,
shall be owned at all times after the Closing Date by Company other than to the
extent they are: (i) owned by a Wholly-Owned Subsidiary of Company if acquired
pursuant to a Permitted Acquisition to the extent not commercially practicable
to transfer such Telecommunications Assets to Company, or (ii) otherwise subject
to a Capital Lease in the form of the Approved Lease Agreement to which the
Company is the lessor and Focal Communications Corporation of Illinois is the
lessee, or (iii) during the period from the Closing Date to the date falling 150
days thereafter, or the first Credit Extension, if earlier, and without
prejudice to other provisions of this clause, transferred to and owned by
Equipment Subsidiary, or (iv) Telecommunications Assets purchased by Equipment
Subsidiary and to be purchased from it by Company with the proceeds of Loans
within 180 days of the original purchase by Equipment Subsidiary provided that
if such Telecommunications Assets have not been so purchased within such 180
days, such Telecommunications Assets shall, in any event, be transferred to
Company, or (v) assets required by the terms of this Credit Agreement to be
owned by Dark Fiber Subsidiary.

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<PAGE>

     5.9. Environmental.

          (a)  Environmental Disclosure. Holdings will deliver to Administrative
               ------------------------
Agent and Lenders:

               (i)   as soon as practicable following receipt thereof, copies of
all notices of Environmental Claims, environmental audits, investigations,
analyses and reports of any kind or character, whether prepared by personnel of
Holdings or any of its Subsidiaries or by independent consultants, governmental
authorities or any other Persons, with respect to significant environmental
matters at any Facility or with respect to any Environmental Claims which could
reasonably be expected to have a Material Adverse Effect;

               (ii)  promptly upon the occurrence thereof, written notice
describing in reasonable detail (1) any Release required to be reported to any
federal, state or local governmental or regulatory agency under any applicable
Environmental Laws which could reasonably be expected to have a Material Adverse
Effect, (2) any remedial action taken by Holdings or any other Person in
response to (A) any Hazardous Materials Activities the existence of which has a
reasonable possibility of resulting in one or more Environmental Claims having,
individually or in the aggregate, a Material Adverse Effect, or (B) any
Environmental Claims that, individually or in the aggregate, have a reasonable
possibility of resulting in a Material Adverse Effect, and (3) Holdings or
Company's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such Facility or
any part thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws;

               (iii) as soon as practicable following the sending or receipt
thereof by Holdings or any of its Subsidiaries, a copy of any and all written
communications with respect to (1) any Environmental Claims that, individually
or in the aggregate, have a reasonable possibility of giving rise to a Material
Adverse Effect, (2) any Release required to be reported to any federal, state or
local governmental or regulatory agency which could reasonably be expected to
have a Material Adverse Effect, and (3) any request for information from any
governmental agency that suggests such agency is investigating whether Holdings
or any of its Subsidiaries may be potentially responsible for any Hazardous
Materials Activity which could reasonably be expected to have a Material Adverse
Effect;

               (iv)  prompt written notice describing in reasonable detail (1)
any proposed acquisition of stock, assets, or property by Holdings or any of its
Subsidiaries that could reasonably be expected to (A) expose Holdings or any of
its Subsidiaries to, or result in, Environmental Claims that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect or
(B) affect the ability of Holdings or any of its Subsidiaries to maintain in
full force and effect all material Governmental Authorizations required under
any Environmental Laws for their respective operations and (2) any proposed
action to be taken by Holdings or any of its Subsidiaries to modify current
operations in a manner that could reasonably be expected to subject Holdings or
any of its

                                       75
<PAGE>

Subsidiaries to any additional obligations or requirements under any
Environmental Laws which could reasonably be expected to have a Material Adverse
Effect; and

                (v) with reasonable promptness, such other documents and
information as from time to time may be reasonably requested by Administrative
Agent in relation to any matters disclosed pursuant to this Section 5.8(a).

            (b) Hazardous Materials Activities, Etc.  Each Credit Party shall
                ------------------------------------
promptly take, and shall cause each of its Subsidiaries promptly to take, any
and all actions necessary to (i) contest or cure any alleged violation of
applicable Environmental Laws by such Credit Party or its Subsidiaries that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, and (ii make an appropriate response to any
Environmental Claim against such Credit Party or any of its Subsidiaries and
discharge any obligations it may have to any Person thereunder where failure to
do so could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

     5.10.  Subsidiaries.  In the event that, after the Closing Date, any Person
becomes a Subsidiary of Holdings, Holdings shall, to the extent permitted under
the terms of the Holdings Senior Notes, promptly (i) other than with respect to
Company and any Subsidiary of Company as of the Closing Date, contribute all of
the Capital Stock of such Subsidiary to Company, such that after each such
contribution, such Subsidiary is a Wholly Owned Subsidiary of Company, (ii)
deliver or cause to be delivered. to Collateral Agent certificates (accompanied
by irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Collateral Agent) representing the Capital
Stock of such Subsidiary, which, to the extent permitted under the Holdings
Senior Notes, shall be pledged pursuant to the Pledge and Security Agreement and
deliver, or cause to be delivered, to Collateral Agent such other additional
agreements or instruments, each in form and substance, as may be necessary or
desirable to create in favor of Collateral Agent, for the benefit of the Secured
Parties, a valid and perfected First Priority security interest in all of the
Capital Stock of such Subsidiary (65% in the case of a Foreign Subsidiary),
(iii) cause such Subsidiary to become a Guarantor hereunder and a Grantor under
the Pledge and Security Agreement by executing and delivering to Administrative
Agent a Counterpart Agreement, and (iv) take all such actions and execute and
deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Sections 3.1(b),
3.1(d), 3.1(f) and 3.1(j). With respect to each such Subsidiary, Company shall
promptly send to Administrative Agent written notice setting forth with respect
to such Person (i) the date on which such Person became a Subsidiary of
Holdings, and (ii) all of the data required to be set forth in Schedule 4.1 with
                                                               ------------
respect to all Subsidiaries of Holdings, and such written notice shall be deemed
to supplement Schedule 4.1 for all purposes hereof.
              ------------

     5.11.  Material Real Estate Assets.  In the event that Holdings and/or any
other Credit Party acquires a Material Real Estate Asset or owns a Material Real
Estate Asset on the Closing Date or a Real Estate Asset owned on the Closing
Date becomes a Material Real Estate Asset and such interest has not otherwise
been made subject to the Lien of the Collateral Documents in favor of

                                       76
<PAGE>

Collateral Agent, for the benefit of Lenders, then Holdings or such other Credit
Party to the extent applicable, contemporaneously with acquiring such Material
Real Estate Asset, shall to the extent not prohibited by the Holdings Senior
Notes, and if requested by the Collateral Agent, take all such actions and
execute and deliver, or cause to be executed and delivered, all such mortgages,
documents, instruments, agreements, opinions and certificates reasonably
required by the Administrative together with those described in Sections 3.1(d)
and 3.1(f) with respect to each such Real Estate Assets that Administrative
Agent shall reasonably request to create in favor of Collateral Agent, for the
benefit of Lenders, a valid and, subject to any filing and/or recording referred
to herein, perfected First Priority security interest in such Real Estate
Assets. In addition to the foregoing, Holdings and Company shall, at the request
of Requisite Lenders, deliver, from time to time, to Collateral Agent such
appraisals as are required by law or regulation of Real Estate Assets with
respect to which Administrative Agent has been granted a Lien.

     5.12.  Interest Rate Protection.  At all times following the Closing Date,
Holdings and/or Company shall, if necessary to satisfy the requirements set
forth in this Section 5.12, enter into, and thereafter maintain, or caused to be
maintained, in effect one or more Interest Rate Agreements for a term and
otherwise in form and substance reasonably satisfactory to Syndication Agent and
Administrative Agent, which Interest Rate Agreements (when taken together with
other fixed rate debt) shall at all times effectively limit the interest costs
to Holdings and Company with respect to an aggregate notional principal amount
of not less than 50% of the aggregate principal amount of the Consolidated Total
Debt.

     5.13.  Intercompany Transactions.  Each Credit Party shall take all actions
necessary to ensure that, at all times, (i) all intercompany loans made by
Company to any Subsidiary of Holdings are evidenced by and made in accordance
with the Intercompany Loan Agreement, (ii) any assets (other than assets subject
to a lease in existence as at the Closing Date between Company and a Subsidiary
of Holdings) of Company leased to or otherwise made available for use by a
Subsidiary of Holdings are made subject to an Approved Lease Agreement and (iii)
each Subsidiary of Company executes, delivers, and performs its obligations
under the Intercompany Security Agreement.

     5.14.  Further Assurances.  At any time or from time to time upon the
request of Syndication Agent, Administrative Agent or Collateral Agent, each
Credit Party will, at its expense, promptly execute, acknowledge and deliver
such further documents and do such other acts and things as Syndication Agent,
Administrative Agent or Collateral Agent may reasonably request in order to
effect fully the purposes of the Credit Documents.  In furtherance and not in
limitation of the foregoing, each Credit Party shall take such actions as
Syndication Agent, Administrative Agent or Collateral Agent may reasonably
request from time to time (including, without limitation, the execution and
delivery of guaranties, security agreements, pledge agreements, mortgages, deeds
of trust, landlord's consents and estoppels, control agreements, stock powers,
financing statements and other documents, the filing or recording of any of the
foregoing, title insurance with respect to any of the foregoing that relates to
any Real Estate Asset, and the delivery of stock certificates and other
collateral with respect to which perfection is obtained by possession) to ensure
that the Obligations

                                       77
<PAGE>

are guaranteed by the Guarantors to the extent contemplated by Sections 7 and
are secured to the extent contemplated by the Collateral Documents and not
prohibited by the terms of the Holdings Senior Notes by the assets of Holdings,
and its Subsidiaries and all of the outstanding Capital Stock of Company and its
Subsidiaries (subject to limitations contained in the Credit Documents with
respect to Foreign Subsidiaries).

     5.15.  Certain Post-Closing Obligations.

            (a) Prior to the first Credit Date, Company shall have used
reasonable efforts to obtain a consent to the collateral assignment to
Collateral Agent and Lenders of rights existing under all Material Contracts
listed on Schedule 5.15(a), such consent in form and substance reasonably
          ----------------
satisfactory to Syndication Agent and Administrative Agent.

            (b) Prior to the first Credit Date, Company shall have used
reasonable efforts to obtain from each Person identified on Schedule 5.15(b) an
                                                            ----------------
acknowledgment letter in favor of Collateral Agent, for the benefit of Lenders,
in the form of Exhibit L with respect to each corresponding agreement listed on
               ---------
such Schedule 5.15(b).
     ----------------

            (c) Company shall use reasonable efforts to obtain, and in any event
prior to any Credit Date shall have obtained, a Landlord Personal Property
Collateral Access Agreement in respect of each Leasehold Property in which
Collateral financed with the proceeds of Loans made on such Credit Date is or is
to be located (other than those in respect of which such has already been
delivered prior to the Closing Date pursuant to Section 3.1(g)(vi)).  Each
Credit Party shall at all times take all actions necessary to ensure that all
Collateral at any Leasehold Property is subject to a Landlord Personal Property
Collateral Access Agreement (with any modifications, amendments or waivers
thereof as the Syndication Agent and Administrative Agent shall, in their sole
discretion, approve).

            (d) Prior to the first Credit Date, Holdings shall have either (i)
repaid all Indebtedness and discharged and terminated all obligations of any
nature under the NTFC Agreement or (ii) executed an amendment agreement to the
NTFC Agreement and procured the entry into of an intercreditor agreement by NTFC
Capital Corporation and the Collateral Agent each in form and substance
reasonably satisfactory to the Syndication Agent and Administrative Agent and
have demonstrated to their reasonable satisfaction that Holdings will be in pro
forma compliance with the financial covenants thereunder through maturity of the
NTFC Agreement.

            (e) Within 30 days after the Closing Date, and in any event prior to
the first Credit Date (i) Company shall have established Equipment Subsidiary as
a direct Wholly-Owned Subsidiary of Company, (ii) Equipment Subsidiary shall
have become a Guarantor hereunder by the execution of a Counterpart Agreement
and have taken all such action and executed and delivered, or caused to be
executed and delivered, all such documents, instruments, agreements, and
certificates similar to these described in Sections 3.1 (b), 3.1 (f) and 3.1
(l), and (iii) Equipment Subsidiary shall have become a Grantor under the
Subsidiary Pledge and Security Agreement by the execution of a Pledge

                                       78
<PAGE>

Supplement substantially in the form of Exhibit A to the Master Pledge and
Security Agreement and have taken all such action and executed and delivered, or
caused to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to these described in Sections 3.1 (b), 3.1
(f) and 3.1 (l).

            (f) Prior to the first Credit Date, Holdings shall procure the
capitalization of all outstanding intercompany Indebtedness owed to it by any of
its Subsidiaries on terms reasonable satisfactory to the Syndication Agent and
Administrative Agent.

          (g) Prior to the first Credit Date, Holdings shall make capital
contributions to Company and ensure that as of the first Credit Date, Cash
Equivalents of Holdings shall not exceed $100,000,000.  At all times following
the Closing Date, Holdings shall make capital contributions to Company of the
cash proceeds (any such proceeds, net of underwriting discounts and commissions,
arranger fees and other reasonable costs, legal fees and expenses) from the
issuance of all (i) equity securities of Holdings other than issuances to
directors, officers or employees or otherwise in connection with employee
benefit arrangements and (ii) debt securities and borrowings other than
Indebtedness incurred pursuant to Sections 6.1(h) and 6.1(j) or a refinancing of
the Holdings Senior Notes, but in each case, only to the extent at any time that
the proceeds of (i) and (ii) above when aggregated with Cash Equivalents at
Holdings exceed $100,000,000.

          (h) Prior to the first Credit Date (i) Company shall have established
Dark Fiber Subsidiary as a direct Wholly-Owned Subsidiary of Company, (ii) Dark
Fiber Subsidiary shall have become a Guarantor hereunder by the execution of a
Counterpart Agreement and have taken all such action and executed and delivered,
or caused to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to these described in Sections 3.1 (f), 3.1
(l) and 3.1 (j), and (iii) Dark Fiber Subsidiary shall have become a Grantor
under the Subsidiary Pledge and Security Agreement by the execution of a Pledge
Supplement substantially in the form of Exhibit A to the Master Pledge and
Security Agreement and have taken all such action and executed and delivered, or
caused to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to these described in Sections 3.1 (b), 3.1
(f) and 3.1 (l).

          (i) Prior to the first Credit Date Company shall have validly assigned
all of its rights and obligations under each Related Company Agreement to Dark
Fiber Subsidiary in accordance with the terms of the applicable Related Company
Agreement.

          (j) Promptly following the Closing Date and in any event prior to the
first Credit Date, Company shall have applied for and received all regulatory
approvals which are necessary, appropriate or advisable, including, without
limitation, application to the FCC and/or each relevant state commission with
jurisdiction over telecommunications matters, to:  (i) enable Subsidiaries of
Holdings which are not, as of the Closing Date, Guarantors hereunder to become
Guarantors hereunder and (ii) enable Subsidiaries of Holdings which are not, as
of the Closing Date, Grantors under the Master Pledge and Security Agreement, to
become Grantors thereunder provided that failure to receive such approvals for
New Jersey and Indiana, (and any other jurisdiction approved

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<PAGE>

by the Administrative Agent and the Syndication Agent) shall not be deemed a
failure to satisfy the requirements of this Section 5.15 (j). Company shall
deliver to Administrative Agent as soon as reasonably practicable notice of the
final determination of each such application. Company will use all commercially
reasonable efforts to obtain all of such approvals as promptly as practicable.
If any such application in respect of any of New Jersey or Indiana is not
approved, Company will after consultation with and at the request of Syndication
Agent or Administrative Agent take all such further actions as may be reasonably
requested to appeal such decision.

          (k) As soon as reasonably practicable and in any event prior to the
Delayed Draw Term Loan Commitment Termination Date, Holdings and Company shall
have applied for all regulatory approvals which are necessary, appropriate or
advisable, including, without limitation, application to the FCC and/or each
relevant state commission with jurisdiction over telecommunications matters,
to effect the contribution by Holdings of 100% of the Capital Stock of each of
its Subsidiaries requiring such approval to Company, such that after each such
contribution, each such Subsidiary is a 100% direct Subsidiary of Company.
Company shall deliver to Administrative Agent as soon as reasonably practicable
notice of the final determination of each such application. Company will use all
commercially reasonable efforts to  obtain all of such approvals as promptly as
practicable.  Prior to the Delayed Draw Term Loan Commitment Date, if any such
application is not approved, Company will after consultation with and at the
request of Syndication Agent or Administrative Agent take all such further
actions as may be reasonably requested to appeal such decision.

          (l) With respect to any Subsidiary for which such action as specified
in the foregoing clause (j) is required, within 10 days after Holdings or such
Subsidiary receives the relevant necessary approval to enable such Subsidiary,
as applicable, to (i) be a Guarantor hereunder and/or (ii) become a Grantor
under the Pledge and Security Agreement, and in any event prior to the first
Credit Date such Subsidiary will:  (1) in the case of clause (i) execute a
Counterpart Agreement and take all such actions and execute and deliver, or
cause to be executed and delivered, all such documents, instruments, agreements,
and certificates similar to those described in Sections 3.1(b), 3.1(f) and 3.1
(l); and (2) in the case of clause (ii), execute a Pledge Supplement
substantially in the form of Exhibit A to the Subsidiary Pledge and Security
Agreement and take all such actions and execute and deliver, or cause to be
executed and delivered, all such documents, instruments, agreements, and
certificates similar to those described in Sections 3.1(b), 3.1(f) and 3.1(l).

          (m) With respect to any Subsidiary for which such action as specified
in the foregoing clause (k) is required, within 10 days after the end of the
Fiscal Quarter in which Holdings or such Subsidiary receives the necessary
approval to enable such Subsidiary to become a 100% direct Subsidiary of
Company,  and in any event prior to the Delayed Term Loan Commitment Termination
Date, Holdings and Company will procure that such Subsidiary will become a 100%
direct Subsidiary of Company and such Subsidiary will, in order to create in
favor of the Collateral Agent, for the benefit of Lenders, a valid and perfected
First Priority security interest in 100% of the Capital Stock of such
Subsidiary, deliver to Collateral Agent certificates (accompanied by irrevocable
undated stock powers, duly endorsed in blank and otherwise satisfactory in form
and

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<PAGE>

substance to Collateral Agent) representing all Capital Stock pledged pursuant
to the Pledge and Security Agreement, and take all such actions and execute and
deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Sections 3.1(b),
3.1(f) and 3.1(l).

          (n) Within thirty (30) days after the Closing Date, the Company shall
furnish to the Administrative Agent (which Administrative Agent shall promptly
furnish to the Lenders if requested) post-closing searches made with respect to
the personal or mixed property (including fixtures) of the Credit Parties,
reflecting the filing of the UCC Financing Statements referred to in Section
3.1(f)(iii) hereof.

 SECTION 6.   NEGATIVE COVENANTS

     Each Credit Party covenants and agrees that, so long as any Commitment is
in effect and until payment in full in same day funds of all Obligations and
cancellation or expiration of all Letters of Credit, such Credit Party shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 6.

     6.1  Indebtedness.  No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness, except:

          (a) the Obligations, including any Indebtedness under any Hedge
Agreement with any Lender Counterparty;

          (b) Indebtedness of any Guarantor Subsidiary to Company or to any
other Guarantor Subsidiary, or of Company to any Guarantor Subsidiary; provided,
                                                                       --------
(i) all such Indebtedness shall be made pursuant to an Intercompany Loan
Agreement, (ii all such Indebtedness shall be subordinated in right of payment
to the payment in full of the Obligations pursuant to the terms of the
applicable promissory notes or an intercompany subordination agreement that in
any such case, is reasonably satisfactory to Administrative Agent, (ii all such
Indebtedness shall satisfy the requirements of Section 5.13 and (iv any payment
by any such Guarantor Subsidiary under any guaranty of the Obligations shall
result in a pro tanto reduction of the amount of any Indebtedness owed by such
Subsidiary to Company or to any of its Subsidiaries for whose benefit such
payment is made;

          (c) Indebtedness incurred by Holdings with respect to Permitted
Holdings Debt;

          (d) Indebtedness incurred by Holdings or any of its Subsidiaries in
the ordinary course of business and arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guaranties or letters of credit, surety bonds or performance bonds securing the
performance of Holdings or any such Subsidiary pursuant to such agreements, in
connection with Permitted Acquisitions or permitted dispositions of any
business, assets or Subsidiary of Holdings or any of its Subsidiaries;

                                       81
<PAGE>

          (e) Indebtedness in respect of netting services, overdraft protections
and otherwise in connection with Deposit Accounts;

          (f) guaranties in the ordinary course of business of the obligations
of suppliers, customers, franchisees and licensees of Holdings and its
Subsidiaries not in any event to exceed $5,000,000 at any time outstanding;

          (g) Indebtedness described in Schedule 6.1, but not any extensions,
                                        ------------
renewals or replacements of such Indebtedness;

          (h) Indebtedness with respect to "dark fiber" Capital Leases in an
aggregate amount not to exceed at any time $100,000,000; provided that
                                                         --------
obligations incurred with respect to such Capital Leases during any Fiscal Year
shall not exceed $30,000,000; provided further that the primary obligor in
                              ---------------------
respect of all such Indebtedness is the Dark Fiber Subsidiary, it being agreed
however that Holdings (but not Company or any other Subsidiary thereof) may, to
the extent permitted under the Holdings Senior Notes, guarantee such
Indebtedness;

          (i) Indebtedness in the form of letters of credit for the account of
Holdings in an aggregate face amount not to exceed $3,000,000 at any time
outstanding; and

          (j) other Indebtedness of Holdings and its Subsidiaries in an
aggregate amount not to exceed at any time $20,000,000, provided that only up to
                                                        --------
$15,000,000 of which may be secured by Liens on the assets of Holdings in
accordance with Section 6.2(m) and the balance shall be unsecured.

     6.2  Liens.  No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the UCC of any State or under any similar recording or notice
statute, except:

          (a) Liens in favor of Collateral Agent for the benefit of Secured
Parties granted pursuant to any Credit Document;

          (b) Liens for Taxes, the payment of which is not, at the time,
required thereby;

          (c) statutory Liens of landlords, banks (and rights of set-off), of
carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other
Liens imposed by law (other than any such Lien imposed pursuant to Section 401
(a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case
incurred in the ordinary course of business (i) for amounts not yet overdue

                                       82
<PAGE>

or (ii for amounts that are overdue and that (in the case of any such amounts
overdue for a period in excess of five days) are being contested in good faith
by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts;

          (d) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, deposits made in the ordinary course of business with
utility companies, and Liens incurred or deposits made in the ordinary course of
business to secure the performance of tenders, statutory or regulatory
obligations, surety and appeal bonds, bids, leases, government contracts, trade
contracts, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money or other
Indebtedness), so long as no foreclosure, sale or similar proceedings have been
commenced with respect to any portion of the Collateral (which individually or
in the aggregate, has a fair market value in excess of $1,000,000) on account
thereof;

          (e) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and will not
interfere in any material respect with the ordinary conduct of the business of
Holdings or any of its Subsidiaries;

          (f) any interest or title of a lessor or sublessor under any lease
permitted hereunder;

          (g) Liens solely on any cash earnest money deposits made by Holdings
or any of its Subsidiaries in connection with any letter of intent or purchase
agreement entered into by it;

          (h) licenses of patents, trademarks and other intellectual property
rights granted by Holdings or any of its Subsidiaries in the ordinary course of
business and not interfering in any respect with the ordinary conduct of the
business of Company or such Subsidiary;

          (i) Liens described in Schedule 6.2;
                                 ------------

          (j) Liens consisting of judgment or judicial attachment liens with
respect to judgments that do not constitute an Event of Default;

          (k) Liens securing intercompany obligations incurred in accordance
with the provisions of Section 5.13;

          (l) Liens on escrowed Cash representing a portion of the proceeds of
permitted sales of assets by a Credit Party established to satisfy contingent
post-closing obligations owed by such Credit Party (including earn-outs,
indemnities and working capital adjustments);

          (m) Liens securing Indebtedness permitted pursuant to Section 6.1(j);
provided, (i) any such Lien shall not encumber the Capital Stock of Holdings'
--------
Subsidiaries and (ii) such Liens shall not secure obligations in an aggregate
principal amount in excess of $15,000,000 at any time

                                       83
<PAGE>

outstanding. Such Liens may be prior to the Liens granted to the Collateral
Agent pursuant to the Collateral Documents and, if requested by Company, the
Collateral Agent agrees (and is hereby irrevocably authorised by each Lender) to
enter into good faith negotiations with the Person in whose favour such Liens
are granted to document and effect such subordination; and

          (n) Liens on Cash deposits made by Holdings in an account with LaSalle
Bank National Association and designated "Focal Cash Collateralization Account"
or such other account with such other institution as may from time to time be
maintained by Company, in each case, specifically created and maintained solely
for such purpose securing reimbursement obligations with respect to letters of
credit permitted pursuant to Section 6.1(i); provided that the aggregate Cash
balance on deposit in such account shall at any time not exceed the aggregate
face value of letters of credit outstanding at such time.

     6.3.  No Further Negative Pledges.  Except with respect to (a) the
Permitted Holdings Debt (b) specific property encumbered to secure payment of
particular Indebtedness permitted hereby or to be sold pursuant to an executed
agreement with respect to a permitted Asset Sale, and (c) restrictions by reason
of customary provisions restricting assignments, subletting or other transfers
contained in leases, licenses and similar agreements entered into in the
ordinary course of business (provided that such restrictions are limited to the
property or assets secured by such Liens and proceeds and products thereof or
the property or assets subject to such leases, licenses or similar agreements
and proceeds and products thereof, as the case may be), no Credit Party nor any
of its Subsidiaries shall enter into any agreement prohibiting the creation or
assumption of any Lien upon any of its properties or assets, whether now owned
or hereafter acquired.

     6.4.  Restricted Payments; Restrictions on Subsidiary Distributions.  (a)
No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly
or indirectly, declare, order, pay, make or set apart any sum for any Restricted
Junior Payment except the following shall be permitted:

              (i)   Holdings may make regularly scheduled or required payments
(but not voluntary prepayments) required to be made to holders of Permitted
Holdings Debt;

              (ii)  so long as no Default or Event of Default shall have
occurred and be continuing, or would result therefrom, Company shall be
permitted to declare and pay by way of dividend to Holdings amounts sufficient
to discharge overhead expenses arising in the ordinary course of business and
owing by Holdings to (y) Company and (z) other Persons but in the case of (z),
only to the extent that such sums are indeed used by Holdings for such purpose
and Cash Equivalents on hand at Holdings are less than $30,000,000;

              (iii) so long as no Default or Event of Default shall have
occurred and be continuing, or would result therefrom, Company shall be
permitted to declare and pay by way of dividend to Holdings at times and in
amounts sufficient to enable Holdings to make payments permitted under clause
(i) above, so long as Holdings applies the amount of any such Restricted Junior
Payment for such purpose;

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<PAGE>

              (iv)  so long as no Default or Event of Default shall have
occurred and be continuing, or would result therefrom, Equipment Subsidiary
shall be permitted to declare and pay by way of dividend to Company the net
proceeds of sales of Telecommunications Assets to Company financed with the
proceeds of Loans and Company shall be permitted to declare and pay by way of
dividend to Holdings such amounts so received; and

              (v)   any Subsidiary of Company shall be permitted to declare and
pay dividends to Company or to its immediate holding company which is itself
both a Wholly-Owned Subsidiary of Company and a Guarantor Subsidiary.

          (b) Except as provided herein or in the Permitted Holdings Debt, no
Credit Party shall, nor shall it permit any of its Subsidiaries to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of
Holdings to (i) pay dividends or make any other distributions on any of such
Subsidiary's Capital Stock owned by Holdings or any other Subsidiary of
Holdings, (ii) repay or prepay any Indebtedness owed by such Subsidiary to
Holdings or any other Subsidiary of Holdings, (iii) make loans or advances to
Holdings or any other Subsidiary of Holdings, or (iv) transfer any of its
property or assets to Holdings or any other Subsidiary of Holdings.

     6.5.  Investments.  No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including any Joint Venture, except:

           (a) Cash Equivalents;

           (b) equity Investments owned as of the Closing Date in any
Subsidiary and Investments made after the Closing Date in Company or any
Guarantor Subsidiary;

           (c) Investments in (i) accounts receivable arising and trade credit
granted in the ordinary course of business and in any Securities received in
satisfaction or partial satisfaction thereof from financially troubled account
debtors (ii) deposits, prepayments and other credits to suppliers made in the
ordinary course of business consistent with the past practices of Holdings and
its Subsidiaries and (iii) Joint Venture Investments in other Persons so long as
the only consideration or other value paid or required to be paid in connection
with such Investments is Capital Stock of Holdings;

           (d) intercompany loans to the extent permitted under Section 6.1(b);

           (e) Consolidated Capital Expenditures permitted by Section 6.6(f);

                                       85
<PAGE>

           (f) loans and advances to employees of Holdings and its Subsidiaries
made in the ordinary course of business in an aggregate principal amount not to
exceed $10,000,000 in the aggregate;

           (g) Investments made in connection with Permitted Acquisitions
permitted pursuant to Section 6.8;

           (h) Investments described in Schedule 6.5;
                                        ------------

           (i) Investments made with the Excess Equity Proceeds Amount; and

           (j) Investments in Wholly-Owned Subsidiaries which are not Guarantor
Subsidiaries, in an aggregate amount,  which when aggregated with Permitted
Acquisitions permitted pursuant to Section 6.8(c) (but excluding such portions
financed with Excess Equity Proceeds) does not exceed $100,000,000.

           (k) other Investments in an aggregate amount not to exceed at any
time $10,000,000 plus the amount of Cash dividends or other Cash distributions
                 ----
received by a Credit Party with respect to such Investments.

     6.6.  Stage 1 Financial Covenants.  During Stage 1:

           (a) Minimum Revenues.  Holdings shall not permit Revenues for any
Fiscal Quarter during Stage 1, beginning September 30, 2000, to be less than the
correlative amount indicated as set forth on Schedule 6.6(a), provided that for
                                             ---------------  --------
the purposes of determining compliance with this covenant following consummation
of a Permitted Acquisition (i) such amounts set forth in Schedule 6.6(a) shall
                                                         --------------
be increased by 100% of the greater of (y) revenues (calculated in each case for
the purpose of this clause on the same basis as Revenues) of the entity or
assets being acquired for the Fiscal Quarter most recently ended prior to the
consummation of such Permitted Acquisition and (z) revenues of the entity or
assets being acquired for the Fiscal Quarter prior to the Fiscal Quarter being
measured and (ii) Revenues of Holdings shall be calculated and increased or
reduced with respect to such period on a pro forma basis in the same manner.

           (b) Minimum Access Lines.  As of the last day of each Fiscal Quarter
during Stage 1, beginning September 30, 2000, Holdings and its Subsidiaries
shall not permit the number of Access Lines to be less than the correlative
amount indicated as set forth on Schedule 6.6(b), provided that for the purposes
                                 ---------------  --------
of determining compliance with this covenant following consumma tion of a
Permitted Acquisition (i) such amounts set forth in Schedule 6.6(b) shall be
                                                    ---------------
increased by 100% of the greater of (y) the number of access lines (calculated
in each case for the purpose of this clause on the same basis as Access Lines)
of the entity or assets being acquired for the Fiscal Quarter most recently
ended prior to the consummation of such Permitted Acquisition and (z) the Fiscal
Quarter being measured and (ii) the number of Access Lines of Holdings shall be
calculated and increased or reduced with respect to such period on a pro forma
basis in the same manner.

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<PAGE>

          (c) Consolidated EBITDA.  Holdings shall not permit Consolidated
EBITDA for any Fiscal Quarter during Stage 1, beginning September 30, 2000, to
be less than the correlative amount indicated as set forth on Schedule 6.6(c),
                                                              ---------------
provided that for the purposes of determining compliance with this covenant
--------
following consummation of a Permitted Acquisition (i) such amounts set forth in
Schedule 6.6(c) shall (x) be increased, if positive, by 100% of Consolidated
--------------
EBITDA of the entity or assets being acquired for the Fiscal Quarter most
recently ended prior to the consummation of such Permitted Acquisition or if
greater, the Fiscal Quarter prior to the Fiscal Quarter being measured, or (y)
be reduced, if negative, by the greater of 100% of negative Consolidated EBITDA
for the entity or assets being acquired as shown on the historical financial
statements of such entity for the Fiscal Quarter most recently ended prior to
the consummation of such Permitted Acquisition and 100% of Consolidated EBITDA
for the entity or assets being acquired for the Fiscal Quarter prior to the
Fiscal Quarter being measured and (ii) Consolidated EBITDA of Holdings shall be
calculated and increased or reduced with respect to such period on a pro forma
basis in the same manner.

          (d) Consolidated Senior Secured Debt to Total Capitalization.
Holdings shall not permit the ratio of Consolidated Senior Secured Debt to Total
Capitalization at any time during Stage 1 to exceed 0.25:1.00.

          (e) Consolidated Senior Secured Debt to Consolidated Gross PP&E.
Holdings shall not permit the ratio of Consolidated Senior Secured Debt to
Consolidated Gross PP&E at any time during Stage 1 to exceed 0.50:1.00.

          (f) Maximum Consolidated Capital Expenditures. Holdings shall not and
shall not permit its Subsidiaries to make or incur Consolidated Capital
Expenditures, in any Fiscal Year indicated on Schedule 6.6(f), in an aggregate
                                              ---------------
amount for Company and its Subsidiaries in excess of the corresponding amount
set forth on Schedule 6.6(f); provided, that 75% of any unutilized amount (in
             ---------------  --------
each case, determined without regard to any operation of this provision) for any
Fiscal Year may be utilized in the next succeeding Fiscal Year; and provided
                                                                    --------
further that, in addition, Holdings and its Subsidiaries may make or incur
-------
Consolidated Capital Expenditures (in excess of the amounts otherwise permitted
under this Section 6.6(f)) in an amount not in excess of the Excess Equity
Proceeds Amount.

     6.7. Stage 2 Financial Covenants.  During Stage 2:

          (a) Senior Leverage Ratio.  Holdings shall not permit the Senior
Leverage Ratio as of the last day of any Fiscal Quarter during Stage 2 to exceed
the correlative ratio indicated as set forth on Schedule 6.7(a).
                                                ---------------

          (b) Total Leverage Ratio.  Holdings shall not permit the Total
Leverage Ratio as of the last day of any Fiscal Quarter during Stage 2 to exceed
the correlative ratio indicated as set forth on Schedule 6.7(b).
                                                ---------------

                                       87
<PAGE>

          (c) Interest Coverage Ratio.  Holdings shall not permit the Interest
Coverage Ratio as of the last day of any Fiscal Quarter commencing March 31,
2004 and thereafter during  Stage 2 to be less than the correlative ratio
indicated as set forth on Schedule 6.7(c).
                          ---------------

          (d) Fixed Charge Coverage Ratio.  Holdings shall not permit the Fixed
Charge Coverage Ratio as of the last day of any Fiscal Quarter commencing
December 31,2004 and thereafter during Stage 2, to be less than the correlative
ratio indicated as set forth on Schedule 6.7(d).
                                ---------------

     6.8. Fundamental Changes; Disposition of Assets; Acquisitions.  No Credit
Party shall, nor shall it permit, any of its Subsidiaries to, enter into any
transaction of merger or consolidation, or liquidate, wind-up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease
(as lessor or sublessor), transfer or otherwise dispose of, in one transaction
or a series of transactions, all or any part of its business, assets or property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible, whether now owned or hereafter acquired, or acquire by purchase or
otherwise (other than purchases or other acquisitions of inventory, materials
and equipment in the ordinary course of business) the business, property or
fixed assets of, or stock or other evidence of beneficial ownership of, any
Person or any division or line of business or other business unit of any Person,
except:

          (a) any Subsidiary of Company may be merged with or into Company or
any Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or any
part of its business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
transactions, to Company or any Guarantor Subsidiary; provided, in the case of
                                                      --------
such a merger, Company or such Guarantor Subsidiary, as applicable shall be the
continuing or surviving Person;

          (b) sales or other dispositions of assets which do not constitute
Asset Sales;

          (c) Permitted Acquisitions, the aggregate cash consideration for which
(when aggregated with Investments permitted pursuant to Section 6.5(j))
constitutes less than $100,000,000, (provided that no more than $75,000,000 of
                                     --------
such amount shall be in respect of acquisitions of any assets, business lines,
divisions or entities which have generated negative Free Cash Flow for the
trailing twelve month period  immediately preceding such acquisition) plus, the
portion, if any, of Excess Equity Proceeds Amounts allocated to Permitted
Acquisitions;

          (d) Investments made in accordance with Section 6.5; and

          (e) subject to the requirements of Section 2.12(a), Asset Sales the
proceeds of which when aggregated with the proceeds of all other Asset Sales
made since the Closing Date, do not exceed $30,000,000.

                                       88
<PAGE>

     6.9.  Disposal of Subsidiary Interests.  Except for any sale of all of the
Capital Stock of any of its Subsidiaries made in compliance with the provisions
of Section 6.8, no Credit Party shall  (a) directly or indirectly sell, assign,
pledge or otherwise encumber or dispose of any Capital Stock of any of its
Subsidiaries, except to qualify directors if required by applicable law; or (b)
permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or
otherwise encumber (excluding encumbrances consisting of negative pledge
restrictions permitted under Section 6.3) or dispose of any Capital Stock of any
of its Subsidiaries, except to another Credit Party (subject to the restrictions
on such disposition otherwise imposed hereunder), or to qualify directors if
required by applicable law.

     6.10. Sales and Lease-Backs.  No Credit Party shall, nor shall it permit
any of its Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, which such Credit Party (a) has sold or transferred or is to sell or
to transfer to any other Person (other than Company or any of its Subsidiaries),
or (b) intends to use for substantially the same purpose as any other property
which has been or is to be sold or transferred by such Credit Party to any
Person (other than Company or any of its Subsidiaries) in connection with such
lease.

     6.11. Sale or Discount of Receivables.  No Credit Party shall, nor shall it
permit any of its Subsidiaries to, directly or indirectly, sell with recourse,
or discount or otherwise sell for less than the face value thereof, any of its
notes or accounts receivable (it being understood that the restrictions
contained in this Section 6.11 shall not apply to any write-off of bad debt in
the ordinary course of business consistent with prior practice) except in
connection with an Asset Sale permitted under Section 6.8.

     6.12. Transactions with Shareholders and Affiliates.  No Credit Party
shall, nor shall it permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
holder of 10% or more of any class of Capital Stock of Holdings or any of its
Subsidiaries or with any Affiliate of Holdings or of any such holder, on terms
that are less favorable to Holdings or that Subsidiary, as the case may be, than
those that might be obtained at the time from a Person who is not such a holder
or Affiliate; provided, the foregoing restriction shall not apply to (a) any
              --------
transaction between Company and any Guarantor Subsidiary or between any of the
Guarantor Subsidiaries; (b) reasonable and customary fees paid to members of the
board of directors (or similar governing body) of Holdings and its Subsidiaries;
(c) compensation arrangements entered into in the ordinary course for officers
and other employees of Holdings and its Subsidiaries entered into in the
ordinary course of business; and (d) transactions described in Schedule 6.12.
                                                               -------------

     6.13  Conduct of Business.  From and after the Closing Date, (i) no Credit
Party shall, nor shall it permit any of its Subsidiaries to, engage in any
business other than (a) the businesses engaged in by such Credit Party on the
Closing Date and similar or related businesses including, without limitation,
data communications, including without limitation Internet access, Internet
portal, web

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hosting, application hosting, and communication equipment collocation
businesses; and (b) such other lines of business as may be consented to by
Requisite Lenders; (ii) Company shall not engage in any business activities or
own any assets or properties other than the Capital Stock of its Subsidiaries
and otherwise as incident to its existence as a holding company except in
respect of (a) the Related Company Agreements until such time as their
assignment to Dark Fiber Subsidiary is effective in accordance with Section
5.15(h), (b) the Intercompany Loan Agreement, Approved Lease Agreements and
Intercompany Security Agreement and item (viii) of the definition of Related
Agreements, (c) the employment contracts of the Company's employees, (d) the
purchase and owning of Telecommunications Assets to be used in the businesses
referred to in clause (i) of this Section 6.13 and (e) the provision of shared
overhead, goods and services to Credit Parties; (iii) Holdings shall not engage
in any business activities or own any assets or properties other than the
Capital Stock of its Subsidiaries and otherwise as incident to its existence as
a holding company except in respect of (a) Permitted Holdings Debt, (b) Related
Agreements existing as of the Closing Date to which Holdings is party, (c)
guaranties by Holdings expressly permitted by the terms hereof, (d) Permitted
Liens, (e) the provision of shared overhead, goods and services to Credit
Parties; and (f) certain employment contracts in respect of executive officers
of Holdings existing as of the Closing Date; and (iv) Equipment Subsidiary shall
not engage in any business other than the purchase of Telecommunications Assets
and the sale or other transfer of all such Telecommunications Assets within 180
days of such purchase to Company (pursuant to a sale and repurchase agreement or
such other agreement as appropriate, in each case, in form and substance
satisfactory to the Syndication Agent and Administrative Agent).

     6.14. Amendments or Waivers with respect to Related Agreements and
Holdings Permitted Debt. (a) Neither Holdings nor any of its Subsidiaries will
agree to any material amendment to, or waive any of its material rights under,
any Related Agreement after the Closing Date without in each case obtaining the
prior written consent of Requisite Lenders to such amendment or waiver.

           (b) Holdings shall not amend or otherwise change the terms of any
Permitted Holdings Debt, or make any payment consistent with an amendment
thereof or change thereto, if the effect of such amendment or change is to
increase the interest rate on such Permitted  Holdings Debt, change (to earlier
dates) any dates upon which payments of principal or interest are due thereon,
change any event of default or condition to an event of default with respect
thereto (other than to eliminate any such event of default or increase any grace
period related thereto), change the redemption, prepayment or defeasance
provisions thereof, change the subordination provisions of such Permitted
Holdings Debt, or if the effect of such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of such
Permitted Holdings Debt (or a trustee or other representative on their behalf)
which would be adverse to any Credit Party or Lenders.

     6.15. Disposition of Licenses, etc.  From and after the Closing Date,
Holdings and its Subsidiaries shall not sell, assign, transfer or otherwise
dispose or attempt to dispose of in any way any Governmental Authorization or
any other licenses, permits or approvals, the assignments,

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transfer or disposal of which could reasonably be expected to result in a
Material Adverse Effect (recognizing a sale of a License or other Governmental
Authorization otherwise permitted under Section 6.8 would, to the extent it is
material, impair that Collateral without, for purposes of this Section 6.15,
resulting in a Material Adverse Effect), without the prior written consent of
the Requisite Lenders.

     6.16.  Fiscal Year. No Credit Party shall, nor shall it permit any of its
Subsidiaries to change its Fiscal Year-end from December 31.

 SECTION 7. GUARANTY

     7.1   Guaranty.  Subject to the provisions of Section 7.2, Guarantors
jointly and severally hereby irrevocably and unconditionally guaranty to
Administrative Agent for the ratable benefit of the Beneficiaries the due and
punctual payment in full of all Obligations of Company when the same shall
become due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. (S) 362(a)) (the "Guaranteed Obligations").

     7.2   Contribution by Guarantors.  (a) Each Guarantor desires to allocate
among themselves (collectively, the "Contributing Guarantors"), in a fair and
equitable manner, their obligations arising under this Guaranty.  Accordingly,
in the event any payment or distribution is made on any date by a Guarantor (a
"Funding Guarantor") under this Guaranty that exceeds its Fair Share as of such
date, such Funding Guarantor shall be entitled to a contribution from each of
the other Contributing Guarantors in the amount of such other Contributing
Guarantor's Fair Share Shortfall as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments to
equal its Fair Share as of such date.  "Fair Share" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (a)
the ratio of (i) the Fair Share Contribution Amount with respect to such
Contributing Guarantor to (ii the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (b) the
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations Guaranteed.  "Fair
Share Shortfall" means, with respect to a Contributing Guarantor as of any date
of determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor.  "Fair
Share Contribution Amount" means, with respect to a Contributing Guarantor as of
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any comparable applicable provisions of state law; provided, solely for
                                                      --------
purposes of calculating the "Fair Share Contribution Amount" with respect to any
Contributing Guarantor for purposes of this Section 7.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any

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rights to or obligations of contribution hereunder shall not be considered as
assets or liabilities of such Contributing Guarantor. "Aggregate Payments"
means, with respect to a Contributing Guarantor as of any date of determination,
an amount equal to (1) the aggregate amount of all payments and distributions
made on or before such date by such Contributing Guarantor in respect of this
Guaranty (including, without limitation, in respect of this Section 7.2), minus
(2) the aggregate amount of all payments received on or before such date by such
Contributing Guarantor from the other Contributing Guarantors as contributions
under this Section 7.2. The amounts payable as contributions hereunder shall be
determined as of the date on which the related payment or distribution is made
by the applicable Funding Guarantor. The allocation among Contributing
Guarantors of their obligations as set forth in this Section 7.2 shall not be
construed in any way to limit the liability of any Contributing Guarantor
hereunder. Each Guarantor is a third party beneficiary to the contribution
agreement set forth in this Section 7.2.

          (c) Anything contained in this Guaranty to the contrary
notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is
determined by a court of competent jurisdiction to be applicable to the
obligations of Guarantor under this Guaranty, such obligations of Guarantor
hereunder shall be limited to a maximum aggregate amount equal to the largest
amount that would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any applicable provisions of comparable state law or foreign law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving effect
to all other liabilities of Guarantor, contingent or otherwise, that are
relevant under the Fraudulent Transfer Laws (specifically excluding, however,
any liabilities of Guarantor (x) in respect of intercompany indebtedness to
Company or other Affiliates of Company to the extent that such indebtedness
would be discharged in an amount equal to the amount paid by Guarantor hereunder
and (y) under any guaranty of unsecured subordinated notes which guaranty
contains a limitation as to maximum amount similar to that set forth in this
subsection 7.2(b)), and after giving effect as assets to the value (as
determined under the applicable provisions of the Fraudulent Transfer Laws) of
any rights to subrogation, reimbursement, indemnification or contribution of
Guarantor pursuant to applicable law or pursuant to the terms of any agreement
as contemplated by subsection 7.2(a).

     7.3.  Payment by Guarantors.  Subject to Section 7.2, Guarantors hereby
jointly and severally agree, in furtherance of the foregoing and not in
limitation of any other right which any Beneficiary may have at law or in equity
against any Guarantor by virtue hereof, that upon the failure of Company to pay
any of the Guaranteed Obligations when and as the same shall become due, whether
at stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.  (S)
362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to
Administrative Agent for the ratable benefit of Beneficiaries, an amount equal
to the sum of the unpaid principal amount of all Guaranteed Obligations then due
as aforesaid, accrued and unpaid interest on such Guaranteed Obligations
(including interest which, but for Company's becoming the subject of a case
under the Bankruptcy Code, would have accrued on such Guaranteed Obligations,
whether or not a claim is allowed against Holdings or Company for such

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<PAGE>

interest in the related bankruptcy case) and all other Obligations of Guarantors
or Company then owed to Beneficiaries as aforesaid.

     7.4. Liability of Guarantors Absolute.  Each Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guaranteed Obligations.  In furtherance of the foregoing and without limiting
the generality thereof, each Guarantor agrees as follows:

          (a) this Guaranty is a guaranty of payment when due and not of
collectibility; this Guaranty is a primary obligation of each Guarantor and not
merely a contract of surety;

          (b) Administrative Agent may enforce this Guaranty upon the occurrence
of an Event of Default notwithstanding the existence of any dispute between any
Credit Party and any Beneficiary with respect to the existence of such Event of
Default;

          (c) the obligations of each Guarantor hereunder are independent of the
obligations of Company and the obligations of any other guarantor (including any
other Guarantor) of the obligations of Company, and a separate action or actions
may be brought and prosecuted against such Guarantor whether or not any action
is brought against Company or any of such other guarantors and whether or not
Company is joined in any such action or actions;

          (d) payment by any Guarantor of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge any
Guarantor's liability for any portion of the Guaranteed Obligations which has
not been paid.  Without limiting the generality of the foregoing, if
Administrative Agent is awarded a judgment in any suit brought to enforce any
Guarantor's covenant to pay a portion of the Guaranteed Obligations, such
judgment shall not be deemed to release such Guarantor from its covenant to pay
the portion of the Guaranteed Obligations that is not the subject of such suit,
and such judgment shall not, except to the extent satisfied by such Guarantor,
limit, affect, modify or abridge any other Guarantor's liability hereunder in
respect of the Guaranteed Obligations;

          (e) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Guaranteed Obligations; (ii) settle,
compromise, release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Guaranteed Obligations or any
agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other guaranties of
the Guaranteed Obligations and take and hold security for the payment hereof or
the Guaranteed Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify, with or
without consideration, any security for payment of the Guaranteed

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Obligations, any other guaranties of the Guaranteed Obligations, or any other
obligation of any Person (including any other Guarantor) with respect to the
Guaranteed Obligations; (v) enforce and apply any security now or hereafter held
by or for the benefit of such Beneficiary in respect hereof or the Guaranteed
Obligations and direct the order or manner of sale thereof, or exercise any
other right or remedy that such Beneficiary may have against any such security,
in each case as such Beneficiary in its discretion may determine consistent
herewith or the applicable Hedge Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
any Guarantor against Company or any security for the Guaranteed Obligations;
and (vi) exercise any other rights available to it under the Credit Documents or
the Hedge Agreements; and

          (f) this Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Guaranteed Obligations), including the occurrence of any of the
following, whether or not any Guarantor shall have had notice or knowledge of
any of them: (i) any failure or omission to assert or enforce or agreement or
election not to assert or enforce, or the stay or enjoining, by order of court,
by operation of law or otherwise, of the exercise or enforcement of, any claim
or demand or any right, power or remedy (whether arising under the Credit
Documents or the Hedge Agreements, at law, in equity or otherwise) with respect
to the Guaranteed Obligations or any agreement relating thereto, or with respect
to any other guaranty of or security for the payment of the Guaranteed
Obligations; (ii) any rescission, waiver, amendment or modification of, or any
consent to departure from, any of the terms or provisions (including provisions
relating to events of default) hereof, any of the other Credit Documents, any of
the Hedge Agreements or any agreement or instrument executed pursuant thereto,
or of any other guaranty or security for the Guaranteed Obligations, in each
case whether or not in accordance with the terms hereof or such Credit Document,
such Hedge Agreement or any agreement relating to such other guaranty or
security; (iii) the Guaranteed Obligations, or any agreement relating thereto,
at any time being found to be illegal, invalid or unenforceable in any respect;
(iv) the application of payments received from any source (other than payments
received pursuant to the other Credit Documents or any of the Hedge Agreements
or from the proceeds of any security for the Guaranteed Obligations, except to
the extent such security also serves as collateral for indebtedness other than
the Guaranteed Obligations) to the payment of indebtedness other than the
Guaranteed Obligations, even though any Beneficiary might have elected to apply
such payment to any part or all of the Guaranteed Obligations; (v) any
Beneficiary's consent to the change, reorganization or termination of the
corporate structure or existence of Company or any of its Subsidiaries and to
any corresponding restructuring of the Guaranteed Obligations; (vi) any failure
to perfect or continue perfection of a security interest in any collateral which
secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or
counterclaims which Company may allege or assert against any Beneficiary in
respect of the Guaranteed Obligations, including failure of consideration,
breach of warranty, payment, statute of frauds, statute of limitations, accord
and satisfaction and usury; and (viii) any other act or thing or omission, or
delay to do any other act or thing, which may or might in any

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manner or to any extent vary the risk of any Guarantor as an obligor in respect
of the Guaranteed Obligations.

     7.5.  Waivers by Guarantors.  Each Guarantor hereby waives, for the benefit
of Beneficiaries: (a) any right to require any Beneficiary, as a condition of
payment or performance by such Guarantor, to (i) proceed against Company, any
guarantor (including any Guarantor) of the Guaranteed Obligations or any other
Person, (ii proceed against or exhaust any security held from Company, any such
other guarantor or any other Person, (ii proceed against or have resort to any
balance of any Deposit Account or credit on the books of any Beneficiary in
favor of Company or any other Person, or (iv) pursue any other remedy in the
power of any Beneficiary whatsoever; (b) any defense arising by reason of the
incapacity, lack of authority or any disability or other defense of Company or
any Guarantor including any defense based on or arising out of the lack of
validity or the unenforceability of the Guaranteed Obligations or any agreement
or instrument relating thereto or by reason of the cessation of the liability of
Company or any Guarantor from any cause other than payment in full of the
Guaranteed Obligations; (c) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal; (d) any
defense based upon any Beneficiary's errors or omissions in the administration
of the Guaranteed Obligations, except behavior which amounts to bad faith;
(e)(i)  any principles or provisions of law, statutory or otherwise, which are
or might be in conflict with the terms hereof and any legal or equitable
discharge of such Guarantor's obligations hereunder, (ii) the benefit of any
statute of limitations affecting such Guarantor's liability hereunder or the
enforcement hereof, (ii) any rights to set-offs, recoupments and counterclaims,
and (iv) promptness, diligence and any requirement that any Beneficiary protect,
secure, perfect or insure any security interest or lien or any property subject
thereto; (f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
hereof, notices of default hereunder, the Hedge Agreements or any agreement or
instrument related thereto, notices of any renewal, extension or modification of
the Guaranteed Obligations or any agreement related thereto, notices of any
extension of credit to Company and notices of any of the matters referred to in
Section 7.4 and any right to consent to any thereof; and (g) any defenses or
benefits that may be derived from or afforded by law which limit the liability
of or exonerate guarantors or sureties, or which may conflict with the terms
hereof.

     7.6.  Guarantors' Rights of Subrogation, Contribution, etc.  Until the
Guaranteed Obligations shall have been indefeasibly paid in full and all
Commitments shall have terminated, each Guarantor hereby waives any claim, right
or remedy, direct or indirect, that such Guarantor now has or may hereafter have
against Company or any Guarantor or any of its assets in connection with this
Guaranty or the performance by such Guarantor of its obligations hereunder, in
each case whether such claim, right or remedy arises in equity, under contract,
by statute, under common law or otherwise and including without limitation (a)
any right of subrogation, reimbursement or indemnification that such Guarantor
now has or may hereafter have against Company with respect to the Guaranteed
Obligations, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Company, and
(c) any benefit of, and any right to participate in, any collateral or security
now or hereafter held by any Beneficiary.

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In addition, until the Guaranteed Obligations shall have been indefeasibly paid
in full and the Commitments shall have terminated each Guarantor shall withhold
exercise of any right of contribution such Guarantor may have against any other
guarantor (including any other Guarantor) of the Guaranteed Obligations,
including, without limitation, any such right of contribution as contemplated by
Section 7.2. Each Guarantor further agrees that, to the extent the waiver or
agreement to withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification such Guarantor may have against
Company or against any collateral or security, and any rights of contribution
such Guarantor may have against any such other guarantor, shall be junior and
subordinate to any rights any Beneficiary may have against Company, to all
right, title and interest any Beneficiary may have in any such collateral or
security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to any Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guaranteed Obligations shall not have been finally and indefeasibly
paid in full, such amount shall be held in trust for Administrative Agent on
behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent
for the benefit of Beneficiaries to be credited and applied against the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms hereof.

     7.7.  Subordination of Other Obligations.  Any Indebtedness of Company or
any Guarantor now or hereafter held by any Guarantor (the "Obligee Guarantor")
is hereby subordinated in right of payment to the Guaranteed Obligations, and
any such indebtedness collected or received by the Obligee Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for
Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over
to Administrative Agent for the benefit of Beneficiaries to be credited and
applied against the Guaranteed Obligations but without affecting, impairing or
limiting in any manner the liability of the Obligee Guarantor under any other
provision hereof.

     7.8.  Continuing Guaranty.  This Guaranty is a continuing guaranty and
shall remain in effect until all of the Guaranteed Obligations shall have been
finally and indefeasibly paid in full and the Commitments shall have terminated.
Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to
future transactions giving rise to any Guaranteed Obligations.

     7.9.  Authority of Guarantors or Company.  It is not necessary for any
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.

     7.10. Financial Condition of Company.  Any Credit Extension may be made to
Company or continued from time to time, and any Hedge Agreements may be entered
into from time to time, in each case without notice to or authorization from any
Guarantor regardless of the financial or other condition of Company at the time
of any such grant or continuation or at the time such Hedge Agreement is entered
into, as the case may be.  No Beneficiary shall have any obligation to disclose
or discuss with any Guarantor its assessment, or any Guarantor's assessment, of
the financial

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condition of Company. Each Guarantor has adequate means to obtain information
from Holdings and/or Company on a continuing basis concerning the financial
condition of Company and its ability to perform its obligations under the Credit
Documents and the Hedge Agreements, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Company and of all circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty
on the part of any Beneficiary to disclose any matter, fact or thing relating to
the business, operations or conditions of Company now known or hereafter known
by any Beneficiary.

     7.11.  Bankruptcy, etc.  (a)  So long as any Guaranteed Obligations remain
outstanding, no Guarantor shall, without the prior written consent of
Administrative Agent acting pursuant to the instructions of Requisite Lenders,
commence or join with any other Person in commencing any bankruptcy,
reorganization or insolvency case or proceeding of or against Company or any
Guarantor.  The obligations of Guarantors hereunder shall not be reduced,
limited, impaired, discharged, deferred, suspended or terminated by any case or
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or any
Guarantor or by any defense which Holdings, Company or any other Guarantor may
have by reason of the order, decree or decision of any court or administrative
body resulting from any such proceeding.

            (b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guaranteed Obligations which accrues after the commencement of
any case or proceeding referred to in clause (a) above (or, if interest on any
portion of the Guaranteed Obligations ceases to accrue by operation of law by
reason of the commencement of such case or proceeding, such interest as would
have accrued on such portion of the Guaranteed Obligations if such case or
proceeding had not been commenced) shall be included in the Guaranteed
Obligations because it is the intention of Guarantors and Beneficiaries that the
Guaranteed Obligations which are guaranteed by Guarantors pursuant hereto should
be determined without regard to any rule of law or order which may relieve
Company of any portion of such Guaranteed Obligations.  Guarantors will permit
any trustee in bankruptcy, receiver, debtor in possession, assignee for the
benefit of creditors or similar person to pay Administrative Agent, or allow the
claim of Administrative Agent in respect of, any such interest accruing after
the date on which such case or proceeding is commenced.

            (c) In the event that all or any portion of the Guaranteed
Obligations are paid by Company, the obligations of Guarantors hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guaranteed Obligations for all purposes hereunder.

     7.12.  Discharge of Guaranty Upon Sale of Guarantor.  If all of the Capital
Stock of any Guarantor or any of its successors in interest hereunder shall be
sold or otherwise disposed of (including by merger or consolidation) in
accordance with the terms and conditions hereof, the

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Guaranty of such Guarantor or such successor in interest, as the case may be,
hereunder shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
Asset Sale; provided, as a condition precedent to such discharge Subsidiaries
            --------
to modify current operations in a manner that could reasonably be expected to
subject Holdings or any of its and release, Administrative Agent shall have
received evidence satisfactory to it that arrangements satisfactory to it have
been made for delivery to Administrative Agent of the applicable Net Asset Sale
Proceeds of such disposition pursuant to Section 2.12(a).

 SECTION 8.   EVENTS OF DEFAULT

     8.1.  Events of Default.  If any one or more of the following conditions or
events shall occur:

           (a) Failure to Make Payments When Due.  Failure by  Company to pay
               ---------------------------------
(i) when due any installment of principal of any Loan, whether at stated
maturity, by acceleration, by notice of voluntary prepayment, by mandatory
prepayment or otherwise, or (ii) any interest on any Loan or any fee or any
other amount due hereunder or under any of the other Credit Documents within
three (3) days after the date due; or

           (b) Default in Other Agreements.  (i) Failure of any Credit Party to
               ---------------------------
pay when due any principal of or interest on or any other amount payable in
respect of one or more items of Indebtedness (other than Indebtedness referred
to in Section 8.1(a)) in an individual or aggregate principal amount of
$5,000,000 or more or beyond the grace period, if any, provided therefor; or
(ii) breach or default by any Credit Party with respect to any other material
term of (1) one or more items of Indebtedness in the individual or aggregate
principal amounts referred to in clause (i) above or (2) any loan agreement,
mortgage, indenture or other agreement relating to such item(s) of Indebtedness,
in each case beyond the grace period, if any, provided therefor, if the effect
of such breach or default is to cause, or to permit the holder or holders of
that Indebtedness (or a trustee on behalf of such holder or holders), to cause,
that Indebtedness to become or be declared due and payable (or redeemable) prior
to its stated maturity or the stated maturity of any underlying obligation, as
the case may be; or

           (c) Breach of Certain Covenants.  Failure of any Credit Party to
               ---------------------------
perform or comply with any term or condition contained in Section 2.4, Section
5.1(f), Section 5.2, Section 5.5 or Section 6; or

           (d) Breach of Representations, etc.  Any representation, warranty,
               -------------------------------
certification or other statement made or deemed made by any Credit Party in any
Credit Document or in any statement or certificate at any time given by any
Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or
in connection herewith or therewith shall be false in any material respect as of
the date made or deemed made; or

           (e) Other Defaults Under Credit Documents.  Any Credit Party shall
               -------------------------------------
default in the performance of or compliance with any term contained herein or
any of the other Credit Documents,

                                       98
<PAGE>

other than any such term referred to in any other Section of this Section 8.1,
and such default shall not have been remedied or waived within thirty (30) days
after the earlier of (i) an officer of such Credit Party becoming aware of such
default or (ii) receipt by Company of notice from Administrative Agent or any
Lender of such default; or

          (f) Involuntary Bankruptcy; Appointment of Receiver, etc..  (i) A
              -----------------------------------------------------
court of competent jurisdiction shall enter a decree or order for relief in
respect of Holdings or any of its Subsidiaries in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against Holdings or any of its
Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Holdings or any of its Subsidiaries, or over all or a substantial
part of its property, shall have been entered; or there shall have occurred the
involuntary appointment of an interim receiver, trustee or other custodian of
Holdings or any of its Subsidiaries for all or a substantial part of its
property; or a warrant of attachment, execution or similar process shall have
been issued against any substantial part of the property of Holdings or any of
its Subsidiaries, and any such event described in this clause (ii) shall
continue for sixty (60) days without having been dismissed, bonded or
discharged; or

          (g) Voluntary Bankruptcy; Appointment of Receiver, etc.  (i) Holdings
              ---------------------------------------------------
or any of its Subsidiaries shall have an order for relief entered with respect
to it or shall commence a voluntary case under the Bankruptcy Code or under any
other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or Holdings or any of its Subsidiaries shall make any assignment for
the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be
unable, or shall fail generally, or shall admit in writing its inability, to pay
its debts as such debts become due; or the board of directors (or similar
governing body) of Holdings or any of its Subsidiaries (or any committee
thereof) shall adopt any resolution or otherwise authorize any action to approve
any of the actions referred to herein or in Section 8.1(f); or

          (h) Judgments and Attachments.  Any money judgment, writ or warrant of
              -------------------------
attachment or similar process involving in the aggregate at any time an amount
in excess of $5,000,000 (to the extent not adequately covered by insurance as to
which a solvent and unaffiliated insurance company has acknowledged coverage)
shall be entered or filed against Holdings or any of its Subsidiaries or any of
their respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of sixty (60) days (or in any event later than five days
prior to the date of any proposed sale thereunder); or

                                       99
<PAGE>

          (i) Dissolution.  Any order, judgment or decree shall be entered
              -----------
against any Credit Party decreeing the dissolution or split up of Holdings or
that Subsidiary and such order shall remain undischarged or unstayed for a
period in excess of sixty (60) days; or

          (j) Employee Benefit Plans.  There shall occur one or more ERISA
              ----------------------
Events which individually or in the aggregate results in or might reasonably be
expected to result in liability of Holdings, any of its Subsidiaries or any of
their respective ERISA Affiliates in excess of $1,000,000 during the term
hereof; or there shall exist an amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation any Pension Plans
with respect to which assets exceed benefit liabilities), which exceeds
$1,000,000; or

          (k) Change of Control.  A Change of Control shall occur; or
              -----------------

          (l) Guaranties, Collateral Documents and other Credit Documents.  At
              -----------------------------------------------------------
any time after the execution and delivery thereof, (i) the Guaranty for any
reason, other than the satisfaction in full of all Obligations guaranteed
thereby, shall cease to be in full force and effect (other than in accordance
with its terms) or shall be declared to be null and void or any Guarantor shall
repudiate its obligations thereunder, (ii) this Agreement or any Collateral
Document ceases to be in full force and effect (other than by reason of a
release of Collateral in accordance with the terms hereof or thereof or the
satisfaction in full of the Obligations in accordance with the terms hereof) or
shall be declared null and void, or Collateral Agent shall not have or shall
cease to have a valid and perfected Lien in any Collateral purported to be
covered by the Collateral Documents with the priority required by the relevant
Collateral Document which collateral, individually or in the aggregate, has a
fair market value in excess of $1,000,000, in each case for any reason other
than the negligent or willful failure of Collateral Agent or any Lender to take
any action within its control and required of it by the Credit Documents, or
(iii) any Credit Party shall contest the validity or enforceability of any
Credit Document in writing or deny in writing that it has any further liability,
including with respect to future advances by Lenders, under any Credit Document
to which it is a party;

THEN, (1) upon the occurrence of any Event of Default described in Section
8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event
of Default, at the request of (or with the consent of) Requisite Lenders, upon
notice to Company by Administrative Agent, (A) the Commitments, if any, of each
Lender having such Commitments shall immediately terminate; (B) each of the
following shall immediately become due and payable, in each case without
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by each Credit Party: (I) the unpaid principal amount of
and accrued interest on the Loans, and (II)  all other Obligations; and (C) the
Administrative Agent may cause the Collateral Agent to enforce any and all Liens
and security interests created pursuant to Collateral Documents.

                                      100
<PAGE>

SECTION 9.  AGENTS

     9.1   Appointment of Agents.  Each of GSCP and SSB is hereby appointed a
Joint Lead Arranger hereunder.  GSCP is hereby appointed as Syndication Agent
hereunder.  Each Lender hereby authorizes each Joint Lead Arranger and
Syndication Agent to act as its agents in accordance with the terms hereof and
the other Credit Documents.  Citibank is hereby appointed Administrative Agent
(for purposes of this Section 9, the terms "Administrative Agent" and "Agent"
shall also include Citibank in its capacity as Collateral Agent pursuant to the
Collateral Documents) hereunder and under the other Credit Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms hereof and the other Credit Documents.  Bank of America is hereby
appointed Documentation Agent hereunder, and each Lender hereby authorizes each
Documentation Agent to act as its agent in accordance with the terms hereof and
the other Credit Documents.  Each Agent hereby agrees to act upon the express
conditions contained herein and the other Credit Documents, as applicable.  The
provisions of this Section 9 are solely for the benefit of Agents and Lenders
and no Credit Party shall have any rights as a third party beneficiary of any of
the provisions thereof other than the right to receive notices pursuant to the
first two sentences of Section 9.7.  In performing its functions and duties
hereunder, each Agent shall act solely as an agent of Lenders and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Holdings or any of its Subsidiaries.
Each of Syndication Agent and Documentation Agent, without consent of or notice
to any party hereto, may assign any and all of its rights or obligations
hereunder to any of its Affiliates.  As of the Closing Date, all the respective
obligations of (i) GSCP and SSB in its capacity as Joint Lead Arranger and (ii)
Bank of America, in its capacity as Documentation Agent, shall terminate.

     9.2   Powers and Duties.  Subject to the final sentence of Section 9.1
hereof, each Lender irrevocably authorizes each Agent to take such action on
such Lender's behalf and to exercise such powers, rights and remedies hereunder
and under the other Credit Documents as are specifically delegated or granted to
such Agent by the terms hereof and thereof, together with such powers, rights
and remedies as are reasonably incidental thereto.  Each Agent shall have only
those duties and responsibilities that are expressly specified herein and the
other Credit Documents.  Each Agent may exercise such powers, rights and
remedies and perform such duties by or through its agents or employees.  No
Agent shall have, by reason hereof or any of the other Credit Documents, a
fiduciary relationship in respect of any Lender; and nothing herein or any of
the other Credit Documents, expressed or implied, is intended to or shall be so
construed as to impose upon any Agent any obligations in respect hereof or any
of the other Credit Documents except as expressly set forth herein or therein.

     9.3   General Immunity.

           (a) No Responsibility for Certain Matters.  No Agent shall be
               -------------------------------------
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency hereof or any other
Credit Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or

                                      101
<PAGE>

other statements, instruments, reports or certificates or any other documents
furnished or made by any of Agent to Lenders or by or on behalf of any Credit
Party to any Agent or any Lender in connection with the Credit Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of any Credit Party or any other Person liable for the payment of any
Obligations, nor shall any Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Credit Documents or as to the use of the
proceeds of the Loans or as to the existence or possible existence of any Event
of Default or Default.

           (b) Exculpatory Provisions.  No Agent nor any of  its officers,
               ----------------------
partners, directors, employees or agents shall be liable to Lenders for any
action taken or omitted by any Agent under or in connection with any of the
Credit Documents except to the extent caused by such Agent's gross negligence or
willful misconduct.  Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection
herewith or any of the other Credit Documents or from the exercise of any power,
discretion or authority vested in it hereunder or thereunder unless and until
such Agent shall have received instructions in respect thereof from Requisite
Lenders (or such other Lenders as may be required to give such instructions
under Section 10.5) and, upon receipt of such instructions from Requisite
Lenders (or such other Lenders, as the case may be), such Agent shall be
entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper Person or Persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent
acting or (where so instructed) refraining from acting hereunder or any of the
other Credit Documents in accordance with the instructions of Requisite Lenders
(or such other Lenders as may be required to give such instructions under
Section 10.5).

     9.4   Agents Entitled to Act as Lender.  The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans, each Agent in its individual
capacity, shall have the same rights and powers hereunder as any other Lender
and may exercise the same as if it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" shall, unless the context
clearly otherwise indicates, include each Agent in its individual capacity.  Any
Agent in its individual capacity, and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of banking, trust, financial
advisory or other business with Holdings or any of its Affiliates as if it were
not performing the duties specified herein, and may accept fees and other
consideration from Holdings or any of its Affiliates for services in connection
herewith and otherwise without having to account for the same to Lenders.

     9.5   Lenders' Representations, Warranties and Acknowledgment.

                                      102
<PAGE>

          Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Holdings and
its Subsidiaries in connection with Credit Extensions hereunder and that it has
made and shall continue to make its own appraisal of the creditworthiness of
Holdings and its Subsidiaries.  No Agent shall have any duty or responsibility,
either initially or on a continuing basis, to make any such investigation or any
such appraisal on behalf of Lenders or to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the making of the Loans or at any time or times thereafter, and no Agent
shall have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.

     9.6   Right to Indemnity.  Each Lender, in proportion to its Pro Rata
Share, severally agrees to indemnify each Agent, to the extent that such Agent
is required hereunder to be, and shall not have been, reimbursed by any Credit
Party, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including counsel fees
and disbursements) or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by or asserted against such Agent in exercising its
powers, rights and remedies or performing its duties hereunder or under the
other Credit Documents or otherwise in its capacity as such Agent in any way
relating to or arising out hereof or the other Credit Documents; provided, no
                                                                 --------
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Agent's gross negligence or willful misconduct.  If any
indemnity furnished to any Agent for any purpose shall, in the opinion of such
Agent, be insufficient or become impaired, such Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished; provided, in no event shall this
                                        --------
sentence require any Lender to indemnify any Agent against any liability,
obligation, loss, damage, penalty, action, judgment, suit, cost, expense or
disbursement in excess of such Lender's Pro Rata Share thereof; and provided
                                                                    --------
further, this sentence shall not be deemed to require any Lender to indemnify
-------
any Agent against any liability, obligation, loss, damage, penalty, action,
judgment, suit, cost, expense or disbursement described in the proviso in the
immediately preceding sentence.

     9.7   Successor Administrative Agent.  Administrative Agent may resign at
any time by giving thirty (30) days' prior written notice thereof to Lenders and
Company, and Administrative Agent may be removed at any time with or without
cause by an instrument or concurrent instruments in writing delivered to Company
and Administrative Agent and signed by Requisite Lenders.  Upon any such notice
of resignation or any such removal, Requisite Lenders shall have the right, upon
five Business Days' notice to Company, to appoint a successor Administrative
Agent.  Upon the acceptance of any appointment as Administrative Agent hereunder
by a successor Administrative Agent, that successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Administrative Agent and the retiring or
removed Administrative Agent shall promptly (i) transfer to such successor
Administrative Agent all sums, Securities and other items of Collateral held
under the Collateral Documents, together with all records and other documents
necessary or appropriate in connection with the

                                      103
<PAGE>

performance of the duties of the successor Administrative Agent under the Credit
Documents, and (ii) execute and deliver to such successor Administrative Agent
such amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Administrative Agent of the security interests created under the Collateral
Documents, whereupon such retiring or removed Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring or
removed Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent hereunder. For purposes of this Section 9.7, any reference
to "Administrative Agent" also shall be deemed to be and include a reference to
"Collateral Agent."

     9.8   Collateral Documents and Guaranty.

           (a) Agent under Collateral Documents and Guaranties.  Each Lender
               -----------------------------------------------
hereby authorizes Collateral Agent, on behalf of and for the benefit of Secured
Parties, to be the agent for and representative of Lenders and all other Secured
Parties with respect to the Collateral and the Collateral Documents and to enter
into the Collateral Documents.  Each Lender hereby authorizes Administrative
Agent, on behalf of and for the benefit of Lenders, to be the agent for and
representative of Lenders with respect to the Guaranty.  Subject to Section
10.5, without further written consent or authorization from Lenders, each of
Administrative Agent and Collateral Agent, as applicable, may execute any
documents or instruments necessary to (i) release any Lien encumbering any item
of Collateral that is the subject of a sale or other disposition of assets
permitted hereby or to the release of which Requisite Lenders (or such other
Lenders as may be required to give such consent under Section 10.5) have
otherwise consented or (ii release any Guarantor from the Guaranty pursuant to
Section 7.12 or with respect to the release of which Requisite Lenders (or such
other Lenders as may be required to give such consent under Section 10.5) have
otherwise consented.

           (b) Right to Realize on Collateral and Enforce Guaranty.  Anything
               ---------------------------------------------------
contained in any of the Credit Documents to the contrary notwithstanding, each
Credit Party, Administrative Agent, Collateral Agent and each Lender hereby
agree that (i) no Lender shall have any right individually to realize upon any
of the Collateral or to enforce the Guaranty, it being understood and agreed
that all powers, rights and remedies hereunder may be exercised solely by
Administrative Agent or Collateral Agent, as applicable, on behalf of Lenders in
accordance with the terms hereof, and (ii in the event of a foreclosure by
Collateral Agent on any of the Collateral pursuant to a public or private sale,
Collateral Agent or any Lender may be the purchaser of any or all of such
Collateral at any such sale and each of Administrative Agent and Collateral
Agent, as agent for and representative of Lenders (but not any Lender or Lenders
in its or their respective individual capacities unless Requisite Lenders shall
otherwise agree in writing) shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of the
Collateral sold at any such public sale, to use and apply any of the Obligations
as a credit on account of the purchase price for any collateral payable by
Collateral Agent at such sale.

                                      104
<PAGE>

SECTION 10.  MISCELLANEOUS

     10.1    Notices.  Unless otherwise specifically provided herein, any notice
or other communication herein required or permitted to be given to a Credit
Party or any Agent, shall be sent to such Person's address as set forth on

Appendix B or in the other relevant Credit Document, and in the case of any
----------
Lender, the address as indicated on Appendix B or otherwise indicated to
                                    ----------
Administrative Agent in writing.  Each notice hereunder shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service and signed for against receipt thereof, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed; provided, no
                                                                    --------
notice to any Agent shall be effective until received by such Agent.

     10.2   Expenses.  Whether or not the transactions contemplated hereby shall
be consummated, Company agrees to pay promptly (a) all the actual and reasonable
costs and expenses of the Syndication Agent associated with the syndication of
the credit facilities hereunder and the preparation of the Credit Documents and
any consents, amendments, waivers or other modifications thereto; (b) all the
costs of furnishing all opinions by counsel for any Credit Party (including any
opinions requested by Lenders as to any legal matters arising hereunder) and of
each Credit Party's performance of and compliance with all agreements and
conditions on its part to be performed or complied with hereunder and the other
Credit Documents, including with respect to confirming compliance with
environmental, insurance and solvency requirements; (c) the reasonable fees,
expenses and disbursements of counsel to Syndication Agent (in each case
including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of the Credit Documents
and any consents, amendments, waivers or other modifications thereto and any
other documents or matters requested by any Credit Party; (d) all the actual
costs and reasonable expenses of creating and perfecting Liens in favor of
Collateral Agent, for the benefit of Secured Parties pursuant hereto, including
filing and recording fees, expenses and taxes, stamp or documentary taxes,
search fees, title insurance premiums and reasonable fees, expenses and
disbursements of counsel to Collateral Agent and of counsel providing any
opinions that any Agent or Requisite Lenders may request in respect of the
Collateral or the Liens created pursuant the Collateral Documents; (e) all the
actual costs and reasonable fees, expenses and disbursements of any auditors,
accountants, consultants or appraisers; (f) all the actual costs and reasonable
expenses (including the reasonable fees, expenses and disbursements of any
appraisers, consultants, advisors and agents employed or retained by Collateral
Agent and its counsel) in connection with the custody or preservation of any of
the Collateral; (g) all other actual and reasonable costs and expenses incurred
by Syndication Agent and Administrative Agent in connection with the
negotiation, preparation and execution of the Credit Documents and any consents,
amendments, waivers or other modifications thereto and the transactions
contemplated thereby; and (h) after the occurrence of a Default or an Event of
Default, all costs and expenses, including reasonable attorneys' fees (including
allocated costs of internal counsel) and costs of settlement, incurred by any
Agent and Lenders in enforcing any Obligations of or in collecting any payments
due from any Credit Party hereunder or under the other Credit Documents by
reason of such Default or Event of Default (including in

                                      105
<PAGE>

connection with the sale of, collection from, or other realization upon any of
the Collateral or the enforcement of the Guaranty) or in connection with any
refinancing or restructuring of the credit arrangements provided hereunder in
the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or
proceedings.

     10.3   Indemnity.  In addition to the payment of expenses pursuant to
Section 10.2, whether or not the transactions contemplated hereby shall be
consummated, each Credit Party agrees to defend (subject to Indemnitees'
selection of counsel), indemnify, pay and hold harmless, each Agent and Lender
and the officers, partners, directors, trustees, employees, agents and
Affiliates of each Agent and each Lender (each, an "Indemnitee"), from and
against any and all Indemnified Liabilities; provided, no Credit Party shall
                                             --------
have any obligation to any Indemnitee hereunder with respect to any Indemnified
Liabilities to the extent such Indemnified Liabilities arise from the gross
negligence or willful misconduct of that Indemnitee.  To the extent that the
undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 10.3 may be unenforceable in whole or in part because they are violative
of any law or public policy, the applicable Credit Party shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by
Indemnitees or any of them.

     10.4   Set-Off.  In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default each Lender is hereby authorized by each
Credit Party at any time or from time to time subject to the consent of
Administrative Agent (such consent not to be unreasonably withheld or delayed),
without notice to any Credit Party or to any other Person (other than
Administrative Agent), any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by such Lender to or for the credit or the account of any
Credit Party against and on account of the obligations and liabilities of such
Credit Party to such Lender hereunder or any of the other Credit Documents,
including all claims of any nature or description arising out of or connected
hereto,  or with any other Credit Document, irrespective of whether or not (a)
such Lender shall have made any demand hereunder or (b) the principal of or the
interest on the Loans or any other amounts due hereunder shall have become due
and payable pursuant to Section 2 and although such obligations and liabilities,
or any of them, may be contingent or unmatured.  Each Credit Party hereby
further grants to Administrative Agent and each Lender a security interest in
all Deposit Accounts maintained with Administrative Agent or such Lender as
security for the Obligations.

     10.5   Amendments and Waivers.

            (a) Requisite Lenders' Consent.  Subject to Sections 10.5(b) and
              --------------------------
10.5(c), no amendment, modification, termination or waiver of any provision of
the Credit Documents, or consent to any departure by any Credit Party therefrom,
shall in any event be effective without the written concurrence of the Requisite
Lenders.

                                      106
<PAGE>

           (b) Affected Lenders' Consent.  Without the written consent of each
               -------------------------
Lender  (other than a Defaulting Lender) that would be affected thereby, no
amendment, modification, termination, or consent shall be effective if the
effect thereof would:

               (i)    extend the scheduled final maturity of any Loan or Note;

               (ii)   waive, reduce or postpone any scheduled repayment (but not
prepayment) or the Revolving Commitment Termination Date or the Delayed Draw
Term Loan Commitment Termination Date;

               (iii)  reduce the rate of interest on any Loan (other than any
waiver of any increase in the interest rate applicable to any Loan pursuant to
Section 2.8) or any fee or other amount payable hereunder or under any of the
other Credit Documents;

               (iv)   extend the time for payment of any such interest or fees;

               (v)    amend, modify, terminate or waive any provision of this
Section 10.5(b) or Section 10.5(c) or Section 10.6(a);

               (vi)   amend the definition of "Requisite Lenders" or "Pro Rata
Share"; provided, with the consent of Requisite Lenders (except that such
        --------
consent shall not be required in the case of Indebtedness incurred or
commitments made under Section 2.2 of this Agreement), additional extensions of
credit pursuant hereto may be included in the determination of "Requisite
Lenders" or "Pro Rata Share" on substantially the same basis as the Revolving
Commitments, the Revolving Loans, the Delayed Draw Term Loan Commitments, the
Delayed Draw Term Loans, the New Term Loan Commitments and the New Term Loans
are included on the Closing Date;

               (vii)  release or otherwise subordinate all or substantially all
of the Collateral or all or substantially all of the Guarantors from the
Guaranty except as expressly provided in the Credit Documents; or

               (viii) consent to the assignment or transfer by any Credit Party
of any of its rights and obligations under any Credit Document.

           (c) Other Consents.  No amendment, modification, termination or
               --------------
waiver of any provision of the Credit Documents, or consent to any departure by
any Credit Party therefrom, shall:

               (i)    increase any Commitment of any Lender over the amount
thereof then in effect without the consent of such Lender; provided, no
                                                           --------
amendment, modification or waiver of any condition precedent, covenant, Default
or Event of Default shall constitute an increase in any Commitment of any
Lender;

                                      107
<PAGE>

               (ii)  amend the definition of "Requisite Class Lenders" without
the consent of Requisite Class Lenders of each Class affected by such amendment;
provided, with the consent of the Requisite Lenders, additional extensions of
--------
credit pursuant hereto may be included in the determination of such "Requisite
Class Lenders" on substantially the same basis as the Revolving Commitments, the
Revolving Loans, the Delayed Draw Term Loan Commitments and the Delayed Draw
Term Loans and the New Term Loan Commitments and the New Term Loans are included
on the Closing Date;

               (iii) alter the required application of any repayments or
prepayments as between Classes pursuant to Section 2.13 without the consent of
Requisite Class Lenders of each Class which is being allocated a lesser
repayment or prepayment as a result thereof; provided, Requisite Lenders may
                                             --------
waive, in whole or in part, any prepayment so long as the application, as
between Classes, of any portion of such prepayment which is still required to be
made is not altered;

               (iv)  amend, modify, terminate or waive any provision of Section
9 or Section 10 as the same applies to any Agent, or any other provision hereof
as the same applies to the rights or obligations of any Agent, in each case
without the consent of such Agent; or

               (v)   increase the aggregate amount of the New Revolving
Commitments, New Delayed Draw Term Loan Commitments and New Term Commitments
permitted to be requested by Company pursuant to Section 2.2 above $300,000,000
without the consent of all Lenders.

           (d) Execution of Amendments, etc.  Administrative Agent may, but
               -----------------------------
shall have no obligation to, with the concurrence of any Lender, execute
amendments, modifications, waivers or consents on behalf of such Lender. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 10.5
shall be binding upon each Lender at the time outstanding, each future Lender
and, if signed by a Credit Party, on such Credit Party.

     10.6  Successors and Assigns; Participations.

           (a) Generally.  This Agreement shall be binding upon the parties
               ---------
hereto and their respective successors and assigns and shall inure to the
benefit of the parties hereto and the successors and assigns of Lenders.  No
Credit Party's rights or obligations hereunder nor any interest therein may be
assigned or delegated by any Credit Party without the prior written consent of
all Lenders.

           (b) Register.  Company, Administrative Agent and Lenders shall deem
               --------
and treat the Persons listed as Lenders in the Register as the holders and
owners of the corresponding Commitments and Loans listed therein for all
purposes hereof, and no assignment or transfer of any such Commitment or Loan
shall be effective, in each case, unless and until an Assignment

                                      108
<PAGE>

Agreement effecting the assignment or transfer thereof shall have been delivered
to and accepted by Administrative Agent and recorded in the Register as provided
in Section 10.6(e). Prior to such recordation, all amounts owed with respect to
the applicable Commitment or Loan shall be owed to the Lender listed in the
Register as the owner thereof, and any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is listed in the Register as a Lender shall be conclusive and binding
on any subsequent holder, assignee or transferee of the corresponding
Commitments or Loans.

           (c) Right to Assign.  Each Lender shall have the right at any time to
               ---------------
sell, assign or transfer all or a portion of its rights and obligations under
this Agreement, including, without limitation, all or a portion of its
Commitment or Loans owing to it, Note or Notes held by it, or other Obligation
(provided, however, that each such assignment shall be of a uniform, and not
---------  -------
varying, percentage of all rights and obligations under and in respect of any
Loan and its related Commitments):

               (i)   to any Person meeting the criteria of clause (i) of the
definition of the term of "Eligible Assignee" upon the giving of notice to
Company and Administrative Agent; and

               (ii)  to any Person meeting the criteria of clause (ii) of the
definition of the term of "Eligible Assignee" and, in the case of assignments of
Loans or Commitments to any such Person (except in the case of assignments made
by or to GSCP), consented to by each of Company and Administrative Agent (such
consent not to be unreasonably withheld or delayed or, in the case of Company,
required at any time an Event of Default shall have occurred and then be
continuing); provided, further each such assignment pursuant to this Section
             --------
10.6(c)(ii) shall be in an aggregate amount of not less than (A) $5,000,000 (or
such lesser amount as may be agreed to by Company and Administrative Agent or as
shall constitute the aggregate amount of the Revolving Commitments, Revolving
Loans of the assigning Lender) with respect to the assignment of the Revolving
Commitments and Revolving Loans and (B) $1,000,000 (or such lesser amount as may
be agreed to by Company and Administrative Agent or as shall constitute the
aggregate amount of Delayed Draw Term Loan Commitments, Delayed Draw Term Loans,
New Term Loans and/or New Term Loan Commitments of the assigning Lender with
respect to the assignments thereof) with respect to the assignment of Delayed
Draw Term Loan Commitments, Delayed Draw Term Loans, New Term Loans, and/or New
Term Loan Commitments; provided further that after giving effect to such
                       -------- -------
assignment, the assigning Lender shall have Commitments and Loans aggregating at
least $1,000,000 (unless such assigning Lender is assigning all of its
Commitments and Loans), in each case unless otherwise agreed to by Company and
the Administrative Agent).

           (d) Mechanics.  The assigning Lender and the assignee thereof shall
               ---------
execute and deliver to Administrative Agent an Assignment Agreement, together
with (i) a processing and recordation fee of $500 in the case of assignments
pursuant to Section 10.6(c)(i) or made by or to GSCP, and $2,000 in the case of
all other assignments (except that only one fee shall be payable in the case of
contemporaneous assignments to Related Funds), and (ii) such forms, certificates
or other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee

                                      109
<PAGE>

under such Assignment Agreement may be required to deliver to Administrative
Agent and Company pursuant to Section 2.19(c).

          (e) Notice of Assignment.  Upon its receipt of a duly executed and
              --------------------
completed Assignment Agreement, together with the processing and recordation fee
referred to in Section 10.6(d) (and any forms, certificates or other evidence
required by this Agreement in connection therewith), Administrative Agent shall
record the information contained in such Assignment Agreement in the Register,
shall give prompt notice thereof to Company and shall maintain a copy of such
Assignment Agreement.

          (f) Representations and Warranties of Assignee.  Each Lender, upon
              ------------------------------------------
execution and delivery hereof or upon executing and delivering an Assignment
Agreement, as the case may be, represents and warrants as of the Closing Date or
as of the applicable Effective Date (as defined in the applicable Assignment
Agreement) that (i) it is an Eligible Assignee; (ii it has experience and
expertise in the making of or investing in commitments or loans such as the
applicable Commitments or Loans, as the case may be; and (ii it will make or
invest in, as the case may be, its Commitments or Loans for its own account in
the ordinary course of its business and without a view to distribution of such
Commitments or Loans within the meaning of the Securities Act or the Exchange
Act or other federal securities laws (it being understood that, subject to the
provisions of this Section 10.6, the disposition of such Commitments or Loans or
any interests therein shall at all times remain within its exclusive control).

          (g) Effect of Assignment.  Subject to the terms and conditions of this
              --------------------
Section 10.6, as of the "Effective Date" specified in the applicable Assignment
Agreement: (i) the assignee thereunder shall have the rights and obligations of
a "Lender" hereunder to the extent such rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement and shall thereafter
be a party hereto and a "Lender" for all purposes hereof; (ii the assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned thereby pursuant to such Assignment Agreement, relinquish its
rights (other than any rights which survive the termination hereof under Section
10.8) and be released from its obligations hereunder (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations hereunder, such Lender shall cease to be a party
hereto); provided, anything contained in any of the Credit Documents to the
         --------
contrary notwithstanding, such assigning Lender shall continue to be entitled to
the benefit of all indemnities hereunder as specified herein with respect to
matters arising out of the prior involvement of such assigning Lender as a
Lender hereunder; (ii the Revolving Commitments shall be modified to reflect the
Revolving Commitment of such assignee and any remaining Revolving Commitment of
such assigning Lender, if any; (iv the Delayed Draw Term Loan Commitments shall
be modified to reflect the Delayed Draw Term Loan Commitment of such assignee
and any remaining Delayed Draw Term Loan Commitment of such assigning Lender, if
any; and (v) if any such assignment occurs after the issuance of any Note
hereunder, the assigning Lender shall, upon the effectiveness of such assignment
or as promptly thereafter as practicable, surrender its applicable Notes to
Administrative Agent for cancellation, and thereupon Company shall issue and
deliver new Notes, if so requested by the assignee and/or

                                      110
<PAGE>

assigning Lender, to such assignee and/or to such assigning Lender, with
appropriate insertions, to reflect the new Commitments and/or outstanding Loans
of the assignee and/or the assigning Lender.

          (h) Participations.  Each Lender shall have the right at any time to
              --------------
sell one or more participations to any Person (other than Holdings any of its
Subsidiaries or any of its Affiliates or any direct competitor of Holdings or
any of its Subsidiaries) in all or any part of its Revolving Commitments,
Delayed Draw Term Loan Commitments, Loans or in any other Obligation.  The
holder of any such participation, other than an Affiliate of the Lender granting
such participation, shall not be entitled to require such Lender to take or omit
to take any action hereunder except with respect to any amendment modification
or waiver that would (i) extend the final scheduled maturity of any Loan or Note
in which such participant is participating, or reduce the rate or extend the
time of payment of interest or fees thereon (except in connection with a waiver
of applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Commitment shall not constitute a change in the terms of such participation, and
that an increase in any Commitment or Loan shall be permitted without the
consent of any participant if the participant's participation is not increased
as a result thereof), (ii) consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under this Agreement or (iii) release
all or substantially all of the Collateral under the Collateral Documents or all
or substantially all of the Documents under the Guaranty (except as expressly
provided in the Credit Documents) supporting the Loans hereunder in which such
participant is participating.  All amounts payable by any Credit Party
hereunder, including amounts payable to such Lender pursuant to Section 2.17(c),
2.18 or 2.19, shall be determined as if such Lender had not sold such
participation.  Each Credit Party and each Lender hereby acknowledge and agree
that, solely for purposes of Sections 10.4 and 10.6(j), (1) any participation
will give rise to a direct obligation of each Credit Party to the participant
and (2) the participant shall be considered to be a "Lender."

          (i) Certain Other Assignments.  In addition to any other assignment
              -------------------------
permitted pursuant to this Section 10.6, (i) any Lender may assign and pledge
all or any portion of its Loans, the other Obligations owed to such Lender, and
its Notes, if any, to secure obligations of such Lender, including, without
limitation, any pledge or assignment to secure obligations to any Federal
Reserve Bank and this Section 10.6 shall not apply to any such pledge or
assignment of a security interest; provided, (x) no Lender, as between Company
                                   --------
and such Lender, shall be relieved of any of its obligations hereunder as a
result of any such assignment and pledge, and (y) in no event shall the
applicable Federal Reserve Bank or trustee be considered to be a "Lender" or be
entitled to require the assigning Lender to take or omit to take any action
hereunder and (z) any transfer of the rights and obligations of a "Lender"
hereunder to any Person upon the foreclosure of any pledge or security interest
referred to in this clause (i) may only be made pursuant to the provisions of
Sections 10.6(c) through (e) governing assignments of interests in the Loans.

                                      111
<PAGE>

          (j) Ratable Sharing.  Lenders hereby agree among themselves that,
              ---------------
except as otherwise provided  in the Collateral Documents with respect to
amounts realized from the exercise of rights with respect to Liens on the
Collateral, if any of them shall after the occurrence and during the continuance
of a Default or Event of Default, whether by voluntary payment (other than a
voluntary prepayment of Loans made and applied in accordance with the terms
hereof), through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Credit
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, fees and other
amounts then due and owing to such Lender hereunder or under the other Credit
Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is
greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (k) notify Administrative Agent and each
other Lender of the receipt of such payment and (l) apply a portion of such
payment to purchase participations (which it shall be deemed to have purchased
from each seller of a participation simultaneously upon the receipt by such
seller of its portion of such payment) in the Aggregate Amounts Due to the other
Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all
                                                                --------
or part of such proportionately greater payment received by such purchasing
Lender is thereafter recovered from such Lender upon the bankruptcy or
reorganization of Company or otherwise, those purchases shall be rescinded and
the purchase prices paid for such participations shall be returned to such
purchasing Lender ratably to the extent of such recovery, but without interest.
To the extent not prohibited by the Holdings Senior Notes,  Company expressly
consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien, set
off or counterclaim with respect to any and all monies owing by Company to that
holder with respect thereto as fully as if that holder were owed the amount of
the participation held by that holder.

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

     10.8 Survival of Representations, Warranties and Agreements.  All
representations, warranties and agreements made herein shall survive the
execution and delivery hereof and the making of any Credit Extension.
Notwithstanding anything herein or implied by law to the contrary, the
agreements of each Credit Party set forth in Sections 2.17(c), 2.18, 2.19, 10.2,
10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.19(d), 2.21,
9.6 and 10.6(j) shall survive the payment of the Loans and the termination
hereof.

     10.9 No Waiver; Remedies Cumulative.  No failure or delay on the part of
any Agent or any Lender in the exercise of any power, right or privilege
hereunder or under any other Credit Document shall impair such power, right or
privilege or be construed to be a waiver of any default

                                      112
<PAGE>

or acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. The rights, powers and remedies given to each
Agent and each Lender hereby are cumulative and shall be in addition to and
independent of all rights, powers and remedies existing by virtue of any statute
or rule of law or in any of the other Credit Documents or any of the Hedge
Agreements. Any forbearance or failure to exercise, and any delay in exercising,
any right, power or remedy hereunder shall not impair any such right, power or
remedy or be construed to be a waiver thereof, nor shall it preclude the further
exercise of any such right, power or remedy.

     10.10  Marshalling; Payments Set Aside.  Neither any Agent nor any Lender
shall be under any obligation to marshal any assets in favor of any Credit Party
or any other Person or against or in payment of any or all of the Obligations.
To the extent that any Credit Party makes a payment or payments to
Administrative Agent or Lenders (or to Administrative Agent, on behalf of
Lenders), or Collateral Agent or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.

     10.11  Severability.  In case any provision in or obligation hereunder or
any Note or any of the other Credit Documents shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

     10.12  Entire Agreement. This Agreement (together with the Exhibits hereto,
the schedules hereto and the other agreements, documents and instruments
delivered in connection herewith) and the Credit Documents constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and verbal, among the parties or any of them with respect to the subject
matter hereof.

     10.13  Obligations Several; Independent Nature of Lenders' Rights.  The
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obligations or Commitment of any other Lender hereunder.  Nothing
contained herein or in any other Credit Document, and no action taken by Lenders
pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder or under any of the other Credit Documents
to each Lender shall be a separate and independent debt, and each Lender shall
be entitled to protect and enforce its rights arising hereunder or thereunder
and it shall not be necessary for any other Lender to be joined as an additional
party in any proceeding for such purpose.

                                      113
<PAGE>

     10.14   Headings.  Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.

     10.15   APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401
AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW), WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

     10.16   CONSENT TO JURISDICTION.  ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT,
OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK.  BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS (AND ANY APPELLATE COURTS
THEREFROM); (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT
PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (d) AGREES THAT
SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL
JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
AND (e) AGREES THAT AGENTS AND  LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY
IN THE COURTS OF ANY OTHER JURISDICTION.

     10.17   WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED.  THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS

                                      114
<PAGE>

WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.  EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL
WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.17 AND EXECUTED BY EACH
OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER
CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

     10.18   Confidentiality. Each Lender shall hold all information provided to
it by Company which has either been (i) identified and marked as confidential by
Company or (ii) (except where such information is clearly public) specifically
requested by such Lender rather than merely provided pursuant to the
requirements hereof, in accordance with such Lender's customary procedures for
handling confidential information of this nature and in accordance with prudent
lending or investing practices, it being understood and agreed by Company that
in any event a Lender may make disclosures to Affiliates of such Lender (and to
other persons authorized by a Lender or Agent to organize, present or
disseminate such information in connection with disclosures otherwise made in
accordance with this Section 10.18), disclosures reasonably required by any bona
fide or potential assignee, transferee or participant in connection with the
contemplated assignment, transfer or participation by such Lender of any Loans
or any participations therein or by any direct or indirect contractual
counterparties (or the professional advisors thereto) in Hedge Agreements
(provided, such counterparties and advisors are advised of and agree to be bound
by the provisions of this Section 10.18) or disclosures in connection with the
enforcement of any of the rights or remedies hereunder or under any of the
Credit Documents or disclosures required or requested by any govern  mental
agency or representative thereof or by the NAIC or pursuant to legal process;
provided, unless specifically prohibited by applicable law or court order, each
--------
Lender shall make reasonable efforts to notify Company of any request by any
governmental agency or representative thereof (other than any such request in
connection with any examination of the financial condition or other routine
examination of such Lender by such governmental agency) for disclosure of any
such non-public information prior to disclosure of such information;  and
provided, further that in no event shall any Lender be obligated or required to
--------
return any materials furnished by Holdings or any of its Subsidiaries.

     10.19   Usury Savings Clause.  Notwithstanding any other provision herein,
the aggregate interest rate charged with respect to any of the Obligations,
including all charges or fees in

                                      115
<PAGE>

connection therewith deemed in the nature of interest under applicable law shall
not exceed the Highest Lawful Rate. If the rate of interest (determined without
regard to the preceding sentence) under this Agreement at any time exceeds the
Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall
bear interest at the Highest Lawful Rate until the total amount of interest due
hereunder equals the amount of interest which would have been due hereunder if
the stated rates of interest set forth in this Agreement had at all times been
in effect. In addition, if when the Loans made hereunder are repaid in full the
total interest due hereunder (taking into account the increase provided for
above) is less than the total amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect, then to the extent permitted by law, Company shall pay to
Administrative Agent an amount equal to the difference between the amount of
interest paid and the amount of interest which would have been paid if the
Highest Lawful Rate had at all times been in effect. Notwithstanding the
foregoing, it is the intention of Lenders and Company to conform strictly to any
applicable usury laws. Accordingly, if any Lender contracts for, charges, or
receives any consideration which constitutes interest in excess of the Highest
Lawful Rate, then any such excess shall be cancelled automatically and, if
previously paid, shall at such Lender's option be applied to the outstanding
amount of the Loans made hereunder or be refunded to Company.

     10.20   Counterparts; Effectiveness.  This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.

     This Agreement shall become effective upon the execution of a counterpart
hereof by each of the parties hereto and receipt by Company and Administrative
Agent of written or telephonic notification of such execution and authorization
of delivery thereof.

                  [Remainder of page intentionally left blank]

                                      116
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

                         FOCAL COMMUNICATIONS CORPORATION

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL FINANCIAL SERVICES, INC.

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF CALIFORNIA

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF COLORADO

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski

                                      S-1
<PAGE>

                                Title:  Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF FLORIDA

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                         Name:  Robert M. Junkroski
                         Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF GEORGIA

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF ILLINOIS

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF MASSACHUSETTS

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF MICHIGAN

                         By:    /s/ ROBERT M. JUNKROSKI
                                ----------------------------------------
                                Name:  Robert M. Junkroski
                                Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF MID-ATLANTIC

                                      S-2
<PAGE>

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF MINNESOTA

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF MISSOURI

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF NEW JERSEY

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF NEW YORK

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF OHIO

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------
                            Name:  Robert M. Junkroski
                            Title: Vice President & Treasurer

                       FOCAL COMMUNICATIONS CORPORATION
                       OF PENNSYLVANIA

                       By:  /s/ ROBERT M. JUNKROSKI
                            ----------------------------------------

                                      S-3
<PAGE>

                                   Name:  Robert M. Junkroski
                                   Title:  Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF TEXAS

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF VIRGINIA

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF WASHINGTON

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         FOCAL COMMUNICATIONS CORPORATION
                         OF WISCONSIN

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         FOCAL INTERNATIONAL CORPORATION

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         FOCAL TELECOMMUNICATIONS CORPORATION

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski

                                      S-4
<PAGE>

                                   Title:  Vice President & Treasurer

                         FOCAL EQUIPMENT FINANCE , LLC

                         By:  /s/ ROBERT M. JUNKROSKI
                              ----------------------------------------
                              Name:  Robert M. Junkroski
                              Title: Vice President & Treasurer

                         GOLDMAN SACHS CREDIT PARTNERS L.P.,
                         as a Joint Lead Arranger, Syndication Agent and a
                         Lender

                         By:  /s/ EDMUND KEARNS
                              ----------------------------------------
                              Authorized Signatory

                                      S-5
<PAGE>

                         CITIBANK, N.A.,
                         as Administrative Agent, Collateral Agent
                         and a Lender

                         By:  /s/ KIMBERLY HARPER
                              ----------------------------------------
                              Name:  Kimberly Harper
                              Title: Vice President

                         SALOMON SMITH BARNEY INC.,
                         as a Joint Lead Arranger

                         By:  /s/ CAESAR WYSZOMIRSKI
                              ----------------------------------------
                              Name:  Caesar Wyszomirski
                              Title: Director

                                      S-6
<PAGE>

                         BANK OF AMERICA, N.A.,
                         as Documentation Agent and a Lender

                         By:  /s/ JULIE A. SCHELL
                              ----------------------------------------
                              Name:  Julie A. Schell
                              Title:  Principal

                                      S-7
<PAGE>

                         CREDIT SUISSE FIRST BOSTON,
                         as a Lender

                         By:  /s/ DAVID L. SAWYER
                              ----------------------------------------
                              Name:  David L. Sawyer
                              Title: Vice President

                         By:  /s/ LALITA ADVANI
                              ----------------------------------------
                              Name:  Lalita Advani
                              Title: Assistant Vice President

                                      S-8
<PAGE>

                         LASALLE BANK, N.A.,
                         as a Lender

                         By:  /s/ JOHN C. THURSTON
                              ----------------------------------------
                              Name:  John C. Thurston
                              Title: Vice President

                                      S-9
<PAGE>

                         ROYAL BANK OF CANADA,
                         as a Lender

                         By:  /s/ CHARLES ROMANO
                              ----------------------------------------
                              Name:  Charles Romano
                              Title:  Manager

                                     S-10
<PAGE>

                         CIT LENDING SERVICES CORPORATION,
                         as a Lender

                         By:  /s/ JOHN P. SIRICO, II
                              ---------------------------------------
                              Name:  John P. Sirico, II
                              Title:  Vice President

                                     S-11
<PAGE>

                         WACHOVIA BANK, N.A.,
                         as a Lender

                         By:  /s/ FITZHUGH L. WICKHAM
                              -------------------------------------
                              Name:  Fitzhugh L. Wickham
                              Title: Vice President

                                     S-12
<PAGE>

                         IBM CREDIT CORPORATION,
                         as a Lender

                         By:  /s/ THOMAS S. CURCIO
                              -------------------------------------
                              Name:  Thomas S. Curcio
                              Title: Manager of Credit

                                     S-13
<PAGE>

                                                                      APPENDIX A
                                                TO CREDIT AND GUARANTY AGREEMENT

                             Revolving Commitments

===========================================================================
                                                                   Pro
Lender                               Revolving Commitment       Rata Share
===========================================================================

Goldman Sachs Credit Partners L.P.      $ 30,500,000.00          20.33%
---------------------------------------------------------------------------
Citibank, N.A.                          $ 26,000,000.00          17.33%
---------------------------------------------------------------------------
Bank of America, N.A.                   $ 26,000,000.00          17.33%
---------------------------------------------------------------------------
Credit Suisse First Boston              $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
LaSalle Bank, N.A.                      $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
Royal Bank of Canada                    $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
Wachovia Bank, N.A.                     $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
CIT Lending Services Corporation        $ 10,000,000.00           6.66%
---------------------------------------------------------------------------
IBM Credit Corporation                  $  7,500,000.00           5.00%
---------------------------------------------------------------------------
     Total                              $150,000,000.00            100%
===========================================================================

                                 APPENDIX A-1
<PAGE>

                      Delayed Draw Term Loan Commitments

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

                                       Delayed Draw                 Pro
        Lender                    Term Loan Commitment           Rata Share
===========================================================================
Goldman Sachs Credit Partners L.P.      $ 30,500,000.00          20.33%
---------------------------------------------------------------------------
Citibank, N.A.                          $ 26,000,000.00          17.33%
---------------------------------------------------------------------------
Bank of America, N.A.                   $ 26,000,000.00          17.33%
---------------------------------------------------------------------------
Credit Suisse First Boston              $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
LaSalle Bank, N.A.                      $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
Royal Bank of Canada                    $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
Wachovia Bank, N.A.                     $ 12,500,000.00           8.33%
---------------------------------------------------------------------------
CIT Lending Services Corporation        $ 10,000,000.00           6.66%
---------------------------------------------------------------------------
IBM Credit Corporation                  $  7,500,000.00           5.00%
---------------------------------------------------------------------------
     Total                              $150,000,000.00            100%
===========================================================================

                                APPENDIX A-2-1
<PAGE>

                                                                      APPENDIX B
                                                TO CREDIT AND GUARANTY AGREEMENT

                               Notice Addresses

FOCAL COMMUNICATIONS CORPORATION
     200 North LaSalle Street
     Suite 800
     Chicago, IL 60601
     Attention:  Robert Junkroski - Vice President/Treasurer
     Telecopier: (312) 895-8403

FOCAL FINANCIAL SERVICES, INC.
     200 North LaSalle Street
     Suite 800
     Chicago, IL 60601
     Attention:  Robert Junkroski - Vice President/Treasurer
     Telecopier: (312) 895-8403

EACH GUARANTOR
     200 North LaSalle Street
     Suite 800
     Chicago, IL 60601
     Attention:  Robert Junkroski - Vice President/Treasurer
     Telecopier: (312) 895-8403

in each case, with a copy to:
     Focal Communications Corporation
     200 North LaSalle Street
     Suite 800
     Chicago, IL 60601
     Attention:  Robert Junkroski - Vice President/Treasurer
     Telecopier: (312) 895-8403

                                 APPENDIX B-1
<PAGE>

GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Joint Lead Arranger, Syndication Agent and a Lender

     Goldman Sachs Credit Partners L.P.
     85 Broad Street
     New York, New York  10004
     Attention:  Stephen King
     Telecopier:  (212) 357-0932

with a copy to:

     Goldman Sachs Credit Partners L.P.
     85 Broad Street
     New York, New York  10004
     Attention: John Makrinos
     Telecopier:  (212) 357-4597

                                 APPENDIX B-2
<PAGE>

CITIBANK, N.A.,
as Administrative Agent,
Collateral Agent and a Lender

Administrative Agent's Principal Office:
     c/o Salomon Smith Barney Inc.
     390 Greenwich Street
     New York, NY  10013
     Attention:  James P. Garvin
     Telecopier: (212) 723-8547

Lender's Principal Office:
     c/o Salomon Smith Barney Inc.
     390 Greenwich Street
     New York, NY  10013
     Attention:  James P. Garvin
     Telecopier: (212) 723-8547

                                 APPENDIX B-3
<PAGE>

SALOMON SMITH BARNEY INC.,
as a Joint Lead Arranger

     390 Greenwich Street
     New York, NY  10013
     Attention:  James P. Garvin
     Telecopier:  (212) 723-8547

BANK OF AMERICA, N.A.,
as Documentation Agent and a Lender

     64/th/ Floor
     901 Main Street
     Dallas, TX  75202
     Attention:  Julie Schell
     Telecopier: (214) 209-9390

CREDIT SUISSE FIRST BOSTON
as a Lender

     11 Madison Avenue
     New York, NY 10010
     Attention:  David Sawyer
     Telecopier:  (212) 325-8314

LASALLE BANK, N.A.,
as a Lender

     135 South LaSalle Street
     Suite #1140
     Chicago, Illinois 60603
     Attention:  John Thurston
     Telecopier: (312) 904-6225

ROYAL BANK OF CANADA

                                 APPENDIX B-4
<PAGE>

as a Lender

     One Liberty Plaza
     5/th/ Floor
     New York, NY 10006
     Attention:  Kevin Cornwell
     Telecopier:  (212) 428-6460

WACHOVIA BANK, N.A.
as a Lender

     191 Peachtree Street, NE
     Atlanta, GA 30303
     Attention:  Fitzhugh L. Wickham
     Telecopier:  (404) 332-5016

CIT LENDING SERVICES CORPORATION
as a Lender

     c/o The CIT Group, Inc. - Structured Finance Group
     44 Whippany Road, Suite 160
     Morristown, NJ 07962-4558
     Attention:  Vice-President - Credit
     Telecopier:  (973) 401-6715
     Copy to:  Vice-President - Legal, John P. Sirico, II
     Telecopier:  (973) 401-6762

IBM CREDIT CORPORATION
as a Lender

     North Castle Drive - MD 17
     Armonk, NY 10504
     Attention:  Ronald Pekrul
     Telecopier:  (914) 765-6271

                                 APPENDIX B-5
<PAGE>

                                Schedule 3.1(e)

                      Certain Governmental Authorizations
                      -----------------------------------

A.  Corporate reorganization contemplated by Section 5.15 requires prior
approval of telecommunications regulatory agency in the following states in
which Holdings or any Subsidiary is certified as of the Closing Date:

California
Delaware
Florida
Georgia
New Jersey
New York
Ohio
Pennsylvania
Texas
Virginia

B.  Corporate reorganization contemplated by Section 5.15 requires notification
in the following states in which Holdings or any Subsidiary is certified as of
the Closing Date:

District of Columbia
Massachusetts

C.  Issuance of Debt requires prior approval of telecommunications regulatory
agency in the following states (those approvals which have not been obtained are
so indicated) in which Holdings or any Subsidiary is certified as of the Closing
Date:

Delaware        (approved)
Georgia         (approved)
Indiana         (applied for)
New Jersey      (applied for)
New York        (applied for)
Pennsylvania    (approved)
<PAGE>

                                 Schedule 4.1
                Jurisdictions of Organization and Qualification

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                    Type       Jurisdiction Jurisdiction   Authorized  Capital Stock
                 Name                                of            of           of           Capital     in Issue        FEIN
                                                 Organization  Organization Qualification     Stock
---------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>          <C>            <C>         <C>             <C>
Focal Communications Corporation                 Corporation   Delaware     DE, IL, MA     500 shares  500 shares      36-4167094
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of California   Corporation   Delaware     DE, CA         500 shares  500 shares      36-4128832
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Colorado     Corporation   Delaware     DE, CO         500 shares  500 shares      36-4246239
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Florida      Corporation   Delaware     DE, FL         500 shares  500 shares      36-4202978
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Georgia      Corporation   Delaware     DE, GA         500 shares  500 shares      36-4246246
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Illinois     Corporation   Delaware     DE, IL, IN     **          ***             36-4081278
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Massachu-    Corporation   Delaware     DE, MA         500 shares  500 shares      36-4128824
setts
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Michigan     Corporation   Delaware     DE, MI         500 shares  500 shares      36-4203095
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Mid-Atlan-   Corporation   Delaware     DE, DC, MD     500 shares  500 shares      36-4197370
tic
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Minnesota    Corporation   Delaware     DE, MN         500 shares  500 shares      36-4287773
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Missouri     Corporation   Delaware     DE, MO         500 shares  500 shares      36-4246247
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of New Jersey   Corporation   Delaware     DE, NJ         500 shares  500 shares      36-4128826
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of New York     Corporation   Delaware     DE, CT, NY,    500 shares  500 shares      36-4128831
                                                                            NJ
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Ohio         Corporation   Delaware     DE, OH         500 shares  500 shares      36-4244644
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Pennsylva-   Corporation   Delaware     DE, PA         500 shares  500 shares      36-4187401
nia
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Texas        Corporation   Delaware     DE, TX         500 shares  500 shares      36-4246248
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Virginia     Corporation   Virginia     VA             500 shares  500 shares      36-4197372
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Washington   Corporation   Delaware     DE, WA         500 shares  500 shares      36-4202514
---------------------------------------------------------------------------------------------------------------------------------
Focal Communications Corporation of Wisconsin    Corporation   Delaware     DE, WI         500 shares  500 shares      36-4244645
---------------------------------------------------------------------------------------------------------------------------------
Focal Financial Services, Inc.                   Corporation   Delaware     *              500 shares  500 shares      36-4260494
---------------------------------------------------------------------------------------------------------------------------------
Focal International Corp.                        Corporation   Delaware     DE             500 shares  500 shares      36-4308954
---------------------------------------------------------------------------------------------------------------------------------
Focal Telecommunications Corporation             Corporation   Delaware     DE, IL, IN,    500 shares  500 shares      36-4128833
---------------------------------------------------------------------------------------------------------------------------------
Focal Equipment Finance, LLC                     Single        Delaware     DE             500 shares  single memb-    36-4386768
                                                 Member LLC                                            ership interest
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
     All Capital Stock referred to above is common stock of par value $0.01
  *DE, CA, CO, DC, GA, IL, IN, MD, MA, MI, MN, NJ, NY, OH, TX, PA, VA, WA
  **Class A:  85,567 shares         *** Class A:  80,307.793 shares
    Class B:  35,000 shares             Class B:  20,000 shares
    Class C:  15,000 shares             Class C:  14,711.54 shares

                                 Schedule 4.2
<PAGE>

                          Capital Stock and Ownership
                          ---------------------------

As of June 30, 2000, there were 9,621,369 non-qualified stock options
outstanding in favor of employees, directors and consultants of Holdings.
Holdings is publicly traded on the Nasdaq National Market.

As at the date hereof, all of the above entities are Wholly-Owned Subsidiaries
of Focal Communications Corporation, other than (i) Focal Communications
Corporation of Virginia which is a Wholly-Owned Subsidiary of Focal
Communications Corporation of Mid-Atlantic and (ii)  Focal Equipment Finance,
LLC which is a Wholly-Owned Subsidiary of Focal Financial Services, Inc.
<PAGE>

                                 Schedule 4.5

                             Governmental Consents
                             ---------------------

A.  Issuance of Debt requires prior approval of telecommunications regulatory
agency in the following states in which Holdings or any Subsidiary is certified
as of the Closing Date:

Delaware
Georgia
Indiana
New Jersey
New York
Pennsylvania

B.  Issuance of Debt requires notification in the following states in which
Holdings or any Subsidiary is certified as of the Closing Date:

Massachusetts

C.  Corporate reorganization contemplated by Section 5.15 requires prior
approval of telecommunications regulatory agency in the following states in
which Holdings or any Subsidiary is certified as of the Closing Date:

California
Delaware
Florida
Georgia
New Jersey
New York
Ohio
Pennsylvania
Texas
Virginia

D.  Corporate reorganization contemplated by Section 5.15 requires notification
in the following states in which Holdings or any Subsidiary is certified as of
the Closing Date:

District of Columbia
Massachusetts
<PAGE>

                                 Schedule 4.7

                            Contingent Liabilities
                            ----------------------

                                     None
<PAGE>

                                 Schedule 4.13

                               Real Estate Assets
                               ------------------

All of the following real property other than 1305 East Algonquin Road in Mount
Prospect, Illinois is leased property.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        Credit Party             Address/City/State/Zip Code                    Lease
----------------------------------------------------------------------------------------------
<S>                           <C>                                      <C>
Focal Communications          Switch Space
                              ------------
Corporation of California     1741 Technology Drive                    Lease Agreement dated
                              San Jose, California 95110               April 1, 2000

                              Sales Office                             Lease Agreement dated
                              ------------
                              The Concourse                            December 22, 1997,
                              1735 Technology Drive                    together with Sublease
                              Suite 240                                Agreement dated
                              San Jose, California 95112               December 30, 1998
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of California     Townsend Center                          Lease Agreement dated
                              650 Townsend                             January 26, 1998,
                              Suite 2119A                              together with
                              San Francisco, California 94103          Amendments 1 through 3

                                                                       Lease Agreement dated
                              The Garland Center                       May 19, 1998, together
                              1200 West 7/th/ Street L2, 250           with First Amendment
                              Los Angeles, California 90017            to Lease Agreement
                                                                       dated July 8, 1998

                                                                       Lease Agreement dated
                              2850 South Redhill Avenue
                              Suite 120
                              Santa Ana, California 92707

                              Sales Office                             Lease Agreement dated
                              ------------
                              2600 Michaelson Drive                    June 8, 1999
                              2/nd/ Floor
                              Irvine, California 92612
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Georgia        INFORUM                                  Lease Agreement dated
                              250 Williams Street                      February 5, 1999
                              No. L-200
                              Atlanta, Georgia 30303
----------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        Credit Party             Address/City/State/Zip Code                    Lease
----------------------------------------------------------------------------------------------
<S>                           <C>                                      <C>
Focal Communications          Switch Space                             No lease agreement
                              ------------
Corporation of Illinois       1305 East Algonquin Road                 because Focal owns
                              Mount Prospect, Illinois 60056           this property.

                              1850 Howard Street                       Lease Agreement dated
                              Floor 1850-A                             June 30, 2000.
                              Elk Grove Village, Illinois 60001
                                                                       Lease Agreement dated
                              Switch Space, Sales and Corporate        December 31, 1996
                              ---------------------------------
                              Offices                                  together with
                              -------
                              200 North LaSalle Street                 Amendments Nos. 1
                              Chicago, Illinois  60601                 through 12
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of                Riverfront Office Park                   Lease Agreement dated
Massachusetts                 One Main Street                          January 6, 1999
                              11/th/ Floor
                              Cambridge, Massachusetts 02142

                              Sales Office                             Lease Agreement dated
                              ------------
                              99 High Street                           March __, 1996 and
                              16/th/ Floor                             Sublease Agreement
                              Boston, Massachusetts 02109              dated May 1, 1999
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Michigan       The Vanguard Center                      Lease Agreement dated
                              23800 West Ten Mile Road                 August 31, 1998
                              Suite 100
                              Southfield, Michigan 48034
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Mid-           1120 Vermont Avenue                      Lease Agreement dated
Atlantic                      Terrace Level                            May 4, 1998, together
                              Washington, D.C. 20005                   with First Amendment
                                                                       to Lease Agreement
                                                                       dated July 23, 1998
                              Sales Office
                              ------------
                              7799 Leesburg Pike                       Lease Agreement dated
                              Falls Church, Virginia 20043             July 10, 1995 and
                                                                       Sublease Agreement
                                                                       dated September 10,
                                                                       1999
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Minnesota      Piper Jaffray Tower                      Lease Agreement dated
                              222 South Ninth Street                   May 1, 2000
                              Minneapolis, Minnesota 55402
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        Credit Party             Address/City/State/Zip Code                    Lease
----------------------------------------------------------------------------------------------
<S>                           <C>                                      <C>
Focal Communications          Switch Space
                              ------------
Corporation of New            One Evertrust Plaza                      Lease Agreement dated
Jersey                        17/th/ Floor                             February 19, 1999
                              Christopher Columbus Drive &             together with
                              Washington Street                        Amendment No. 1
                              Jersey City, New Jersey 07302            dated March 1, 2000

                              Sales Office
                              ------------
                              Metroview Office LLC                     Lease Agreement dated
                              333 Thornall Street                      March 24, 2000
                              Edison, New Jersey 08837
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of New York       Financial Square                         Lease Agreement dated
                              32 Old Slip                              May 20, 1997
                              Suite 400
                              New York, New York 10005

                              Hudson Telecom Center                    Lease Agreement dated
                              325 Hudson                               April 14, 2000
                              New York, New York 10013

                              Sales Office                             Lease Agreement dated
                              ------------
                              One Penn Plaza                           September 25, 1998
                              250 West 34/th/ Street                   with Amendment 1
                              New York, New York 10019-4798
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Ohio           The Halle Building                       Lease Agreement dated
                              1228 Euclid Avenue                       April 1, 2000
                              10/th/ Floor
                              Cleveland, Ohio 44115
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of                Mellon Independence Center               Lease Agreement dated
Pennsylvania                  701 Market Street                        March 10, 1998
                              Philadelphia, Pennsylvania 19106

                              1000 Forge Avenue                        Lease Agreement dated
                              Building C                               July 1, 2000
                              Norristown, Pennsylvania 19403
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space
                              ------------
Corporation of Texas          5959 Corporate Drive                     Lease Agreement dated
                              Suite 300                                August 1, 1999
                              Houston, Texas  77036
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        Credit Party             Address/City/State/Zip Code                    Lease
----------------------------------------------------------------------------------------------
<S>                           <C>                                      <C>
                              INFOMART
                              1950 Stemmons Freeway                    Lease Agreement dated
                              Suite 6060                               December 15, 1998
                              Dallas, Texas 75207

                              One Allen Center                         Lease Agreement dated
                              500 Dallas Street                        April 1, 2000
                              Houston, Texas 77002
----------------------------------------------------------------------------------------------
Focal Communications          Switch Space                             Lease Agreement dated
                              ------------
Corporation of                The Decatur Building                     August 7, 1998
Washington                    1511 6/th/ Avenue
                              Second Flood
                              Seattle, Washington  98101
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                 Schedule 4.16

                               Material Contracts
                               ------------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
  Number      Agreement
----------------------------------------------------------------------------------------------
<S>           <C>
     1        $270,000,000 12.125% Senior Discount Notes due 2008
              Purchase Agreement dated February 12, 1998
----------------------------------------------------------------------------------------------
     2        $275,000,000 11-7/8% Senior Notes Due 2010
              Purchase Agreement dated January 7, 2000
----------------------------------------------------------------------------------------------
     3        California, Los Angeles, 1200 West 7th Street
              Lease Agreement dated May 19, 1998, together with First Amendment to lease
              Agreement dated July 8, 1998
----------------------------------------------------------------------------------------------
     4        California, San Francisco, 650 Townsend Street
              Lease Agreement dated January 26, 1998, together with Amendments 1 through 3
----------------------------------------------------------------------------------------------
     5        California, San Jose, 1741 Technology Drive
              Lease Agreement dated April 1, 2000
----------------------------------------------------------------------------------------------
     6        California, Santa Ana, 2850 Redhill Avenue
              Lease Agreement dated June 5, 2000
----------------------------------------------------------------------------------------------
     7        DPI/TFS, Inc.
              Software License dated April 10, 1997
----------------------------------------------------------------------------------------------
     8        Georgia, Atlanta, 250 Williams Street
              Lease Agreement dated February 5, 1999
----------------------------------------------------------------------------------------------
     9        Illinois, Chicago, 200 North LaSalle Street
              Lease Agreement dated December 31, 1996, together with Amendments Nos. 1
              through 12
----------------------------------------------------------------------------------------------
    10        Illinois, Elk Grove Village, 1850 Howard Street
              Lease Agreement dated June 30, 2000
----------------------------------------------------------------------------------------------
    11        Level 3 Communications, LLC
              IRU Agreement with Focal Financial Services, Inc. dated April 28, 1999
----------------------------------------------------------------------------------------------
    12        Level 3 Communications, LLC
              Master Services Agreement Private Line dated April 30, 1999
----------------------------------------------------------------------------------------------
    13        Massachusetts, Cambridge, One Main Street
              Lease Agreement dated January 6, 1999
----------------------------------------------------------------------------------------------
    14        Metromedia Fiber Network Services, Inc.
              Fiber Optic Network Leased Fiber Agreement with Focal Financial Services, Inc.
              dated May 24, 1999
----------------------------------------------------------------------------------------------
    15        Michigan, Southfield, 23800 West Ten Mile Road
              Lease Agreement dated August 31, 1998
----------------------------------------------------------------------------------------------
    16        Minnesota, Minneapolis, 222 South Ninth Street
              Lease Agreement dated May 1, 2000
----------------------------------------------------------------------------------------------
    17        New Jersey, Jersey City, One Evertrust Plaza
              Lease Agreement dated March 1, 1999, together with Amendment No. 1 dated March
              1, 2000
----------------------------------------------------------------------------------------------
    18        New York, New York, 32 Old Slip
              Lease Agreement dated May 20, 1997
----------------------------------------------------------------------------------------------
    19        New York, New York, 325 Hudson
              Lease Agreement dated April 14, 2000
----------------------------------------------------------------------------------------------
    20        Nortel Networks Inc.
              Master Purchase Agreement dated January 1, 2000
----------------------------------------------------------------------------------------------
    21        NTFC Capital Corporation
              Loan and Security Agreement dated December 30, 1998 together with Amendment
              No. 1
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
  Number      Agreement
----------------------------------------------------------------------------------------------
<S>           <C>
    22        Ohio, Cleveland, 1228 Euclid Avenue
              Lease Agreement dated April 1, 2000
----------------------------------------------------------------------------------------------
    23        Pennsylvania, Norristown, 1000 Forge Avenue, Building C
              Lease Agreement dated July 1, 2000
----------------------------------------------------------------------------------------------
    24        Pennsylvania, Philadelphia, 701 Market Street
              Lease Agreement dated March 10, 1998
----------------------------------------------------------------------------------------------
    25        Texas, Dallas, 1950 Stemmons Freeway
              Lease Agreement dated December 15, 1998
----------------------------------------------------------------------------------------------
    26        Texas, Houston, 5959 Corporate Drive
              Lease Agreement dated August 1, 1999
----------------------------------------------------------------------------------------------
    27        Texas, Houston, One Allen center, 500 Dallas Street
              Lease Agreement dated April 1, 2000
----------------------------------------------------------------------------------------------
    28        Washington, D.C., 1120 Vermont Avenue, NW
              Lease Agreement dated May 4, 1998, together with First Amendment to Lease
              Agreement dated July 23, 1998
----------------------------------------------------------------------------------------------
    29        Washington, Seattle, 1511 6/th/ Avenue
              Lease Agreement dated August 7, 1998
----------------------------------------------------------------------------------------------
    30        WorldCom Technologies, Inc.
              Private Line Service Agreement dated May 4, 1999 together with First Amendment
              dated May 3, 1999
----------------------------------------------------------------------------------------------
    31        XCOM Technologies, Inc.
              Purchase Agreement dated January 6, 1999
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                 Schedule 4.17

                            Governmental Regulations
                            ------------------------

     See Schedule 4.5.  In addition, each of the Subsidiaries of Holdings (other
than the Company, Dark Fiber Subsidiary and Equipment Subsidiary) is subject to
regulation by the relevant public utility commission (or similar regulatory
body) in each of the states in which such Subsidiary conducts telecommunications
business.
<PAGE>

                                Schedule 5.15(a)

             Certain Material Contracts being collaterally assigned
             ------------------------------------------------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
       Material Contract
----------------------------------------------------------------------------------------------
<S>    <C>
   1.  DPI/TFS, Inc.
       Software License dated April 10, 1997
----------------------------------------------------------------------------------------------
   2.  Level 3 Communications, LLC
       IRU Agreement with Focal Financial Services, Inc.
       Master Services Agreement Private Line dated April 30, 1999
----------------------------------------------------------------------------------------------
   3.  Metromedia Fiber Network Services, Inc.
       Fiber Optic Network Leased Fiber Agreement with Focal Financial Services, Inc. dated May
       24, 1999
----------------------------------------------------------------------------------------------
   4.  Nortel Networks Inc.
       Master Purchase Agreement dated January 1, 2000
----------------------------------------------------------------------------------------------
   5.  WorldCom Technologies, Inc.
       Private Line Service Agreement dated May 4, 1999 together with First Amendment dated May
       3, 1999
----------------------------------------------------------------------------------------------
   6.  XCOM Technologies, Inc.
       Purchase Agreement dated January 6, 1999
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                Schedule 5.15(b)

              Certain Agreements requiring Acknowledgment Letters
              ---------------------------------------------------

Level 3 Communications, LLC IRU Agreement with Focal Financial Services, Inc.
dated April 28, 1999.
<PAGE>

                                 Schedule 6.1

                             Certain Indebtedness
                             --------------------

1.   $270,000,000 12.125% Senior Discount Notes due 2008

2.   $275,000,000 11.875% Senior Notes due 2010

3.   Loan and Security Agreement dated December 30, 1998 between Holdings and
     NTFC Capital Corporation

4.   Metromedia Fiber Network Services, Inc. Fiber Optic Network Leased Fiber
     Agreement with Focal Financial Services, Inc. dated May 24, 1999

5.   Directors and Officers Policy (financed)
<PAGE>

                                 Schedule 6.2

                                 Certain Liens
                                 -------------

1.   With respect to the real property owned by Holdings in Arlington Heights,
Illinois, Requirements for Storm Water Detention dated November 25, 1986 and
recorded December 18, 1988 as Document 86607474, whereby United Airlines agrees
to provide for proper storm water detention in accordance with the rules and
regulations of the Metropolitan Sanitary District of Greater Chicago.

2.   See Table following this page.
<PAGE>

                                 Schedule 6.2

                                   Continued
                                   ---------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                   State/County            Secured
                                   ------------            -------
 Tab         Debtor                Jurisdiction         Party/Assignee     Filing Date     File No.            Description
 ---         ------                ------------         --------------     -----------     --------            -----------
====================================================================================================================================
<S>          <C>                 <C>                    <C>                <C>             <C>             <C>
  1.                             Secretary of State,     NTFC Capital         01/11/99                     Lien on equipment
                                    California           Corporation                       9901460619      financed or refinanced
             Focal Communica-                                                                              with proceeds from loan
             tions Corporation                                                                             agreement, general
                                                                                                           intangibles associated
                                                                                                           with financed equipment,
                                                                                                           and proceeds from the
                                                                                                           foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                 Secretary of State,     NTFC Capital                                      Lien on equipment
                                     Michigan            Corporation          01/11/99         00271C      financed or refinanced
             Focal Communica-                                                                              with proceeds from loan
             tions Corporation                                                                             agreement, general
                                                                                                           intangibles associated
                                                                                                           with financed equipment,
                                                                                                           and proceeds from the
                                                                                                           foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                  Washington D.C.,       NTFC Capital         01/11/98                     Lien on equipment
                                 Recorder of Deeds       Corporation                       990000595       financed or refinanced
             Focal Communica-                                                                              with proceeds from loan
             tions Corporation                                                                             agreement, general
                                                                                                           intangibles associated
                                                                                                           with financed equipment,
                                                                                                           and proceeds from the
                                                                                                           foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                 Secretary of State,     Secured Party:       05/16/97
                                      Illinois           Emerald Financial
                                                         Group Inc.                                        Lease for specific office
             Focal Communica-                                                                3689665       furniture and equipment.
             tions Corporation                           Assignee:                                         This financing statement
                                                         Grand National Bank                               evidences a lease and was
                                                         -NBK                                              filed for information
                                                                                                           purposes only.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                 Secretary of State,     IBM                  07/23/98                     Lien on specific computer
             Focal Communica-         Illinois                                               3883872       equipment.
             tions Corporation
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                           State/County Juris-           Secured        Filing Date                      Description
                           -------------------           -------        -----------                      -----------
 Tab          Debtor             diction              Party/Assignee                   File No.
 ---          -----              -------              --------------                   --------
====================================================================================================================================

------------------------------------------------------------------------------------------------------------------------------------
 <S>    <C>                <C>                     <C>                  <C>          <C>           <C>
                                                                           01/11/99                Lien on equipment financed or
                            Secretary of State,    NTFC Capital Corpo-                             refinanced with proceeds from
        Focal Communica-         Illinois          ration                              3970758     loan agreement, general
        tions Corporation                                                                          intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                            Secretary of the Com-  NTFC Capital Corpo-     01/11/99                Lien on equipment financed or
                            monwealth, Pennsyl-    ration                                          refinanced with proceeds from
        Focal Communica-          vania                                                29790347    loan agreement, general
        tions Corporation                                                                          intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                            Department of Licens-  NTFC Capital Corpo-     01/11/99                Lien on equipment financed or
                            ing, Washington        ration                                          refinanced with proceeds from
        Focal Communica-                                                             99-011-0012   loan agreement, general
        tions Corporation                                                                          intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

                            Secretary of State,    NTFC Capital Corpo-     01/11/99                Lien on equipment financed or
  2.    Focal Communica-        California         ration                                          refinanced with proceeds from
        tions Corporation                                                            9901460735    loan agreement, general
        of California                                                                              intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------

                            Secretary of State,    NTFC Capital Corpo-     01/11/99                Lien on equipment financed or
  3.    Focal Communica-        California         ration                                          refinanced with proceeds from
        tions Corporation                                                            9901460750    loan agreement, general
        of California                                                                              intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                           State/County Juris-           Secured        Filing Date                      Description
                           -------------------           -------        -----------                      -----------
 Tab          Debtor             diction              Party/Assignee                   File No.
 ---          -----              -------              --------------                   --------
====================================================================================================================================
 <S>    <C>                <C>                      <C>                 <C>          <C>           <C>
                             Secretary of State,    NFTC Capital Corpo-                            Lien on equipment financed or
  4.    Focal Communica-         Michigan           ration                01/11/99                 refinanced with proceeds from
        tions Corporation                                                                  00272C  loan agreement, general
        of Michigan                                                                                intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                               Washington D.C.,     NFTC Capital Corpo-                            Lien on equipment financed or
        Focal Communica-      Recorder of Deeds     ration                01/11/98                 refinanced with proceeds from
  5.    tions Corporation                                                             9900000596   loan agreement, general
        of the Mid-Atlantic                                                                        intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                              Secretary of the                            01/11/99                 Lien on equipment financed or
        Focal Communica-      Commonwealth,         NTFC Capital Corpo-                            refinanced with proceeds from
  6.    tions Corporation     Pennsylvania          ration                              29790344   loan agreement, general
        of Pennsylvania                                                                            intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                    Texas,                                05/13/99                 Lien on equipment financed or
                              Secretary of State    NTFC Capital Corpo-                            refinanced with proceeds from
  7.    Focal Communica-                            ration                           99-00094107   from loan agreement, general
        tions of Texas                                                                             intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                              Department of Licens-                       01/11/99                 Lien on equipment financed or
  8.    Focal Communica-        ing, Washington     NTFC Capital Corpo-                            refinanced with proceeds from
        tions Corporation                           ration                           99-011-0013   loan agreement, general
        of Washington                                                                              intangibles associated with
                                                                                                   financed equipment, and proceeds
                                                                                                   from the foregoing.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                 Schedule 6.5

                              Certain Investments
                              -------------------

     Fifty percent ownership of 650 Townsend Facility Company, LLC, a California
limited liability company.
<PAGE>

                                Schedule 6.6(a)

                           Stage 1 Minimum Revenues
                           ------------------------

          ========================================================
                                          Minimum Quarterly
            Fiscal Quarter Ending         Revenues (in millions)
          ========================================================
             September 30, 2000                   $ ***
          --------------------------------------------------------
              December 31, 2000                   $ ***
          --------------------------------------------------------
                 March 31, 2001                   $ ***
          --------------------------------------------------------
                  June 30, 2001                   $ ***
          --------------------------------------------------------
             September 30, 2001                   $ ***
          --------------------------------------------------------
              December 31, 2001                   $ ***
          --------------------------------------------------------
                 March 31, 2002                   $ ***
          --------------------------------------------------------
                  June 30, 2002                   $ ***
          ========================================================

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>

                                Schedule 6.6(b)

                         Stage 1 Minimum Access Lines
                         ----------------------------

          ========================================================
                                              Minimum Quarterly
             Fiscal Quarter Ending               Access Lines
          ========================================================
               September 30, 2000                   ***
          --------------------------------------------------------
                December 31, 2000                   ***
          --------------------------------------------------------
                   March 31, 2001                   ***
          --------------------------------------------------------
                    June 30, 2001                   ***
          --------------------------------------------------------
               September 30, 2001                   ***
          --------------------------------------------------------
                December 31, 2001                   ***
          --------------------------------------------------------
                   March 31, 2002                   ***
          --------------------------------------------------------
                    June 30, 2002                   ***
          ========================================================

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>

                                Schedule 6.6(c)

                      Stage 1 Minimum Consolidated EBITDA
                      -----------------------------------

              =================================================
                                        Maximum Quarterly EBITDA
               Fiscal Quarter Ending             Loss /
                                        Minimum Quarterly EBITDA
                                             (in millions)
              =================================================
                September 30, 2000               ***
              -------------------------------------------------
                December 31, 2000                ***
              -------------------------------------------------
                 March 31, 2001                  ***
              -------------------------------------------------
                  June 30, 2001                  ***
              -------------------------------------------------
                September 30, 2001               ***
              -------------------------------------------------
                December 31, 2001                ***
              -------------------------------------------------
                 March 31, 2002                  ***
              -------------------------------------------------
                  June 30, 2002                  ***
              -------------------------------------------------
                September 30, 2002               ***
              -------------------------------------------------
                December 31, 2002                ***
              -------------------------------------------------
                 March 31, 2003                  ***
              -------------------------------------------------
                  June 30, 2003                  ***
              -------------------------------------------------
                September 30, 2003               ***
              -------------------------------------------------
                December 31, 2003                ***
              =================================================

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                Schedule 6.6(f)

            Stage 1 and 2 Maximum Consolidated Capital Expenditures
            -------------------------------------------------------

          ================================================
          Fiscal Quarter             Maximum Capital
             Ending             Expenditures (in millions)

          ================================================
          December 31, 2000              $***
          ------------------------------------------------
          December 31, 2001              $***
          ------------------------------------------------
          December 31, 2002              $***
          ------------------------------------------------
          December 31, 2003              $***
          ================================================

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                Schedule 6.7(a)

                         Stage 2 Senior Leverage Ratio
                         -----------------------------

            ======================================================
            Fiscal Quarter Ending            Senior Leverage Ratio
            ======================================================
              September 30, 2002                       *** :1
            ------------------------------------------------------
              December 31, 2002                        *** :1
            ------------------------------------------------------
               March 31, 2003                          *** :1
            ------------------------------------------------------
                June 30, 2003                          *** :1
            ------------------------------------------------------
              September 30, 2003                       *** :1
            ------------------------------------------------------
              December 31, 2003                        *** :1
            ------------------------------------------------------
               March 31, 2004                          *** :1
            ------------------------------------------------------
                June 30, 2004                          *** :1
            ------------------------------------------------------
              September 30, 2004                       *** :1
            ------------------------------------------------------
              December 31, 2004 and the end            *** :1
               of each quarter thereafter
            ======================================================

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                Schedule 6.7(b)

                         Stage 2 Total Leverage Ratio
                         ----------------------------

<TABLE>
<CAPTION>
            =======================================================
               Fiscal Quarter Ending         Total Leverage Ratio
            =======================================================
<S>                                         <C>
                 September 30, 2002                  *** :1
            -------------------------------------------------------
                  December 31, 2002                  *** :1
            -------------------------------------------------------
                    March 31, 2003                   *** :1
            -------------------------------------------------------
                     June 30, 2003                   *** :1
            -------------------------------------------------------
                  September 30, 2003                 *** :1
            -------------------------------------------------------
                  December 31, 2003                  *** :1
            -------------------------------------------------------
                    March 31, 2004                   *** :1
            -------------------------------------------------------
                    June 30, 2004                     *** :1
            -------------------------------------------------------
                 September 30, 2004                   *** :1
            -------------------------------------------------------
            December 31, 2004, and at the             *** :1
            end of each quarter thereafter
            =======================================================
</TABLE>

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                Schedule 6.7(c)

                        Stage 2 Interest Coverage Ratio
                        -------------------------------

<TABLE>
<CAPTION>
             ===================================================
                                              Minimum Interest
                Fiscal Quarter Ending          Coverage Ratio
             ===================================================
<S>                                          <C>
                     March 31, 2004                  ***:1
             ---------------------------------------------------
                     June 30, 2004                   ***:1
             ---------------------------------------------------
                  September 30, 2004                 ***:1
             ---------------------------------------------------
             December 31, 2004 and at the            ***:1
             end of each quarter thereafter
             ===================================================
</TABLE>

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                Schedule 6.7(d)

                      Stage 2 Fixed Change Coverage Ratio
                      -----------------------------------

<TABLE>
<CAPTION>
              =======================================================
                                                Minimum Fixed Charge
                  Fiscal Quarter Ending            Coverage Ratio
              =======================================================
<S>                                            <C>
                    December 31, 2004                    ***:1
              -------------------------------------------------------
                     March 31, 2005                      ***:1
              -------------------------------------------------------
                      June 30, 2005                      ***:1
              -------------------------------------------------------
              September 30, 2005 and at the              ***:1
              end of each quarter thereafter
              =======================================================
</TABLE>

_________________

***  Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE>

                                 Schedule 6.12

                         Certain Affiliate Transactions
                         ------------------------------

1.   Stock Purchase Agreement dated November 27, 1996, by and among Holdings,
     MDCP, Frontenac, BV, Addy, Barnicle, Beatty and Taylor, with Appendices

2.   Amendment No. 1 dated January 23, 1998 to Stock Purchase Agreement

3.   Amendment No. 2 dated August 21, 1998, to Stock Purchase Agreement

4.   Stock Pledge Agreements by and between Holdings and each of Addy, Barnicle,
     Beatty and Taylor

5.   Stockholders Agreement by and among Holdings, MDCP, Frontenac, BV, Addy,
     Barnicle, Beatty and Taylor

6.   Amendment No. 1 dated July 7, 1998, to Stockholders Agreement and Consent

7.   Amendment No. 2 dated August 21, 1998, to Stockholders Agreement and
     Consent

8.   Amendment No. 3 dated February 16, 1999, to Stockholders Agreement, Waiver
     and Consent

9.   Executive Stock Agreement and Employment Agreement by and between Barnicle
     and Focal

10.  Amendment No. 1 dated August 21, 1998, to Executive Stock Agreement and
     Employment Agreement and Consent (J. Barnicle)

11.  Executive Stock Agreement and Employment Agreement by and between Beatty
     and Focal

12.  Amendment No. 1 dated August 21, 1998, to Executive Stock Agreement and
     Employment Agreement and Consent (J. Beatty)

13.  Executive Stock Agreement and Employment Agreement by and between Taylor
     and Focal

14.  Amendment No. 1 dated August 21, 1998, to Executive Stock Agreement and
     Employment Agreement and Consent (R. Taylor)

15.  Registration Agreement by and among Focal, MDCP, Frontenac, BV, Addy,
     Barnicle, Beatty and Taylor

16.  Amendment No. 1 dated August 21, 1998, to Registration Agreement and
     Consent
<PAGE>

                                                                  EXHIBIT A-1 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                                FUNDING NOTICE

     Reference is made to the Credit and Guaranty Agreement, dated as of August
__, 2000 (as it may be amended, restated, supplemented or otherwise modified,
the "Credit Agreement"; the terms defined therein and not otherwise defined
     ----------------
herein being used herein as therein defined), by and among FOCAL COMMUNICATIONS
CORPORATION, a Delaware corporation ("Holdings"), FOCAL FINANCIAL SERVICES,
                                      --------
INC., a Delaware corporation  ("Company"), CERTAIN SUBSIDIARIES OF HOLDINGS, as
                                -------
Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P. ("GSCP"), as Syndication Agent, CITIBANK, N.A., as Administrative
                ----
Agent, BANK OF AMERICA, N.A., as Documentation Agent and GSCP and SALOMON SMITH
BARNEY INC., as Joint Lead Arrangers.

     1.   Loan Request.  Pursuant to Section 2.1(a) of the Credit Agreement,
          ------------
Company desires that Lenders make the following Loans to Company in accordance
with Section 2.1(b) of the Credit Agreement on _________________ (the "Credit
                                                                       ------
Date"):
----

     (a)  Delayed Draw Term Loans:

          (i)  Amount of Base Rate Loans:                     $________________
          (ii) Amount of Eurodollar Rate Loans
               with an initial Interest Period of _____
               month(s):                                      $________________

     (b)  Revolving Loans:

          (i)  Amount of Base Rate Loans:                     $________________
          (ii) Amount of Eurodollar Rate Loans
               with an initial Interest Period of _____
               month(s):                                      $________________

     2.   Use of Proceeds.  The use of proceeds of the Loans requested in
          ---------------
Section 1 above shall be as follows:

     (a)  To provide purchase money financing
          for the construction, acquisition
          or improvement of hard costs of Telecommunications
          Assets by Company:
                                                              $________________
<PAGE>

     (b)  The total hard costs of the Telecommunications
          Assets constructed, acquired or improved
          or to be constructed, acquired or improved
          with the funds specified in 2(a) is equal to:        $________________

     (c)  2(a)/2(b) is equal to
          [not to exceed 80%]:                                 ______%

     (d)  The Telecommunications Assets
          constructed, acquired or improved, or to be
          constructed, acquired or improved, with the
          funds specified in 2(a), and the location(s)
          where each such Telecommunications Asset is, or
          is reasonably expected to be, located, and
          is or will be, as follows:

               ====================================
               Telecommunications Asset    Location
               ====================================

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

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

     (e)  The portion of the funds specified in 2(a) to be
          used to finance the hard costs of the Telecom-
          munications Assets to be purchased from
          Equipment Subsidiary (within 180 days of
          Equipment Subsidiary's own purchase thereof)
          (being those items marked with an asterisk in
          the table at 2(d) above) is equal to:                $________________

     3.   Certification. The undersigned officer of Company, to the best of his
          -------------
or her knowledge, and Company certify that as of the Credit Date (i) the above
statements in this Funding Notice and the representations and warranties
contained in each of the Credit Documents are true, correct and complete in all
respects on and as of such Credit Date to the same extent as though made on and
as of such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties were true, correct and complete in all respects on and as of such
earlier date; (ii) no event has occurred and is continuing or would result from
the consummation of the borrowing contemplated hereby that would constitute an
Event of Default or a Default; (iii) all other applicable requirements of
Section 3.2 of the Credit Agreement have been met with respect to the borrowing
contemplated hereby; and (iv) attached hereto are invoices in respect of each of
the Telecommunications Assets identified in Section 2(d) above and Company
hereby confirms the grant to the Collateral Agent set forth in the Company
Pledge and Security Agreement and does hereby grant to the Collateral Agent a
security interest in all of

                                     A-1-2
<PAGE>

Company's right, title and interest in and to all Telecommunications Assets
identified in Section 2(d) above.

Date:_____________________

                                   FOCAL FINANCIAL SERVICES, INC.

                                   By:_________________________________
                                      Name
                                      Title

                                     A-1-3
<PAGE>

                                                                  EXHIBIT A-2 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                        CONVERSION/CONTINUATION NOTICE

     Reference is made to the Credit and Guaranty Agreement, dated as of August
__, 2000 (as it may be amended, restated, supplemented or otherwise modified,
the "Credit Agreement"; the terms defined therein and not otherwise defined
     ----------------
herein being used herein as therein defined), by and among FOCAL COMMUNICATIONS
CORPORATION, a Delaware corporation ("Holdings"), FOCAL FINANCIAL SERVICES,
                                      --------
INC., a Delaware corporation  ("Company"), CERTAIN SUBSIDIARIES OF HOLDINGS, as
                                -------
Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P. ("GSCP"), as Syndication Agent, CITIBANK, N.A., as Administrative
                ----
Agent, BANK OF AMERICA, N.A., as Documentation Agent and GSCP and SALOMON SMITH
BARNEY INC., as Joint Lead Arrangers.

     Pursuant to Section 2.7 of the Credit Agreement, Company desires to convert
or to continue the following Delayed Draw Term Loans, each such conversion
and/or continuation to be effective as of ___________________:

     1.   Delayed Draw Term Loans:

     (a)  Amount of Eurodollar Rate Loans
          to be continued as Eurodollar Rate
          Loans, with an Interest Period
          of_____ month(s):                           $____________________

     (b)  Amount of Base Rate Loans to be
          converted to Eurodollar Rate Loans,
          with an initial Interest Period of
          ________ month(s)                           $_____________________

     (c)  Amount of Eurodollar Rate Loans
          to be converted to Base Rate Loans:         $_____________________

     2.   Revolving Loans:

     (a)  Amount of Eurodollar Rate Loans
          to be continued as Eurodollar Rate
          Loans, with an Interest Period
          of ______ month(s)                          $_____________________

     (b)  Amount of Base Rate Loans to be
          converted to Eurodollar Rate Loans,

                                     A-2-1
<PAGE>

          with an initial Interest Period of ______
          month(s):                                   $_____________________

     (c)  Amount of Eurodollar Rate Loans
          to be converted to Base Rate Loans:         $_____________________

     In the case of a conversion to or continuation of a Eurodollar Rate Loan,
the undersigned officer, to the best of his or her knowledge, and Company
certify that (a) no Event of Default or Default has occurred and is continuing,
and (b) the conversion or continuation date thereof is the expiration date of
such Loan's Interest Period.

Date:_________________             FOCAL FINANCIAL SERVICES, INC.

                                   By:_________________________________
                                      Name:
                                      Title:

                                     A-2-2
<PAGE>

                                                                  EXHIBIT B-1 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                          DELAYED DRAW TERM LOAN NOTE
$[1]__________                                                [2]________, ____

     FOR VALUE RECEIVED, FOCAL FINANCIAL SERVICES, INC., a Delaware corporation
("Company"), promises to pay to the order of [3]________________ ("Payee") or
  -------                                                          ------
its registered assigns the lesser of (a) [1]_________________ DOLLARS
($[1]_________) and (b) the unpaid principal amount of all advances made by
Payee to Company as Delayed Draw Term Loans under the Credit Agreement referred
to below in the installments referred to below.

     Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of August __, 2000 (as it may be
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
                                                            ----------------
by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation
("Holdings"), Company, CERTAIN SUBSIDIARIES OF HOLDINGS, as Guarantors, the
  --------
Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P.
("GSCP"), as Syndication Agent, CITIBANK, N.A., as Administrative Agent, BANK OF
 -----
AMERICA, N.A. as Documentation Agent and GSCP and SALOMON SMITH BARNEY INC. as
Joint Lead Arrangers. Capitalized terms used herein not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement.

     Company shall make principal payments on this Note as set forth in Section
2.10 of the Credit Agreement.  This Note is subject to mandatory prepayment and
to prepayment at the option of Company, each as provided in the Credit
Agreement.

     This Note is one of the "Delayed Draw Term Loan Notes" in the maximum
                              ----------------------------
aggregate principal amount of $150,000,000 and is issued pursuant to and
entitled to the benefits of the Credit Agreement, to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Delayed Draw Term Loan evidenced hereby was made and is to be repaid.

     All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Administrative Agent's Principal Office or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and

_____________
[1] Lender's Delayed Draw Term Loan Commitment
[2] Date of Issuance
[3] Name of Lender

                                     B-1-1
<PAGE>

recorded in the Register, Company and Administrative Agent shall be entitled to
deem and treat Payee as the owner and holder of this Note and the Loan evidenced
hereby.  Payee hereby agrees, by its acceptance hereof, that it will make a
notation hereon of all advances and all principal payments made hereunder and of
the date to which interest hereon has been paid; provided, the failure to make
                                                 --------
any notation shall not limit or otherwise affect the obligations of Company
hereunder with respect to payments of principal of or interest on this Note.

     THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

     Upon the occurrence of a continuing Event of Default, the unpaid balance of
the principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.

     The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.

     This Note is subject to restrictions on transfer or assignment as provided
in the Credit Agreement.

     No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligations of Company, which
are absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.

     Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note.  Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.

                                     B-1-2
<PAGE>

     IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.

                              FOCAL FINANCIAL SERVICES, INC.

                              By:_________________________________
                                 Name:
                                 Title:

                                     B-1-3
<PAGE>

                  TRANSACTIONS ON DELAYED DRAW TERM LOAN NOTE

                                                    Outstanding
         Type of     Amount of      Amount of        Principal
        Loan Made    Loan Made    Principal Paid      Balance       Notation
Date    This Date    This Date      This Date        This Date      Made By
----    ---------    ---------    --------------    -----------     --------

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

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

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

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

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

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

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

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                                     B-1-4
<PAGE>

                                                                  EXHIBIT B-2 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                                REVOLVING NOTE

$[1]__________                                              [2]__________, ____

     FOR VALUE RECEIVED, FOCAL FINANCIAL SERVICES INC., a Delaware corporation
("Company"), promises to pay to the order of [3]________________ ("Payee") or
  -------                                                           -----
its registered assigns, on or before the Revolving Credit Commitment Termination
Date (as defined in  the Credit Agreement referred to below) the lesser of (a)
[1]_________________ DOLLARS ($[1]_________) and (b) the unpaid principal amount
of all advances made by Payee to Company as Revolving Loans under the Credit
Agreement referred to below.

     Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of August __, 2000 (as it may be
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
                                                            ----------------
by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation
("Holdings"), Company, CERTAIN SUBSIDIARIES OF HOLDINGS, as Guarantors, the
  --------
Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P.
("GSCP"), as Syndication Agent, CITIBANK, N.A., as Administrative Agent, BANK OF
 -----
AMERICA, N.A. as Documentation Agent and GSCP and SALOMON SMITH BARNEY INC. as
Joint Lead Arrangers. Capitalized terms used herein not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement.

     This Note is subject to mandatory prepayment and to prepayment at the
option of Company, each as provided in the Credit Agreement.

     This Note is one of the "Revolving Notes" in the maximum aggregate
                              ---------------
principal amount of $150,000,000 and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Revolving Loans
evidenced hereby were made and are to be repaid.

     All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Administrative Agent's Principal Office or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement.  Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and

_____________
[1] Lender's Revolving Credit Commitment
[2] Date of Issuance
[3] Name of Lender

                                     B-2-1
<PAGE>

recorded in the Register, Company and Administrative Agent shall be entitled to
deem and treat Payee as the owner and holder of this Note and the Loans
evidenced hereby. Payee hereby agrees, by its acceptance hereof, that it will
make a notation hereon of all advances and all principal payments made hereunder
and of the date to which interest hereon has been paid; provided, the failure to
                                                        --------
make any notation shall not limit or otherwise affect the obligations of Company
hereunder with respect to payments of principal of or interest on this Note.

     THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

     Upon the occurrence of a continuing Event of Default, the unpaid balance of
the principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.

     The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.

     This Note is subject to restrictions on transfer or assignment as provided
in the Credit Agreement.

     No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligations of Company, which
are absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.

     Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.

                                     B-2-2
<PAGE>

     IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.

                  FOCAL FINANCIAL SERVICES, INC.

                  By:_________________________________
                     Name:
                     Title:

                                     B-2-3
<PAGE>

                        TRANSACTIONS ON REVOLVING NOTE

                                                 Outstanding
            Type of   Amount of    Amount of      Principal
           Loan Made  Loan Made  Principal Paid    Balance    Notation
    Date   This Date  This Date    This Date      This Date   Made By
   ------  ---------  ---------  --------------  -----------  --------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                     B-2-4
<PAGE>

                                                                  EXHIBIT B-3 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                              NEW TERM LOAN NOTE
$[1]__________                                                [2]________, ____

     FOR VALUE RECEIVED, FOCAL FINANCIAL SERVICES, INC., a Delaware corporation
("Company"), promises to pay to the order of [3]________________ ("Payee") or
  -------                                                          -----
its registered assigns the lesser of (a) [1]_________________ DOLLARS
($[1]_________) and (b) the unpaid principal amount of all advances made by
Payee to Company as Delayed Draw Term Loans under the Credit Agreement referred
to below in the installments referred to below.

     Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of August __, 2000 (as it may be
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
                                                            ----------------
by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation
("Holdings"), Company, CERTAIN SUBSIDIARIES OF HOLDINGS, as Guarantors, the
  --------
Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P.
("GSCP"), as Syndication Agent, CITIBANK, N.A., as Administrative Agent, BANK OF
 -----
AMERICA, N.A. as Documentation Agent and GSCP and SALOMON SMITH BARNEY INC. as
Joint Lead Arrangers. Capitalized terms used herein not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement.

     Company shall make principal payments on this Note as set forth in the
Credit Agreement. This Note is subject to mandatory prepayment and to prepayment
at the option of Company, each as provided in the Credit Agreement.

     This Note is one of the "New Term Loan Notes" in the maximum aggregate
                              -------------------
principal amount of $[_________] and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Delayed Draw Term
Loan evidenced hereby was made and is to be repaid.

     All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Administrative Agent's Principal Office or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and

_____________
[1] Lender's Tranche A Term Loan Commitment
[2] Date of Issuance
[3] Name of Lender

recorded in the Register, Company and Administrative Agent shall be entitled to
deem and treat Payee as the owner and holder of this Note and the Loan evidenced
hereby. Payee hereby agrees,

                                     B-3-1
<PAGE>

by its acceptance hereof, that it will make a notation hereon of all advances
and all principal payments made hereunder and of the date to which interest
hereon has been paid; provided, the failure to make any notation shall not limit
                      --------
or otherwise affect the obligations of Company hereunder with respect to
payments of principal of or interest on this Note.

     THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

     Upon the occurrence of a continuing Event of Default, the unpaid balance of
the principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.

     The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.

     This Note is subject to restrictions on transfer or assignment as provided
in the Credit Agreement.

     No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligations of Company, which
are absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.

     Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.

                                     B-3-2
<PAGE>

     IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.

                  FOCAL FINANCIAL SERVICES, INC.

                  By:_________________________________
                     Name:
                     Title:

                                     B-3-3
<PAGE>

                       TRANSACTIONS ON NEW TERM LOAN NOTE

                                                 Outstanding
            Type of   Amount of    Amount of      Principal
           Loan Made  Loan Made  Principal Paid    Balance    Notation
    Date   This Date  This Date    This Date      This Date   Made By
   ------  ---------  ---------  --------------  -----------  --------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                     B-3-4
<PAGE>

                                                                    EXHIBIT C TO
                                                   CREDIT AND GUARANTY AGREEMENT

                            COMPLIANCE CERTIFICATE

     THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:

     1.   I am the [treasurer] of FOCAL FINANCIAL SERVICES, INC.

     2.   I have reviewed the terms of that certain Credit and Guaranty
Agreement, dated as of August __, 2000 (as it may be amended, restated,
supplemented or otherwise modified, the "Credit Agreement"; the terms defined
                                         ----------------
therein and not otherwise defined herein being used herein as therein defined),
by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation
("Holdings"), FOCAL FINANCIAL SERVICES, INC., a Delaware corporation
  --------
("Company"), CERTAIN SUBSIDIARIES OF HOLDINGS, as Guarantors, the Lenders party
  -------
thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as
Syndication Agent, CITIBANK, N.A., as Administrative Agent, BANK OF AMERICA,
N.A. as Documentation Agent and GSCP and SALOMON SMITH BARNEY INC. as Joint Lead
Arrangers, and the terms of the other Credit Documents, and I have made, or have
caused to be made under my supervision, a review in reasonable detail of the
transactions and condition of Holdings and its Subsidiaries during the
accounting period covered by the attached financial statements.

     3.   The examination described in paragraph 2 above did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
an Event of Default or Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth in a separate attachment, if any, to this
Certificate, describing in detail, the nature of the condition or event, the
period during which it has existed and the action which Company or Holdings has
taken, is taking, or proposes to take with respect to each such condition or
event.

     The foregoing certifications, together with the computations set forth in
the Attachment and the financial statements delivered with this Certificate in
support hereof, are made and delivered this __________ day of ____________
pursuant to Section 5.1(c) of the Credit Agreement.

                                   FOCAL FINANCIAL SERVICES, INC.

                                   By:_____________________________________
                                      Name:
                                      Title:  [Treasurer]

                                      C-1
<PAGE>

                                                                   ATTACHMENT TO
                                                          COMPLIANCE CERTIFICATE

FOR THE FISCAL [QUARTER] [YEAR] ENDING ____________________.

1.   Certain Indebtedness Amounts
     ----------------------------

     (a) Indebtedness of any Guarantor Subsidiary to
         Company or any other Guarantor Subsidiary
         (6.1(b)):                                                 $____________

     (b) Indebtedness incurred by Holdings with respect
         to Permitted Holdings Debt:                               $____________

     (c) Dark Fiber" Capital Leases in the Period:        Actual:  $____________
                                                       Permitted:  $ 30,000,000

     (d) Aggregate outstanding "Dark Fiber" Capital
         Leases:                                          Actual:  $____________
                                                       Permitted:  $100,000,000

     (e) "Other Unsecured Indebtedness" in the Period:             $____________

     (f) Aggregate outstanding "Other Indebtedness"        Actual: $____________
                                                        Permitted: $ 5,000,0000

2.   Certain Investments
     -------------------

     (a) Permitted Acquisitions in the Period:                     $____________

     (b) Amount of 2(a) financed with net
         Indebtedness and/or Cash on hand
         (and excluding equity Securities of
         Company):                                                 $____________

     (c) Aggregate amount of 2(b) since the                Actual: $____________
         Closing Date:                                  Permitted: $100,000,000
                                 Permitted amount plus 2(i) below: $____________

     (d) Acquisitions in the Period of assets,
         business lines, divisions or entities
         which have not generated positive
         Consolidated EBITDA for the trailing

                                      C-2
<PAGE>

         12-month period immediately
         preceding such acquisition:                             $______________

     (e) Amount of 2(d) financed with net
         Indebtedness and/or Cash on hand
         (and excluding equity  Securities
         of Company):                                            $______________

     (f) Aggregate amount of 2(e) since the
         Closing Date:                                Actual:    $______________
                                                   Permitted:    $75,000,000
                           Permitted amount plus(2)(i) below:    $______________

     (g) Excess Equity Proceeds Amount raised
         in the Period:                                          $______________

     (h) Aggregate Excess Equity Proceeds
         Amount raised since the Closing Date:                   $______________

     (i) Amount of 2(a) financed in whole
         or in part with a portion of the
         Excess Equity Proceeds Amount                           $______________

     (j) Ordinary course loans and advances
         to employees of Holdings and
         Subsidiaries during the Period:                         $______________

     (k) Aggregate ordinary course loans
         and advances outstanding:                    Actual:    $______________
                                                   Permitted:    $10,000,000
                                                                  --------------

     (l) "Investments made with the Excess
         Equity Proceeds Amount" in the
         Period                                                  $______________

     (m) "Investments made with the Excess
         Equity Proceeds Amount" since the
         Closing Date:                                           $______________

     (n) "Other Investments" in the Period
         (Section 6.5(j)):                                       $______________

     (o) Aggregate "Other Investments"
         outstanding:                                  Actual:   $______________
                                                    Permitted:   $10,000,000
     (p) Consolidated Capital Expenditures
         in the Period                                           $______________

                                      C-3
<PAGE>

     (q) Consolidated Capital Expenditures
         since the Closing Date                                  $______________

     (r) Amount of 2(q) financed with Excess
         Equity Proceeds Amount                                  $______________

     (s) 2(h) - (2(c) + 2(r))                                    $______________

     (t) 2(m) * 2(s)

     (u) 2(i) + 2(l)                                             $______________

                                                    Permitted:   $  150,000,000
                                                                    -----------
                                      C-4
<PAGE>

     STAGE 1 FINANCIAL COVENANTS
     ---------------------------

1.   Revenues                                Actual:    $____________
                                             Required:  $____________

2.   Access Lines                            Actual:     ____________
                                             Required:   ____________

3.   Consolidated EBITDA                     Actual:    $____________
                                             Required:  $____________

4.   (a) Senior Secured Debt:                           $____________
     (b) Total Capitalization:                          $____________

     4(a) / 4(b):                            Actual:     ____________
                                             Required:   ____________

5.   (a) Total Debt:                                    $____________
     (b) Total Gross PP&E                               $____________

     5(a) / 5(b):                            Actual:     ____________
                                             Required:   ____________

6.   Maximum Capital Expenditures            Actual:    $____________
                                             Required:  $____________

                                      C-5
<PAGE>

     STAGE 2    FINANCIAL COVENANTS
     -------------------------------

1.   (a)  Consolidated Senior Secured Debt:            $___________
     (b)  Annualized Consolidated EBITDA:              $___________

     1(a) / 1(b):                            Actual:   ____________
                                             Required: ____________

2.   (a)  Consolidated Total Debt:                     $___________
     (b)  Annualized Consolidated EBITDA:              $___________

     2(a) / 2(b):                            Actual:    ___________
                                             Required:  ___________

3.   (a)  Consolidated EBITDA:                         $___________
     (b)  Consolidated Cash Interest Expense:          $___________

     3(a) / 3(b):                            Actual:    ___________
                                             Required:  ___________

4.   (a)  Annualized Consolidated EBITDA:              $___________
     (b)  Consolidated Fixed Charges:                  $___________

     4(a) / 4(b):                            Actual:    ___________
                                             Required:  ___________

                                      C-6
<PAGE>

                                                                    EXHIBIT D TO
                                                   CREDIT AND GUARANTY AGREEMENT

                              OPINIONS OF COUNSEL

                                   [TO COME]

                                      D-1
<PAGE>

                                                                  EXHIBIT E TO
                                                   CREDIT AND GUARANTY AGREEMENT

                              ASSIGNMENT AGREEMENT

     THIS ASSIGNMENT AGREEMENT, dated as of Effective Date as set forth on
Schedule I (this "Agreement"), by and between the parties signatory hereto and
                  ---------
designated as Assignor ("Assignor") and Assignee ("Assignee").
                         --------                  --------

                                   RECITALS:

     WHEREAS, Assignor is party to the Credit and Guaranty Agreement, dated as
of August __, 2000 (as it may be amended, restated, supplemented or otherwise
modified, the "Credit Agreement"; the terms defined therein and not otherwise
               ----------------
defined herein being used herein as therein defined), by and among FOCAL
COMMUNICATIONS CORPORATION, a Delaware corporation ("Holdings"), FOCAL FINANCIAL
                                                     --------
SERVICES, INC., a Delaware corporation  ("Company"), CERTAIN SUBSIDIARIES OF
                                          -------
HOLDINGS, as Guarantors, the Lenders party thereto from time to time, GOLDMAN
SACHS CREDIT PARTNERS L.P. ("GSCP"), as Syndication Agent, CITIBANK, N.A., as
                             ----
Administrative Agent, BANK OF AMERICA, N.A., as Documentation Agent and GSCP and
SALOMON SMITH BARNEY INC., as Joint Lead Arrangers; and

     WHEREAS, Assignor desires to sell and assign to Assignee, and Assignee
desires to purchase and assume from Assignor, certain rights and obligations of
Assignor under the Credit Agreement.

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

     Section 3.  Assignment and Assumption.  Subject to the terms and conditions
                 -------------------------
hereof, as of the Effective Date as set forth on Schedule I, Assignor sells and
assigns to Assignee, without recourse, representation or warranty (except as
expressly set forth herein), and Assignee purchases and assumes from Assignor,
the percentage interest specified on Schedule I in all of the rights and
obligations with respect to the Commitments and outstanding Loans of Lenders
arising under the Credit Agreement and the other Credit Documents (the "Assigned
                                                                        --------
Share").  In consideration of such assignment, Assignee hereby agrees to pay to
-----
Assignor on the date set forth on Schedule I as the "Settlement Date", the
                                                     ---------------
principal amount of any outstanding loans included within the Assigned Share
(such principal amount referred to herein as the "Purchase Price"), such
                                                  --------------
payment to be made by wire transfer of immediately available funds.  Upon the
occurrence of the Effective Date:  (a) the Assignee shall have the rights and
obligations of a "Lender" to the extent of the Assigned Share and shall
thereafter be a party to the Credit Agreement and a "Lender" for all purposes
of the Credit Documents; (b) Assignor shall, to the extent of the Assigned
Share, relinquish its rights (other than

                                      E-1
<PAGE>

any rights which survive the termination of the Credit Agreement under Section
10.8 thereof) and be released from its obligations under the Credit Agreement;
and (c) the Commitments shall be modified to reflect the Commitment of Assignee
and any remaining Commitment of Assignor. From and after the Effective Date,
Administrative Agent shall make all payments under the Credit Agreement in
respect of the Assigned Share (i) in the case of any interest and fees that
shall have accrued prior to the Settlement Date, to Assignor, and (ii) in all
other cases, to Assignee; provided, Assignor and Assignee shall make payments
                          --------
directly to each other to the extent necessary to effect any appropriate
adjustments in any amounts distributed to Assignor and/or Assignee by
Administrative Agent under the Credit Documents in respect of the Assigned Share
in the event that, for any reason whatsoever, the payment of consideration
contemplated by this Section 1 occurs on a date other than the Settlement Date.

     Section 2.  Effective Date.  Notwithstanding anything herein to the
                 --------------
contrary, the Effective Date shall not be deemed to have occurred until each of
the following conditions are satisfied, as determined in the reasonable judgment
of each of Assignor, Assignee and Administrative Agent: (a) the execution of a
counterpart hereof by each of Assignor and Assignee; (b) the payment of the
Purchase Price on the Settlement Date; (c) if applicable, the receipt by
Administrative Agent of the processing and recordation fee referred to in
Section 10.6 of the Credit Agreement; (d) in the event Assignee is a Non-US
Lender, the delivery by Assignee to Administrative Agent of such forms,
certificates or other evidence with respect to United States federal income tax
withholding matters as Assignee may be required to deliver to Administrative
Agent pursuant to Section 2.19(c); (e) the receipt by Administrative Agent of
originals or telefacsimiles of executed counterparts hereof; and (f) the
recordation by Administrative Agent in the Register of the pertinent information
regarding this Assignment pursuant to Section 10.6 of the Credit Agreement.

     Section 3.  Certain Representations, Warranties and Agreements.  (a)
                 --------------------------------------------------
Assignor represents and warrants to Assignee that (i) Assignor is the legal and
beneficial owner of the Assigned Share, free and clear of any adverse claim; and
(ii) Schedule I sets forth the aggregate amount of the Commitments and the
aggregate amount of the Loans, in each case as of the Effective Date.

     (b)  Assignee represents and warrants to Assignor that (i) it is an
Eligible Assignee and that it has experience and expertise in the making or
purchasing of loans and commitments such as the Loans and the Commitments; (ii)
it has acquired the Assigned Share for its own account in the ordinary course of
its business and without a view to distribution of the Loans within the meaning
of the Securities Act or the Exchange Act or other federal securities laws (it
being understood that, subject to the provisions of Section 10.6 of the Credit
Agreement, the disposition of the Assigned Share or any interests therein shall
at all times remain within its exclusive control); (iii) it has received,
reviewed and approved a copy of the Credit Agreement (including all Exhibits and
Schedules thereto); and (iv) it has received from Assignor such financial
information regarding Company and its Subsidiaries as is available to Assignor
and as Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the assignment evidenced by this Agreement, and
that it has made and shall continue to make its own appraisal of the
creditworthiness of Company and its

                                      E-2
<PAGE>

Subsidiaries. Assignor shall have no duty or responsibility, either initially or
on a continuing basis, to make any such investigation or any such appraisal on
behalf of Assignee or to provide Assignee with any other credit or other
information with respect thereto, whether coming into its possession before the
making of the initial Loans or at any time or times thereafter, and Assignor
shall not have any responsibility with respect to the accuracy of or the
completeness of any information provided to Assignee.

     (c)  Each party to this Agreement represents and warrants to the other
party hereto that it has full power and authority to enter into this Agreement
and to perform its obligations hereunder in accordance with the provisions
hereof, that this Agreement has been duly authorized, executed and delivered by
such party and that this Agreement constitutes a legal, valid and binding
obligation of such party, enforceable against such party in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity.

     (d)  Assignor shall not be responsible to Assignee for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of any of the Credit Documents or for any representations,
warranties, recitals or statements made therein or made in any written or oral
statements or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made by Assignor to Assignee or
by or on behalf of Company or any of its Subsidiaries to Assignor or Assignee in
connection with the Credit Documents and the transactions contemplated thereby
or for the financial condition or business affairs of Company or any other
Person liable for the payment of any Obligations, nor shall Assignor be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained in any of the Credit
Documents or as to the use of the proceeds of the Loans or as to the existence
or possible existence of any Event of Default or Default.

     Section 6.  Miscellaneous.  Assignor and Assignee each agrees from time to
                 -------------
time, upon request of such other party, to take such additional actions and to
execute and deliver such additional documents and instruments as such other
party may reasonably request to effect the transactions contemplated by, and to
carry out the intent of, this Agreement.  Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated, except by an instrument
in writing signed by the party (including, if applicable, any party required to
evidence its consent to or acceptance of this Agreement) against whom
enforcement of such change, waiver, discharge or termination is sought.  Any
notice or other communication herein required or permitted to be given shall be
given pursuant to Section 10.1 of the Credit Agreement, and all for purposes
thereof, the notice address of Assignee shall be the address as set forth on the
signature page hereof.  In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.  This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and assigns.  This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.

                                      E-3
<PAGE>

     THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), BUT OTHERWISE WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the Effective Date by their respective
officers thereunto duly authorized.

     [ASSIGNOR], as Assignor              [ASSIGNEE], as Assignee

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

     [Consented to as of the              [Consented to as of the
     Effective Date][1]:                  Effective Date][1]:

     [COMPANY], as Company                [HOLDINGS], as Holdings

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

     Consented to and recorded as of
     __________, ______.

     [NAME OF ADMINISTRATIVE
     AGENT], as Administrative Agent

     By:_______________________
        Name:
        Title:

     ___________
     [1] If required

                                      E-4
<PAGE>

                                                            SCHEDULE I TO
                                                            ASSIGNMENT AGREEMENT

1.   Effective Date:        $__________

2.   Settlement Date:       $__________

3.   Assigned Share:

==========================================================================
                                  Aggregate       Principal    Percentage
        Facility                  Amount of        Amount     of Facility
                               Commitment/Loans   Assigned      Assigned
==========================================================================
Delayed Draw Term Loans          $___________    $__________     _____%
Revolving Credit Commitment      $___________    $__________     _____%
Revolving Credit Loans           $___________    $__________     _____%
==========================================================================

4.   Payment Instructions:

     ASSIGNOR:                                    ASSIGNEE:

     Attention:                                   Attention:

5.   Notice Instructions:

     ASSIGNOR:                                    ASSIGNEE:

     Attention:                                   Attention:

                                      E-5
<PAGE>

                                                                    EXHIBIT F TO
                                                   CREDIT AND GUARANTY AGREEMENT

                         CERTIFICATE RE NON-BANK STATUS

     Reference is hereby made to that certain Credit and Guaranty Agreement,
dated as of  August __, 2000 (as it may be amended, restated, supplemented or
otherwise modified, the "Credit Agreement"; the terms defined therein and not
                         ----------------
otherwise defined herein being used herein as therein defined), by and among
FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation ("Holdings"), FOCAL
                                                           --------
FINANCIAL SERVICES, INC., a Delaware corporation  ("Company"), CERTAIN
                                                    -------
SUBSIDIARIES OF HOLDINGS, as Guarantors, the Lenders party thereto from time to
time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Syndication Agent,
                                           ----
CITIBANK, N.A., as Administrative Agent, BANK OF AMERICA, N.A. as Documentation
Agent and GSCP and SALOMON SMITH BARNEY INC. as Joint Lead Arrangers. Pursuant
to Section 2.19(c) of the Credit Agreement, the undersigned hereby certifies
that it is not a "bank" or other Person described in Section 881(c)(3) of the
Internal Revenue Code of 1986, as amended.

                                 [NAME OF LENDER]

                                 By:_____________________________
                                    Name:
                                    Title:

                                      F-1
<PAGE>

                                                                  EXHIBIT G-1 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                            CLOSING DATE CERTIFICATE

     THE UNDERSIGNED HEREBY CERTIFY AS FOLLOWS:

     1.   We are, respectively, the general counsel and the treasurer of each of
FOCAL COMMUNICATIONS CORPORATION and FOCAL FINANCIAL SERVICES, INC.

     2.   We have reviewed the terms of Sections 3, 4, 5, 6 and 8 of the Credit
Agreement and the definitions and provisions contained in such Credit Agreement
relating to such subsections, and in our opinion we have made, or have caused to
be made under our supervision, such examination or investigation as is necessary
to enable us to express an informed opinion as to the matters referred to
herein.

     3.   Based upon our review and examination described in paragraph (2)
above, we certify that as of the date hereof:   the representations and
warranties in Section 4 of the Credit Agreement are true and correct on and as
of the Closing Date to the same extent as though made on and as of that date,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties were true and
correct on and as of such earlier date;  each Credit Party has performed all
agreements and satisfied all conditions which the Credit Agreement or the Credit
Documents provide shall be performed or satisfied by it on or before the Closing
Date; no event has occurred or is continuing as of the date hereof that would
constitute an Event of Default or a Default.

     4.   Attached as Annex A hereto are true and complete (and, where
applicable, executed and conformed) copies of each of the Material Contracts,
and we have reviewed the terms of each of such documents and in our opinion we
have made, or have caused to be made under our supervision, such examination or
investigation as is necessary to enable us to express an informed opinion as to
the matters referred to in paragraph (5).

     5.   Based upon our review and examination described in paragraphs (2) and
(4) above, we certify that as of the date hereof  no Credit Party has failed in
any material respect to perform any material obligation or covenant required by
the Material Contracts to be performed or complied with by it on or before the
Closing Date, where such failure could reasonably be expected to have a Material
Adverse Effect.

     6.   Each Credit Party has requested McDermott, Will & Emery, special New
York counsel for Credit Parties, (ii) Swidler Berlin Shereff Friedman, LLP,
special United States telecommunications regulatory counsel for Credit Parties
and (iii)  Renee M. Martin, Esq., general counsel for Credit Parties, to deliver
to Agents and Lenders on the Closing Date favorable written

                                     G-1-1
<PAGE>

opinions setting forth substantially the matters in the opinions designated in
Exhibit D annexed to the Credit Agreement, and as to such other matters as
Syndication Agent and Administrative Agent may reasonably request.

     7.   Attached hereto as Annex B are true, complete and correct copies of
the Historical Financial Statements of Holdings, together with pro forma
consolidated and consolidating balance sheets of Holdings and its Subsidiaries
as at the Closing Date, prepared in accordance with GAAP, and the Projections.

     The foregoing certifications are made and delivered as of August __, 2000.

                                 ______________________________________
                                 Title: General Counsel

                                 ___________________________________
                                 Title: Treasurer

                                     G-1-2
<PAGE>

                                                                  EXHIBIT G-2 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                             SOLVENCY CERTIFICATE

     The undersigned DOES HEREBY CERTIFY as follows:

     1.   I am the treasurer of each of FOCAL FINANCIAL SERVICES, INC. and FOCAL
COMMUNICATIONS CORPORATION.

     2.   Reference is made to that certain Credit and Guaranty Agreement, dated
as of  August __, 2000 (as it may be amended, restated, supplemented or
otherwise modified, the "Credit Agreement"; the terms defined therein and not
                         ----------------
otherwise defined herein being used herein as therein defined), by and among
FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation ("Holdings"), FOCAL
                                                           --------
FINANCIAL SERVICES, INC., a Delaware corporation  ("Company"), CERTAIN
                                                    -------
SUBSIDIARIES OF HOLDINGS, as Guarantors, the Lenders party thereto from time to
time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Syndication Agent,
                                           ----
CITIBANK, N.A., as Administrative Agent, BANK OF AMERICA, N.A., as Documentation
Agent and GSCP and SALOMON SMITH BARNEY INC., as Joint Lead Arrangers.

     3.   I  have reviewed the terms of Sections 3 and 4 of the Credit Agreement
and the definitions and provisions contained in the Credit Agreement relating
thereto, and, in my opinion, have made, or have caused to be made under my
supervision, such examination or investigation as is necessary to enable me to
express an informed opinion as to the matters referred to herein.

     4.   Based upon my review and examination described in paragraph (3) above,
I certify that as of the date hereof, after giving effect to the Credit
Extensions to be made on the date hereof and the other transactions contemplated
by the Credit Documents, each Credit Party is Solvent.

     The foregoing certifications are made and delivered as of __________
[date].

                            ________________________
                            Name:
                            Title: Treasurer of
                                   Focal Financial Services Inc.
                                   and
                                   Focal Communications Corporation

                                     G-2-1
<PAGE>

                                                                    EXHIBIT H TO
                                                   CREDIT AND GUARANTY AGREEMENT

                             COUNTERPART AGREEMENT

     THIS COUNTERPART AGREEMENT, dated ____________ is delivered pursuant to the
Credit and Guaranty Agreement, dated as of August __, 2000 (as it may be
amended, restated, supplemented or otherwise modified, the "Credit Agreement'';
                                                            ----------------
the terms defined therein and not otherwise defined herein being used herein as
therein defined), by and among FOCAL COMMUNICATIONS CORPORATION, a Delaware
corporation ("Holdings"), FOCAL FINANCIAL SERVICES, INC., a Delaware corporation
              --------
("Company"), CERTAIN SUBSIDIARIES OF HOLDINGS, as Guarantors, the Lenders party
  -------
thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as
                                                                ----
Syndication Agent, CITIBANK, N.A., as Administrative Agent and Collateral Agent,
BANK OF AMERICA, N.A., as Documentation Agent and GSCP and SALOMON SMITH BARNEY
INC., as Joint Lead Arrangers.

     1.   Pursuant to Section 5.10 of the Credit Agreement, the undersigned
hereby:

     (a)  agrees that this Counterpart Agreement may be attached to the Credit
Agreement and that by the execution and delivery hereof, the undersigned becomes
a Guarantor under the Credit Agreement and agrees to be bound by all of the
terms thereof;

     (b)  represents and warrants that each of the representations and
warranties set forth in the Credit Agreement and each other Credit Document and
applicable to the undersigned are true and correct both before and after giving
effect to this Counterpart Agreement, except to the extent that any such
representation and warranty relates solely to any earlier date, in which case
such representation and warranty is true and correct as of such earlier date;

     (c)  no event has occurred or is continuing as of the date hereof, or will
result from the transactions contemplated hereby on the date hereof, that would
constitute an Event of Default or a Default;

     (d)  agrees, to the extent provided in Section 7.2 of the Credit Agreement
as applicable, to irrevocably and unconditionally guaranty the due and punctual
payment in full of all Obligations when the same shall become due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)
362(a)) and in accordance with Section 7.2 of the Credit Agreement; and

     (e)  Grantor hereby (i) agrees that this Counterpart Agreement may be
attached to the Pledge and Security Agreement dated as of August __, 2000 (as it
may be amended, restated, supplemented or otherwise modified from time to time,
the "Master Pledge and Security Agreement") among Holdings, Company, each of the
other Grantors party thereto and the Collateral

                                      H-1
<PAGE>

Agent, (ii) agrees that by the execution and delivery hereof the undersigned
becomes a Grantor under the Master Pledge and Security Agreement and agrees that
such Grantor will comply with all the terms and conditions of the Master Pledge
and Security Agreement as if it were an original signatory thereto, (iii) grants
to Collateral Agent a security interest in all of Grantor's right, title and
interest in and to all "Collateral" (as such term is defined in the Master
Pledge and Security Agreement) of the undersigned in each case whether now or
hereafter existing or in which Grantor now has or hereafter acquires an interest
and wherever the same may be located and (iv) delivers to Collateral Agent true,
complete and correct supplements to all schedules attached to the Master Pledge
and Security Agreement. All such collateral shall be deemed to be part of the
"Collateral" and hereafter subject to each of the terms and conditions of the
Master Pledge and Security Agreement.

     2.   The undersigned agrees from time to time, upon request of
Administrative Agent, to take such additional actions and to execute and deliver
such additional documents and instruments as Administrative Agent may request to
effect the transactions contemplated by, and to carry out the intent of, this
Agreement. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
(including, if applicable, any party required to evidence its consent to or
acceptance of this Agreement) against whom enforcement of such change, waiver,
discharge or termination is sought. Any notice or other communication herein
required or permitted to be given shall be given in pursuant to Section 10.1 of
the Credit Agreement, and all for purposes thereof, the notice address of the
undersigned shall be the address as set forth on the signature page hereof. In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

     THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), BUT OTHERWISE WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

     IN WITNESS WHEREOF, the undersigned has caused this Counterpart Agreement
to be duly executed and delivered by its duly authorized officer as of
______________.

                                   [NAME OF SUBSIDIARY]

                                   By:_________________________________
                                      Name:
                                      Title:

Address for Notices:
___________________
___________________
___________________

                                      H-2
<PAGE>

                                                                  EXHIBIT I-1 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                     COMPANY PLEDGE AND SECURITY AGREEMENT

                                     I-1-1
<PAGE>

                                                                  EXHIBIT I-2 TO
                                                   CREDIT AND GUARANTY AGREEMENT

                     MASTER PLEDGE AND SECURITY AGREEMENT

                                     I-2-1
<PAGE>

                                                                    EXHIBIT J TO
                                                   CREDIT AND GUARANTY AGREEMENT

                     LANDLORD PERSONAL PROPERTY COLLATERAL
                               ACCESS AGREEMENT

          This LANDLORD PERSONAL PROPERTY COLLATERAL ACCESS AGREEMENT (this
"Agreement") is dated as of ___________ and entered into by __________________,
a ___________ ("Landlord"), to and for the benefit of Citibank, N.A.
("Citibank"), as collateral agent ("Agent") for Lenders which are or may
hereafter become parties to the Credit Agreement (as hereinafter defined).

                                   RECITALS:

          WHEREAS, _______________, a ________________ ("Tenant"), has
possession of and occupies all or a portion of the property described on Exhibit
                                                                         -------
A annexed hereto (the "Premises");
-

          WHEREAS, Tenant's interest in the Premises arises under the lease
agreement (the "Lease") more particularly described on Exhibit B annexed hereto,
                                                       ---------
pursuant to which Landlord has rights, upon the terms and conditions set forth
therein, to take possession of, and otherwise assert control over, the Premises;

          WHEREAS, Tenant is a party to the Credit and Guaranty Agreement, dated
as of August _____, 2000 (as it may be from time to time amended, restated,
supplemented or otherwise modified, the "Credit Agreement"), by and among Focal
Communications Corporation ("Company"), Focal Financial Services, Inc.
("Borrower"), the Subsidiaries of Company (other than Borrower) party thereto,
as Guarantors, various Lenders, Goldman Sachs Credit Partners L.P. ("GSCP"), as
Syndication Agent, GSCP and Salomon Smith Barney Inc., as Joint Lead Arrangers,
Citibank, N.A., as Collateral Agent and Administrative Agent and Bank of
America, N.A., as Documentation Agent;

          WHEREAS, Tenant's obligations under the Credit Agreement will be
secured, in part, by all inventory, machinery and other personal property and
fixtures of Tenant (including all inventory of Tenant now or hereafter located
on the Premises (the "Subject Inventory")) and all equipment used in Tenant's
business (including all equipment of Tenant now or hereafter located on the
Premises (together with the Subject Inventory, the "Collateral")); and

          WHEREAS, Agent has requested that Landlord execute this Agreement as a
condition to the extension of credit under the Credit Agreement.

          NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord hereby represents and warrants to, and covenants and
agrees with, Agent as follows:

                                      J-1
<PAGE>

          1.   Landlord hereby (a) waives and releases unto Agent and its
successors and assigns any and all rights granted by or under any present or
future laws to levy or distraint for rent or any other charges which may be due
to Landlord against the Collateral, and any and all other claims, liens and
demands of every kind which it now has or may hereafter have against the
Collateral, and (b) agrees that any rights it may have in or to the Collateral,
no matter how arising (to the extent not effectively waived pursuant to clause
(a) of this paragraph 1 shall be second and subordinate to the rights of Agent
in respect thereof.  Landlord acknowledges that the Collateral is and will
remain personal property and not fixtures even though it may be affixed to or
placed on the Premises.

          2.   Landlord certifies that (a) Landlord is the landlord under the
Lease, (b) the Lease is in full force and effect and has not been amended,
modified, or supplemented except as set forth on Exhibit B annexed hereto, (c)
                                                 ---------
to the knowledge of Landlord, there is no defense, offset, claim or counterclaim
by or in favor of Landlord against Tenant under the Lease or against the
obligations of Landlord under the Lease, and (d) no notice of default has been
given under or in connection with the Lease which has not been cured, and
Landlord has no knowledge of the occurrence of any other default under or in
connection with the Lease.

          3.   Landlord consents to the installation or placement of the
Collateral on the Premises, and Landlord grants to Agent a license to enter upon
and into the Premises to do any or all of the following with respect to the
Collateral:  assemble, have appraised, display, remove, maintain, prepare for
sale or lease, repair, transfer, or sell (at public or private sale).  In
entering upon or into the Premises, Agent hereby agrees to indemnify, defend and
hold Landlord harmless from and against any and all claims, judgments,
liabilities, costs and expenses incurred by Landlord caused solely by Agent's
entering upon or into the Premises and taking any of the foregoing actions with
respect to the Collateral.  Such costs shall include any damage to the Premises
made by Agent in severing and/or removing the Collateral therefrom.

          4.   Landlord agrees that it will not prevent Agent or its designee
from entering upon the Premises at all reasonable times to inspect or remove the
Collateral.  In the event that Landlord has the right to, and desires to, obtain
possession of the Premises (either through expiration of the Lease or
termination thereof due to the default of Tenant thereunder), Landlord will
deliver notice (the "Landlord's Notice") to Agent to that effect.  Within the 45
day period after Agent receives the Landlord's Notice, Agent shall have the
right, but not the obligation, to cause the Collateral to be removed from the
Premises.  During such 45 day period, Landlord will not remove the Collateral
from the Premises nor interfere with Agent's actions in removing the Collateral
from the Premises or Agent's actions in otherwise enforcing its security
interest in the Collateral. Notwithstanding anything to the contrary in this
paragraph, Agent shall at no time have any obligation to remove the Collateral
from the Premises.

          5.   Landlord shall send to Agent a copy of any notice of default
under the Lease sent by Landlord to Tenant. In addition, Landlord shall send to
Agent a copy of any notice received by Landlord of a breach or default under any
other lease, mortgage, deed of trust, security agreement

                                      J-2
<PAGE>

or other instrument to which Landlord is a party which may affect Landlord's
rights in, or possession of, the Premises.

          6.   All notices to Agent under this Agreement shall be in writing and
sent to Agent at its address set forth on the signature page hereof by
telefacsimile, by United States mail, or by overnight delivery service.

          7.   The provisions of this Agreement shall continue in effect until
Landlord shall have received Agent's written certification that all amounts
advanced under the Credit Agreement have been paid in full.

          8.   This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of New York, without regard to
conflicts of laws principles.

                                      J-3
<PAGE>

          IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered as of the day and year first set forth above.

                                   [NAME OF LANDLORD]

                                   By: ____________________________
                                        Name:
                                        Title:

                                   Landlord's Address For Notices:

                                   ________________________________
                                   ________________________________
                                   ________________________________
                                   Fax: (___) ________

          By its acceptance hereof, as of the day and year first set forth
above, Agent agrees to be bound by the provisions hereof.

                                   CITIBANK, N.A.,
                                   as Collateral Agent

                                   By:_____________________________
                                        Name:
                                        Title:

                                   Agent's Address For Notices:

                                   ________________________________
                                   ________________________________
                                   ________________________________
                                   ________________________________
                                   Fax: (___) ________

                                      J-4
<PAGE>

                                                                    EXHIBIT A TO
                                                      LANDLORD PERSONAL PROPERTY
                                                     COLLATERAL ACCESS AGREEMENT

Legal Description of Premises:

                                      J-5
<PAGE>

                                                                    EXHIBIT B TO
                                                      LANDLORD PERSONAL PROPERTY
                                                     COLLATERAL ACCESS AGREEMENT

Description of Lease:

                                      J-6
<PAGE>

                                                                    EXHIBIT K TO
                                                   CREDIT AND GUARANTY AGREEMENT

                               JOINDER AGREEMENT

          THIS JOINDER AGREEMENT, dated as of [__________ __, 200_] (this
"Agreement"), by and among [NEW LENDERS] (each a "Lender" and collectively the
 ---------
"Lenders"), FOCAL FINANCIAL SERVICES, INC. a Delaware corporation ("Company"),
                                                                    -------
FOCAL COMMUNICATIONS CORPORATION, a Delaware corporation ("Holdings"), Goldman
                                                           --------
Sachs Credit Partners L.P., as Syndication Agent (in such capacity, "Syndication
Agent") and CITIBANK, N.A., as Administrative Agent (in such capacity
"Administrative Agent").
 --------------------

                                   RECITALS:

          WHEREAS, reference is hereby made to that certain Credit and Guaranty
Agreement, dated as of  August __, 2000 (said Credit and Guaranty Agreement, as
amended, restated, supplemented or otherwise modified to the date hereof, the
"Credit Agreement"), by and among Company, Holdings, certain Subsidiaries of
 ----------------
Holdings party thereto, as Guarantors, the Lenders party thereto from time to
time, the Administrative Agent, Goldman Sachs Credit Partners, ("GSCP") as
                                                                 ----
Syndication Agent, Bank of America, N.A., as Documentation Agent, and GSCP and
Salomon Smith Barney, Inc., as Joint Arrangers.  Unless otherwise defined
herein, capitalized terms used herein shall have the respective meanings
ascribed to them in the Credit Agreement; and

          WHEREAS, subject to the terms and conditions of the Credit Agreement,
Company may increase the existing Revolving Commitments and/or the Delayed Draw
Term Loan Commitments and/or provide for New Term Loan Commitments by entering
into one or more Joinder Agreements with New Revolving Loan Lenders and/or New
Delayed Draw Term Loan Lenders and/or New Term Loan Lenders, as applicable.

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

          Each Lender party hereto hereby agrees to commit to provide its
respective Commitment as set forth on Schedule A annexed hereto, on the terms
and subject to the conditions set forth below:

          Each Lender (i) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial
statements referred to therein and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into this Joinder Agreement (this "Agreement"); (ii) agrees that it will,
                                   ---------
independently and without reliance upon the Administrative Agent or any other
Lender or Agent and based on such documents and information as it shall deem
appropriate at the time, continue to make

                                      K-1
<PAGE>

its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoints and authorizes Administrative Agent and Syndication
Agent to take such action as agent on its behalf and to exercise such powers
under the Credit Agreement and the other Credit Documents as are delegated to
Administrative Agent and Syndication Agent, as the case may be, by the terms
thereof, together with such powers as are reasonably incidental thereto; and
(iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender.

          Each Lender hereby agrees to make its Commitment on the following
terms and conditions/1/:

1.   Applicable Margin.  The Applicable Margin for each Series [__] New Term
Loan shall mean, as of any date of determination, a percentage per annum as set
forth below plus the pricing premium, if any, less the pricing reduction, if
            ----
any, in each case as set forth below:

                   ==========================================
                           Series [__] New Term Loans
                   ==========================================
                        Total         Eurodollar   Base Rate
                    Leverage Ratio    Rate Loans     Loans
                   ==========================================
                      ____:____          ______%     ______%
                   ==========================================
2.   Principal Payments. Company shall make principal payments on the Series
[__] New Term Loans in installments on the dates and in the amounts set forth
below:

                ================================================
                      (A)                      (B)
                                             Scheduled
                    Payment                 Repayment of
                      Date           Series [__] New Term Loans
                ================================================
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------

____________________

/1/   Insert completed items 1-7 as applicable, with respect to New Term Loans
      with such modifications as may be agreed to by the parties hereto to the
      extent consistent with Section 2.2 of the Credit Agreement.

                                      K-2
<PAGE>

                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                                        $________
                ------------------------------------------------
                         TOTAL          $________
                ================================================

3.   Voluntary and Mandatory Prepayments. Scheduled installments of principal of
the [Series [__]] New Term Loans set forth above shall be reduced in connection
with any voluntary or mandatory prepayments of the [Series [__]] New Term Loans
in accordance with Sections 2.11, 2.12 and 2.13 of the Credit Agreement
respectively; and provided further, that the [Series [__]] New Term Loans and
                  -------- -------
all other amounts under the Credit Agreement with respect to the [Series [__]]
New Term Loans shall be paid in full no later than six months prior to the
maturity of any Subordinated Indebtedness, and the final installment payable by
Company in respect of the [Series [__]] New Term Loans on such date shall be in
an amount, if such amount is different from the amount specified above,
sufficient to repay all amounts owing by Company under the Credit Agreement with
respect to the [Series [__]] New Term Loans.

4.   Prepayment Fees.  Borrower agrees to pay to each [New Term Loan Lender] the
following prepayment fees, if any: [__________].

  [Insert other additional prepayment provisions with respect to New Term Loans]

5.   Other Fees.  Borrower agrees to pay each [New Revolving Loan Lender] [New
Delayed Draw Term Loan Lender] [New Term Loan Lender] its Pro Rata Share of an
aggregate fee equal to [________ __, ____] on [_________ __, ____].

6.   Proposed Borrowing.  This Agreement represents Borrower's request to borrow
[New Revolving Loans] [New Delayed Draw Term Loans] [Series [__] New Term Loans]
from [New Revolving Loan Lenders] [New Delayed Draw Term Loan Lenders] [New Term
Loan Lenders] as follows (the "Proposed Borrowing"):
                               ------------------

     (a)  Business Day of Proposed Borrowing: ___________, ____
          ----------------------------------

     (b)  Amount of Proposed Borrowing: $______________________
          ----------------------------

                                      K-3
<PAGE>

     (c)  Interest rate option:    [_]  a.  Base Rate Loan(s)
          --------------------
                                   [_]  b.  Eurodollar Rate Loans
                                            with an initial Interest
                                            Period of ____ month(s)

7.   [New Lenders.  Each [New Revolving Loan Lender] [New Delayed Draw Term Loan
Lender] [New Term Loan Lender] acknowledges and agrees that upon its execution
of this Agreement and the making of [New Revolving Loans] [New Delayed Draw Term
Loans] [Series [__] New Term Loans] that such [New Revolving Loan Lender] [New
Delayed Draw Term Loan Lender] [New Term Loan Lender] shall become a "Lender"
under, and for all purposes of, the Credit Agreement and the other Credit
Documents, and shall be subject to and bound by the terms thereof, and shall
perform all the obligations of and shall have all rights of a Lender
thereunder.]/2/

8.   Credit Agreement Governs.  Except as set forth in this Agreement, [New
Revolving Loans] [New Delayed Draw Term Loans] [Series [__] New Term Loans]
shall otherwise be subject to the provisions of the Credit Agreement and the
other Credit Documents.

9.   Company's Certifications.  By its execution of this Agreement, the
undersigned officer, to the best of his or her knowledge, and Company hereby
certify that:

          (i)   The representations and warranties contained in the Credit
     Agreement and the other Credit Documents are true and correct in all
     material respects on and as of the date hereof to the same extent as though
     made on and as of the date hereof, except to the extent such
     representations and warranties specifically relate to an earlier date, in
     which case such representations and warranties were true and correct in all
     material respects on and as of such earlier date;

          (ii)  No event has occurred and is continuing or would result from the
     consummation of the Proposed Borrowing contemplated hereby that would
     constitute a Default or an Event of Default; and

          (iii) Company and Holdings has each performed in all material respects
     all agreements and satisfied all conditions which the Credit Agreement
     provides shall be performed or satisfied by it on or before the date
     hereof.

10.  Company Covenants.  By its execution of this Agreement, Company and
Holdings each hereby covenant that:

_____________

/2/ Insert bracketed language if the lending institution is not already a
Lender.

                                      K-4
<PAGE>

          (i)    [Company shall make any payments required pursuant to Section
     2.17(c) of the Credit Agreement in connection with the New Revolving Loan
     Commitments;]/3/

          (ii)   Company shall deliver or cause to be delivered the following
     legal opinions and documents: [___________], together with all other legal
     opinions and other documents reasonably requested by Administrative Agent
     in connection with this Agreement; and

          (iii)  Set forth on the attached Officers' Certificate are the
     calculations (in reasonable detail) demonstrating compliance with the
     financial tests described in Sections 6.6 or 6.7, as applicable, of the
     Credit Agreement.

11.  Eligible Assignee.  By its execution of this Agreement, each [New Revolving
Loan Lender] [New Delayed Draw Term Lender] [New Term Loan Lender] represents
and warrants that it is an Eligible Assignee.

12.  Notice.  For purposes of the Credit Agreement, the initial notice address
of each [New Revolving Loan Lender] [New Delayed Draw Term Lender] [New Term
Loan Lender] shall be as set forth below its signature below.

13.  Non-US Lenders.  For each [New Revolving Loan Lender] [New Delayed Draw
Term Lender] [New Term Loan Lender] that is a Non-US Lender, delivered herewith
to Administrative Agent are such forms, certificates or other evidence with
respect to United States federal income tax withholding matters as such [New
Revolving Loan Lender] [New Delayed Draw Term Lender] [New Term Loan Lender] may
be required to deliver to Administrative Agent pursuant to subsection 2.19(c) of
the Credit Agreement.

14.  Recordation of the New Loans.  Upon execution and delivery hereof,
Administrative Agent will record the [New Revolving Loans] [New Delayed Draw
Term Loans] [Series [__] New Term Loans] made by [New Revolving Loan Lenders]
[New Delayed Draw Term Lenders] [New Term Loan Lenders] in the Register.

15.  Amendment, Modification and Waiver.  This Agreement may not be amended,
modified or waived except by an instrument or instruments in writing signed and
delivered on behalf of each of the parties hereto.

16.  Entire Agreement.  This Agreement, the Credit Agreement and  the Credit
Documents constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and verbal, among the parties or any of them with
respect to the subject matter hereof.

/3/ Select this provision in the circumstance where the Lender is a New
    Revolving Loan Lender.

                                      K-5
<PAGE>

17.  GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

18.  Severability.  Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.  If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as would be enforceable.

19.  Counterparts.  This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.

                                      K-6
<PAGE>

          IN WITNESS WHEREOF, each of the undersigned has caused its duly
authorized officer to execute and deliver this Joinder Agreement as of
[__________________ ____, _____________].

                           [NAME OF LENDER]

                           By:______________________________
                              Name:
                              Title:

                              Notice Address:

                              _____________________

                              _____________________

                              _____________________

                              Attention:
                              Telephone:
                              Facsimile:

FOCAL COMMUNICATIONS CORPORATION,

By: _____________________________
    Name:
    Title:

FOCAL FINANCIAL SERVICES, INC.,

By: _____________________________
    Name:
    Title:

Consented to by:

GOLDMAN SACHS CREDIT PARTNERS, L.P.,
as Syndication Agent

By: _____________________________
    Name:
    Title:

                                      K-7
<PAGE>

CITIBANK, N.A.,
as Administrative Agent

By: _____________________________
    Name:
    Title:

                                      K-8
<PAGE>

                                                                      SCHEDULE A
                                                            TO JOINDER AGREEMENT

<TABLE>
<CAPTION>
================================================================================
    Name of Lender           Type of Commitment                    Amount
--------------------------------------------------------------------------------
<S>                        <C>                           <C>
 [__________________]      [New Revolving Commitment]           $______________
                           [New Delayed Draw Term Loan
                           Commitment] [New Term Loan
                           Commitment]
--------------------------------------------------------------------------------

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

                                                         Total: $______________
================================================================================
</TABLE>

                                      K-9
<PAGE>

                                                                    EXHIBIT L TO
                                                   CREDIT AND GUARANTY AGREEMENT

                             ACKNOWLEDGMENT LETTER
                        [on Holdings/Company letterhead]

[Name]
[address]                                [date]

     Reference is made to [describe agreement] dated ___________ between [name]
and _______________ (the "Agreement").
                          ---------

     Pursuant to Section ____ of the Agreement, [Holdings/Company] requests your
consent to the assignment of the Agreement to Citibank, N.A., as collateral
agent on behalf of secured parties, as collateral for a financing to be entered
into on or about August ___, 2000.  In the event of a default by
[Holdings/Company] or any of their subsidiaries under the financing, [name]
agrees that Citibank, N.A., as collateral agent, or its designees may exercise
any of the rights and privileges of [Holdings/Company] under the Agreement,
including entering into [describe] premises, and may request an assignment of
the Agreement and rights thereunder to a third party.  [As provided in Section
____ of the Agreement, your consent to such an assignment would be subject to
the provision of reasonable evidence of the assignee's resources, ability and
authority to perform under the Agreement].

     [An assignment of this type is consistent with Section ___ of the Agreement
and furthers the goals of The Telecommunications Act of 1996 and the FCC by
removing barriers to entry for CLECs.]  [As you know, the FCC took action on
March 18, 1999 to ensure local competition and the reasonable cooperation of
RBOCs in connection with collocation arrangements.]  We therefore request your
consent to this assignment as promptly as possible.

                            Very truly yours,

CONSENTED TO:

[name]

By: __________________________
    Name:
    Title:

                                      L-1
<PAGE>

                                                                    EXHIBIT M TO
                                                   CREDIT AND GUARANTY AGREEMENT

                                     LEASE

     THIS LEASE is made on August __, 2000 between FOCAL FINANCIAL SERVICES,
INC. ("Lessor") and each of the Subsidiaries of Focal Communications Corporation
       ------
listed on Schedule 1 hereto or becoming a party hereto as provided in Section 23
below (each such Subsidiary a "Lessee").
                               ------

     1.   Property.  Lessor leases to the party identified on Schedule 2 and
          --------
such Lessee leases from Lessor, each of the various items of tangible and
intangible personal property (referred to as "Leased Property") more
                                              ---------------
particularly described and allocated to such Lessees on Schedule 2 hereto, as
such schedule may be supplemented from time to time. Leased Property shall
include, but not be limited to, transmission equipment, electronics, computers
and other telecommunications assets and non-affixed, non-permanent building
improvements.

     2.   Term.  Each item of Leased Property shall be leased for a number of
          ----
months that is a whole or fractional month less than [73%]/1/ [100%]/2/ of
useful life of the item as reflected on the books of Lessor in accordance with
generally accepted accounting principles (the "Term"). Rent shall be charged
from the first month of the Term until the end of the last full month of the
Term. Notwithstanding the foregoing, the parties may terminate the lease with
respect to any particular item prior to the end of the agreed Term if Lessee
determines that it no longer desires to use the asset in its business and Lessor
determines that it can sell or release the asset on terms acceptable to Lessor
and the Collateral Agent (as hereafter defined) in their sole discretion.

     3.   Rent.  The monthly rent for Leased Property shall be the amount
          ----
obtained by amortizing [50%]/1/[100%]/2/ of the Cost Base of the asset over the
number of months in the Term with 6% annual simple interest. [In addition, at
the end of the Term, Lessee shall pay Lessor a Final Payment in an amount equal
to [____]% of the Cost Base of the asset.]/3/

     "Cost Base" as used above includes the purchase price of the asset as well
      ---------
as all associated delivery, installation or other costs incurred by Lessor, if
any, in connection with the purchase and provision to Lessee of the asset.
Lessor shall furnish Lessee quarterly an invoice, which lists the Leased
Property by group (as agreed by Lessor and Lessee) and the applicable quarterly
rent and any other charges. Lessor will make available to Lessee upon request
detailed information regarding rent

1    Relevant figure for master lease with Focal Communications Corporation of
     Illinois ("FCCI") (the "FCCI Lease") being Capital Leases permitted by the
                ----         ----------
     Credit Agreement.

2    Relevant figure for master lease with all Subsidiaries other than FCCI.

3    To be included only in FCCI Lease.

                                      M-1
<PAGE>

and other charges on an asset-by-asset basis. Lessee shall pay the rent
quarterly to Lessor at the principal place of business of the Lessor unless,
with the written consent of the Collateral Agent, Lessor as the immediate parent
of Lessee, elects to contribute the rent to Lessee as a contribution of capital.
Lessee hereby waives any rights of set-off it may have against Lessor with
respect to any amounts due hereunder.

     4.   Security Interests In Leased Property.  The Leased Property is subject
          -------------------------------------
to the following liens until released by the holder of such lien (such liens,
the "Leased Property Liens"):  (1) the lien and security interest  created by
     ---------------------
Lessor in favor of Citibank, N.A., as Collateral Agent for the Secured Parties
(as defined in the Company Pledge and Security Agreement) (the "Collateral
                                                                ----------
Agent"), pursuant to the Company Pledge and Security Agreement dated as of
-----
August ______, 2000 between Focal Financial Services, Inc. and Citibank, N.A. as
Collateral Agent (the "Company Pledge and Security Agreement") which security
                       -------------------------------------
interest secures among other obligations the obligation of the Lessor under the
Credit Agreement dated as of August __, 2000 (as amended, restated, supplemented
or otherwise modified from time to time (the "Lessor Credit Agreement")) among
                                              -----------------------
Focal Communications Corporation , Focal Financial Services, Inc., certain
subsidiaries of Holdings, the lenders party thereto, Goldman Sachs Credit
Partners as Syndication Agent, Citibank, N.A., as Administrative Agent and as
Collateral Agent, Bank of America, N.A. as Documentation Agent and GSCP and
Salomon Smith Barney Inc., as Joint Lead Arrangers.  (such lien, the "Lessor
                                                                      ------
Lien");  (2) the lien and security interest created by each Lessee in favor of
----
the Collateral Agent pursuant to the Master Pledge and Security Agreement dated
as of August __, 2000 between each of the grantors party thereto and the
Collateral Agent (the "Master Pledge and Security Agreement") which security
                       ------------------------------------
interest secures, among other obligations, the obligation of each Lessee under
the Guaranty (the "Lessee Guarantee Lien"); (3) the lien and security interest
                   ---------------------
created by each Lessee pursuant to Section 23 hereunder to secure among other
obligations, the obligation of each Lessee under this lease (the "Lessee Lease
                                                                  ------------
Lien"); and (4) the lien and security interest created by each Lessee pursuant
----
to the Intercompany Security Agreement dated as of August __, 2000 between each
of  the grantors party thereto and Lessor (the "Intercompany Security
                                                 --------------------
Agreement") to secure among other obligations the Lessee's obligations under the
Intercompany Loan Agreement dated as of August __, 2000 between each of the
Lessees and Lessor and under this lease (such lien the "Lessee Intercompany
                                                        -------------------
Lien").
----

     a.   The parties hereto acknowledge that the Lessor Lien was created by the
          Lessor and attached to the Leased Property immediately prior to the
          time the Leased Property became subject to this Lease and that any
          rights acquired by the Lessee in the Leased Property or hereunder are
          subject to the Lessor Lien. Notwithstanding the provisions of Article
          2A of the Uniform Commercial Code or any other law or any agreement
          between the parties to the contrary, the Collateral Agent's rights in
          the Leased Property are not subject to the terms of this Lease.

     b.   The Lessor agrees that the liens and security interests of the
          Collateral Agent shall be senior and prior in right to the liens and
          security interest of Lessor, if any, in the Leased Property, and such
          priority is applicable irrespective of the order of creation,
          attachment

                                      M-2
<PAGE>

          or perfection of any such liens or security interests or any priority
          that might otherwise be available to the Collateral Agent or the
          Lessor.

     c.   The Lessor agrees that the liens and security interests of the
          Collateral Agent shall be senior and prior in right to the liens and
          security interest of Lessor, if any, in the Leased Property, and such
          priority is applicable irrespective of the order of creation,
          attachment or perfection of any such liens or security interests or
          any priority that might otherwise be available to the Collateral Agent
          or the Lessor.

     5.   Security Interest in Lease.  This Lease is subject to a lien and
          --------------------------
security interest granted by Lessor to Collateral Agent pursuant to the terms of
the Lessor Pledge and Security Agreement and secures, among other obligations,
the obligation of the Lessor under the Lessor Credit Agreement.

     a.   The Lessee agrees that, upon written notice to Lessee by the
          Collateral Agent of the occurrence and continuation of an Event of
          Default (as defined in the Lessor Credit Agreement), the Collateral
          Agent may exercise its right to acquire, sell or otherwise dispose of
          all the Lessor's rights under this Lease, notwithstanding any rights
          of the Lessee hereunder.

     b.   The Collateral Agent may exercise all the rights of the Lessor
          hereunder, including the right to demand and collect payment of the
          Lease Obligations. Lessee shall make all payments hereunder to Lessor
          until receipt of written notice from Collateral Agent.

     6.   Location.  Lessee shall give Lessor and Collateral Agent such
          --------
information relating to the Leased Property as either the Lessor or the
Collateral Agent may reasonably request from time to time.  For so long as the
Lessor Lien is outstanding, Lessor and Collateral Agent shall have the right to
enter the property where the Leased Property is located during business hours
for the purpose of inspecting it or observing its use.

     7.   Installation and Maintenance.  Except as the parties may otherwise
          ----------------------------
agree, Lessee shall be responsible for installation and maintenance of all
Leased Property.

     8.   Use.  Lessee shall comply with all federal, state, municipal, police
          ---
and other laws, ordinances and regulations relating to the possession, use or
maintenance of the Leased Property. Lessee shall give Lessor immediate notice of
any attachment or other judicial process affecting the Leased Property.  If
Lessor or Collateral Agent supplies Lessee with any label, plate or other
marking, which indicates that the Leased Property is owned by Lessor, Lessee
shall affix it and keep it upon a prominent place on the Leased Property.

     9.   Alterations.  Without the prior consent of Lessor and Collateral
          -----------
Agent, Lessee shall not make any alterations, additions, or improvements to the
Leased Property which will adversely affect the Leased Property. Such permitted
alterations, additions or improvements may, at Lessee's option, be removed by
Lessee upon the expiration or earlier termination of this Lease, but only if
such

                                      M-3
<PAGE>

removal may be accomplished without damage to the Leased Property or otherwise
reducing its value.

     10.  Repairs.  Lessee, at its expense, shall keep the Leased Property in
          -------
good working condition and shall finish any parts necessary to keep the Leased
Property in good working condition, ordinary wear and tear excepted.  However,
if Lessee and Lessor determine that any particular repair will extend the life
of the item of Leased Property and Collateral Agent consents to such repair,
Lessor shall pay for such repair.

     11.  Loss and Damage Insurance.  Lessee assumes and shall be liable for any
          -------------------------
loss or damage to the Leased Property from any cause occurring at any time
subsequent to the commencement of the lease.  The value of the property at the
time of any loss or damage shall in no event be less than the aggregate amount
of all future rental payments due hereunder as of the date of such loss or
damage but shall be determined by the Lessor, the Lessee and, so long as the
Lessor Lien is outstanding, the Collateral Agent. If the parties cannot agree to
a value, then the parties shall jointly select a qualified appraiser to
determine the value of the item.  Cost of the appraiser shall be borne equally
by Lessor and Lessee, and the determination of value by the appraiser shall be
binding on the parties.  Lessor may at its option insure the Leased Property
against risk of physical loss or damage; however, the amount or availability of
such insurance shall not be for the benefit of the lessee and shall not reduce
the Lessee's damages to Lessor for any loss or damage to the Leased Property.
If any item of Leased Property is damaged or any loss occurs, Lessee shall
immediately notify Lessor of the damage or loss  Collateral Agent shall be named
as loss payee on any such policy of insurance.

     12.  Surrender.  Subject to Section 13 below, upon the expiration or
          ---------
earlier termination of this Lease, as to any item of Leased Property, Lessee
shall, at its own expense, return the item to Lessor in good working condition,
ordinary wear and tear excepted.

     13.  Purchase Option.  In lieu of surrender of an item of Leased Property
          ---------------
upon expiration or termination of the Lease, Lessee may, at its option, elect to
purchase such item at its fair market value (which value shall be calculated
without regard to any Leased Property Liens encumbering such property) as of
that date.  Fair market value shall be determined jointly by Lessee, Lessor and,
for so long as the Lessor Lien is outstanding,  the Collateral Agent, and if the
parties cannot agree to a value, then the parties shall jointly select a
qualified appraiser to determine the value of the item. Cost of the appraiser
shall be borne equally by Lessor and Lessee, and the determination of value by
the appraiser shall be binding on the parties.  Lessee shall exercise its
purchase option under this Section by notification on or before the date of
termination or expiration of the Lease (or within 10 business days of the
termination in the event of an early termination of this Lease)  with respect to
the item in writing to the Lessor and, for so long as the Lessor Lien is
outstanding, also to the Collateral Agent.  Any sale pursuant to this Section 13
shall be subject to Section 2.12(a) of the Credit Agreement.  Any item of Leased
Property sold pursuant to this Section 13 shall be released from the Lessor Lien
by the  Collateral Agent upon payment of the fair market value purchase price to
the Collateral Agent. Notwithstanding the foregoing, Lessor shall remain liable
for the full

                                      M-4
<PAGE>

performance of all obligations on the part of Lessor to be performed under the
Company Pledge and Security Agreement./4/

     14.  Other Taxes and Fees.  Lessor shall collect and separately state on
          --------------------
invoices to Lessee amounts of sales or use taxes levied on the rent charged from
Lessor to Lessee to the extent such collection is required under applicable
federal, state, county, city, or other laws or regulations.  In addition to
rent, Lessee shall pay to Lessor separately stated amounts for collection of
sales or use taxes with amounts charged for the rent of Leased Property.  Lessee
shall pay all governmental charges resulting from the ownership of the equipment
such as fees for tiding or registration of equipment.  In addition, Lessee shall
be responsible for all ad valorem taxes payable with respect to the Leased
Property.  Lessor shall pay all federal, foreign, state, city, county or other
taxes arising from net income derived from the lease.

     15.  Warranties.  LESSOR MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED, AS
          ----------
TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE.

     16.  Indemnity.  Lessee shall indemnify Lessor against, and hold Lessor
          ---------
harmless from, any and all claims, actions, suits, proceedings, costs, expenses,
damages and liabilities, including reasonable attorneys' fees, relating to the
Leased Property, including without limitation, the manufacture, selection,
delivery, possession, use, operation or return of the Leased Property.  Each
party agrees that it will give the other prompt notice of the assertion of any
such claim or the filing of any such action, suit or proceeding.

     17.  Default.  A default shall occur when (1) Lessee  fails to pay any rent
          -------
or other amount as to any item of Leased Property, within 30 days after the same
is due and payable, (2) any Lessee fails to observe, keep or perform any other
term of this Lease as to any item of Leased Property, and such Lessee fails to
remedy, cure or remove such failure within 30 days after receipt of written
notice from such Lessor (or for so long as Lessor Lien is outstanding, the
Collateral Agent), or (3) a Default occurs under the Credit Agreement.  Upon
such Default hereunder, Lessor or Collateral Agent (in the case of a Default
under clause (3)) shall have the right to exercise any one or more of the
following remedies:

     a.   To take possession of any or all items of Leased Property, without
          demand or notice, wherever it is located, without any court order or
          other legal process, unless such repossession is prohibited by law.
          Lessee waives any damages because of repossession unless caused by
          Lessor's or Collateral Agent's gross negligence or willful misconduct,
          as the case may be. A repossession shall not cause a termination of
          this Lease as to any item of Leased Property unless Lessor or
          Collateral Agent as the case may be, expressly notifies Lessee in
          writing.

_____________________

4    The purchase option contained in Section 13 shall be for a nominal purchase
     price rather than the fair market value of the property.

                                      M-5
<PAGE>

     b.   To terminate this Lease as to any or all items of Leased Property.

     c.   To pursue any other remedy at law or in equity.

Notwithstanding any repossession, or any other action which Lessor or Collateral
Agent may take, Lessee shall remain liable for the full performance of all
obligations on the part of Lessee to be performed under this Lease.

Notwithstanding any other provision of this Section 17, upon the occurrence of
any Event of Default described in Section 8.1(f) or 8.1(q) of the Credit
Agreement, this Lease shall terminate automatically.

     18.  Assignment.  Without the prior consent of Lessor and Collateral Agent,
          ----------
Lessee shall not assign, transfer, pledge or hypothecate this Lease or the
Leased Property to any third party (other than the Collateral Agent).  All
rights of Lessor may be assigned, pledged, mortgaged, transferred or otherwise
disposed of, without notice to Lessee.  Subject to the foregoing, this Lease is
binding on the personal representatives, successors and assigns of the parties.
The parties intend that the equipment identified on Schedule 2 (whether or not
identified on one or more separate pieces of paper and whether or not leased by
separate lessees) shall not be deemed subject to separate agreements or separate
leases; but this Lease shall be construed as a single agreement, and the rights
hereunder may not be separately transferred with respect to any item of Leased
Property.

     19.  Applicable Law.  This Lease shall be governed by and construed under
          --------------
the laws of New York applicable to contracts made and to be performed entirely
within such state.  This Lease shall be valid only if signed first by Lessee and
then signed and accepted by Lessor.

     20.  Ownership.  The Leased Property shall continue to be the sole and
           ---------
exclusive property of Lessor, and Lessee shall have no right, title or interest
except as expressly set forth in this Lease.

     21.  Payment Subordination.
          ---------------------

   a.     The Lessor agrees that the Lease Obligations (as defined herein) are
          subordinate in right of payment, to the extent and in the manner
          provided in this Section 21, to the prior payment in full in cash of
          all the Guaranteed Obligations (as defined in the Credit Agreement)
          and that the subordination is for the benefit of and enforceable by
          the Collateral Agent on behalf of the Secured Parties.

     b.   The Lessee may not pay rent, any interest thereon, the Final Payment,
          or any other amount in respect of the Lease Obligations during any
          period (a "Payment Blockage Period") commencing on the date the
                     -----------------------
          Administrative Agent shall have given written notice to the Lessee
          (a "Blockage Notice") that such payments in respect of the Lease
              ---------------
          Obligations should cease and ending on the date that the
          Administrative Agent shall notify the Lessee that the Blockage Notice
          is no longer in effect.

                                      M-6
<PAGE>

     c.   If a distribution is made to the Lessor that because of this Section
          21 should not have been made to it, the Lessor shall hold such payment
          in trust for the Collateral Agent and the Secured Parties and pay it
          over to them as their interests may appear.

     d.   No right of the Collateral Agent or any Secured Party to enforce the
          subordination of the Lease Obligations shall be impaired by any act or
          failure to act by the Lessor or by its failure to comply with this
          Lease, the Credit Agreement or any other Credit Document (as defined
          in the Credit Agreement).

     e.   The Lessor authorizes and directs the Collateral Agent on the Lessor's
          behalf to take such action as may be necessary or appropriate to
          acknowledge or effectuate the subordination provided in this Section
          21 and appoints the Collateral Agent as attorney-in-fact for any and
          all such purposes.

     f.   The Lessor shall not take or omit to take any action or assert any
          claim with respect to the Lease Obligations or otherwise which is
          inconsistent with the provisions of this Lease. Without limiting the
          foregoing, the Lessor shall not assert, collect or enforce the Lease
          Obligations or any part thereof or take any action to foreclose or
          realize upon the Lease Obligations or any party thereof or enforce
          this Lease or the Company Pledge and Security Agreement except to the
          extent (but only to such extent) that the commencement of a legal
          action may be required to toll the running of any applicable statute
          of limitation. Until all obligations owed under the Credit Agreement
          and the other Credit Documents have been paid in full, the Lessor
          shall not have any right of subrogation, reimbursement, restitution,
          contribution or indemnity whatsoever from any assets of the Lessor or
          the Lessee. The Lessor further waives any and all rights with respect
          to marshalling.

     g.   Notwithstanding any provision to the contrary contained herein, any
          secured party to whom the Lessor assigns its right, title and interest
          in, to and under this Lease shall be entitled to terminate this Lease
          if and upon such circumstances as the security agreement between the
          Lessor and such secured party so permits. Upon any such termination,
          the Lessee shall promptly deliver to such secured party or allow such
          secured party to take possession of the Leased Property. This Lease is
          subject and subordinate in all respects to the rights of the secured
          party under such security agreement.

     "Lease Obligations" as used above means all Obligations of the Lessee under
      -----------------
this Lease.

     22.  General Agreement.  [The Lessor and each Lessee intend that this Lease
          -----------------
be a true lease with respect to the Leased Property.  If, notwithstanding the
intent of the parties to this Lease, this Lease is deemed by any court,
tribunal, arbitrator or other adjudicative authority in any proceeding to
constitute a financing arrangement or otherwise not to constitute a "true lease"
with respect to the Leased Property, then]/5/ Lessee hereby grants to Lessor a
security interest in and to Lessee's rights in and to all Leased Property to
secure the obligation of the Lessee hereunder.

______________________

5    Not to be included in FCCI Lease.

                                      M-7
<PAGE>

     23.  Additional Lessees.  The Credit Agreement predicates that each
          ------------------
Subsidiary that was not in existence on the date of the Credit Agreement is
required to enter into this Agreement as a Lessee and the Intercompany Security
Agreement if the Lessor wishes to lease Telecommunications Assets to such
Subsidiary.  Upon execution and delivery by the Lessor and a Subsidiary of an
instrument in the form of Annex 1 hereto, such Subsidiary shall become a Lessee
hereunder and a Grantor under the Intercompany Security Agreement, in each case
with the same force and effect as if originally named as a Lessee herein or a
Grantor under the Intercompany Security Agreement.  The execution and delivery
of any such instrument shall not require the consent of any Lessee hereunder.
The rights and obligations of each Lessee hereunder and each Grantor under the
Intercompany Security Agreement shall remain in full force and effect
notwithstanding the addition of any new Lessee as a party to this Agreement or
the Intercompany Security Agreement.

     24.  Notices.  All communications and notices hereunder shall (except as
          -------
otherwise expressly permitted herein) be in writing and given as provided in
Section 10.1 of the Lessor Credit Agreement.  All communications and notices
hereunder to any Lessee shall be given to it at its address or telecopy number
set forth on Schedule I.

     25.  Entire Agreement.  This instrument constitutes the entire agreement
          ----------------
between Lessor and Lessee.  It shall not be changed except by a written
agreement signed by both parties.

                 (remainder of page intentionally left blank)

                                      M-8
<PAGE>

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

                            LESSOR:

                            FOCAL FINANCIAL SERVICES, INC.

                            By:____________________________________
                            Title:_________________________________

                            LESSEE:

                            [EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE 1
                            HERETO]/6/

                            [FOCAL COMMUNICATIONS
                            CORPORATION OF ILLINOIS]/7/

                            By:___________________________________
                            Title:    Authorized Signatory
                                  --------------------------------

Acknowledged by and agreed to by:

CITIBANK, N.A., as Collateral Agent
under Company Pledge and Security Agreement

By:______________________________________
Title:___________________________________

_______________

6    For Lease with all Subsidiaries other than FCCI.

7    For FCCI Lease only.

                                      M-9
<PAGE>

                                                      SCHEDULE 1 TO MASTER LEASE

                                   LESSEE[S]

                  Name                                  Address

[Focal Communications Corporation of California         each of
Focal Communications Corporation of Colorado            Chief Executive Office
Focal Communications Corporation of Florida             200 North LaSalle Street
Focal Communications Corporation of Georgia             Chicago, Illinois 60601
Focal Communications Corporation of Massachusetts
Focal Communications Corporation of Michigan
Focal Communications Corporation of Mid-Atlantic
Focal Communications Corporation of Minnesota
Focal Communications Corporation of Missouri
Focal Communications Corporation of New Jersey
Focal Communications Corporation of New York
Focal Communications Corporation of Ohio
Focal Communications Corporation of Pennsylvania
Focal Communications Corporation of Texas
Focal Communications Corporation of Virginia
Focal Communications Corporation of Washington
Focal Communications Corporation of Wisconsin
Focal International Corp.
Focal Telecommunications Corporation
Focal Equipment Finance, LLC]/8/
Focal Communications Corporation of Illinois]/9/

_________________

8  Lease with all Subsidiaries other than FCCI.

9  FCCI Lease only.

                                     M-10
<PAGE>

                                                      SCHEDULE 2 TO MASTER LEASE

                        DESCRIPTION OF LEASED PROPERTY
                           IN RESPECT OF EACH LESSEE

                [List Leased Property and corresponding Lessee]

                                     M-11
<PAGE>

                                                                      ANNEX 1 TO
                                                                MASTER LEASE/10/

   THIS IS SUPPLEMENT NO. __ dated as of [__________] to the Approved Lease
Agreement dated as of August [    ], 2000 (the "Approved Lease Agreement"),
                                                ------------------------
among the Subsidiaries of Focal Communications Corporation listed on Schedule 1
thereto, and Focal Financial Services, Inc., a Delaware corporation (the
"Lessor").
 ------

     A.   Reference is made to (a) the Credit Agreement dated as of August [__],
2000 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Focal Communications Corporation, Focal Financial
-----------------
Services, Inc., certain Subsidiaries of Focal Communications Corporation, the
lenders from time to time party thereto (the "Lenders"), Goldman Sachs Credit
                                              -------
Partners ("GSCP") as Syndication Agent,  Citibank, N.A., as Administrative Agent
           ----
and collateral agent, Bank of America N.A. as Documentation Agent, and GSCP and
Salomon Smith Barney Inc. as Joint Lead Arrangers (b) the Approved Lease
Agreement and (c) the Intercompany Security Agreement.

     B.   Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Approved Lease Agreement and the
Credit Agreement.

     C.   The Lessees have entered into the Approved Lease Agreement as required
by the Credit Agreement.  The Credit Agreement predicates that each Subsidiary
not in existence on the date of the Credit Agreement is required to enter into
the Approved Lease Agreement as a Lessee if the Lessor wishes to lease
Telecommunications Assets to such Subsidiary.  Section 24 of the Approved Lease
Agreement provides that additional Subsidiaries may become Lessees under the
Approved Lease Agreement and Grantors under the Intercompany Security Agreement
by execution and delivery of an instrument in the form of this Supplement.  The
undersigned Subsidiary (the "New Lessee") is executing this Supplement in
                             -----------
accordance with the requirements of the Credit Agreement to become a Lessee
under the Approved Lease Agreement and a Grantor under the Intercompany Security
Agreement.

     Accordingly, the Lessor and the New Lessee agree as follows:

     SECTION 1.  In accordance with Section 23 of the Approved Lease Agreement,
the New Lessee by its signature below becomes a Lessee under the Approved Lease
Agreement and a Grantor under the Intercompany Security Agreement, in each case
with the same force and effect as if originally named therein as a Lessee or a
Grantor, respectively, and the New Lessee hereby (a) agrees to all the terms and
provisions of the Approved Lease Agreement applicable to it as a Lessee
thereunder and of the Intercompany Security Agreement applicable to it as a
Grantor thereunder, (b) represents and warrants that the representations and
warranties made by it as a Lessee or Grantor,

______________

10  [Not relevant for FCCI Lease.]

                                     M-12
<PAGE>

as applicable, thereunder are true and correct on and as of the date hereof, (c)
grants to Lessor a security interest in all of such New Lessee's right, title
and interest in and to all "Collateral" (as such term is defined in the
Intercompany Security Agreement) of such New Lessee, whether now or hereafter
existing or in which New Lessee now has or hereafter acquires an interest and
wherever the same may be located and (d) represents and warrants that it has
duly completed and herewith delivers to Lessor supplements to all schedules
attached to the Intercompany Security Agreement. Each reference to a "Lessee" in
the Approved Lease Agreement and a "Grantor" in the Intercompany Security
Agreement shall be deemed to include the New Lessee. Each of the Approved Lease
Agreement and the Intercompany Security Agreement is hereby incorporated herein
by reference.

     SECTION 2.  The New Lessee represents and warrants to the Lessor that this
Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.

     SECTION 3.  This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.  This Supplement shall become effective when the Lessor shall
have received counterparts of this Supplement that, when taken together, bear
the signatures of the New Lessee and the Lessor.  Delivery of an executed
signature page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Supplement.

     SECTION 4.  Except as expressly supplemented hereby, the Approved Lease
Agreement shall remain in full force and effect.

     SECTION 5.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     SECTION 6.  In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Approved Lease Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).  The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

     SECTION 7.  All communications and notices hereunder shall be in writing
and given as provided in the Approved Lease Agreement.  All communications and
notices hereunder to the New Lessee shall be given to it at the address set
forth under its signature below.

     SECTION 8.  The New Lessee agrees to reimburse the Lessor for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the Lessor.

                                     M-13
<PAGE>

     SECTION 9.  The Lessor and the New Lessee intend that this Supplement and
together with the Approved Lease Agreement be a true lease with respect to the
Leased Property. If, notwithstanding the intent of the parties to this
Supplement, this Supplement or the Approved Lease Agreement is deemed by any
court, tribunal, arbitrator or other adjudicative authority in any proceeding to
constitute a financing arrangement or otherwise not to constitute a "true lease"
with respect to the Leased Property, then New Lessee hereby grants to Lessor a
security interest in and to Lessee's rights in and to all Leased Property to
secure the obligation of the New Lessee hereunder and under the Approved Lease
Agreement.

     IN WITNESS WHEREOF, the New Lessee and the Lessor have duly executed this
Supplement to the Approved Lease Agreement as of the day and year first above
written.

                         [Name of New Lessee],

                         By:  _______________________________
                              Name:
                              Title:
                              Address:

                         FOCAL FINANCIAL SERVICES, INC., as
                         Lessor,

                         By:  _______________________________
                              Name:
                              Title:

Acknowledged by and agreed to by:
[NAME OF COLLATERAL AGENT]

by___________________________
  Name:
  Title:
  Address:

                                     M-14
<PAGE>

                                                                    EXHIBIT N TO
                                                   CREDIT AND GUARANTY AGREEMENT

                          INTERCOMPANY LOAN AGREEMENT

     THIS INTERCOMPANY LOAN AGREEMENT is dated as of August __, 2000, among each
Subsidiary of Focal Communications Corporation listed on Schedule I hereto or
becoming a party hereto as provided in Section 4.09 (each such Subsidiary
individually, a "Subsidiary Borrower" and collectively, the "Subsidiary
                 -------------------                         ----------
Borrowers"), as borrowers, and FOCAL FINANCIAL SERVICES, INC., a Delaware
---------
corporation (the "Company"), as lender.
                  -------

     Reference is made to (a) the Credit Agreement dated as of August __, 2000
(as amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Focal Communications Corporation ("Holdings"), the
 ----------------                                             --------
Company, certain Subsidiaries of Holdings, the lenders party thereto (the
"Lenders"), Goldman Sachs Credit Partners L.P. ("GSCP") as Syndication Agent,
--------
Citibank, N.A., as administrative agent and collateral agent (the "Collateral
                                                                   ----------
Agent") Bank of America, N.A., as Documentation Agent, and Salomon Smith Barney
-----
Inc. and GSCP as Joint Lead Arrangers, and (b) the Intercompany Security
Agreement dated as of August [    ], 2000 (as amended, restated, supplemented or
otherwise modified from time to time, the "Intercompany Security Agreement"),
                                           -------------------------------
among the Company and the Subsidiary Borrowers.

     Pursuant to the Credit Agreement, the Lenders will make loans to the
Company, subject to the terms and conditions specified therein.  Section 5.13 of
the Credit Agreement requires that any and all intercompany loans made by
Company to any of its Subsidiaries are evidenced by and made in accordance with
this Agreement.

     Accordingly, the Subsidiary Borrowers and the Company (and each of their
respective successors or assigns), hereby agree as follows:

                                   ARTICLE I

                                  Definitions
                                  -----------

     SECTION 1.0    Definition of Terms Used Herein.  Unless the context
                    -------------------------------
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement.

     SECTION 1.0    Rules of Interpretation.  The rules of interpretation
                    -----------------------
specified in Sections 1.3 and 1.4 of the Credit Agreement shall be applicable to
this Agreement.
<PAGE>

                                  ARTICLE II

                              Intercompany Loans
                              ------------------

     The Company may from time to time make loans (the "Intercompany Loans") to
                                                        ------------------
any of the Subsidiary Borrowers to the extent permitted in accordance with the
Credit Agreement.  Each of the Subsidiary Borrowers and the Company hereby
agrees that the Intercompany Loans shall not, at any time, be evidenced by any
written promissory notes and agree that the Intercompany Loans shall be recorded
by appropriate notation in the books and records of the Company.  The
Intercompany Loans will be payable in the full amount of all principal and
accrued and unpaid interest 30 days after demand therefor from the Company.
Interest on the Intercompany Loans will accrue at such rate or rates, and be
payable at such times, as the Company and the applicable Subsidiary Borrower may
from time to time agree.  All payments in respect of the Intercompany Loans
shall be made in U.S. dollars without any reduction for any claim of set-off,
recoupment, counterclaim or other similar right by any Subsidiary Borrower.

                                  ARTICLE III

                                 Subordination
                                 -------------

     SECTION 3.01   Subordination of Payment.  The Company and each Subsidiary
                    ------------------------
Borrower agrees that the Intercompany Loans are subordinated in right of
payment, to the extent and in the manner provided in this Article III, to the
prior payment in full in cash of all the Guaranteed Obligations (as defined in
the Credit Agreement) and that the subordination is for the benefit of and
enforceable by the Collateral Agent on behalf of the Secured Parties.

     SECTION 3.02  Subordination of Liens.  Pursuant to the Company Pledge
                   ----------------------
and Security Agreement dated as of August [   ], 2000, between the Company and
the Collateral Agent, the Company has granted to the Collateral Agent a security
interest in, among other things, the Intercompany Loans, any instruments
evidencing the Intercompany Loans and all security related to the Intercompany
Loans, including the security interest created by the Intercompany Security
Agreement.  The Company agrees that the liens and security interests of the
Collateral Agent shall be senior and prior in right to the liens and security
interest of Company in the Collateral (as defined in the Intercompany Security
Agreement), and such priority is applicable irrespective of the order of
creation, attachment or perfection of any such liens or security interests or
any priority that might otherwise be available to the Collateral Agent or the
Company.

     SECTION 3.03   Default on Senior Indebtedness.  The Subsidiary Borrowers
                    ------------------------------
may not pay the principal of, premium, if any, interest on, or any other amount
in respect of the Intercompany Obligations during any period (a "Payment
                                                                 -------
Blockage Period") commencing on the date the Administrative Agent shall have
---------------
given written notice of the occurrence of a continuing Event of Default to the
Subsidiary Borrowers (a "Blockage Notice") that such payments in respect of the
                         ---------------
Intercompany Obligations should cease and ending on the date that the
Administrative Agent shall notify the Subsidiary Borrowers that the Blockage
Notice is no longer in effect.

                                      N-2
<PAGE>

     SECTION 3.04   When Distributions Must Be Paid Over.  If a distribution is
                    ------------------------------------
made to the Company that because of this Article III should not have been made
to it, the Company shall hold such payment in trust for the Collateral Agent and
the Secured Parties and pay it over to them as their interests may appear.

     SECTION 3.05   Subordination May Not Be Impaired by Borrower.  No right of
                    ---------------------------------------------
the Collateral Agent or any Secured Party to enforce the subordination of the
Intercompany Obligations shall be impaired by any act or failure to act by the
Company or by its failure to comply with this Agreement, the Credit Agreement or
any other Credit Document.

     SECTION 3.06   Administrative Agent To Effectuate Subordination.  The
                    ------------------------------------------------
Company authorizes and directs the Collateral Agent on the Company's behalf to
take such action as may be necessary or appropriate to acknowledge or effectuate
the subordination provided in this Article III and irrevocably appoints the
Collateral Agent as attorney-in-fact for any and all such purposes.

     SECTION 3.07  Enforcement of Remedies.  The Company shall not take or
                   -----------------------
omit to take any action or assert any claim with respect to the Intercompany
Obligations (as defined in the Intercompany Security Agreement) or otherwise
which is inconsistent with the provisions of this Agreement.  Without limiting
the foregoing, the Company shall not assert, collect or enforce the Intercompany
Obligations or any part thereof or take any action to foreclose or realize upon
the Intercompany Obligations or any part thereof or enforce this Agreement or
the Intercompany Security Agreement except to the extent (but only to such
extent) that the commencement of a legal action may be required to toll the
running of any applicable statute of limitation.  Until all obligations owed
under the Credit Agreement and the other Credit Documents have been paid in
full, the Company shall not have any right of subrogation, reimbursement,
restitution, contribution or indemnity whatsoever from any assets of the Company
or a Subsidiary Borrower.  The Company further waives any and all rights with
respect to marshalling.

                                  ARTICLE IV

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

     SECTION 4.01   GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN
                    -------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING
SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAW), BUT
WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS.

     SECTION 4.02   Waivers.  Neither this Agreement nor any provision hereof
                    -------
may be waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Company and the Subsidiary Borrower or Subsidiary
Borrowers with respect to which such waiver, amendment or modification is to
apply.

     SECTION 4.03   WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO
                    --------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR

                                      N-3
<PAGE>

INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
RELATED DOCUMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.03.

     SECTION 4.04   Severability.  In the event any one or more of the
                    ------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).  The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

     SECTION 4.05   Counterparts.  This Agreement may be executed in two or more
                    ------------
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 4.04), and
shall become effective as provided in Section 4.04.  Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.

     SECTION 4.06   Headings.  Article and Section headings used herein are for
                    --------
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.

     SECTION 4.07   Jurisdiction; Consent to Service of Process.  (a) Each
                    -------------------------------------------
Subsidiary Borrower hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State court
or Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court.  Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Company may otherwise
have to bring any action or proceeding relating to this Agreement against any
Subsidiary Borrower or its properties in the courts of any jurisdiction.

          (b)  Each Subsidiary Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any New
York State or Federal court.  Each of the parties hereto hereby irrevocably

                                      N-4
<PAGE>

waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

          (c)  Each party to this Agreement irrevocably consents to service of
process by mail in the manner provided for notices in Section 4.12. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

     SECTION 4.08   Termination.  This Agreement and the Security Interest shall
                    -----------
terminate when all the Intercompany Obligations have been paid in full and the
Intercompany Loan Agreement has been terminated in a manner permitted by the
Credit Agreement, at which time the Company shall execute and deliver to the
Subsidiary Borrowers, at the Subsidiary Borrowers expense, all Uniform
Commercial Code termination statements and similar documents which the
Subsidiary Borrowers shall reasonably request to evidence such termination.  Any
execution and delivery of termination statements or documents pursuant to this
Section 4.08 shall be without recourse to or warranty by the Company.  A
Subsidiary Borrower shall automatically be released from its obligations
hereunder and the security interest in the Intercompany Collateral of such
Subsidiary Borrower shall be automatically released in the event that all the
capital stock of such Subsidiary Borrower shall be sold, transferred or
otherwise disposed of to a person that is not the Company or an Affiliate of the
Company in accordance with the terms of the Credit Agreement.

     SECTION 4.09   Additional Subsidiary Borrowers.  The Credit Agreement
                    -------------------------------
predicates that each Subsidiary that was not in existence on the date of the
Credit Agreement is required to enter into this Agreement as a Subsidiary
Borrower and the Intercompany Security Agreement if the Company wishes to make
intercompany loans to such Subsidiary Borrower.  Upon execution and delivery by
the Company and a Subsidiary of an instrument in the form of Annex 1 hereto,
such Subsidiary shall become a Subsidiary Borrower hereunder and a Grantor under
the Intercompany Security Agreement, in each case with the same force and effect
as if originally named as a Subsidiary Borrower herein or a Grantor under the
Intercompany Security Agreement.  The execution and delivery of any such
instrument shall not require the consent of any Subsidiary Borrower hereunder.
The rights and obligations of each Subsidiary Borrower hereunder and each
Grantor under the Intercompany Security Agreement shall remain in full force and
effect notwithstanding the addition of any new Subsidiary Borrower as a party to
this Agreement or the Intercompany Security Agreement.

     SECTION 4.10   Compliance with Laws.  Notwithstanding anything herein which
                    --------------------
may be construed to the contrary, no action shall be taken by the Company with
respect to the Licenses or any license, permit, certificate or authorization of
the Federal Communications Commission ("FCC") or any other federal, state or
                                        ---
local regulatory or governmental bodies applicable to or having jurisdiction
over the Subsidiary Borrowers unless and until any required approval under the
Federal Communications Act of 1934, and any applicable rules and regulations
thereunder, requiring the consent to or approval of such action by the FCC or
any governmental or other communications authority, have been satisfied and, to
the extent applicable, any action taken with respect to, concerning or affecting
the Intercompany Collateral, directly or indirectly, or any security interest
granted therein by the Company shall be subject to any required approval of the
FCC and any state or local communications regulatory authority and all
applicable communications laws.

                                      N-5
<PAGE>

     SECTION 4.11   Collateral Agent's Rights.  The Subsidiary Borrowers agree
                    -------------------------
that, upon the occurrence and continuation of an Event of Default (as defined in
the Credit Agreement), the Collateral Agent may exercise its right to acquire,
sell or otherwise dispose of all the Company's rights under this Agreement and
the Intercompany Security Agreement, whereupon this Agreement shall be deemed to
have been assigned to the Collateral Agent and the Collateral Agent may exercise
all the rights of the Company hereunder, including the right to demand and
collect payment of the Intercompany Loans.

     SECTION 4.12   Notices.  All communications and notices hereunder shall
                    -------
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 10.1 of the Credit Agreement.  All communications and
notices hereunder to any Subsidiary Borrower shall be given to it at its address
or telecopy number set forth on Schedule I.

                                      N-6
<PAGE>

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

                    EACH OF THE SUBSIDIARY BORROWERS
                    LISTED ON SCHEDULE I HERETO,

                            By: _________________________________
                                Name:
                                Title: Authorized Signatory

                    FOCAL FINANCIAL SERVICES, INC., as
                    lender,

                            By: ________________________________
                                Name:
                                Title: Authorized Signatory

                                      N-7
<PAGE>

                                                                      SCHEDULE I
                                                  TO INTERCOMPANY LOAN AGREEMENT

                              SUBSIDIARY BORROWERS

                  Name                                 Address
                  ----                                 -------

Focal Communications Corporation of California         each of
Focal Communications Corporation of Colorado           Chief Executive Office
Focal Communications Corporation of Florida            200 North LaSalle Street
Focal Communications Corporation of Georgia            Chicago, Illinois 60601
Focal Communications Corporation of Illinois
Focal Communications Corporation of Massachusetts
Focal Communications Corporation of Michigan
Focal Communications Corporation of Mid-Atlantic
Focal Communications Corporation of Minnesota
Focal Communications Corporation of Missouri
Focal Communications Corporation of New Jersey
Focal Communications Corporation of New York
Focal Communications Corporation of Ohio
Focal Communications Corporation of Pennsylvania
Focal Communications Corporation of Texas
Focal Communications Corporation of Virginia
Focal Communications Corporation of Washington
Focal Communications Corporation of Wisconsin
Focal Financial Services, Inc.
Focal International Corp.
Focal Telecommunications Corporation
Focal Equipment Finance, LLC

                                      N-8
<PAGE>

                                                                      ANNEX 1 TO
                                                     INTERCOMPANY LOAN AGREEMENT

     THIS IS SUPPLEMENT NO. __ dated as of [__________] to the Intercompany Loan
Agreement dated as of August [    ], 2000 (the "Intercompany Loan Agreement"),
                                                ---------------------------
among the Subsidiaries of Focal Financial Services, Inc. listed on Schedule I
thereto, and Focal Financial Services, Inc., a Delaware corporation (the
"Company"), as lender.
--------

     A.   Reference is made to (a) the Credit Agreement dated as of August [__],
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Focal Communications Corporation, Focal
           ----------------
Financial Services, Inc., certain Subsidiaries of Focal Communications
Corporation, the lenders from time to time party thereto (the "Lenders"),
                                                               -------
Goldman Sachs Credit Partners ("GSCP") as Syndication Agent,  Citibank, N.A., as
                                ----
Administrative Agent and collateral agent, Bank of America N.A. as Documentation
Agent, and GSCP and Salomon Smith Barney Inc. as Joint Lead Arrangers (b) the
Intercompany Loan Agreement and (c) the Intercompany Security Agreement.

     B.   Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Intercompany Loan Agreement and
the Credit Agreement.

     C.   The Subsidiary Borrowers have entered into the Intercompany Loan
Agreement as required by the Credit Agreement.  The Credit Agreement predicates
that each Subsidiary not in existence on the date of the Credit Agreement is
required to enter into the Intercompany Loan Agreement as a Subsidiary Borrower
if the Company wishes to make intercompany loans to such Subsidiary Borrower.
Section 4.09 of the Intercompany Loan Agreement provides that additional
Subsidiaries may become Subsidiary Borrowers under the Intercompany Loan
Agreement and Grantors under the Intercompany Security Agreement by execution
and delivery of an instrument in the form of this Supplement.  The undersigned
Subsidiary (the "New Subsidiary Borrower") is executing this Supplement in
                 ------------------------
accordance with the requirements of the Credit Agreement to become a Subsidiary
Borrower under the Intercompany Loan Agreement and a Grantor under the
Intercompany Security Agreement.

     Accordingly, the Company and the New Subsidiary Borrower agree as follows:

     SECTION 1.  In accordance with Section 4.09 of the Intercompany Loan
Agreement, the New Subsidiary Borrower by its signature below becomes a
Subsidiary Borrower under the Intercompany Loan Agreement and a Grantor under
the Intercompany Security Agreement, in each case with the same force and effect
as if originally named therein as a Subsidiary Borrower or a Grantor,
respectively, and the New Subsidiary Borrower hereby (a) agrees to all the terms
and provisions of the Intercompany Loan Agreement applicable to it as a
Subsidiary Borrower thereunder and of the Intercompany Security Agreement
applicable to it as a Grantor thereunder, (b) represents and warrants that the
representations and warranties made by it as a Subsidiary Borrower or Grantor,
as applicable, thereunder are true and correct on and as of the date hereof, (c)
grants to Company a security interest in all of such New Subsidiary Borrower's
right, title and interest in and to all

                                      N-9
<PAGE>

"Collateral" (as such term is defined in the Intercompany Security Agreement) of
such New Subsidiary Borrower, whether now or hereafter existing or in which New
Subsidiary Borrower now has or hereafter acquires an interest and wherever the
same may be located and (d) represents and warrants that it has duly completed
and herewith delivers to Company supplements to all schedules attached to the
Intercompany Security Agreement. Each reference to a "Subsidiary Borrower" in
the Intercompany Loan Agreement and a "Grantor" in the Intercompany Security
Agreement shall be deemed to include the New Subsidiary Borrower. Each of the
Intercompany Loan Agreement and the Intercompany Security Agreement is hereby
incorporated herein by reference.

     SECTION 2.  The New Subsidiary Borrower represents and warrants to the
Company that this Supplement has been duly authorized, executed and delivered by
it and constitutes its legal, valid and binding obligation, enforceable against
it in accordance with its terms.

     SECTION 3.  This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.  This Supplement shall become effective when the Company shall
have received counterparts of this Supplement that, when taken together, bear
the signatures of the New Subsidiary Borrower and the Company.  Delivery of an
executed signature page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Supplement.

     SECTION 4.  Except as expressly supplemented hereby, the Intercompany Loan
Agreement shall remain in full force and effect.

     SECTION 5.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND
SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW), BUT WITHOUT REGARD TO
ITS CONFLICTS OF LAW PROVISIONS.

     SECTION 6.  In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Intercompany Loan Agreement and the Intercompany Security
Agreement shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision in
any other jurisdiction).  The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

     SECTION 7.  All communications and notices hereunder shall be in writing
and given as provided in Section 4.01 of the Intercompany Loan Agreement.  All
communications and notices hereunder to the New Subsidiary Borrower shall be
given to it at the address set forth under its signature below.

     SECTION 8.  The New Subsidiary Borrower agrees to reimburse the Company for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Company.

                                     N-10
<PAGE>

     IN WITNESS WHEREOF, the New Subsidiary Borrower and the Company have duly
executed this Supplement to the Intercompany Loan Agreement as of the day and
year first above written.

                         [Name of New Subsidiary Borrower],

                         By: ____________________________________
                             Name:
                             Title:
                             Address:

                         FOCAL FINANCIAL SERVICES, INC., as
                         lender,

                         By: ____________________________________
                             Name:
                             Title:
                             Address:

Acknowledged by and agreed to by:
[NAME OF COLLATERAL AGENT]

by__________________________________
  Name:
  Title:
  Address:

                                     N-11
<PAGE>

                                                                EXHIBIT O TO THE
                                                   CREDIT AND GUARANTY AGREEMENT

                        INTERCOMPANY SECURITY AGREEMENT

                                      O-1<PAGE>

                                                                    Exhibit 10.8

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

                                CREDIT AGREEMENT

                                   DATED AS OF

                               SEPTEMBER 11, 2000

                                      AMONG

                           ARTHUR J. GALLAGHER & CO.,

                          AJG FINANCIAL SERVICES, INC.,

                             THE BANKS PARTY HERETO,

                         HARRIS TRUST AND SAVINGS BANK,

                           AS AGENT AND LEAD ARRANGER,

                                 CITIBANK, N.A.,

                   AS CO-LEAD ARRANGER AND SYNDICATION AGENT,

                                       AND

                              BANK OF AMERICA, N.A.

                   AS CO-LEAD ARRANGER AND DOCUMENTATION AGENT

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

                                Table of Contents

              (This Table of Contents is not part of the Agreement)

<TABLE>
<CAPTION>
                                                                                                 PAGE
<S>                                                                                             <C>
Section 1.           The Credits..............................................................    1

       Section 1.1.  The Revolving Credit Commitments.........................................    1
       Section 1.2.  The Short-Term Revolving Credit Commitments..............................    2
       Section 1.3.  Letters of Credit........................................................    2
       Section 1.4.  Applicable Interest Rates................................................    5
       Section 1.5.  Minimum Borrowing Amount for Revolving Loans and Short-Term Revolving
                       Loans..................................................................    7
       Section 1.6.  Manner of Borrowing, and Designating Interest Rates Applicable to,
                       Revolving Loans and Short-Term Revolving Loans.........................    7

Section 2.           The Swing Line...........................................................    9

       Section 2.1.  Swing Loans..............................................................    9
       Section 2.2.  Interest on Swing Loans..................................................   10
       Section 2.3.  Requests for Swing Loans.................................................   10
       Section 2.4.  Refunding Loans..........................................................   10
       Section 2.5.  Participations...........................................................   11

Section 3.           The Competitive Bid Facility.............................................   11

       Section 3.1.  The Bid Loans............................................................   11
       Section 3.2.  Requests for Bid Loans...................................................   12
       Section 3.3.  Notice of Bids; Advice of Rate...........................................   13
       Section 3.4.  Acceptance or Rejection of Bids..........................................   13
       Section 3.5.  Notice of Acceptance or Rejection of Bids................................   14
       Section 3.6.  Interest on Bid Loans....................................................   14
       Section 3.7.  Telephonic Notice........................................................   14

Section 4.           General Provisions Applicable to All Loans; Reduction of Commitments.....   15

       Section 4.1.  Interest Periods.........................................................   15
       Section 4.2.  Default Rate on Revolving Loans, Short-Term Revolving Loans and Bid
                        Loans.................................................................   16
       Section 4.3.  Notes....................................................................   17
       Section 4.4.  Maturity of Loans........................................................   17
       Section 4.5.  Prepayments..............................................................   18
       Section 4.6.  Funding Indemnity for Fixed Rate Loans...................................   18
       Section 4.7.  Commitment Terminations..................................................   19
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                              <C>
Section 5.           Fees and Extensions; Place and Application of Payments...................   19

       Section 5.1.  Fees.....................................................................   19
       Section 5.2.  Extension of Termination Date and Short-Term Revolving Credit
                        Termination Date......................................................   20
       Section 5.3.  Place and Application of Payments........................................   21

Section 6.           Definitions; Interpretation..............................................   21

       Section 6.1.  Definitions..............................................................   21
       Section 6.2.  Interpretation...........................................................   31

Section 7.           Representations and Warranties...........................................   31

       Section 7.1.  Organization and Qualification...........................................   32
       Section 7.2.  Subsidiaries.............................................................   32
       Section 7.3.  Corporate Authority and Validity of Obligations..........................   32
       Section 7.4.  Use of Proceeds; Margin Stock............................................   33
       Section 7.5.  Financial Reports........................................................   33
       Section 7.6.  No Material Adverse Change...............................................   33
       Section 7.7.  Full Disclosure..........................................................   33
       Section 7.8.  Good Title...............................................................   33
       Section 7.9.  Litigation and Other Controversies.......................................   34
       Section 7.10. Taxes....................................................................   34
       Section 7.11. Approvals................................................................   34
       Section 7.12. Affiliate Transactions...................................................   34
       Section 7.13. Investment Company; Public Utility Holding Company.......................   34
       Section 7.14. ERISA....................................................................   34
       Section 7.15. Compliance with Laws.....................................................   35
       Section 7.16. Other Agreements.........................................................   35
       Section 7.17. No Default...............................................................   35
       Section 7.18. Insolvency...............................................................   35
       Section 7.19. Labor Controversies......................................................   35

Section 8.           Conditions Precedent.....................................................   35

       Section 8.1.  Initial Credit Event.....................................................   36
       Section 8.2.  All Credit Events........................................................   37

Section 9.           Covenants................................................................   38

       Section 9.1.  Maintenance of Business..................................................   38
       Section 9.2.  Maintenance of Properties................................................   38
       Section 9.3.  Taxes and Assessments....................................................   38
       Section 9.4.  Insurance................................................................   38
       Section 9.5.  Financial Reports........................................................   38
       Section 9.6.  Inspection...............................................................   40
       Section 9.7.  Net Worth................................................................   40
</TABLE>

                                     -ii-
<PAGE>

<TABLE>
<S>                                                                                          <C>
       Section 9.8.   Debt to Net Worth Ratio................................................   40
       Section 9.9.   Fixed Charge Coverage Ratio............................................   40
       Section 9.10.  Indebtedness for Borrowed Money........................................   40
       Section 9.11.  Liens..................................................................   41
       Section 9.12.  Investments, Acquisitions, Loans, Advances and Guaranties..............   42
       Section 9.13.  Unrealized Losses......................................................   43
       Section 9.14.  Mergers and Consolidations.............................................   43
       Section 9.15.  Capital Expenditures...................................................   43
       Section 9.16.  ERISA..................................................................   44
       Section 9.17.  Compliance with Laws...................................................   44
       Section 9.18.  Burdensome Contracts with Affiliates...................................   44
       Section 9.19.  No Changes in Fiscal Year..............................................   44
       Section 9.20.  Change in the Nature of Business.......................................   44

Section 10.           Events of Default and Remedies.........................................   44

       Section 10.1.  Events of Default......................................................   44
       Section 10.2.  Non-Bankruptcy Defaults................................................   46
       Section 10.3.  Bankruptcy Defaults....................................................   46
       Section 10.4.  Collateral for Undrawn Letters of Credit...............................   47
       Section 10.5.  Notice of Default......................................................   47
       Section 10.6.  Expenses...............................................................   47

Section 11.           Change in Circumstances................................................   47

       Section 11.1.  Change of Law..........................................................   47
       Section 11.2.  Unavailability of Deposits or Inability to Ascertain, or Inadequacy of,
                        Adjusted LIBOR.......................................................   48
       Section 11.3.  Increased Cost and Reduced Return......................................   48
       Section 11.4.  Lending Offices........................................................   50
       Section 11.5.  Discretion of Bank as to Manner of Funding.............................   50

Section 12.           The Agent..............................................................   50

       Section 12.1.  Appointment and Authorization of Agent.................................   50
       Section 12.2.  Agent and its Affiliates...............................................   50
       Section 12.3.  Action by Agent........................................................   51
       Section 12.4.  Consultation with Experts..............................................   51
       Section 12.5.  Liability of Agent; Credit Decision....................................   51
       Section 12.6.  Indemnity..............................................................   52
       Section 12.7.  Resignation of Agent and Successor Agent...............................   52
       Section 12.8.  Syndication Agent and Documentation Agent..............................   52

Section 13.           Miscellaneous..........................................................   52

       Section 13.1.  Withholding Taxes......................................................   52
       Section 13.2.  No Waiver of Rights....................................................   53
       Section 13.3.  Non-Business Day.......................................................   54
</TABLE>

                                     -iii-
<PAGE>

<TABLE>
<S>                                                                                             <C>
       Section 13.4.  Documentary Taxes.......................................................   54
       Section 13.5.  Survival of Representations.............................................   54
       Section 13.6.  Survival of Indemnities.................................................   54
       Section 13.7.  Sharing of Set-Off......................................................   54
       Section 13.8.  Notices.................................................................   54
       Section 13.9.  Counterparts............................................................   55
       Section 13.10. Successors and Assigns..................................................   55
       Section 13.11. Participants and Note Assignees.........................................   55
       Section 13.12. Assignment Agreements...................................................   56
       Section 13.13. Amendments..............................................................   57
       Section 13.14. Headings................................................................   57
       Section 13.15. Legal Fees, Other Costs and Indemnification.............................   57
       Section 13.16. Set Off.................................................................   58
       Section 13.17. Currency................................................................   58
       Section 13.18. Entire Agreement........................................................   59
       Section 13.19. Governing Law...........................................................   59
       Section 13.20. Submission to Jurisdiction; Waiver of Jury Trial........................   59
       Section 13.21. Confidentiality.........................................................   59

Signature.....................................................................................   60
</TABLE>

Exhibits
     A  -  Form of Notice of Payment Request
     B  -  Form of Revolving Credit Note
     C  -  Form of Short-Term Revolving Credit Note
     D  -  Form of Swing Line Note
     E  -  Form of Bid Note
     F  -  Form of Bid Loan Request Confirmation
     G  -  Form of Invitation to Bid
     H  -  Form of Confirmation of Bid
     I  -  Form of Notice of Acceptance of Bid
     J  -  Form of Compliance Certificate
     K  -  Assignment Agreement

Schedule 1.2(a) Existing L/Cs
Schedule 7.2    Existing Subsidiaries

                                     -iv-
<PAGE>

                               Credit Agreement

To each of the Banks signatory hereto

Ladies and Gentlemen:

         The undersigned, Arthur J. Gallagher & Co, a Delaware corporation
("Gallagher"), and AJG Financial Services, Inc., a Delaware corporation (the
"AJG"; Gallagher and AJG being referred to herein collectively as the
"Borrowers" and individually as a "Borrower"), apply to you for your several
commitments, subject to all the terms and conditions hereof and on the basis of
the representations and warranties hereinafter set forth, to make available a
three-year revolving credit for loans and letters of credit (the "Revolving
Credit"), a short-term revolving credit for loans (the "Short-Term Revolving
Credit") and a swing line (the "Swing Line") for loans, in each case as
described herein. Each of you is hereinafter referred to individually as a
"Bank," all of you are hereinafter referred to collectively as the "Banks,";
Harris Trust and Savings Bank in its capacity as administrative agent for the
Banks hereunder is hereinafter referred to as the "Agent"; Citibank, N.A., in
its capacity as co-lead arranger and syndication agent is hereinafter referred
to as the "Syndication Agent"; and Bank of America, N.A., in its capacity as
co-lead arranger and documentation agent is hereinafter referred to as the
"Documentation Agent".

Section 1. The Credits.

         Section 1.1. The Revolving Credit Commitments. Subject to the terms and
conditions hereof, each Bank, by its acceptance hereof, severally agrees to make
a loan or loans (individually a "Revolving Loan" and collectively "Revolving
Loans") to either Borrower from time to time on a revolving basis in U.S.
Dollars and Alternative Currencies in an aggregate outstanding Original Dollar
Amount up to the amount of its revolving credit commitment set forth on the
applicable signature page hereof (its "Revolving Credit Commitment" and,
cumulatively for all the Banks, the "Revolving Credit Commitments"), subject to
any reductions thereof pursuant to the terms hereof, on or after the Effective
Date and before the Termination Date. Neither the Original Dollar Amount nor the
U.S. Dollar Equivalent of the aggregate principal amount of all Revolving Loans,
all Revolving Swing Loans and all L/C Obligations at any time outstanding shall
exceed the Revolving Credit Commitments in effect at such time. Each Borrowing
of Revolving Loans shall be made ratably from the Banks in proportion to their
respective Percentages. As provided in Section 1.6(a) hereof, the relevant
Borrower may elect that each Borrowing of Revolving Loans denominated in U.S.
Dollars be either Domestic Rate Loans or Eurocurrency Loans; provided that
neither the Original Dollar Amount nor the U.S. Dollar Equivalent of the
aggregate principal amount of all Eurocurrency Loans (whether Revolving Loans or
Short-Term Revolving Loans) shall exceed $50,000,000. All Revolving Loans
denominated in an Alternative Currency shall be Eurocurrency Loans. Revolving
Loans
<PAGE>

may be repaid and the principal amount thereof reborrowed before the Termination
Date, subject to all the terms and conditions hereof.

         Section 1.2. The Short-Term Revolving Credit Commitments. Subject to
the terms and conditions hereof, each Bank, by its acceptance hereof, severally
agrees to make a loan or loans (individually a "Short-Term Revolving Loan" and
collectively "Short-Term Revolving Loans") to either Borrower from time to time
on a revolving basis in U.S. Dollars and Alternative Currencies in an aggregate
outstanding Original Dollar Amount up to the amount of its short-term revolving
credit commitment set forth on the applicable signature page hereof (its
"Short-Term Revolving Credit Commitment" and, cumulatively for all the Banks,
the "Short-Term Revolving Credit Commitments"), subject to any reductions
thereof pursuant to the terms hereof, on or after the Effective Date and before
the Short-Term Revolving Credit Termination Date; provided, however, that the
Short-Term Revolving Credit Commitments may not be utilized by the Borrowers
unless and until the Revolving Credit Commitments have been fully drawn upon and
are outstanding as Revolving Loans and/or L/C Obligations. Neither the Original
Dollar Amount nor the U.S. Dollar Equivalent of the aggregate principal amount
of all Short-Term Revolving Loans, all Short-Term Swing Loans and all Bid Loans
shall exceed the Short-Term Revolving Credit Commitments in effect at such time.
Each Borrowing of Short-Term Revolving Loans shall be made ratably from the
Banks in proportion to their respective Percentages. As provided in Section
1.6(a) hereof, the relevant Borrower may elect that each Borrowing of Short-Term
Revolving Loans denominated in U.S. Dollars be either Domestic Rate Loans or
Eurocurrency Loans; provided that neither the Original Dollar Amount nor the
U.S. Dollar Equivalent of the aggregate principal amount of all Eurocurrency
Loans (whether Revolving Loans or Short-Term Revolving Loans) shall exceed
$50,000,000. All Short-Term Revolving Loans denominated in an Alternative
Currency shall be Eurocurrency Loans. Short-Term Revolving Loans may be repaid
and the principal amount thereof reborrowed before the Short-Term Revolving
Credit Termination Date, subject to all the terms and conditions hereof.

         Section 1.3. Letters of Credit. (a) General Terms. Subject to the terms
and conditions hereof, as part of the Revolving Credit, the Agent shall issue
standby or commercial letters of credit (each a "Letter of Credit") for the
account of either Borrower in U.S. Dollars or in an Alternate Currency; provided
that (i) the aggregate Original Dollar Amount of the L/C Obligations at any time
outstanding shall not exceed the L/C Commitment and (ii) the aggregate Original
Dollar Amount of the L/C Obligations at any time outstanding shall not exceed
the difference between the Revolving Credit Commitments in effect at such time
and the aggregate Original Dollar Amount of all Revolving Loans and all
Revolving Swing Loans then outstanding. Notwithstanding anything herein to the
contrary, the Existing L/Cs (all of which are listed and described on Schedule
1.3(a) hereto) shall each constitute a "Letter of Credit" herein for all
purposes of the Agreement to the same extent, and with the same force and
effect, as if such Existing L/Cs had been issued at the request of a Borrower
hereunder. Each Letter of Credit shall be issued by the Agent, but each Bank
shall be obligated to reimburse the Agent for its Percentage of the amount of
each drawing thereunder and, accordingly, the undrawn face amount of each Letter
of Credit shall constitute usage of the Revolving Credit Commitment of each Bank
pro rata in accordance with each Bank's Percentage.

                                      -2-
<PAGE>

         (b) Applications. At any time on or after the Effective Date and before
the Termination Date, the Agent shall, at the request of the relevant Borrower,
issue one or more Letters of Credit for the account of such Borrower, in a form
satisfactory to the Agent, with expiration dates no later than the earliest of
(i) 12 months from the date of issuance or (ii) five days prior to the
Termination Date, in an aggregate face amount as set forth above, upon the
receipt of a duly executed application for the relevant Letter of Credit in the
form customarily prescribed by the Agent for the type of Letter of Credit,
whether standby or commercial, requested (each an "Application").
Notwithstanding anything contained in any Application to the contrary (i) the
Borrowers' obligation to pay fees in connection with each Letter of Credit shall
be as exclusively set forth in Section 5.1(b) hereof, (ii) except during the
continuance of an Event of Default, the Agent will not call for the funding by
the Borrowers of any amount under a Letter of Credit, or any other form of
collateral security for the Borrowers' obligations in connection with such
Letter of Credit, before being presented with a drawing thereunder, and (iii) if
the Agent is not timely reimbursed for the amount of any drawing under a Letter
of Credit on the date such drawing is paid, the Borrowers' obligation to
reimburse the Agent for the amount of such drawing shall bear interest (which
the Borrowers hereby jointly and severally promise to pay) from and after the
date such drawing is paid until payment in full thereof (i) in the case of a
drawing under a Letter of Credit denominated in U.S. Dollars, at a rate per
annum equal to the sum of 2% plus the Domestic Rate from time to time in effect
and (ii) in the case of a drawing under a Letter of Credit denominated in an
Alternative Currency, at a rate per annum equal to the sum of 2% plus the
Applicable Margin for Eurocurrency Loans under the Revolving Credit plus the
Overnight Eurocurrency Rate. The Agent will promptly notify the Banks of each
issuance by it of a Letter of Credit. If the Agent issues any Letters of Credit
with expiration dates that are automatically extended unless the Agent gives
notice that the expiration date will not so extend beyond its then scheduled
expiration date, the Agent will give such notice of non-renewal before the time
necessary to prevent such automatic extension if before such required notice
date (i) the expiration date of such Letter of Credit if so extended would be
later than the date which is five days prior to the Termination Date, (ii) the
Commitments have been terminated or (iii) an Event of Default exists and the
Required Banks have given the Agent instructions not to so permit the extension
of the expiration date of such Letter of Credit. The Agent agrees to issue
amendments to the Letters of Credit increasing the amount, or extending the
expiration date, thereof at the request of the relevant Borrower subject to the
conditions of Section 8.2 and the other terms of this Section 1.3. Without
limiting the generality of the foregoing, the Agent's obligation to issue, amend
or extend the expiration date of a Letter of Credit is subject to the conditions
of Section 8.2 and the other terms of this Section 1.3 and the Agent will not
issue, amend or extend the expiration date of any Letter of Credit if any Bank
notifies the Agent of any failure to satisfy or otherwise comply with such
conditions and terms and directs the Agent not to take such action. No amendment
to a Letter of Credit shall extend the expiration date of such Letter of Credit
beyond the Termination Date without the consent of each Bank having a Revolving
Credit Commitment.

         (c) The Reimbursement Obligations. Subject to Section 1.3(b) hereof,
the obligation of the Borrowers to reimburse the Agent for all drawings under a
Letter of Credit (a "Reimbursement Obligation") shall be governed by the
Application related to such Letter of Credit, except that, if and as long as no
Default or Event of Default exists and the other conditions in Section 8.2
hereof are satisfied, any Reimbursement Obligation outstanding on

                                      -3-
<PAGE>

account of a drawing under a Letter of Credit shall automatically convert into a
Borrowing of Domestic Rate Loans in an amount equal to the Original Dollar
Amount of such Reimbursement Obligation on the date such drawing occurs and the
Agent shall notify each Bank thereof, and each Bank shall thereupon fund its
Domestic Rate Loan in such Borrowing in accordance with Sections 1.1 and 1.6
(except for any requirement that a Borrowing of Domestic Rate Loans be in a
certain amount). If the conditions in Section 8.2 cannot be satisfied with
respect to any drawing, then reimbursement of such drawing shall be made in U.S.
Dollars (in the case of a drawing under a Letter of Credit denominated in U.S.
Dollars) or in the U.S. Dollar Equivalent (in the case of a drawing under a
Letter of Credit denominated in an Alternative Currency) in immediately
available funds at the Agent's principal office in Chicago, Illinois by no later
than 1:00 p.m. (Chicago time) on the date when such drawing is paid or, if such
drawing was paid after 11:30 a.m. (Chicago time), by the end of such day. If the
relevant Borrower does not make any such reimbursement payment on the date due
and the Participating Banks fund their participations therein in the manner set
forth in Section 1.3(d) below, then all payments thereafter received by the
Agent in discharge of any of the relevant Reimbursement Obligations shall be
distributed in accordance with Section 1.3(d) below.

         (d) The Participating Interests. Each Bank (other than the Bank then
acting as Agent in issuing Letters of Credit), by its acceptance hereof,
severally agrees to purchase from the Agent, and the Agent hereby agrees to sell
to each such Bank (a "Participating Bank"), an undivided percentage
participating interest (a "Participating Interest"), to the extent of its
Percentage, in each Letter of Credit issued by, and each Reimbursement
Obligation owed to, the Agent. Upon any failure by the Borrowers to pay any
Reimbursement Obligation at the time required on the date the related drawing is
paid, as set forth in Section 1.3(c) above, or if the Agent is required at any
time to return to either Borrower or to a trustee, receiver, liquidator,
custodian or other Person any portion of any payment of any Reimbursement
Obligation, each Participating Bank shall, not later than the Business Day it
receives a certificate in the form of Exhibit A hereto from the Agent to such
effect, if such certificate is received before 1:00 p.m. (Chicago time), or not
later than the following Business Day, if such certificate is received after
such time, pay to the Agent an amount equal to its Percentage of such unpaid or
recaptured Reimbursement Obligation together with interest on such amount
accrued from the date the related payment was made by the Agent to the date of
such payment by such Participating Bank at a rate per annum equal to (i) from
the date the related payment was made by the Agent to the date two Business Days
after payment by such Participating Bank is due hereunder, the Federal Funds
Rate for each such day and (ii) from the date two Business Days after the date
such payment is due from such Participating Bank to the date such payment is
made by such Participating Bank, the Domestic Rate in effect for each such day.
Each such Participating Bank shall thereafter be entitled to receive its
Percentage of each payment received in respect of the relevant Reimbursement
Obligation and of interest paid thereon, with the Agent retaining its Percentage
as a Bank hereunder.

         The several obligations of the Participating Banks to the Agent under
this Section 1.3 shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever (except, without limiting the relevant Borrower's
obligations under each Application, to the extent the Borrowers are relieved
from their obligation to reimburse the Agent for a drawing under a Letter of
Credit because of the Agent's gross negligence or willful misconduct in

                                      -4-
<PAGE>

determining that documents received under the Letter of Credit comply with the
terms thereof) and shall not be subject to any set-off, counterclaim or defense
to payment which any Participating Bank may have or have had against the
Borrowers, the Agent, any other Bank or any other Person whatsoever. Without
limiting the generality of the foregoing, such obligations shall not be affected
by any Default or Event of Default or by any reduction or termination of any
Commitment of any Bank, and each payment by a Participating Bank under this
Section 1.3 shall be made without any offset, abatement, withholding or
reduction whatsoever. The Agent shall be entitled to offset amounts received for
the account of a Bank under this Agreement against unpaid amounts due from such
Bank to the Agent hereunder (whether as fundings of participations, indemnities
or otherwise), but shall not be entitled to offset against amounts owed to the
Agent by any Bank arising outside this Agreement.

         (e) Indemnification. The Participating Banks shall, to the extent of
their respective Percentages, indemnify the Agent (to the extent not reimbursed
by the Borrowers) against any cost, expense (including reasonable counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful misconduct) that the Agent
may suffer or incur in connection with any Letter of Credit. The obligations of
the Participating Banks under this Section 1.3(e) and all other parts of this
Section 1.3 shall survive termination of this Agreement and of all other L/C
Documents.

         Section  1.4.  Applicable Interest Rates. (a) Domestic Rate Loans. Each
Domestic Rate Loan made or maintained by a Bank shall bear interest during each
Interest Period it is outstanding (computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed) on the unpaid principal
amount thereof from the date such Loan is advanced, continued or created by
conversion from a Eurocurrency Loan until maturity (whether by acceleration or
otherwise) at a rate per annum equal to the sum of the Applicable Margin for
Domestic Rate Loans plus the Domestic Rate from time to time in effect, payable
on the last day of its Interest Period and at maturity (whether by acceleration
or otherwise).

         (b) Eurocurrency Loans. Each Eurocurrency Loan made or maintained by a
Bank shall bear interest during each Interest Period it is outstanding (computed
on the basis of a year of 360 days and actual days elapsed) on the unpaid
principal amount thereof from the date such Loan is advanced, continued, or
created by conversion from a Domestic Rate until maturity (whether by
acceleration or otherwise) at a rate per annum equal to the sum of the
Applicable Margin for Eurocurrency Loans plus the Adjusted LIBOR applicable for
such Interest Period, payable on the last day of the Interest Period and at
maturity (whether by acceleration or otherwise), and, if the applicable Interest
Period is longer than three months, on each day occurring every three months
after the commencement of such Interest Period. There shall not be more than ten
Eurocurrency Loans outstanding at any one time.

         (c) Alternative Currency. On the date either Borrower requests a
Borrowing of Eurocurrency Loans in an Alternative Currency, as provided in
Section 1.6(a) below, the Agent shall promptly notify each Bank. If a Bank
determines that such Alternative Currency is not available to it in sufficient
amount and for a sufficient term to enable it to advance or continue the Loan
requested of it as part of such Eurocurrency Borrowing and so notifies the Agent
no later than 1:00 p.m. (Chicago time) on the same day it receives notice from
the Agent of such

                                      -5-
<PAGE>

requested Loan, the Agent shall so notify the relevant Borrower by 1:45 p.m.
(Chicago time). If the relevant Borrower nevertheless desires such Borrowing, it
must notify the Agent by no later than 3:00 p.m. (Chicago time) on such day. If
the Agent does not receive such notice from the relevant Borrower by 3:00 p.m.
(Chicago time), the relevant Borrower shall automatically be deemed to have
revoked its request for the Eurocurrency Borrowing and the Agent will promptly
notify the Banks of such revocation. If the relevant Borrower does give such
notice by 3:00 p.m. (Chicago time), each Bank that did not notify the Agent by
1:00 p.m. (Chicago time) that the requested Alternative Currency is unavailable
to it to fund the requested Loan shall, subject to Section 8 hereof, make its
Loan in the requested Alternative Currency in accordance with Section 1.6(d)
hereof; provided, however, that in the event that a Bank or Banks shall exercise
this option (each, an "Unavailable Bank"), the Borrowers may, but shall not be
obligated to, at any time within 90 days of such exercise with the consent of
the Agent but without the consent of any Unavailable Banks (i) terminate the
Revolving Credit Commitment and the Short-Term Revolving Credit Commitment of
each Unavailable Bank, (ii) obtain a new Bank or Banks pursuant to the
assignment provisions set forth in Section 13.12 hereof (except with regard to
the minimum amount requirements set forth in clauses (ii) and (iii) of the first
sentence of such Section) to effect the assignment to such new Bank or Banks of
each Unavailable Bank's interests, rights and obligations under this Agreement
(including without limitation all of such Unavailable Bank's Revolving Credit
Commitment and Short-Term Revolving Credit Commitment as well as its portion of
all outstanding Loans and the Notes held by such Unavailable Bank) and the other
Loan Documents and/or to increase the Revolving Credit Commitment and the Short-
Term Revolving Credit Commitment of one or more existing Banks, in each case so
that after giving effect thereto the Revolving Credit Commitments and the Short-
Term Revolving Credit Commitment shall be in the same amounts as prior to the
events described in this paragraph, (iii) repay in full to each Unavailable Bank
all outstanding Loans (including accrued interest thereon) and L/C Obligations
at the time of the assignment and/or increase in the Revolving Loan Commitment
and the Short-Term Revolving Credit Commitment described in clause (ii) above
with the proceeds of Loans made by such Persons who are to become Banks by
assignment or with the proceeds of Loans made by Banks who have agreed to
increase their Revolving Credit Commitment and Short-Term Revolving Credit
Commitment and (iv) pay to each Unavailable Bank all fees and other compensation
due and owing such Unavailable Bank under the terms of this Agreement and the
other Loan Documents; provided further that if the Borrowers choose to exercise
their right to replace an Unavailable Bank, the Borrowers, the Agent and the
Bank which replaces the Unavailable Bank shall execute such instruments and
documents as shall, in the opinion of the Agent, be reasonably necessary in
order to effect such replacement. Each Bank that did so notify the Agent by 1:00
p.m. (Chicago time) that it would not be able to make the Loan requested from it
shall, subject to Section 6 hereof, make a Eurocurrency Loan denominated in U.S.
Dollars in the Original Dollar Amount of, and with the same Interest Period as,
the Eurocurrency Loan such Bank was originally requested to make. Such
Eurocurrency Loan denominated in U.S. Dollars shall be made by the affected Bank
on the same day as the other Banks make their Eurocurrency Loans denominated in
the applicable Alternative Currency as part of the relevant Borrowing of
Eurocurrency Loans, but shall bear interest with reference to the Adjusted LIBOR
applicable to U.S. Dollars rather than the relevant Alternative Currency for the
applicable Interest Period and shall be made available in accordance with the
procedures for disbursing U.S. Dollar Loans under Section 1.6(d) hereof. Any
Revolving Loan and any Short-Term Revolving Loan made in an Alternative Currency
shall

                                      -6-
<PAGE>

be advanced in such currency, and all payments of principal and interest thereon
shall be made in such Alternative Currency.

         (d) Rate Determinations. The Agent shall determine each interest rate
applicable to Obligations and the Original Dollar Amount of Revolving Loans and
Short-Term Revolving Loans denominated in Alternative Currencies, and a
reasonable determination thereof by the Agent shall be conclusive and binding
except in the case of manifest error or willful misconduct. The Original Dollar
Amount of each Eurocurrency Loan denominated in an Alternative Currency shall be
determined or redetermined, as applicable, effective as of the first day of each
Interest Period applicable to such Loan.

         Section 1.5. Minimum Borrowing Amount for Revolving Loans and
Short-Term Revolving Loans. Each Borrowing of Domestic Rate Loans shall be in an
amount not less than $1,000,000 and in integral multiples of $500,000, provided
that a Borrowing of Domestic Rate Loans applied to pay a Reimbursement
Obligation pursuant to Section 1.3(c) hereof shall be in an amount equal to such
Reimbursement Obligation. Each Borrowing of Eurocurrency Loans shall be in an
amount not less than an Original Dollar Amount of $5,000,000 and, if greater,
shall be in such integral multiple as would have the Original Dollar Amount most
closely approximating $1,000,000.

         Section 1.6. Manner of Borrowing, and Designating Interest Rates
Applicable to, Revolving Loans and Short-Term Revolving Loans. (a) Notice to the
Agent. The relevant Borrower shall give notice to the Agent by no later than
11:00 a.m. (Chicago time) (i) at least four Business Days before the date on
which such Borrower requests the Banks to advance a Borrowing of Eurocurrency
Loans denominated in an Alternative Currency, (ii) at least three Business Days
before the date on which such Borrower requests the Banks to advance a Borrowing
of Eurocurrency Loans denominated in U.S. Dollars and (iii) on the date such
Borrower requests the Banks to advance a Borrowing of Domestic Rate Loans. The
Loans included in each Borrowing shall bear interest initially at the type of
rate specified in such notice of a new Borrowing. Thereafter, the relevant
Borrower may from time to time elect to change or continue the type of interest
rate borne by each Borrowing or, subject to Section 1.5's minimum amount
requirement for each outstanding Borrowing, a portion thereof, as follows: (i)
if such Borrowing is of Eurocurrency Loans, on the last day of the Interest
Period applicable thereto, such Borrower may continue all or part of such
Borrowing as Eurocurrency Loans for an Interest Period or Interest Periods
specified by such Borrower or, if such Eurocurrency Loan is denominated in U.S.
Dollars, convert all or part of such Borrowing into Domestic Rate Loans and (ii)
if such Borrowing is of Domestic Rate Loans, on any Business Day, such Borrower
may (subject to the notice requirements set forth herein) convert all or part of
such Borrowing into Eurocurrency Loans denominated in U.S. Dollars or
denominated in an Alternative Currency, in each case, for an Interest Period or
Interest Periods specified by such Borrower. The relevant Borrower shall give
all such notices requesting the advance, continuation, or conversion of a
Borrowing to the Agent by telephone or telecopy (which notice shall be
irrevocable once given and, if by telephone, shall be promptly confirmed in
writing). Notices of the continuation of a Borrowing of Eurocurrency Loans
denominated in U.S. Dollars for an additional Interest Period or of the
conversion of part or all of a Borrowing of Eurocurrency Loans denominated in
U.S. Dollars into Domestic Rate Loans or of Domestic Rate Loans into
Eurocurrency Loans

                                      -7-
<PAGE>

denominated in U.S. Dollars must be given by no later than 11:00 a.m. (Chicago
time) at least three Business Days before the date of the requested continuation
or conversion. Notices of the continuation of a Borrowing of Eurocurrency Loans
denominated in an Alternative Currency for an additional Interest Period or of
the conversion of part or all of a Borrowing of Eurocurrency Loans denominated
in an Alternative Currency into Domestic Rate Loans or of Domestic Rate Loans
into Eurocurrency Loans denominated in an Alternative Currency must be given no
later than 11:00 a.m. (Chicago time) at least four Business Days before the
requested continuation or conversion. All such notices concerning the advance,
continuation, or conversion of a Borrowing shall specify the date of the
requested advance, continuation or conversion of a Borrowing (which shall be a
Business Day), the amount of the requested Borrowing to be advanced, continued,
or converted, the type of Loans to comprise such new, continued or converted
Borrowing and, if such Borrowing is to be comprised of Eurocurrency Loans, the
currency and Interest Period applicable thereto. Each Borrower agrees that the
Agent may rely on any such telephonic or telecopy notice given by any person it
in good faith believes is an Authorized Representative of such Borrower without
the necessity of independent investigation, and in the event any such notice by
telephone conflicts with any written confirmation, such telephonic notice shall
govern if the Agent has acted in reliance thereon.

         (b) Notice to the Banks. Not later than 12:00 Noon (Chicago time) on
the date the Agent receives any notice from a Borrower pursuant to Section
1.6(a) above, the Agent shall give telephonic or telecopy notice to each Bank.
The Agent shall give notice to the relevant Borrower and each Bank by like means
of the interest rate applicable to each Borrowing of Eurocurrency Loans and, if
such Borrowing is denominated in an Alternative Currency, shall give notice by
such means to the relevant Borrower and each Bank of the Original Dollar Amount
thereof.

         (c) Borrowers' Failure to Notify. Any outstanding Borrowing of Domestic
Rate Loans shall, subject to Section 8.2 hereof, automatically be continued for
an additional Interest Period on the last day of its then current Interest
Period unless the relevant Borrower has notified the Agent within the period
required by Section 1.6(a) that it intends to convert such Borrowing into a
Borrowing of Eurocurrency Loans or notifies the Agent within the period required
by Section 4.5(a) that it intends to prepay such Borrowing. If the relevant
Borrower fails to give notice pursuant to Section 1.6(a) above of the
continuation or conversion of any outstanding principal amount of a Borrowing of
Eurocurrency Loans denominated in U.S. Dollars before the last day of its then
current Interest Period within the period required by Section 1.6(a) and has not
notified the Agent within the period required by Section 4.5(a) that it intends
to prepay such Borrowing, such Borrowing shall automatically be converted into a
Borrowing of Domestic Rate Loans, subject to Section 8.2 hereof. If the relevant
Borrower fails to give notice pursuant to Section 1.6(a) above of the
continuation of any outstanding principal amount of a Borrowing of Eurocurrency
Loans denominated in an Alternative Currency before the last day of its then
current Interest Period within the period required by Section 1.6(a) and has not
notified the Agent within the period required by Section 4.5(a) that it intends
to prepay such Borrowing, such Borrowing shall automatically be continued as a
Borrowing of Eurocurrency Loans in the same Alternative Currency with an
Interest Period of one month, subject to Section 8.2 hereof, including the
application of Section 1.5 and of the restrictions contained in the definition
of Interest Period.

                                      -8-
<PAGE>

         (d) Disbursement of Revolving Loans and Short-Term Revolving Loans. Not
later than 11:00 a.m. (Chicago time) on the date of any requested advance of a
new Borrowing of Eurocurrency Loans, and not later than 1:00 p.m. (Chicago time)
on the date of any requested advance of a new Borrowing of Domestic Rate Loans,
subject to Section 8 hereof, each Bank shall make available its Loan comprising
part of such Borrowing in funds immediately available at the principal office of
the Agent in Chicago, Illinois, except that if such Borrowing is denominated in
an Alternative Currency each Bank shall, subject to Section) 1.4(c) and Section
8, make available its Loan comprising part of such Borrowing at such office as
the Agent has previously specified in a notice to each Bank, in such funds as
are then customary for the settlement of international transactions in such
currency and no later than such local time as is necessary for such funds to be
received and transferred to the relevant Borrower for same day value on the date
of the Borrowing. The Agent shall make available to the relevant Borrower Loans
denominated in U.S. Dollars at the Agent's principal office in Chicago, Illinois
and Loans denominated in Alternative Currencies at such office as the Agent has
previously agreed to with the Borrowers, in each case in the type of funds
received by the Agent from the Banks.

         (e) Agent Reliance on Bank Funding. Unless the Agent shall have been
notified by a Bank before the date on which such Bank is scheduled to make
payment to the Agent of the proceeds of a Revolving Loan or a Short-Term
Revolving Loan (which notice shall be effective upon receipt) that such Bank
does not intend to make such payment, the Agent may assume that such Bank has
made such payment when due and the Agent may in reliance upon such assumption
(but shall not be required to) make available to the relevant Borrower the
proceeds of the Loan to be made by such Bank and, if any Bank has not in fact
made such payment to the Agent, such Bank shall, on demand, pay to the Agent the
amount made available to such Borrower attributable to such Bank together with
interest thereon in respect of each day during the period commencing on the date
such amount was made available to such Borrower and ending on (but excluding)
the date such Bank pays such amount to the Agent at a rate per annum equal to
the Federal Funds Rate or, in the case of a Loan denominated in an Alternative
Currency, the cost to the Agent of funding the amount it advanced to fund such
Bank's Loan, as determined by the Agent. If such amount is not received from
such Bank by the Agent immediately upon demand, the relevant Borrower will, on
demand, repay to the Agent the proceeds of the Loan attributable to such Bank
with interest thereon at a rate per annum equal to the interest rate applicable
to the relevant Loan, but without such payment being considered a payment or
prepayment of a Loan under Section 4.6 hereof, so that such Borrower will have
no liability under such Section with respect to such payment; provided, that
such repayment by the relevant Borrower shall not be deemed to release or
otherwise limit any claims or rights that such Borrower may have against any
Bank for the failure to fund any Loans hereunder.

Section 2. The Swing Line.

         Section 2.1. Swing Loans. Subject to all of the terms and conditions
hereof, Harris Trust and Savings Bank ("Harris") agrees to make loans in U.S.
Dollars to the Borrowers under the Swing Line ("Swing Loans") which shall not in
the aggregate at any time outstanding exceed the lesser of (i) the Swing Line
Commitment or (ii) the difference between (x) the sum of the Revolving Credit
Commitments and Short-Term Revolving Credit Commitments in effect at such time
and (y) the Original Dollar Amount of all Loans and L/C Obligations outstanding
at

                                      -9-
<PAGE>

the time of computation. Swing Loans may be made under the Revolving Credit
("Revolving Swing Loans") and, if the Revolving Credit is fully utilized, under
the Short-Term Revolving Credit ("Short-Term Swing Loans"). The Swing Line
Commitment shall be available to the Borrowers and may be availed of by either
Borrower from time to time and borrowings thereunder may be repaid and used
again during the period beginning on the Effective Date and ending on the
Termination Date; provided that Short-Term Swing Loans shall not be available
after the Short-Term Revolving Credit Termination Date; and provided further
that each Swing Loan must be repaid on the last day of the Interest Period
applicable thereto. Each Swing Loan shall be in an amount not less than $500,000
and in integral multiples of $100,000.

         Section 2.2. Interest on Swing Loans. Each Swing Loan shall bear
interest at the Domestic Rate or Harris' Quoted Rate, provided that if any Swing
Loan is not paid when due (whether by lapse of time, acceleration or otherwise)
such Swing Loan shall bear interest, whether before or after judgment, until
payment in full thereof through the end of the Interest Period then applicable
thereto at a rate per annum equal to the sum of two percent (2%) plus the
Applicable Margin for Domestic Rate Loans under the relevant Credit plus the
interest rate which would otherwise be applicable thereto and, thereafter, at a
rate per annum equal to the sum of two percent (2%) plus the Applicable Margin
for Domestic Rate Loans under the relevant Credit plus the Domestic Rate from
time to time in effect. Interest on each Swing Loan shall be due and payable on
the last day of each Interest Period applicable thereto, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand.

         Section 2.3. Requests for Swing Loans. The relevant Borrower shall give
Harris prior notice (which may be written or oral) no later than 3:00 p.m.
(Chicago time) on the date upon which such Borrower requests that any Swing Loan
be made, of the amount and date of such Swing Loan and the Interest Period
selected therefor. Within 30 minutes after receiving such notice, Harris shall
in its discretion quote an interest rate to the relevant Borrower at which
Harris would be willing to make such Swing Loan available to such Borrower for a
given Interest Period (the rate so quoted for a given Interest Period being
herein referred to as "Harris' Quoted Rate"). The Borrowers acknowledge and
agree that the interest rate quote is given for immediate and irrevocable
acceptance, and if the relevant Borrower does not so immediately accept Harris'
Quoted Rate for the full amount requested by such Borrower for such Swing Loan,
the Harris' Quoted Rate shall be deemed immediately withdrawn and such Swing
Loan shall bear interest at the Domestic Rate. Subject to all of the terms and
conditions hereof, the proceeds of such Swing Loan shall be made available to
the relevant Borrower on the date so requested at the offices of Harris in
Chicago, Illinois. Anything contained in the foregoing to the contrary
notwithstanding (i) the obligation of Harris to make Swing Loans shall be
subject to all of the terms and conditions of this Agreement and (ii) Harris
shall not be obligated to make more than one Swing Loan during any one day.

         Section 2.4. Refunding Loans. In its sole and absolute discretion,
Harris may at any time, on behalf of the relevant Borrower (and each Borrower
hereby irrevocably authorizes Harris to act on its behalf for such purpose) and
with notice to the relevant Borrower, request each relevant Bank to make a
Domestic Rate Loan under the same Credits under which such Swing Loans were
originally made in an amount equal to such Bank's Percentage of the amount

                                      -10-
<PAGE>

of the Swing Loans outstanding on the date such notice is given. Unless any of
the conditions of Section 8.2 are not fulfilled on such date, each relevant Bank
shall make the proceeds of its requested Revolving Loan or Short-Term Revolving
Loan, as the case may be, available to Harris, in immediately available funds,
at Harris' principal office in Chicago, Illinois, before 12:00 Noon (Chicago
time) on the Business Day following the day such notice is given. The proceeds
of such Revolving Loans or Short-Term Revolving Loans, as the case may be, shall
be immediately applied to repay such outstanding Swing Loans.

     Section 2.5.  Participations. If any Bank refuses or otherwise fails to
make a Revolving Loan or Short-Term Revolving Loan, as the case may be, when
requested by Harris pursuant to Section 2.4 above (because the conditions in
Section 8.2 are not satisfied or otherwise), such Bank shall, by the time and in
the manner such Revolving Loan or Short-Term Revolving Loan, as the case may be,
was to have been funded to Harris, purchase from Harris an undivided
participating interest in the relevant outstanding Swing Loans in an amount
equal to its Percentage of the aggregate principal amount of Swing Loans under
the relevant Credit that were to have been repaid with such Revolving Loans or
Short-Term Revolving Loan, as the case may be, provided no purchase of a
participation in a Swing Loan bearing interest at Harris' Quoted Rate need be
made until after expiration of the Interest Period applicable thereto. Each Bank
that so purchases a participation in a Swing Loan shall thereafter be entitled
to receive its Percentage of each payment of principal received on the relevant
Swing Loan and of interest received thereon accruing from the date such Bank
funded to Harris its participation in such Loan. The several obligations of the
Banks under this Section 2.5 shall be absolute, irrevocable and unconditional
under any and all circumstances whatsoever and shall not be subject to any set-
off, counterclaim or defense to payment which any Bank may have or have had
against either Borrower, any other Bank or any other Person whatever. Without
limiting the generality of the foregoing, such obligations shall not be affected
by any Default or Event of Default or by any reduction or termination of the
Commitments of any Bank, and each payment made by an Bank under this Section 2.5
shall be made without any offset, abatement, withholding or reduction
whatsoever.

Section 3.     The Competitive Bid Facility.

     Section 3.1.  The Bid Loans. At any time before the Short-Term Revolving
Credit Termination Date, either Borrower may request the Banks to offer to make
uncommitted loans (each a "Bid Loan" and collectively the "Bid Loans") in the
manner set forth in this Section 3 and in amounts such that neither the Original
Dollar Amount nor the U.S. Dollar Equivalent of the aggregate principal amount
of all outstanding Short-Term Revolving Loans, Short-Term Swing Loans and Bid
Loans shall exceed the Short-Term Revolving Credit Commitments in effect at such
time. The Banks may, but shall have no obligation to, make such offers and the
Borrowers may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section 3. Each Bank may offer to make Bid Loans in any
amount (whether greater than, equal to, or less than its Short-Term Revolving
Credit Commitment), subject to the limitation that the aggregate principal
amount of all Short-Term Revolving Loans, Short-Term Swing Loans and Bid Loans
outstanding at any time shall not at any time exceed the Short-Term Revolving
Credit Commitments then in effect and subject to the other conditions of this
Agreement. All Bid Loans shall be denominated in U.S. Dollars.

                                      -11-
<PAGE>

     Section 3.2. Requests for Bid Loans.

      (a)  Requests and Confirmations. In order to request a Borrowing of Bid
Loans (a "Bid Loan Request"), the relevant Borrower shall give telephonic notice
to the Agent no later than 2:00 p.m. (Chicago time) one Business Day before the
proposed date of such borrowing, which must be a Business Day (the "Borrowing
Date"), followed on the same day by a duly completed confirmation, delivered by
telecopier or other means of facsimile communication, substantially in the form
of Exhibit F hereto or otherwise containing the information required by this
Section 3.2 (a "Bid Loan Request Confirmation"), to be received by the Agent no
later than 2:30 p.m. (Chicago time) on such day. Bid Loan Request Confirmations
that do not conform substantially to the format of Exhibit F or otherwise
contain the information required by this Section 3.2 shall be rejected by the
Agent, and the Agent shall give telephonic notice to the relevant Borrower of
such rejection promptly after it determines (which determination shall be
conclusive) that the Bid Loan Request Confirmation does not substantially
conform to the format of Exhibit F or otherwise contain the information required
by this Section 3.2. Requests for Bid Loans shall in each case refer to this
Agreement and specify (i) the proposed Borrowing Date (which must be a Business
Day), (ii) the aggregate principal amount thereof (which shall not be less than
$5,000,000 and shall be an integral multiple of $1,000,000 and (iii) up to three
Interest Periods of 7-180 days with respect to the entire amount specified in
such Bid Loan Request (and, if so desired by the relevant Borrower, specifying
the maximum amount such Borrower would borrow for any specific Interest Period).

      (b)  Invitation to Bid. Upon receipt by the Agent of a Bid Loan Request
Confirmation that conforms substantially to the format of Exhibit F hereto or
otherwise contains the information required by this Section 3.2, the Agent
shall, by telephone (no later than 3:30 p.m. (Chicago time) on the same day the
Agent receives a Bid Loan Request Confirmation), promptly confirmed by a
telecopy or other form of facsimile communication in the form of Exhibit G
hereto, invite each Bank to bid, on the terms and conditions of this Agreement,
to make Bid Loans pursuant to the Bid Loan Request.

      (c)  Bids. Each Bank may, in its sole discretion, offer to make a Bid loan
or Bid Loans (a "Bid") to the relevant Borrower responsive to the Bid Loan
Request. Each Bid by a Bank must be received by the Agent by telephone not later
than 9:00 a.m. (Chicago time) on the proposed Borrowing Date promptly confirmed
in writing by a duly completed confirmation (a "Confirmation of Bid") delivered
by telecopier or other means of facsimile communication substantially in the
form of Exhibit H hereto or otherwise containing the information required by
this subsection (c), to be received by the Agent on the same day; provided,
however, that any Bid made by the Agent must be made by telephone to the
relevant Borrower by no later than 8:45 a.m. (Chicago time). Each Bid and each
Confirmation of Bid shall refer to this Agreement and specify (i) the principal
amount (which shall not be less than $5,000,000 and shall be an integral
multiple of $1,000,000) of each Bid Loan that the Bank is willing to make to the
relevant Borrower, (ii) the interest rate (which shall be computed on the basis
of a 360 day year for the actual number of days elapsed for a period equal to
the Interest Period applicable thereto) at which the Bank is prepared to make
each Bid Loan and (iii) the Interest Period applicable to each such offered Bid
Loan. The Agent shall reject any Bid if such Bid (i) does not specify all of the
information specified in the immediately preceding sentence, (ii) contains any
qualifying,

                                      -12-
<PAGE>

conditional, or similar language, (iii) proposes terms other than or in addition
to those set forth in the Bid Loan Request to which it responds, or (iv) is
received by the Agent later than 9:00 a.m. (Chicago time). Any Bid submitted by
a Bank pursuant to this Section 3.2 shall be irrevocable and shall be promptly
confirmed by a telecopy or other form of facsimile communication in the form of
Exhibit H; provided that in all events the telephone Bid received by the Agent
shall be binding on the relevant Bank and shall not be altered, modified, or in
any other manner affected by any inconsistent terms contained in, or terms
missing from, the Bank's Confirmation of Bid. Each offer contained in a Bid to
make a Bid Loan in a certain amount, at a certain interest rate, and for a
certain Interest Period is referred to herein as an "Offer".

     Section 3.3. Notice of Bids; Advice of Rate. The Agent shall give
telephonic notice to the Borrower no later than 10:00 a.m. (Chicago time) on the
proposed Borrowing Date of the number of Bids made, the interest rate(s) and
Interest Period(s) applicable to each Bid, the maximum principal amount bid at
each interest rate for each Interest Period, and the identity of the Bank making
such Bid. The Agent shall send a written summary of all Bids received by it to
the relevant Borrower on the same day.

     Section 3.4. Acceptance or Rejection of Bids. The relevant Borrower may in
its sole and absolute discretion, subject only to the provisions of this Section
3.4, irrevocably accept or reject, in whole or in part, any Offer contained in a
Bid. No later than 10:30 a.m. (Chicago time) on the proposed Borrowing Date, the
relevant Borrower shall give telephonic notice to the Agent of whether and to
what extent it has decided to accept or reject any or all of the Offers
contained in the Bids made in response to a Bid Loan Request, which notice shall
be promptly confirmed by a telecopy or other form of facsimile communication to
be received by the Agent on the proposed Borrowing Date; provided, however, that
in the event any Offers are accepted (i) the relevant Borrower shall accept
Offers for any of the Interest Periods specified by such Borrower in its Bid
Loan Request Confirmation solely on the basis of ascending interest rates for
each such Interest Period, (ii) if such Borrower declines to borrow the maximum
principal amount of Bid Loans in respect of which Offers at a particular
interest rate for a particular Interest Period have been made, or is prevented
from doing so by any other condition hereof, then such Borrower shall accept a
pro rata portion of each such Offer, based as nearly as possible on the ratio of
the maximum aggregate principal amounts of Bid Loans for which each such Offer
was made by each Bank (provided that, if the available principal amount of Bid
Loans to be so allocated is not sufficient to enable Bid Loans to be so
allocated to each relevant Bank in integral multiples of $1,000,000, then the
Borrower may round allocations up or down in integral multiples not less than
$500,000 as it shall deem appropriate), (iii) the aggregate principal amount of
all Offers accepted by such Borrower shall not exceed the maximum amount
contained in the related Bid Loan Request Confirmation, and (iv) no Offer of a
Bid Loan shall be accepted in a principal amount less than $5,000,000. Any
telephone notice given by the relevant Borrower pursuant to this Section 3.4
shall be irrevocable and shall not be altered, modified, or in any other manner
affected by any inconsistent terms contained in, or terms missing from, any
written confirmation of such notice. Failure by the relevant Borrower to accept
an offer in accordance with the provisions of this Section 3.4 shall constitute
rejection of such Offer.

                                      -13-
<PAGE>

     Section 3.5. Notice of Acceptance or Rejection of Bids.

      (a) Notice to Banks Making Bids. The Agent shall give telephonic notice to
each Bank whether any of the Offers contained in its Bid has been accepted (and
if so, in what amount, at what interest rate and for what Interest Period) no
later than 11:00 a.m. (Chicago time) on the proposed Borrowing Date, and each
successful bidder will thereupon become bound, subject to Section 9 and the
other applicable conditions hereof, to make the Bid Loan(s) in respect of which
its Bid has been accepted. As soon as practicable thereafter the Agent shall
send written notice substantially in the form of Exhibit I hereto to each such
successful bidder; provided, however, that failure to give such notice shall not
affect the obligation of such successful bidder to disburse its Bid Loans as
herein required.

      (b) Disbursement of Bid Loans. Not later than 12:00 Noon (Chicago time) on
the Borrowing Date for each Borrowing of a Bid Loan(s), each Bank bound to make
a Bid Loan(s) in accordance with Section 3.5(a) shall make available to the
Agent the principal amount of each such Bid Loan in immediately available funds
at the Agent's principal office in Chicago, Illinois. The Agent shall promptly
thereafter make available to the relevant Borrower like funds as received from
each Bank, at such office of the Agent in Chicago, Illinois.

      (c) Notice to the Banks. As soon as practicable after each Borrowing Date
for Bid Loans, the Agent shall notify each Bank of the aggregate amount of Bid
Loans advanced pursuant to a Bid Loan Request on such Borrowing Date, the
Interest Period(s) therefor, and the lowest and highest interest rates at which
Bid Loans were made for each Interest Period.

     Section 3.6. Interest on Bid Loans. The Borrowers shall pay interest on the
unpaid principal amount of each Bid Loan from the applicable Borrowing Date to
the maturity thereof at the rate of interest applicable to such Bid Loan as
determined pursuant to the above provisions (calculated on the basis of a 360
day year for the actual number of days elapsed) payable on the last day of the
Interest Period applicable to such Bid Loan and at maturity (whether by
acceleration or otherwise), and, if the applicable Interest Period is longer
than 90 days, on each day occurring every 90 days after the date such Loan is
made.

     Section 3.7. Telephonic Notice. Each Bank's telephonic notice to the Agent
of its Bid pursuant to Section 3.2(c), and the relevant Borrower's telephonic
acceptance of any Offer contained in a Bid pursuant to Section 3.4, shall be
irrevocable and binding on such Bank and the relevant Borrower and shall not be
altered, modified, or in any other manner affected by any inconsistent terms
contained in, or missing from, any telecopy or other confirmation of such
telephonic notice. It is understood and agreed by the parties hereto that the
Agent shall be entitled to act, or to fail to act, hereunder in reliance on its
records of any telephonic notices provided for herein and that the Agent shall
not incur any liability to any Person in so doing if its records conflict with
any telecopy or other confirmation of a telephone notice or otherwise, provided
that the Agent has acted, or failed to act, in good faith. It is further
understood and agreed by the parties hereto that the times of day as set forth
in this Section 3 are for the convenience of all the parties for providing
notices and that no party shall incur any liability or other responsibility for
any failure to provide such notices within the specified times; provided,
however, that the Agent shall have no obligation to notify the relevant Borrower
of any Bid

                                      -14-
<PAGE>

received by it later than 9:00 a.m. (Chicago time) on the proposed Borrowing
Date, and no acceptance by the relevant Borrower of any Offer contained in a Bid
shall be effective to bind any Bank to make a Bid Loan, nor shall the Agent be
under any obligation to notify any Person of an acceptance, if notice of such
acceptance is received by the Agent later than 10:30 a.m. (Chicago time) on the
proposed Borrowing Date.

Section 4. General Provisions Applicable to all Loans; Reduction of Commitments.

    Section 4.1. Interest Periods. As provided in Section 1.6(a) hereof in the
case of Revolving Loans and Short-Term Revolving Loans, in Section 2.3 in the
case of Swing Loans and in Section 3.2 in the case of Bid Loans, at the time of
each request to advance, continue, or create by conversion a Borrowing of Loans
(other than Domestic Rate Loans), the relevant Borrower shall select an Interest
Period applicable to such Loans from among the available options. The term
"Interest Period" means the period commencing on the date a Borrowing of Loans
is advanced, continued, or created by conversion and ending: (a) in the case of
Domestic Rate Loans, on the last day of the calendar quarter in which such
Borrowing is advanced, continued, or created by conversion (or on the last day
of the following quarter if such Loan is advanced, continued or created by
conversion on the last day of a calendar quarter), (b) in the case of
Eurocurrency Loans, one, two, three, or six months thereafter, (c) in the case
of Swing Loans, on the date one to five days thereafter as mutually agreed by
Harris and the relevant Borrower and (d) in the case of Bid Loans, on the date 7
to 180 days thereafter as the relevant Borrower may select; provided, however,
that:

          (a)  any Interest Period for a Borrowing of Revolving Loans consisting
     of Domestic Rate Loans that otherwise would end after the Termination Date
     shall end on the Termination Date;

          (b) any Interest Period for a Borrowing of Short-Term Revolving Loans
     consisting of Domestic Rate Loans that otherwise would end after the Short-
     Term Revolving Credit Termination Date shall end on the Short-Term
     Revolving Credit Termination Date;

          (c) for any Borrowing of Revolving Loans consisting of Eurocurrency
     Loans or for any Swing Loan, the Borrowers may not select an Interest
     Period that extends beyond the Termination Date;

          (d) for any Borrowing of Short-Term Revolving Loans consisting of
     Eurocurrency Loans and for any Borrowing of Bid Loans, the Borrowers may
     not select an Interest Period that extends beyond the Short-Term Revolving
     Credit Termination Date;

          (e) whenever the last day of any Interest Period would otherwise be a
     day that is not a Business Day, the last day of such Interest Period shall
     be extended to the next succeeding Business Day, provided that, if such
     extension would cause the last day of an Interest Period for a Borrowing of
     Eurocurrency Loans to occur in

                                      -15-
<PAGE>

     the following calendar month, the last day of such Interest Period shall be
     the immediately preceding Business Day; and

          (f) for purposes of determining an Interest Period for a Borrowing of
     Eurocurrency Loans, a month means a period starting on one day in a
     calendar month and ending on the numerically corresponding day in the next
     calendar month; provided, however, that if there is no numerically
     corresponding day in the month in which such an Interest Period is to end
     or if such an Interest Period begins on the last Business Day of a calendar
     month, then such Interest Period shall end on the last Business Day of the
     calendar month in which such Interest Period is to end.

    Section 4.2. Default Rate on Revolving Loans, Short-Term Revolving
Loans and Bid Loans. If any payment of principal on any Revolving Loan or any
Short-Term Revolving Loan or any Bid Loan is not made when due (whether by
acceleration or otherwise), such Loan shall bear interest from the date such
payment was due until paid in full, payable on demand, at a rate per annum equal
to:

             (a) for any Domestic Rate Loan, the sum of two percent (2%) plus
     the Applicable Margin for Domestic Rate Loans under the relevant Credit
     plus the Domestic Rate from time to time in effect;

             (b) for any Eurocurrency Loan, the sum of two percent (2%) plus the
     rate of interest in effect thereon at the time of such default until the
     end of the Interest Period applicable thereto and, thereafter, if such Loan
     is denominated in U.S. Dollars, at a rate per annum equal to the sum of two
     percent (2%) plus the Applicable Margin for Domestic Rate Loans under the
     relevant Credit plus the Domestic Rate from time to time in effect or, if
     such Loan is denominated in an Alternative Currency, at a rate per annum
     equal to the sum of two percent (2%) plus the Applicable Margin for
     Eurocurrency Loans under the relevant Credit plus the rate of interest per
     annum as determined by the Agent (rounded upwards, if necessary, to the
     nearest whole multiple of one-sixteenth of one percent (1/16%) at which
     overnight or weekend deposits of the appropriate currency (or, if such
     amount due remains unpaid more than three Business Days, then for such
     other period of time not longer than six months as the Agent may elect in
     its absolute discretion) for delivery in immediately available and freely
     transferable funds would be offered by the Agent to major banks in the
     interbank market upon request of such major banks for the applicable period
     as determined above and in an amount comparable to the unpaid principal
     amount of any such Eurocurrency Loan (or, if the Agent is not placing
     deposits in such currency in the interbank market, then the Agent's cost of
     funds in such currency for such period); and

             (c) for any Bid Loan, the sum of two percent (2%) plus the rate of
     interest in effect thereon at the time of such default until the end of the
     Interest Period applicable thereto and, thereafter, at the rate per annum
     equal to the sum of two percent (2%) plus the Applicable Margin for
     Domestic Rate Loans under the Short-Term Revolving Credit plus the Domestic
     Rate from time to time in effect.

                                      -16-
<PAGE>

    Section 4.3. Notes.

     (a) Revolving Credit Notes. The Revolving Loans made to the Borrowers by a
Bank shall be evidenced by a single joint and several promissory note of the
Borrowers issued to such Bank in the form of Exhibit B hereto. Each such
promissory note is hereinafter referred to as a "Revolving Credit Note" and
collectively such promissory notes are referred to as the "Revolving Credit
Notes."

     (b) Short-Term Revolving Credit Notes. The Short-Term Revolving Loans made
to the Borrowers by a Bank shall be evidenced by a single joint and several
promissory note of the Borrowers issued to such Bank in the form of Exhibit C
hereto. Each such promissory note is hereinafter referred to as a "Short-Term
Revolving Credit Note" and collectively such promissory notes are referred to as
the "Short-Term Revolving Credit Notes."

     (c) Swing Line Note. All Swing Loans made to the Borrowers by Harris shall
be evidenced by a single joint and several promissory note of the Borrower
issued to Harris in the form of Exhibit D hereto (the "Swing Line Note"), such
Swing Line Note to be payable to the order of Harris in the principal amount of
its Swing Line Commitment and otherwise in the form of Exhibit D hereto.

     (d) Bid Notes. All Bid Loans made to either Borrower by a Bank shall be
evidenced by a single joint and several promissory note of the Borrowers in the
form of Exhibit E hereto (individually a "Bid Note" and collectively the "Bid
Notes"), each such Bid Note to be payable to the order of the applicable Bank
and otherwise in the form of Exhibit E hereto.

     (e) Notes Generally. Each Bank shall record on its books and records or on
a schedule to the appropriate Note the amount of each Loan advanced, continued,
or converted by it, all payments of principal and interest and the principal
balance from time to time outstanding thereon, the type of such Loan, and, for
any Fixed Rate Loan, the Interest Period and interest rate applicable thereto
and, for any Eurocurrency Loan, the currency in which such Loan is denominated.
The record thereof, whether shown on such books and records of a Bank or on a
schedule to any Note, shall be prima facie evidence as to all such matters;
provided, however, that the failure of any Bank to record any of the foregoing
or any error in any such record shall not limit or otherwise affect the
obligation of the Borrower to repay all Loans made to it hereunder together with
accrued interest thereon. At the request of any Bank and upon such Bank
tendering to the Borrowers the Note to be replaced, the Borrowers shall furnish
a new Note to such Bank to replace any outstanding Note, and at such time the
first notation appearing on a schedule on the reverse side of, or attached to,
such Note shall set forth the aggregate unpaid principal amount of all Loans, if
any, then outstanding thereon.

    Section 4.4. Maturity of Loans. Each Revolving Loan shall mature and become
due and payable by the Borrowers on the Termination Date. Each Short-Term
Revolving Loan shall mature and become due and payable by the Borrowers on the
Short-Term Revolving Credit Termination Date. Each Swing Loan shall mature and
become due and payable by the Borrowers on the last day of the Interest Period
applicable thereto. Each Bid Loan shall mature and become due and payable by the
Borrowers on the last day of the Interest Period applicable thereto.

                                      -17-
<PAGE>

    Section 4.5. Prepayments. The Borrowers may prepay without premium or
penalty and in whole or in part (but, if in part, then: (i) if such Borrowing is
of Domestic Rate Loans, in an amount not less than $500,000, (ii) if such
Borrowing is of Eurocurrency Loans denominated in U.S. Dollars, in an amount not
less than $1,000,000, (iii) if such Borrowing is denominated in an Alternative
Currency, an amount for which the U.S. Dollar Equivalent is not less than
$1,000,000 and (iv) in an amount such that the minimum amount required for a
Borrowing pursuant to Section 1.5 hereof remains outstanding) any Borrowing of
Eurocurrency Loans upon three Business Days' prior notice to the Agent or, in
the case of a Borrowing of Domestic Rate Loans, notice delivered to the Agent no
later than 11:00 a.m. (Chicago time) on the date of prepayment, such prepayment
to be made by the payment of the principal amount to be prepaid and accrued
interest thereon to the date fixed for prepayment and, in the case of
Eurocurrency Loans, any compensation required by Section 4.6 hereof. Bid Loans
and Swing Loans bearing interest at Harris' Quoted Rate may only be paid on the
last day of the Interest Period then applicable to such Loans. The Agent will
promptly advise each Bank of any such prepayment notice it receives from the
Borrowers. Any amount of Revolving Loans paid or prepaid before the Termination
Date may, subject to the terms and conditions of this Agreement, be borrowed,
repaid and borrowed again. Any amount of Short-Term Revolving Loans paid or
prepaid before the Short-Term Revolving Credit Termination Date may, subject to
the terms and conditions of this Agreement, be borrowed, repaid and borrowed
again. All prepayments shall be applied first to the Short-Term Revolving Credit
until payment in full thereof and then to the Revolving Credit.

    Section 4.6. Funding Indemnity for Fixed Rate Loans. If any Bank shall incur
any loss, cost or expense (including, without limitation, any loss (including
loss of profit), cost or expense incurred by reason of the liquidation or re-
employment of deposits or other funds acquired by such Bank to fund or maintain
any Fixed Rate Loan or the relending or reinvesting of such deposits or amounts
paid or prepaid to such Bank as a result of:

             (a)  any payment, prepayment or conversion of a Fixed Rate Loan on
     a date other than the last day of its Interest Period,

             (b)  any failure (because of a failure to meet the conditions of
     Section 8 or otherwise) by either Borrower to borrow or continue a Fixed
     Rate Loan, or to convert a Domestic Rate Loan into a Fixed Rate Loan, on
     the date specified in a notice given pursuant to Section 1.6(a) or 2.3 or
     established pursuant to Section 1.6(c) hereof,

             (c)  any failure by either Borrower to make any payment of
     principal on any Fixed Rate Loan when due (whether by acceleration or
     otherwise), or

             (d)  any acceleration of the maturity of a Fixed Rate Loan as a
     result of the occurrence of any Event of Default hereunder,

then, upon the demand of such Bank, the Borrowers shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If any Bank
makes such a claim for compensation, it shall provide to the Borrowers, with a
copy to the Agent, a certificate executed

                                      -18-
<PAGE>

by an officer of such Bank setting forth the amount of such loss, cost or
expense in reasonable detail and such certificate shall be conclusive if
reasonably determined.

    Section 4.7. Commitment Terminations. The Borrowers shall have the right at
any time and from time to time, upon five Business Days' prior written notice to
the Agent, to terminate the Revolving Credit Commitments and the Short-Term
Revolving Credit Commitments without premium or penalty, in whole or in part,
any partial termination to be (i) in an amount not less than $5,000,000, and
(ii) allocated ratably among the Banks in proportion to their respective
Percentages of the relevant Credit, provided that (w) the Revolving Credit
Commitments may not be terminated in whole before the termination of the Short-
Term Revolving Credit Commitments, (x) the Revolving Credit Commitments may not
be reduced to an amount less than the sum of the Original Dollar Amount of all
Revolving Loans, all Revolving Swing Loans and all L/C Obligations then
outstanding, (y) any reduction of the Revolving Credit Commitments to an amount
less than the Swing Line Commitment or L/C Commitment shall automatically reduce
the Swing Line Commitment or L/C Commitment, as the case may be, to such amount
as well and (z) the Short-Term Revolving Credit Commitments may not be reduced
to an amount less than the Original Dollar Amount of all Short-Term Revolving
Loans, all Short-Term Swing Loans and all Bid Loans then outstanding. The
Borrowers shall have the right at any time and from time to time, by notice to
the Agent, to terminate the Letter of Credit Commitment without premium or
penalty, in whole or in part. Any such termination of the Letter of Credit
Commitment shall not reduce the Revolving Credit Commitments unless the
Borrowers elect to do so in the manner provided in the preceding sentence. The
Agent shall give prompt notice to each Bank of any such termination of
Commitments. Any termination of Commitments pursuant to this Section 4.7 may not
be reinstated.

Section 5. Fees and Extensions; Place and Application of Payments.

    Section 5.1. Fees. (a) Facility Fee. For the period from the Effective Date
to but not including the Termination Date, the Borrowers shall pay to the Agent,
for the ratable benefit of the Banks in accordance with their Percentages, a
facility fee accruing at the rate per annum equal to the Applicable Margin for
Facility Fee on the average daily amount of the Revolving Credit Commitments and
on the average daily amount of the Short-Term Revolving Credit Commitments, in
each case, whether or not in use. Such facility fee shall be payable quarterly
in arrears on the last day of each calendar quarter in each year (commencing
September 30, 2000) and on the Termination Date, unless the Revolving Credit
Commitments or the Short-Term Revolving Credit Commitments are terminated in
whole on an earlier date, in which event the fee for the period to but not
including the date of such termination shall be paid in whole on the date of
such termination.

     (b)  Letter of Credit Fees. On the date of issuance or extension, or
increase in the amount, of any Letter of Credit pursuant to Section 1.3 hereof,
the Borrowers shall pay to the Agent for its own account an issuance fee equal
to 1/8 of 1% (0.125%) of the face amount of (or of the increase in the face
amount of) such Letter of Credit. Quarterly in arrears, on the last day of each
calendar quarter (commencing September 30, 2000) the Borrowers shall pay to the
Agent, for the ratable benefit of the Banks in accordance with their
Percentages, a letter of credit fee at a rate per annum equal to the Applicable
Margin for Eurocurrency Loans under the

                                      -19-
<PAGE>

Revolving Credit in effect during each day of such quarter applied to the daily
average face amount of Letters of Credit outstanding during such quarter. In
addition, the Borrowers shall pay to the Agent for its own account (i) the
Agent's standard issuance fee for each Letter of Credit and (ii) the Agent's
standard drawing, negotiation, amendment, and other administrative fees for each
Letter of Credit (whether a Commercial Letter of Credit or Standby Letter of
Credit); all the foregoing standard fees shall be retained by the Agent for its
own account (such standard fees referred to in the preceding clauses (i) and
(ii) may be established by the Agent from time to time).

     (c)  Closing Fees. On the Effective Date, the Borrowers shall pay to the
Agent, for the benefit of the Banks, the up front fees due to the Banks as
heretofore agreed.

     (d)  Agent Fees. The Borrowers shall pay to the Agent the fees agreed to
between the Agent and the Borrowers pursuant to a separate written letter
agreement dated as of June 28, 2000.

     (e)  Fee Calculations. All fees payable under this Section 4.1 shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.

    Section 5.2. Extension of Termination Date and Short-Term Revolving Credit
Termination Date. (a) Revolving Credit. The Borrowers may advise the Agent in
writing of their desire to extend the Termination Date for an additional
calendar year, provided (i) such request is made not more than 60 days prior to,
and not less than 45 days prior to, the first and second anniversary dates of
this Agreement and (ii) not more than one such request for the extension of the
Termination Date may be made in any one calendar year. The Agent will promptly
inform the Banks of any such request, and each Bank shall notify the Agent in
writing within 30 days before the anniversary date following such request
whether it agrees to the requested extension. If a Bank fails to so notify the
Agent whether it agrees to such extension, such Bank shall be deemed to have
refused to grant the requested extension. Upon receipt by the Agent of the
written consent of all the Banks, the Termination Date shall be automatically
extended an additional year. Otherwise, the Termination Date will remain as then
scheduled. In no event shall the Termination Date be extended beyond September
10, 2005.

     (b)  Short-Term Revolving Credit. The Borrowers may advise the Agent in
writing of their desire to extend the Short-Term Revolving Credit Termination
Date for an additional 364 days, provided (i) such request is made not more than
60 days prior to, and not less than 45 days prior to, the first, second, third
and fourth anniversary dates of this Agreement and (ii) not more than one such
request for the extension of the Short-Term Revolving Credit Termination Date
may be made in any one calendar year. The Agent will promptly inform the Banks
of any such request, and each Bank shall notify the Agent in writing within 30
days before the anniversary date following such request whether it agrees to the
requested extension. If a Bank fails to so notify the Agent whether it agrees to
such extension, such Bank shall be deemed to have refused to grant the requested
extension. Upon receipt by the Agent of the written consent of all the Banks,
the Short-Term Revolving Credit Termination Date shall be automatically extended
an additional 364 days. Otherwise, the Short-Term Revolving Credit Termination
Date will remain

                                      -20-
<PAGE>

as then scheduled. In no event shall the Short-Term Revolving Credit Termination
Date be extended beyond August 21, 2005.

    Section 5.3. Place and Application of Payments. All payments of principal of
and interest on the Loans and the Reimbursement Obligations, and of all other
amounts payable by the Borrowers under this Agreement, shall be made by the
Borrowers to the Agent by no later than 1:00 p.m. (Chicago time) on the due date
thereof at the principal office of the Agent in Chicago, Illinois (or such other
location in the State of Illinois as the Agent may designate to the Borrowers)
or, if such payment is on a Reimbursement Obligation, no later than provided by
Section 1.3(c) hereof or, if such payment is to be made in an Alternative
Currency, no later than 1:00 p.m. local time at the place of payment to such
office as the Agent has previously specified in a notice to the Borrowers for
the benefit of the Person or Persons entitled thereto. Any payments received
after such time shall be deemed to have been received by the Agent on the next
Business Day. All such payments shall be made (i) in U.S. Dollars, in
immediately available funds at the place of payment, or (ii) in the case of
amounts payable hereunder in an Alternative Currency, in such Alternative
Currency in such funds then customary for the settlement of international
transactions in such currency, in each case without setoff or counterclaim. The
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest on Loans or commitment fees ratably to the
Banks, in each case to be applied in accordance with the terms of this
Agreement.

Section 6.  Definitions; Interpretation.

    Section 6.1.  Definitions. The following terms when used herein have the
following meanings:

     "Account" is defined in Section 10.4(b) hereof.

     "Adjusted LIBOR" means a rate per annum determined in accordance with the
following formula:

     Adjusted LIBOR =              LIBOR
                            ----------------------
                            1 - Eurocurrency Reserve Percentage

"Eurocurrency Reserve Percentage" means, for any Borrowing of Eurocurrency
Loans, the daily average for the applicable Interest Period of the maximum rate,
expressed as a decimal, at which reserves (including, without limitation, any
supplemental, marginal and emergency reserves) are imposed during such Interest
Period by the Board of Governors of the Federal Reserve System (or any
successor) on "eurocurrency liabilities", as defined in such Board's Regulation
D (or in respect of any other category of liabilities that includes deposits by
reference to which the interest rate on Eurocurrency Loans is determined or any
category of extensions of credit or other assets that include loans by
non-United States offices of any Bank to United States residents), subject to
any amendments of such reserve requirement by such Board or its successor,
taking into account any transitional adjustments thereto. For purposes of this
definition, the Eurocurrency Loans shall be deemed to be "eurocurrency
liabilities" as defined in Regulation D without benefit or

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credit for any prorations, exemptions or offsets under Regulation D. "LIBOR"
means, for an Interest Period for a Borrowing of Eurocurrency Loans, (a) the
LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if
the LIBOR Index Rate cannot be determined, the average rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which
deposits in U.S. Dollars or the relevant Alternative Currency, as appropriate,
in immediately available funds are offered to the Agent at 11:00 a.m. (London,
England time) two Business Days before the beginning of such Interest Period by
major banks in the interbank eurocurrency market for delivery on the first day
of and for a period equal to such Interest Period in an amount equal or
comparable to the principal amount of the Eurocurrency Loan scheduled to be made
by the Agent as part of such Borrowing. "LIBOR Index Rate" means, for any
Interest Period, the rate per annum (rounded upwards, if necessary, to the next
higher one hundred-thousandth of a percentage point) for deposits in U.S.
Dollars or the relevant Alternative Currency, as appropriate, for a period equal
to such Interest Period, which appears on the appropriate Telerate Page as of
11:00 a.m. (London, England time) on the day two Business Days before the
commencement of such Interest Period. "Telerate Page" means the display
designated on the Telerate Service (or such other service as may be nominated by
the British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for deposits
of U.S. Dollar deposits (currently displayed on Page 3750) or of the relevant
Alternative Currency, as appropriate.

     "Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided that, in any event for
purposes of this definition, any Person that owns, directly or indirectly, 5% or
more of the securities having the ordinary voting power for the election of
directors or governing body of a corporation or 5% or more of the partnership or
other ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person.

     "Agent" means Harris Trust and Savings Bank in its capacity as
administrative agent hereunder for the Banks and any successor pursuant to
Section 12.7 hereof.

     "Alternative Currency" means Deutsche Marks, Pounds Sterling, French
Francs, Euros, Dutch Guilders, Japanese Yen and any other currency (other than
U.S. Dollars), in each case only to the extent such currencies are freely
transferable and convertible into U.S. Dollars and are traded and readily
available to each Bank in the London interbank market.

     "Applicable Margin", with respect to Eurocurrency Loans, Domestic Rate
Loans, and the facility fee payable pursuant to Section 4.1(a) hereof, means the
following:

          Applicable Margin for Eurocurrency Loans under the        0.40%
          Revolving Credit:

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<PAGE>

          Applicable Margin for Eurocurrency Loans under the       0.425%
          Short-Term Revolving Credit:

          Applicable Margin for Domestic Rate Loans under the       0.00%
          Revolving Credit:

          Applicable Margin for Domestic Rate Loans under the       0.00%
          Short-Term Revolving Credit:

          Applicable Margin for facility fee under the              0.10%
          Revolving Credit:

          Applicable Margin for facility fee under the             0.075%
          Short-Term Revolving Credit:

     "Application" is defined in Section 1.3(b) hereof.

     "Authorized Representative" means, for each Borrower, those persons shown
on the list of officers provided by such Borrower pursuant to Section 8.1(f)
hereof, or on any update of such list provided by such Borrower to the Agent, or
any further or different officer of such Borrower so named by any Authorized
Representative of such Borrower in a written notice to the Agent.

     "Bank" is defined in the first paragraph of this Agreement and includes the
Agent in its capacity as issuer of Letters of Credit and holder of L/C
Obligations after giving effect to each Participating Bank's interest therein.

     "Bid" is defined in Section 3.2(c) hereof.

     "Bid Loan" is defined in Section 3.1 hereof.

     "Bid Loan Request" is defined in Section 3.2(a) hereof.

     "Bid Loan Request Confirmation" is defined in Section 3.2(a) hereof.

     "Bid Note" is defined in Section 4.3(d) hereof.

     "Borrowers" is defined in the first paragraph of this Agreement.

     "Borrowing" means the total of Loans of a single type advanced, continued
for an additional Interest Period, or converted from a different type into such
type by the Banks on a single date and for a single Interest Period. Borrowings
of Revolving Loans and Short-Term Revolving Loans are made and maintained
ratably from each of the Banks according to their Percentages. Borrowings of a
Bid Loan or Bid Loans are made from a Bank or Banks in accordance with the
procedures set forth in Section 3 hereof. A Borrowing is "advanced" on the

                                      -23-
<PAGE>

day Banks advance funds comprising such Borrowing to the relevant Borrower, is
"continued" on the date a new Interest Period for the same type of Loans
commences for such Borrowing, and is "converted" when such Borrowing is changed
from one type of Loan to another, all as requested by the relevant Borrower
pursuant to Section 1.6(a) in the case of Revolving Loans and Short-Term
Revolving Loans and Section 3.2 in the case of Bid Loans.

     "Borrowing Date" is defined in Section 3.2(a) hereof.

     "Business Day" means any day other than a Saturday or Sunday on which Banks
are not authorized or required to close in Chicago, Illinois and, if the
applicable Business Day relates to the borrowing or payment of a Eurocurrency
Loan, on which banks are dealing in U.S. Dollar deposits or the relevant
Alternative Currency in the interbank market in London, England and, if the
applicable Business Day relates to the borrowing or payment of a Eurocurrency
Loan denominated in an Alternative Currency, on which banks and foreign exchange
markets are open for business in the city where disbursements of or payments on
such Loan are to be made.

     "Capital Expenditures" means, for any period, the capital expenditures of
Gallagher and its Subsidiaries during such period as defined and classified in
accordance with GAAP.

     "Capital Lease" means any lease of Property which, in accordance with GAAP,
would be required to be capitalized on the balance sheet of the lessee.

     "Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease as determined in
accordance with GAAP.

     "Change in Control" means and includes any of the following:

          (a) any person or group, as defined in Sections 13(d) and 14(d)(2) of
     the Securities Exchange Act of 1934, as amended, is or becomes the
     beneficial owner, directly or indirectly, of 50% or more of the Voting
     Stock of Gallagher; or

          (b) during any period of twelve consecutive calendar months,
     individuals who at the beginning of such period constituted the Board of
     Directors of Gallagher, together with any new directors whose election by
     the Board of Directors of Gallagher or nomination for election by
     Gallagher's stockholders was approved by at least two-thirds of the
     directors then still in office who either were directors at the beginning
     of the period or whose election was previously so approved, cease for any
     reason other than death or disability to constitute at least a majority of
     the directors then in office; or

          (c) the stockholders of Gallagher shall approve the sale of all or
     substantially all of the assets of Gallagher or any merger, consolidation,
     issuance of securities or purchase of assets, the result of which would be
     the occurrence of any event described in clause (a) or (b) above.

     "Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.

                                      -24-
<PAGE>

     "Commercial Letter of Credit" means a Letter of Credit that finances a
commercial transaction by paying part or all of the purchase price for goods
against delivery of a document of title covering such goods and any other
required documentation.

     "Commitments" means the Revolving Credit Commitments, the Short-Term
Revolving Credit Commitments, the Swing Line Commitment and the L/C Commitment.

     "Compliance Certificate" means a written certificate in the form of Exhibit
J hereto.

     "Confirmation of Bid" is defined in Section 3.2(c) hereof.

     "Controlled Group" means, with respect to each Borrower, all members of a
controlled group of corporations and all trades and businesses (whether or not
incorporated) under common control which, together with such Borrower or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.

     "Credit" means either the Revolving Credit or the Short-Term Revolving
Credit.

     "Credit Event" means the advancing of any Loan, the continuation of or
conversion into a Eurocurrency Loan, or the issuance of, or extension of the
expiration date or increase in the amount of, any Letter of Credit.

     "Current Maturities" means, as of any date the same is to be determined,
all payments of principal due under the terms of any Funded Debt within twelve
calendar months of such date.

     "Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.

     "Documentation Agent" is defined in the first paragraph of this Agreement.

     "Domestic Rate" means for any day the greater of:

          (i)   the rate of interest announced by the Agent from time to time as
     its prime commercial rate, or equivalent, as in effect on such day, with
     any change in the Domestic Rate resulting from a change in said prime
     commercial rate to be effective as of the date of the relevant change in
     said prime commercial rate; or

          (ii)  the sum of (x) the rate determined by the Agent to be the
     average (rounded upwards, if necessary, to the next higher 1/100 of 1%) of
     the rates per annum quoted to the Agent at approximately 10:00 a.m.
     (Chicago time) (or as soon thereafter as is practicable) on such day (or,
     if such day is not a Business Day, on the immediately preceding Business
     Day) by two or more Federal funds brokers selected by the Agent for the
     sale to the Agent at face value of Federal funds in an amount comparable to
     the principal amount owed to the Agent for which such rate is being
     determined, plus (y) 1/2 of 1%.

                                      -25-
<PAGE>

     "Domestic Rate Loan" means a Revolving Loan or a Short-Term Revolving Loan
bearing interest prior to maturity at a rate specified in Section 1.3(a) hereof.

     "EBITDAR" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(i) Interest Expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets during such period on the
books of Gallagher and its Subsidiaries, plus (iv) the aggregate amount of
payments required to be made by Gallagher and its Subsidiaries during such
period in respect of leases or similar arrangements (including without
limitation all payments required under operating and Capital Leases under which
Gallagher or any Subsidiary is liable as lessee).

     "Effective Date" means the date on which the Agent has received signed
counterpart signature pages of this Agreement from each of the signatories (or,
in the case of a Bank, confirmation that such Bank has executed such a
counterpart and dispatched it for delivery to the Agent) and the documents
required by Section 8.1 hereof.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.

     "Eurocurrency Loan" means a Revolving Loan or a Short-Term Revolving Loan
bearing interest prior to maturity at the rate specified in Section 1.4(b)
hereof.

     "Event of Default" means any of the events or circumstances specified in
Section 10.1 hereof.

     "Existing L/Cs" means the outstanding letters of credit issued by Harris
prior to the date hereof, all of which are listed and described on Schedule
1.3(a) hereof.

     "Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Domestic Rate.

     "Fixed Charge Coverage Ratio" means, as of any time the same is to be
determined, the ratio of (x) (i) EBITDAR during the four most recently completed
fiscal quarters minus (ii) Capital Expenditures during the same such period
minus (iii) Restricted Payments during the same such period to (y) the sum of
(i) Interest Expense during the same such four fiscal quarter period, (ii)
Current Maturities during the same such period and (iii) the aggregate amount of
payments required to be made by Gallagher and its Subsidiaries during such
period in respect of leases or similar arrangements (including without
limitation all payments required under operating and Capital Leases under which
Gallagher or any Subsidiary is liable as lessee).

     "Fixed Rate Loans" shall mean Eurocurrency Loans, Swing Loans bearing
interest at Harris' Quoted Rate and Bid Loans, unless context in which such term
is used shall otherwise require.

                                      -26-
<PAGE>

     "Funded Debt" means, at any time the same is to be determined, the
aggregate of all Indebtedness for Borrowed Money of Gallagher and its
Subsidiaries at such time, plus all Indebtedness for Borrowed Money of any other
Person which is directly or indirectly guaranteed by Gallagher or any of its
Subsidiaries or which Gallagher or any of its Subsidiaries has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which Gallagher or any of its Subsidiaries has otherwise assured a creditor
against loss.

     "GAAP" means generally accepted accounting principles as in effect from
time to time, applied by Gallagher and its Subsidiaries on a basis consistent
with the preparation of Gallagher's most recent financial statements furnished
to the Banks pursuant to Section 7.5 hereof.

     "Harris" is defined in Section 2.1 hereof.

     "Harris' Quoted Rate" is defined in Section 2.3 hereof.

     "Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business which are not more than 90 days past due), (iii) all indebtedness
secured by any Lien upon Property of such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness, (iv) all
Capitalized Lease Obligations of such Person and (v) all obligations of such
Person on or with respect to letters of credit, bankers' acceptances and other
extensions of credit whether or not representing obligations for borrowed money.

     "Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of
Gallagher and its Subsidiaries for such period determined in accordance with
GAAP.

     "Interest Period" is defined in Section 4.1 hereof.

     "L/C Commitment" means $50,000,000, as reduced pursuant to the terms
hereof.

     "L/C Documents" means the Letters of Credit, any draft or other document
presented in connection with a drawing thereunder, the Applications and this
Agreement.

     "L/C Obligations" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.

     "Lending Office" is defined in Section 11.4 hereof.

     "Letter of Credit" is defined in Section 1.3(a) hereof.

     "LIBOR" is defined in Section 1.4(b) hereof.

                                      -27-
<PAGE>

     "Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.

     "Loan" means and includes Revolving Loans, Short-Term Revolving Loans,
Swing Loans and Bid Loans, and each of them singly; and the term "type" of Loan
refers to its status as a Revolving Loan, a Short-Term Revolving Loan, a Swing
Loan or a Bid Loan, or, if a Revolving Loan or a Short-Term Revolving Loan, to
its status as a Domestic Rate Loan or Eurocurrency Loan.

     "Loan Documents" means this Agreement, the Notes, the Applications, the
Letters of Credit, and each other instrument or document to be delivered
hereunder or thereunder or otherwise in connection therewith.

     "Net Income" means, with reference to any period, the net income (or net
loss) of Gallagher and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP, and, without limiting the foregoing,
after deduction from gross income of all expenses and reserves, including
reserves for all taxes on or measured by income.

     "Net Worth" means, at any time the same is to be determined, the total
shareholders' equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock, but excluding minority
interests in Subsidiaries) which would appear on the balance sheet of Gallagher
and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

     "Notes" means and includes Revolving Credit Notes, the Short-Term Revolving
Credit Notes, the Swing Line Note and the Bid Notes, unless the context in which
such term is used shall otherwise require.

     "Obligations" means all obligations of each Borrower to pay principal and
interest on the Loans and the L/C Obligations, all fees and charges payable
hereunder, and all other payment obligations of the Borrowers, and either of
them, arising under or in relation to any Loan Document, in each case whether
now existing or hereafter arising, due or to become due, direct or indirect,
absolute or contingent, and howsoever evidenced, held or acquired.

     "Offer" is defined in Section 3.2(c) hereof.

     "Original Dollar Amount" means the amount of any Obligation denominated in
U.S. Dollars and, in relation to any Loan denominated in an Alternative
Currency, the U.S. Dollar Equivalent of such Loan on the day it is advanced or
continued for an Interest Period, and, in relation to any L/C Obligation
denominated in an Alternative Currency, the U.S. Dollar Equivalent of such L/C
Obligation on the day such amount is being computed.

     "Overnight Eurocurrency Rate" shall mean the rate of interest per annum as
determined by the Agent (rounded upwards, if necessary, to the nearest whole
multiple of one-sixteenth of one percent (1/16 of 1%)) at which overnight or
weekend deposits of the appropriate currency for

                                      -28-
<PAGE>

delivery in immediately available and freely transferable funds would be offered
by the Agent to major banks in the interbank market upon request of such major
banks for the applicable period and in an amount comparable to the unpaid
principal amount of the drawing (or, if the Agent is not placing deposits in
such currency in the interbank market, then the Agent's cost of funds in such
currency for such period).

     "Participating Bank" is defined in Section 1.3(d) hereof.

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

     "Percentage" means, for each Bank, (a) with respect to the Revolving
Credit, the percentage of the Revolving Credit Commitments represented by such
Bank's Revolving Credit Commitment or, if the Revolving Credit Commitments have
been terminated, the percentage held by such Bank (including through
participation interests in L/C Obligations and Swing Loans) of the aggregate
principal amount of all Revolving Loans, Swing Loans and L/C Obligations then
outstanding and (b) with respect to the Short-Term Revolving Credit, the
percentage of the Short-Term Revolving Credit Commitments represented by such
Bank's Short-Term Revolving Credit Commitment or, if the Short-Term Revolving
Credit Commitments have been terminated, the percentage held by such Bank of the
aggregate principal amount of all Short-Term Revolving Loans then outstanding.

     "Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.

     "Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group or (ii) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.

     "Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

     "Reimbursement Obligation" is defined in Section 1.3(c) hereof.

     "Required Banks" means, as of the date of determination thereof, Banks
holding at least 66-2/3% of the Percentages.

     "Restricted Payment" means for any Person (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class or
series of its capital stock, now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock to the holders of that class or
(ii) any Restricted Repurchase.

                                      -29-
<PAGE>

     "Restricted Repurchase" means for any Person, any redemption, retirement,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of its capital stock

     "Revolving Credit" is defined in the first paragraph of this Agreement.

     "Revolving Credit Note" is defined in Section 4.3(a) hereof.

     "Revolving Loan" is defined in Section 1.1 hereof.

     "Revolving Swing Loan" is defined in Section 2.1 hereof.

     "Set-Off" is defined in Section 14.7 hereof.

     "Short-Term Revolving Credit" is defined in the first paragraph of this
Agreement.

     "Short-Term Revolving Credit Note" is defined in Section 4.3(b) hereof.

     "Short-Term Revolving Credit Termination Date" means September 9, 2001,
subject to any extension of such date pursuant to Section 5.2(b) hereof.

     "Short-Term Revolving Loan" is defined in Section 1.2 hereof.

     "Short-Term Swing Loan" is defined in Section 2.1 hereof.

     "Standby Letter of Credit" means a Letter of Credit that is not a
Commercial Letter of Credit.

     "subsidiary" means, as to any particular parent corporation, any
corporation or other Person more than 50% of the Voting Stock of which is at the
time directly or indirectly owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of Gallagher or AJG, as the context
may required.

     "Swing Line Commitment" means $30,000,000, as reduced pursuant to the terms
hereof.

     "Swing Line Note" is defined in Section 4.3(c) hereof.

     "Swing Loans" is defined in Section 2.1 hereof.

     "Syndication Agent" is defined in the first paragraph of this Agreement.

     "Termination Date" means September 10, 2003, subject to any extension of
such date pursuant to Section 5.2(a) hereof.

     "Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the

                                      -30-
<PAGE>

fair market value of all Plan assets allocable to such benefits, all determined
as of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the Controlled
Group to the PBGC or the Plan under Title IV of ERISA.

          "U.S. Dollar Equivalent" means the amount of U.S. Dollars which would
be realized by converting the Alternative Currency into U.S. Dollars in the spot
market at the exchange rate quoted by the Agent, at approximately 11:00 a.m.
(London time) two Business Days prior to the date on which a computation thereof
is required to be made, to major banks in the interbank foreign exchange market
for the purchase of U.S. Dollars for such Alternative Currency.

          "U.S. Dollars" and "$" each means the lawful currency of the United
States of America.

          "Voting Stock" of any Person means the capital stock of any class or
classes or other equity interests (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person,
other than stock or other equity interests having such power only by reason of
the happening of a contingency.

          "Welfare Plan" means a "welfare plan", as defined in Section 3(1) of
ERISA.

          "Wholly-Owned Subsidiary" means a Subsidiary of which all of the
issued and outstanding shares of capital stock (other than directors' qualifying
shares as required by law) or other equity interests are owned by either
Borrower and/or one or more Wholly-Owned Subsidiaries of such Borrower within
the meaning of this definition.

    Section 6.2.  Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.

Section 7.   Representations and Warranties.

     Each Borrower hereby represents and warrants to the Agent and each Bank as
to itself and, where the following representations and warranties apply to
Subsidiaries, as to each of its Subsidiaries, as follows:

    Section 7.1.  Organization and Qualification. Each Borrower is duly
organized, validly existing and in good standing as a corporation under the laws
of the State of Delaware, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying, except where the failure to be so
licensed or qualified could not

                                      -31-
<PAGE>

reasonably be expected to have a materially adverse effect on Gallagher and its
Subsidiaries taken as a whole.

     Section 7.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying, except where the failure to be so
licensed or qualified could not reasonably be expected to have a materially
adverse effect on Gallagher and its Subsidiaries taken as a whole. Schedule 7.2
(as the same may be amended from time to time by Gallagher's delivery to the
Agent of an updated Schedule 7.2) hereto identifies each Subsidiary, the
jurisdiction of its incorporation or organization, as the case may be, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by Gallagher and its Subsidiaries and, if such
percentage is not 100% (excluding directors' qualifying shares as required by
law), a description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and outstanding.
All of the outstanding shares of capital stock and other equity interests of
each Subsidiary are validly issued and outstanding and fully paid and
nonassessable and all such shares and other equity interests indicated on
Schedule 7.2 (as amended from time to time) as owned by Gallagher or any of its
Subsidiaries are owned, beneficially and of record, by Gallagher or such
Subsidiary free and clear of all Liens. There are no outstanding commitments or
other obligations of any Subsidiary to issue, and no options, warrants or other
rights of any Person to acquire, any shares of any class of capital stock or
other equity interests of any Subsidiary.

     Section 7.3. Corporate Authority and Validity of Obligations. Each Borrower
has full right and authority to enter into this Agreement and the other Loan
Documents to which it is a party, to make the borrowings herein provided for, to
issue its Notes in evidence thereof, and to perform all of its obligations
hereunder and under the other Loan Documents to which it is a party. Each Loan
Document to which it is a party has been duly authorized, executed and delivered
by each Borrower and constitutes the valid and binding obligation of such
Borrower enforceable in accordance with its terms except as enforceability may
be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law). No Loan Document, nor the performance or
observance by either Borrower of any of the matters and things herein or therein
provided for, contravenes or constitutes a default under any provision of law or
any judgment, injunction, order or decree binding upon either Borrower or any
provision of the charter, articles of incorporation or by-laws of either
Borrower or any covenant, indenture or agreement of or affecting either Borrower
or any of their respective Properties, or result in the creation or imposition
of any Lien on any Property of either Borrower.

     Section 7.4. Use of Proceeds; Margin Stock. Each Borrower shall use the
proceeds of the Loans and other extensions of credit made available hereunder
for its general corporate and working capital purposes and for such other legal
and proper purposes as are consistent with all applicable laws. Neither Borrower
nor any Subsidiary is engaged in the business of extending

                                      -32-
<PAGE>

credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan or any other extension of
credit hereunder will be used to purchase or carry margin stock or used in a
manner that violates any provision of Regulation U or X of the Board of
Governors of the Federal Reserve System.

     Section 7.5. Financial Reports. The consolidated balance sheet of Gallagher
and its Subsidiaries as at December 31, 1999, and the related consolidated
statements of income, retained earnings and cash flows of Gallagher and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Ernst & Young
LLP, independent public accountants, and the unaudited interim consolidated
balance sheet of Gallagher and its Subsidiaries as at June 30, 2000, and the
related consolidated statements of income, retained earnings and cash flows of
Gallagher and its Subsidiaries for the six months then ended, heretofore
furnished to the Banks, fairly present the consolidated financial condition of
Gallagher and its Subsidiaries as at said dates and the consolidated results of
their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis. Neither
Gallagher nor any Subsidiary has contingent liabilities which are material to it
other than as indicated on such financial statements or, with respect to future
periods, on the financial statements furnished pursuant to Section 9.5 hereof.

     Section 7.6. No Material Adverse Change. Since December 31, 1999, there has
been no change in the condition (financial or otherwise) or business prospects
of Gallagher and its Subsidiaries taken as a whole except those occurring in the
ordinary course of business, none of which in the aggregate have been materially
adverse.

     Section 7.7. Full Disclosure. The statements and information furnished to
the Bank in connection with the negotiation of this Agreement and the other Loan
Documents and the commitments by the Banks to provide all or part of the
financing contemplated hereby do not contain any untrue statements of a material
fact or omit a material fact necessary to make the material statements contained
herein or therein not misleading, the Banks acknowledging that as to any
projections furnished to the Banks, the Borrowers only represent that the same
were prepared on the basis of information and estimates the Borrowers believed
to be reasonable.

     Section 7.8. Good Title. Gallagher and its Subsidiaries each have good and
defensible title to their assets as reflected on the most recent consolidated
balance sheet of Gallagher and its Subsidiaries furnished to the Banks, subject
to no Liens other than such thereof as are permitted by Section 9.12 hereof.

     Section 7.9. Litigation and Other Controversies. There is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
either Borrower threatened, against either Borrower or any of their Subsidiaries
which if adversely determined would (a) impair the validity or enforceability
of, or impair the ability of the Borrowers to perform their obligations under,
this Agreement or any other Loan Document or (b) result in any material adverse
change in the financial condition, Properties, business or operations of
Gallagher and its Subsidiaries taken as a whole.

                                      -33-
<PAGE>

     Section 7.10. Taxes. All tax returns required to be filed by each Borrower
and their Subsidiaries in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon each Borrower and
their Subsidiaries or upon any of their respective Properties, income or
franchises, which are shown to be due and payable in such returns, have been
paid, except for any taxes, assessments, fees or charges being contested in good
faith by appropriate proceeding and for which adequate reserves have been
provided. Neither Borrower knows of any proposed additional tax assessment
against it or its Subsidiaries for which adequate provision in accordance with
GAAP has not been made on its accounts. Adequate provisions in accordance with
GAAP for taxes on the books of each Borrower and each of their Subsidiaries have
been made for all open years, and for its current fiscal period.

     Section 7.11. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
either Borrower or any other Person, is or will be necessary to the valid
execution, delivery or performance by the Borrowers of this Agreement or any
other Loan Document.

     Section 7.12. Affiliate Transactions. Neither Borrower nor any Subsidiary
is a party to any contracts or agreements with any of its Affiliates (other than
with Wholly-Owned Subsidiaries of such Borrower) on terms and conditions which
are less favorable to such Borrower or such Subsidiary than would be usual and
customary in similar contracts or agreements between Persons not affiliated with
each other.

     Section 7.13. Investment Company; Public Utility Holding Company. Neither
Borrower nor any Subsidiary is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "public utility holding company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.

     Section 7.14. ERISA. Each Borrower and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any material liability to the PBGC or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither Borrower nor any Subsidiary has any
material contingent liabilities with respect to any post-retirement benefits
under a Welfare Plan, other than liability for continuation coverage described
in article 6 of Title I of ERISA.

     Section 7.15. Compliance with Laws. Each Borrower and each of its
Subsidiaries are in compliance with the requirements of all federal, state and
local laws, rules and regulations applicable to or pertaining to their
Properties or business operations (including, without limitation, the
Occupational Safety and Health Act of 1970, the Americans with Disabilities Act
of 1990, and laws and regulations establishing quality criteria and standards
for air, water, land and toxic or hazardous wastes and substances), non-
compliance with which could have a material adverse effect on the financial
condition, Properties, business or operations of Gallagher and its Subsidiaries
taken as a whole. Neither Borrower nor any Subsidiary has received notice to the
effect that its operations are not in compliance with any of the requirements of
applicable federal,

                                      -34-
<PAGE>

state or local environmental, health and safety statutes and regulations or are
the subject of any governmental investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous waste or
substance into the environment, which non-compliance or remedial action could
have a material adverse effect on the financial condition, Properties, business
or operations of Gallagher and its Subsidiaries taken as a whole.

     Section 7.16.  Other Agreements. Neither Borrower nor any Subsidiary is in
default under the terms of any covenant, indenture or agreement of or affecting
such Borrower, any Subsidiary or any of their Properties, which default if
uncured would have a material adverse effect on the financial condition,
Properties, business or operations of Gallagher and its Subsidiaries taken as a
whole.

     Section 7.17.  No Default. No Default or Event of Default has occurred and
is continuing.

     Section 7.18.  Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the extensions of credit under this
Agreement: (a) neither Borrower will (i) be "insolvent," within the meaning of
such term as used in (S)101 of the "Bankruptcy Code", or Section 2 of either the
"UFTA" or the "UFCA", or as defined or used in any "Other Applicable Law" (as
those terms are defined below), or (ii) be unable to pay its debts generally as
such debts become due within the meaning of Section 548 of the Bankruptcy Code,
Section 4 of the UFTA or Section 6 of the UFCA, or (iii) have an unreasonably
small capital to engage in any business or transaction, whether current or
contemplated, within the meaning of Section 548 of the Bankruptcy Code, Section
4 of the UFTA or Section 5 of the UFCA; and (b) the obligations of each Borrower
under the Loan Documents and with respect to the Loans and Letters of Credit
will not be rendered avoidable under any Other Applicable Law. For purposes of
this Section, "Bankruptcy Code" means Title 11 of the United States Code, "UFTA"
means the Uniform Fraudulent Transfer Act, "UFCA" means the Uniform Fraudulent
Conveyance Act, and "Other Applicable Law" means any other applicable law
pertaining to fraudulent transfers or obligations voidable by creditors, in each
case as such law may be amended from time to time.

     Section 7.19.  Labor Controversies. There are no labor controversies
pending or threatened against either Borrower or any Subsidiary.

Section 8.   Conditions Precedent.

      The obligation of each Bank to advance, continue, or convert any Loan
(other than the continuation of, or conversion into, a Domestic Rate Loan), or
of the Agent to issue, extend the expiration date of or increase the amount of
any Letter of Credit, shall be subject to the following conditions precedent:

     Section 8.1. Initial Credit Event. Before or concurrently with the initial
Credit Event:

            (a)  The Agent (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such party
or (ii) written evidence satisfactory to the Agent (which may include telecopy
transmission of a signed

                                      -35-
<PAGE>

 signature page of this Agreement) that such party has signed a counterpart of
 this Agreement;

     (b) The Agent shall have received (i) for each Bank, such Bank's duly
 executed Revolving Credit Note dated the date hereof and otherwise in
 compliance with the provisions of Section 4.3(a) hereof, (ii) for each Bank,
 such Bank's duly executed Short-Term Revolving Credit Note dated the date
 hereof and otherwise in compliance with the provisions of Section 4.3(b) hereof
 and (iii) Harris' duly executed Swing Line Note of the Borrowers dated the date
 hereof;

     (c) The Agent shall have received for each Bank the favorable written
 opinion of in-house counsel to the Borrowers in form and substance satisfactory
 to the Agent and its counsel;

     (d) The Agent shall have received copies of (i) a certificate of good
 standing, for each Borrower, certified as of a date not earlier than 30 days
 prior to the date hereof by the Delaware Secretary of State and (ii) each
 Borrower's articles of incorporation, together with all amendments, and bylaws
 and any amendments thereto, certified by its Secretary or an Assistant
 Secretary

     (e) The Agent shall have received copies of resolutions of each Borrower's
 Board of Directors authorizing the execution and delivery of the Loan Documents
 to which it is a party and the consummation of the transactions contemplated
 thereby, together with specimen signatures of the persons authorized to execute
 such documents on such Borrower's behalf, all certified in each instance by its
 Secretary or Assistant Secretary;

     (f) The Agent shall have received a list of each Borrower's Authorized
 Representatives;

     (g) The Agent shall have received evidence satisfactory to it that the
 indebtedness of Gallagher and/or its Subsidiaries owing to Harris Trust and
 Savings Bank, The Northern Trust Company, LaSalle Bank N.A. and Bank of
 America, N.A. (except for the Existing L/Cs which are to become Letters of
 Credit hereunder as set forth in Section 1.3 hereof), has been fully paid and
 satisfied and that the credit facilities extended by such lenders have been
 terminated;

     (h) The Agent shall have received the fees required by Section 5.1(c)
 hereof; and

     (i) All legal matters incident to the execution and delivery of the Loan
 Documents shall be reasonably satisfactory to the Banks.

Section 8.2. All Credit Events. As of the time of each Credit Event hereunder:

     (a) In the case of a Borrowing of a Revolving Loan or a Short-Term
 Revolving Loan, the Agent shall have received the notice required by Section
 1.6 hereof

                                      -36-
<PAGE>

     (including any deemed notice under Section 1.6(c)); in the case of a Swing
     Loan, Harris shall have received the notice required in Section 2.3 hereof;
     in the case of a Borrowing of a Bid Loan, the Agent shall have received for
     each relevant Bank a Bid Note duly executed by the Borrowers dated as of
     the Borrowing Date and otherwise in compliance with the provisions of
     Section 4.3(c) hereof and the notice required by Section 3.2 hereof; in the
     case of the issuance of any Letter of Credit, the Agent shall have received
     a duly completed Application for such Letter of Credit (along with the fees
     required by Section 5.1(b) hereof); in the case of an extension or increase
     in the amount of a Letter of Credit, the Agent shall have received a
     written request therefor (along with the fees required by Section 5.1(b)
     hereof) in a form acceptable to the Agent;

          (b)  Each of the representations and warranties set forth in Section 7
     hereof shall be true and correct in all material respects as of said time,
     taking into account any amendments to such Section made after the date of
     this Agreement in accordance with its provisions, except that if any such
     representation or warranty relates solely to an earlier date it need only
     remain true as of such date;

          (c)  The Borrowers shall be in full compliance with all of the terms
     and conditions of this Agreement and of the other Loan Documents, and no
     Default or Event of Default shall have occurred and be continuing or would
     occur as a result of such Credit Event;

          (d)  After giving effect to such Credit Event, the aggregate Original
     Dollar Amount of Revolving Loans, Swing Loans and L/C Obligations then
     outstanding shall not exceed the Revolving Credit Commitments;

          (e)  After giving effect to such Credit Event, the aggregate Original
     Dollar Amount of Short-Term Revolving Loans then outstanding shall not
     exceed the Short-Term Revolving Credit Commitments; and

          (f)  Such Credit Event shall not violate any order, judgment or decree
     of any court or other authority or any provision of law or regulation
     applicable to the Agent or any Bank (including, without limitation,
     Regulation U or X of the Board of Governors of the Federal Reserve System).

     Each request for a Borrowing hereunder and each request for the issuance
of, increase in the amount of, or extension of the expiration date of, a Letter
of Credit shall be deemed to be a representation and warranty by the Borrowers
on the date of such Credit Event as to the facts specified in paragraphs (a)
through (e), both inclusive, of this Section 8.2.

Section 9. Covenants.

     The Borrowers covenant and agree that, so long as any Loan or any L/C
Obligation is outstanding hereunder, or any Commitment is available to or in use
by either Borrower hereunder, except to the extent compliance in any case is
waived in writing by the Required Banks:

                                      -37-
<PAGE>

   Section 9.1.   Maintenance of Business. Each Borrower shall, and shall cause
each Subsidiary to, preserve and maintain its existence. Each Borrower shall,
and shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits and franchises necessary to the proper conduct of its
business.

   Section 9.2.   Maintenance of Properties. Each Borrower shall maintain,
preserve and keep its property, plant and equipment necessary to the proper
conduct of its business in good repair, working order and condition (ordinary
wear and tear excepted) and shall from time to time make all needful and proper
repairs, renewals, replacements, additions and betterments thereto so that at
all times the efficiency thereof shall be fully preserved and maintained, and
shall cause each Subsidiary to do so in respect of Property owned or used by it
and necessary to the proper conduct of its business.

   Section 9.3.   Taxes and Assessments. Each Borrower shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all
material taxes, rates, assessments, fees and governmental charges upon or
against it or its Properties, in each case before the same become delinquent and
before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings which prevent
enforcement of the matter under contest and adequate reserves are provided
therefor.

   Section 9.4.   Insurance. Each Borrower shall insure and keep insured, and
shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and Borrower shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
The Borrowers shall upon written request furnish to the Agent and any Bank a
certificate setting forth in summary form the nature and extent of the insurance
maintained pursuant to this Section.

   Section 9.5.   Financial Reports. The Borrowers shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to the Agent, each Bank and their duly authorized
representatives such information respecting the business and financial condition
of the Borrowers and their Subsidiaries as the Agent or such Bank may reasonably
request; and without any request, shall furnish to the Agent and the Banks:

               (a)  as soon as available, and in any event within 45 days after
     the close of each fiscal quarter accounting period of Gallagher, a copy of
     the consolidated and consolidating balance sheet of Gallagher and its
     Subsidiaries as of the last day of such period and the consolidated and
     consolidating statements of income, retained earnings and cash flows of
     Gallagher and its Subsidiaries for the fiscal quarter and for the fiscal
     year-to-date period then ended, each in reasonable detail showing in
     comparative form the figures for the corresponding date and period in the
     previous fiscal year, prepared by

                                      -38-
<PAGE>

     Gallagher in accordance with GAAP and certified to by its President or
     Chief Financial Officer;

               (b)  as soon as available, and in any event within 90 days after
     the close of each annual accounting period of Gallagher, a copy of the
     consolidated and consolidating balance sheet of Gallagher and its
     Subsidiaries as of the last day of the period then ended and the
     consolidated and consolidating statements of income, retained earnings and
     cash flows of Gallagher and its Subsidiaries for the period then ended, and
     accompanying notes thereto, each in reasonable detail showing in
     comparative form the figures for the previous fiscal year, accompanied by
     an unqualified opinion thereon of Ernst & Young LLP or another firm of
     independent public accountants of recognized national standing, selected by
     Gallagher and satisfactory to the Required Banks, to the effect that the
     financial statements have been prepared in accordance with GAAP and present
     fairly in accordance with GAAP the consolidated financial condition of
     Gallagher and its Subsidiaries as of the close of such fiscal year and the
     results of their operations and cash flows for the fiscal year then ended
     and that an examination of such accounts in connection with such financial
     statements has been made in accordance with generally accepted auditing
     standards and, accordingly, such examination included such tests of the
     accounting records and such other auditing procedures as were considered
     necessary in the circumstances;

               (c)  within the period provided in subsection (b) above, the
     written statement of the accountants who certified the audit report thereby
     required that in the course of their audit they have obtained no knowledge
     of any Default or Event of Default, or, if such accountants have obtained
     knowledge of any such Default or Event of Default, they shall disclose in
     such statement the nature and period of the existence thereof;

               (d)  promptly after receipt thereof, any additional written
     reports, management letters or other detailed information contained in
     writing concerning significant aspects of either Borrower's or any
     Subsidiary's operations and financial affairs given to it by its
     independent public accountants;

               (e)  promptly after the sending or filing thereof, a copies of
     all proxy statements, financial statements and reports which each Borrower
     sends to its shareholders, and copies of all regular, periodic and special
     reports and all registration statements which either Borrower files with
     the Securities and Exchange Commission or any successor thereto or with any
     national securities exchange; and

               (f)  promptly after knowledge thereof shall have come to the
     attention of any responsible officer of either Borrower, written notice of
     any threatened or pending litigation or governmental proceeding or labor
     controversy against either Borrower or any Subsidiary which, if adversely
     determined, would have a material adverse effect on the financial
     condition, Properties, business or operations of either Borrower or any
     Subsidiary or of the occurrence of any Default or Event of Default
     hereunder.

                                      -39-
<PAGE>

Each of the financial statements furnished to the Agent and the Banks pursuant
to subsections (a) and (b) of this Section shall be accompanied by a Compliance
Certificate signed by the President or Chief Financial Officer of Gallagher to
the effect that to the best of such officer's knowledge and belief no Default or
Event of Default has occurred during the period covered by such statements or,
if any such Default or Event of Default has occurred during such period, setting
forth a description of such Default or Event of Default and specifying the
action, if any, taken by the Borrowers to remedy the same. Such Compliance
Certificate shall also set forth the calculations supporting such statements in
respect of Sections 9.7, 9.8 and 9.9 of this Agreement.

   Section 9.6.   Inspection. Each Borrower shall, and shall cause each
Subsidiary to, permit the Agent, each Bank and each of their duly authorized
representatives and agents to visit and inspect any of the Properties, corporate
books and financial records of such Borrower and each Subsidiary, to examine and
make copies of the books of accounts and other financial records of such
Borrower and each Subsidiary, and to discuss the affairs, finances and accounts
of such Borrower and each Subsidiary with, and to be advised as to the same by,
its officers, employees and independent public accountants (and by this
provision each Borrower hereby authorizes such accountants to discuss with the
Agent and such Bank the finances and affairs of such Borrower and of each
Subsidiary) at such reasonable times and reasonable intervals as the Agent or
any such Bank may designate.

   Section 9.7.   Net Worth. Gallagher shall not at any time permit its Net
Worth to be less than $200,000,000.

   Section 9.8.   Debt to Net Worth Ratio. Gallagher shall not at any time
permit the ratio of Funded Debt to Net Worth to be more than 1.0 to 1.0.

   Section 9.9.   Fixed Charge Coverage Ratio. Gallagher shall, as of the last
day of each of its fiscal quarters, maintain its Fixed Charge Coverage Ratio for
the four fiscal quarters then ended at not less than 1.50 to 1.0.

   Section 9.10.  Indebtedness for Borrowed Money. The Borrowers shall not,
nor shall they permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:

               (a)  the Obligations;

               (b)  purchase money indebtedness and Capitalized Lease
     Obligations secured by Liens permitted by Section 9.11(d) hereof in an
     amount not to exceed $25,000,000 at any one time outstanding for the
     Borrowers and their Subsidiaries in the aggregate; and

               (c)  Indebtedness for Borrowed Money other than that which is
     permitted by either of the foregoing subsections (a) or (b) provided such
     Indebtedness does not exceed $25,000,000 at any time outstanding for the
     Borrowers and their Subsidiaries in the aggregate.

                                      -40-
<PAGE>

   Section 9.11.  Liens. The Borrowers shall not, nor shall they permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by such Borrower or such Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:

               (a)  Liens arising by statute in connection with worker's
     compensation, unemployment insurance, old age benefits, social security
     obligations, taxes, assessments, statutory obligations or other similar
     charges, good faith cash deposits in connection with tenders, contracts or
     leases to which either Borrower or any Subsidiary is a party or other cash
     deposits required to be made in the ordinary course of business, provided
     in each case that the obligation is not for borrowed money and that the
     obligation secured is not overdue or, if overdue, is being contested in
     good faith by appropriate proceedings which prevent enforcement of the
     matter under contest and adequate reserves have been established therefor;

               (b)  mechanics', workmen's, materialmen's, landlords', carriers',
     or other similar Liens arising in the ordinary course of business with
     respect to obligations which are not due or which are being contested in
     good faith by appropriate proceedings which prevent enforcement of the
     matter under contest;

               (c)  the pledge of assets for the purpose of securing an appeal,
     stay or discharge in the course of any legal proceeding, provided that the
     aggregate amount of liabilities of the Borrowers and their Subsidiaries
     secured by a pledge of assets permitted under this subsection, including
     interest and penalties thereon, if any, shall not be in excess of
     $5,000,000 at any one time outstanding;

               (d)  Liens on Property of either Borrower or any of their
     Subsidiaries created solely for the purpose of securing indebtedness
     permitted by Section 9.10(b) hereof, representing or incurred to finance,
     refinance or refund the purchase price of Property, provided that no such
     Lien shall extend to or cover other Property of such Borrower or such
     Subsidiary other than the respective Property so acquired, and the
     principal amount of indebtedness secured by any such Lien shall at no time
     exceed the original purchase price of such Property;

               (e)  leases or subleases granted to others in the ordinary course
     of business and any interest or title of a lessor under any lease permitted
     by this Agreement;

               (f)  customary rights of set off, revocation, refund or
     chargeback under deposit agreements or under the Uniform Commercial Code in
     favor of banks or other financial institution where either Borrower or any
     Subsidiary maintains deposits in the ordinary course of business;

               (g)  Liens constituting encumbrances in the nature of zoning
     restrictions, condemnations, easements, encroachments, covenants, rights of
     way, minor defects, irregularities and rights or restrictions of record on
     the title or use of real property, which do not materially detract from the
     value of such property or materially impair the use thereof in the business
     of either Borrower or any Subsidiary;

                                      -41-
<PAGE>

               (h)  Liens on limited partnership interests of either Borrower in
     favor of The Chase Manhattan Bank to secure contingent obligations of such
     Borrower; and

               (i)  Liens other than those permitted by any of the foregoing
     subsections (a) through (h) provided such Liens do not secure borrowed
     money and provided further that such Liens secure obligations not exceeding
     $5,000,000.

   Section 9.12.  Investments, Acquisitions, Loans, Advances and Guaranties.
Neither Borrower shall, nor shall they permit any Subsidiary to, directly or
indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances, advances for relocation and other similar cash
advances made to employees in the ordinary course of business) to, any other
Person, or acquire all or any substantial part of the assets or business of any
other Person or division thereof, or be or become liable as endorser, guarantor,
surety or otherwise for any debt, obligation or undertaking of any other Person,
or otherwise agree to provide funds for payment of the obligations of another,
or supply funds thereto or invest therein or otherwise assure a creditor of
another against loss, or apply for or become liable to the issuer of a letter of
credit which supports an obligation of another (other than Letters of Credit
issued hereunder), or subordinate any claim or demand it may have to the claim
or demand of any other Person; provided, however, that the foregoing shall not
apply to nor operate to prevent:

               (a)  investments in direct obligations of the United States of
     America or of any agency or instrumentality thereof whose obligations
     constitute full faith and credit obligations of the United States of
     America, provided that any such obligations shall mature within one year of
     the date of issuance thereof;

               (b)  investments in commercial paper rated at least P-1 by
     Moody's Investors Services, Inc. and at least A-1 by Standard & Poor's
     Corporation maturing within 270 days of the date of issuance thereof;

               (c)  investments in certificates of deposit issued by any United
     States commercial bank having capital and surplus of not less than
     $100,000,000 which have a maturity of one year or less;

               (d)  investments in money market funds that invest solely, and
     which are restricted by their respective charters to invest solely, in
     investments of the type described in the immediately preceding subsections
     (a), (b) and (c) above;

               (e)  endorsement of items for deposit or collection of commercial
     paper received in the ordinary course of business;

               (f)  investments for which the projected tax credits exceed the
     cost of such investments;

               (g)  investments in real estate limited partnerships not
     exceeding $50,000,000 at any one time outstanding for the Borrowers and
     their Subsidiaries in the aggregate;

                                      -42-
<PAGE>

               (h)  investments in hedge funds;

               (i)  equity investments (including investments in preferred and
     common stock) not exceeding $100,000,000 at any one time outstanding for
     the Borrowers and their Subsidiaries in the aggregate;

               (j)  loans to employees not exceeding $10,000,000 at any one time
     outstanding for the Borrowers and their Subsidiaries in the aggregate;

               (k)  intercompany loans and advances between the Borrowers and
     guaranties by either Borrower of the obligations of the other provided that
     such underlying obligations are not prohibited under the terms of this
     Agreement;

               (l)  investments, guarantees and contingent obligations (other
     than those which are permitted by subsections (a) through (k) above) not
     exceeding $25,000,000 at any time outstanding for the Borrowers and their
     Subsidiaries in the aggregate; and

               (m)  acquisitions of all or substantially all of the assets or
     business of any other Person or division thereof, or all or any part of the
     Voting Stock of or other equity interest in any Person (including as such
     an acquisition, any action to participate as a joint venturer in any joint
     venture or as a partner in any partnership), in each case if and so long as
     (i) no Default or Event of Default exists or would exist after giving
     effect to such acquisition, (ii) the Board of Directors or other governing
     body of such Person whose Property or Voting Stock or other equity interest
     is being so acquired has approved the terms of such acquisition and (iii)
     such acquisition involves a line of business which is complementary to the
     lines of business in which the Borrower or the Subsidiary, as the case may
     be, making such acquisition is engaged on the Effective Date.

In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.

   Section 9.13.  Unrealized Losses. The Borrowers shall not at any time
permit unrealized losses on the investments permitted by Section 9.12 to be in
excess of $100,000,000 in the aggregate for the Borrowers and their
Subsidiaries.

   Section 9.14.  Mergers and Consolidations. Neither Borrower shall be a
party to any merger or consolidation unless such Borrower is the surviving
entity and no Default or Event of Default exists or would exist after giving
effect to such merger or consolidation.

   Section 9.15.  Capital Expenditures. The Borrowers shall not, nor shall
they permit any Subsidiaries to, expend or become obligated for Capital
Expenditures in an aggregate amount in excess of $25,000,000 during any fiscal
year of Gallagher.

                                      -43-
<PAGE>

   Section 9.16. ERISA. The Borrowers shall, and shall cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed might result in the
imposition of a Lien against any of its Properties. The Borrowers shall, and
shall cause each Subsidiary to, promptly notify the Agent and each Bank of (i)
the occurrence of any reportable event (as defined in ERISA) with respect to a
Plan, (ii) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii) its
intention to terminate or withdraw from any Plan, and (iv) the occurrence of any
event with respect to any Plan which would result in the incurrence by either
Borrower or any Subsidiary of any material liability, fine or penalty, or any
material increase in the contingent liability of either Borrower or any
Subsidiary with respect to any post-retirement Welfare Plan benefit.

   Section 9.17. Compliance with Laws. The Borrowers shall, and shall cause
each Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a material adverse effect on the financial condition, Properties,
business or operations of Gallagher and its Subsidiaries taken as a whole or
could result in a Lien (other than Liens permitted under Section 9.13 hereof)
upon any of their Property.

   Section 9.18. Burdensome Contracts with Affiliates. Except to the extent
permitted by Section 9.12(j) hereof, the Borrowers shall not, nor shall they
permit any Subsidiary to, enter into any contract, agreement or business
arrangement with any of its Affiliates (other than with Wholly-Owned
Subsidiaries) on terms and conditions which are less favorable to such Borrower
or such Subsidiary than would be usual and customary in similar contracts,
agreements or business arrangements between Persons not affiliated with each
other.

   Section 9.19. No Changes in Fiscal Year. Neither Borrower nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Required Banks.

   Section 9.20. Change in the Nature of Business. The Borrowers shall not,
and shall not permit any Subsidiary to, engage in any business or activity if as
a result the general nature of the business of either Borrower or any Subsidiary
would be changed in any material respect from the general nature of the business
engaged in by such Borrower or such Subsidiary on the date of this Agreement.

Section 10. Events of Default and Remedies.

   Section 10.1. Events of Default. Any one or more of the following shall
constitute an Event of Default:

               (a)  default in the payment when due of all or any part of any
     Obligation payable by the Borrowers, or either of them, hereunder or under
     any other Loan Document (whether at the stated maturity thereof or at any
     other time provided for in this Agreement or such other Loan Document); or

                                      -44-
<PAGE>

               (b)  default in the observance or performance of any covenant set
     forth in Sections 9.5, 9.7, 9.8, 9.9, 9.10, 9.12, 9.13, 9.14, 9.15, 9.16 or
     9.20 hereof; or

               (c)  default in the observance or performance of any other
     provision hereof or of any other Loan Document which is not remedied within
     30 days after the earlier of (i) the date on which such failure shall first
     become known to any officer of either Borrower or (ii) written notice
     thereof is given to the Borrowers by the Agent or any Bank; or

               (d)  any representation or warranty made by the Borrowers, or
     either of them, herein or in any other Loan Document, or in any statement
     or certificate furnished by it pursuant hereto or thereto, or in connection
     with any Loan or other extension of credit made hereunder, proves untrue in
     any material respect as of the date of the issuance or making thereof; or

               (e)  default shall occur under any evidence of Indebtedness for
     Borrowed Money issued, assumed or guaranteed by either Borrower or any
     Subsidiary aggregating in excess of $5,000,000, or under any indenture,
     agreement or other instrument under which the same may be issued, and such
     default shall continue for a period of time sufficient to permit the
     acceleration of the maturity of any such Indebtedness for Borrowed Money
     (whether or not such maturity is in fact accelerated), or any such
     Indebtedness for Borrowed Money shall not be paid when due (whether by
     lapse of time, acceleration or otherwise); or

               (f)  any judgment or judgments, writ or writs, or warrant or
     warrants of attachment, or any similar process or processes in an aggregate
     amount in excess of $10,000,000 shall be entered or filed against either
     Borrower or any Subsidiary or against any of their Property and which
     remains unvacated, unbonded, unstayed or unsatisfied for a period of 30
     days; or

               (g)  either Borrower or any member of its Controlled Group shall
     fail to pay when due an amount or amounts aggregating in excess of
     $2,000,000 which it shall have become liable to pay to the PBGC or to a
     Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
     Plans having aggregate Unfunded Vested Liabilities in excess of $10,000,000
     (collectively, a "Material Plan") shall be filed under Title IV of ERISA by
     either Borrower or any other member of its Controlled Group, any plan
     administrator or any combination of the foregoing; or the PBGC shall
     institute proceedings under Title IV of ERISA to terminate or to cause a
     trustee to be appointed to administer any Material Plan or a proceeding
     shall be instituted by a fiduciary of any Material Plan against either
     Borrower or any member of its Controlled Group to enforce Section 515 or
     4219(c)(5) of ERISA and such proceeding shall not have been dismissed
     within 30 days thereafter; or a condition shall exist by reason of which
     the PBGC would be entitled to obtain a decree adjudicating that any
     Material Plan must be terminated; or

               (h)  the occurrence of a Change of Control; or

                                      -45-
<PAGE>

               (i)  either Borrower or any Subsidiary shall (i) have entered
     involuntarily against it an order for relief under the United States
     Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
     inability to pay, its debts generally as they become due, (iii) make an
     assignment for the benefit of creditors, (iv) apply for, seek, consent to,
     or acquiesce in, the appointment of a receiver, custodian, trustee,
     examiner, liquidator or similar official for it or any substantial part of
     its Property, (v) institute any proceeding seeking to have entered against
     it an order for relief under the United States Bankruptcy Code, as amended,
     to adjudicate it insolvent, or seeking dissolution, winding up,
     liquidation, reorganization, arrangement, adjustment or composition of it
     or its debts under any law relating to bankruptcy, insolvency or
     reorganization or relief of debtors or fail to file an answer or other
     pleading denying the material allegations of any such proceeding filed
     against it, (vi) take any corporate action in furtherance of any matter
     described in parts (i) through (v) above, or (vii) fail to contest in good
     faith any appointment or proceeding described in Section 10.1(j) hereof; or

               (j)  a custodian, receiver, trustee, examiner, liquidator or
     similar official shall be appointed for either Borrower or any Subsidiary
     or any substantial part of any of their Property, or a proceeding described
     in Section 10.1(i)(v) shall be instituted against either Borrower or any
     Subsidiary, and such appointment continues undischarged or such proceeding
     continues undismissed or unstayed for a period of 60 days.

   Section 10.2.    Non-Bankruptcy Defaults. When any Event of Default other
than those described in subsections (i) or (j) of Section 10.1 hereof has
occurred and is continuing, the Agent shall, if so directed by the Required
Banks, by written notice to the Borrowers: (a) terminate the remaining
Commitments and all other obligations of the Banks hereunder on the date stated
in such notice (which may be the date thereof); (b) declare the principal of and
the accrued interest on all outstanding Notes to be forthwith due and payable
and thereupon all outstanding Notes, including both principal and interest
thereon, shall be and become immediately due and payable together with all other
amounts payable under the Loan Documents without further demand, presentment,
protest or notice of any kind; and (c) demand that the Borrowers immediately pay
to the Agent, subject to Section 10.4, the full amount then available for
drawing under each or any Letter of Credit, and the Borrowers agree to
immediately make such payment and acknowledge and agree that the Banks would not
have an adequate remedy at law for failure by the Borrowers to honor any such
demand and that the Agent, for the benefit of the Banks, shall have the right to
require the Borrowers to specifically perform such undertaking whether or not
any drawings or other demands for payment have been made under any Letter of
Credit.

   Section 10.3.    Bankruptcy Defaults. When any Event of Default described in
subsections (i) or (j) of Section 10.1 hereof has occurred and is continuing,
then all outstanding Notes shall immediately become due and payable together
with all other amounts payable under the Loan Documents without presentment,
demand, protest or notice of any kind, the obligation of the Banks to extend
further credit pursuant to any of the terms hereof shall immediately terminate
and the Borrowers shall immediately pay to the Agent, subject to Section 10.4,
the full amount then available for drawing under all outstanding Letters of
Credit, the Borrowers acknowledging that the Banks would not have an adequate
remedy at law for failure by the

                                      -46-
<PAGE>

Borrowers to honor any such demand and that the Banks, and the Agent on their
behalf, shall have the right to require the Borrowers to specifically perform
such undertaking whether or not any draws or other demands for payment have been
made under any of the Letters of Credit.

   Section 10.4.  Collateral for Undrawn Letters of Credit. (a) If the payment
or prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required under Section 1.3(b) or Section 4.5(b) or under
Section 10.2 or Section 10.3 above, the Borrowers shall forthwith pay the amount
required to be so prepaid, to be held by the Agent as provided in subsection (b)
below.

     (b)  All amounts prepaid pursuant to subsection (a) above shall be held by
the Agent in a separate collateral account (such account, and the credit
balances, properties and any investments from time to time held therein, and any
substitutions for such account, any certificate of deposit or other instrument
evidencing any of the foregoing and all proceeds of and earnings on any of the
foregoing being collectively called the "Account") as security for, and for
application by the Agent (to the extent available) to, the reimbursement of any
payment under any Letter of Credit then or thereafter made by the Agent, and to
the payment of the unpaid balance of any Loans and all other Obligations. The
Account shall be held in the name of and subject to the exclusive dominion and
control of the Agent for the benefit of the Agent and the Banks. If and when
requested by the Borrowers, the Agent shall invest funds held in the Account
from time to time in direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America with a remaining maturity of one year or less, provided that the Agent
is irrevocably authorized to sell investments held in the Account when and as
required to make payments out of the Account for application to amounts due and
owing from the Borrowers to the Agent or Banks; provided, however, that if (i)
the Borrowers shall have made payment of all such obligations referred to in
subsection (a) above and (ii) no Letters of Credit, Commitments, Loans or other
Obligations remain outstanding hereunder, then the Agent shall repay to the
Borrowers any remaining amounts held in the Account.

   Section 10.5.  Notice of Default. The Agent shall give notice to the
Borrowers under Section 10.1(c) hereof promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof.

   Section 10.6.  Expenses. The Borrowers jointly and severally agree to pay to
the Agent, for the account of the Agent and each Bank, and any other holder of
any Note outstanding hereunder, all out-of-pocket expenses incurred or paid by
the Agent and such Bank or any such holder, including attorneys' fees and court
costs, in connection with any Default or Event of Default by the Borrowers, or
either of them, hereunder or in connection with the enforcement of any of the
Loan Documents.

Section 11.  Change in Circumstances.

   Section 11.1.  Change of Law. Notwithstanding any other provisions of this
Agreement or any Note, if at any time after the date hereof any Bank shall
determine in good faith that any change in applicable laws, treaties or
regulations or in the interpretation thereof makes it unlawful for such Bank to
make or continue to maintain Eurocurrency Loans or to perform its

                                      -47-
<PAGE>

obligations as contemplated hereby, such Bank shall promptly give notice thereof
to the Agent (which shall in turn promptly notify the Borrowers and the other
Banks) and such Bank's obligations to make or maintain Eurocurrency Loans under
this Agreement shall terminate until it is no longer unlawful for such Bank to
make or maintain Eurocurrency Loans. The Borrowers shall prepay on demand the
outstanding principal amount of any such affected Eurocurrency Loans, together
with all interest accrued thereon and all other amounts payable to the affected
Bank with respect thereto; provided, however, subject to all of the terms and
conditions of this Agreement, the Borrowers may then elect to borrow the
principal amount of the affected Eurocurrency Loans from such Bank by means of
Domestic Rate Loans from such Bank, which Domestic Rate Loans shall not be made
ratably by the Banks but only from such affected Bank.

   Section 11.2.  Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, Adjusted LIBOR. If on or prior to the first day of any Interest
Period for any Borrowing of Eurocurrency Loans:

               (a)  the Agent determines that deposits in U.S. Dollars or the
     applicable Alternative Currency (in the applicable amounts) are not being
     offered to it in the eurocurrency interbank market for such Interest
     Period, or that by reason of circumstances affecting the interbank
     eurocurrency market adequate and reasonable means do not exist for
     ascertaining the applicable Adjusted LIBOR, or

               (b)  the Required Banks determine and so advise the Agent that
     Adjusted LIBOR as determined by the Agent will not adequately and fairly
     reflect the cost to such Banks of funding their Eurocurrency Loans or Loan
     for such Interest Period,

then the Agent shall forthwith give notice thereof to the Borrowers and the
Banks, whereupon until the Agent notifies the Borrowers that the circumstances
giving rise to such suspension no longer exist, the obligations of the Banks to
make Eurocurrency Loans in the currency so affected shall be suspended.

   Section 11.3.  Increased Cost and Reduced Return. (a) If, on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Lending Office) with any request or directive (whether or not having the force
of law but, if not having the force of law, compliance with which is customary
in the relevant jurisdiction) of any such authority, central bank or comparable
agency:

               (i)  shall subject any Bank (or its Lending Office) to any tax,
     duty or other charge with respect to its Eurocurrency Loans, its Notes, its
     Letters of Credit, or its participation in any thereof, any Reimbursement
     Obligations owed to it or its obligation to make Eurocurrency Loans, issue
     Letters of Credit, or to participate therein, or shall change the basis of
     taxation of payments to any Bank (or its Lending Office) of the principal
     of or interest on its Eurocurrency Loans, Letters of Credit, or
     participations therein or any other amounts due under this Agreement in
     respect of its Eurocurrency Loans, Letters of Credit, or participations
     therein, any Reimbursement Obligations owed

                                      -48-
<PAGE>

     to it, or its obligation to make Eurocurrency Loans, issue a Letter of
     Credit, or acquire participations therein (except for changes in the rate
     of tax on the overall net income or profits of such Bank or its Lending
     Office imposed by the jurisdiction in which such Bank or its lending office
     is incorporated, or in which such Bank's principal executive office or
     Lending Office is located); or

               (ii) shall impose, modify or deem applicable any reserve, special
     deposit or similar requirement (including, without limitation, any such
     requirement imposed by the Board of Governors of the Federal Reserve
     System, but excluding with respect to any Eurocurrency Loans any such
     requirement included in an applicable Eurocurrency Reserve Percentage)
     against assets of, deposits with or for the account of, or credit extended
     by, any Bank (or its Lending Office) or shall impose on any Bank (or its
     Lending Office) or on the interbank market any other condition affecting
     its Eurocurrency Loans, its Notes, its Letters of Credit, or its
     participation in any thereof, any Reimbursement Obligation owed to it, or
     its obligation to make Eurocurrency Loans, to issue a Letter of Credit, or
     to participate therein;

and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Eurocurrency Loan, issuing or
maintaining a Letter of Credit, or participating therein, or to reduce the
amount of any sum received or receivable by such Bank (or its Lending Office)
under this Agreement or under its Notes with respect thereto, by an amount
deemed by such Bank to be material, then, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrowers shall be obligated to pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased cost or reduction. In the event any law, rule, regulation or
interpretation described above is revoked, declared invalid or inapplicable or
is otherwise rescinded, and as a result thereof a Bank is determined to be
entitled to a refund from the applicable authority for any amount or amounts
which were paid or reimbursed by the Borrowers to such Bank hereunder, such Bank
shall refund such amount or amounts to the Borrowers without interest.

     (b)  If any Bank or the Agent shall have determined that the adoption,
after the date hereof, of any applicable law, rule or regulation regarding
capital adequacy, or any change therein (including, without limitation, any
revision in the Final Risk-Based Capital Guidelines of the Board of Governors of
the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225,
Appendix A) or of the Office of the Comptroller of the Currency (12 CFR Part 3,
Appendix A), or in any other applicable capital rules heretofore adopted and
issued by any governmental authority), or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Lending Office) with any request or directive regarding
capital adequacy (whether or not having the force of law but, if not having the
force of law, compliance with which is customary in the applicable jurisdiction)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital, or on the capital
of any corporation controlling such Bank, as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material,

                                      -49-
<PAGE>

then from time to time, within 15 days after demand by such Bank (with a copy to
the Agent), the Borrowers shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.

          (c) Each Bank that determines to seek compensation under this Section
11.3 shall notify the Borrowers and the Agent of the circumstances that entitle
the Bank to such compensation pursuant to this Section 11.3 and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any Bank claiming
compensation under this Section 11.3 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive if reasonably determined.

        Section 11.4. Lending Offices. Each Bank may, at its option, elect to
make its Loans hereunder at the branch, office or affiliate specified on the
appropriate signature page hereof (each a "Lending Office") for each type of
Loan available hereunder or at such other of its branches, offices or affiliates
as it may from time to time elect and designate in a written notice to the
Borrowers and the Agent.

        Section 11.5. Discretion of Bank as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Bank shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if each Bank had
actually funded and maintained each Eurocurrency Loan through the purchase of
deposits of U.S. Dollars or the relevant Alternative Currency in the
eurocurrency interbank market having a maturity corresponding to such Loan's
Interest Period and bearing an interest rate equal to Adjusted LIBOR for such
Interest Period.

Section 12.  THE AGENT.

        Section 12.1. Appointment and Authorization of Agent. Each Bank hereby
appoints Harris Trust and Savings Bank as the Agent under the Loan Documents and
hereby authorizes the Agent to take such action as the Agent on its behalf and
to exercise such powers under the Loan Documents as are delegated to the Agent
by the terms thereof, together with such powers as are reasonably incidental
thereto.

        Section 12.2. Agent and its Affiliates. The Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and the Agent and its affiliates may accept deposits from, lend money
to, and generally engage in any kind of business with either Borrower or any
Affiliate of either Borrower as if it were not the Agent under the Loan
Documents. The term "Bank" as used herein and in all other Loan Documents,
unless the context otherwise clearly requires, includes the Agent in its
individual capacity as a Bank. References in Section 1 hereof to the Agent's
Loans, or to the amount owing to the Agent for which an interest rate is being
determined, refer to the Agent in its individual capacity as a Bank.

                                      -50-
<PAGE>

        Section 12.3. Action by Agent. If the Agent receives from the Borrowers
a written notice of an Event of Default pursuant to Section 9.6(c)(i) hereof,
the Agent shall promptly give each of the Banks written notice thereof. The
Banks expressly agree that the Agent is not acting as a fiduciary of the Banks
in respect of the Loan Documents, the Borrowers or otherwise, and nothing herein
or in any of the other Loan Documents shall result in any duties or obligations
on the Agent or any of the Banks except as expressly set forth herein. The
obligations of the Agent under the Loan Documents are only those expressly set
forth therein. Without limiting the generality of the foregoing, the Agent shall
not be required to take any action hereunder with respect to any Default or
Event of Default, except as expressly provided in Sections 10.2 and 10.5 hereof.
In no event, however, shall the Agent be required to take any action in
violation of applicable law or of any provision of any Loan Document, and the
Agent shall in all cases be fully justified in failing or refusing to act
hereunder or under any other Loan Document unless it shall be first indemnified
to its reasonable satisfaction by the Banks against any and all costs, expense,
and liability which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall be entitled to assume that no Default or
Event of Default exists unless notified to the contrary by a Bank or the
Borrowers. In all cases in which this Agreement and the other Loan Documents do
not require the Agent to take certain actions, the Agent shall be fully
justified in using its discretion in failing to take or in taking any action
hereunder and thereunder.

        Section 12.4. Consultation with Experts. The Agent may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.

        Section 12.5. Liability of Agent; Credit Decision. Neither the Agent nor
any of its directors, officers, agents, or employees shall be liable for any
action taken or not taken by it in connection with the Loan Documents (i) with
the consent or at the request of the Required Banks or (ii) in the absence of
its own gross negligence or willful misconduct. Neither the Agent nor any of its
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement, any other Loan Document
or any Credit Event; (ii) the performance or observance of any of the covenants
or agreements of the Borrowers contained herein or in any other Loan Document;
(iii) the satisfaction of any condition specified in Section 8 hereof, except
receipt of items required to be delivered to the Agent; or (iv) the validity,
effectiveness, genuineness, enforceability, perfection, value, worth or
collectibility hereof or of any other Loan Document or of any other documents or
writing furnished in connection with any Loan Document; and the Agent makes no
representation of any kind or character with respect to any such matter
mentioned in this sentence. The Agent may execute any of its duties under any of
the Loan Documents by or through employees, agents, and attorneys-in-fact and
shall not be answerable to the Banks, the Borrowers, or any other Person for the
default or misconduct of any such agents or attorneys-in-fact selected with
reasonable care. The Agent shall not incur any liability by acting in reliance
upon any notice, consent, certificate, other document or statement (whether
written or oral) believed by it to be genuine or to be sent by the proper party
or parties. In particular and without limiting any of the foregoing, the Agent
shall have no responsibility for confirming the accuracy of any Compliance
Certificate or other document or instrument received

                                      -51-
<PAGE>

by it under the Loan Documents. The Agent may treat the payee of any Note as the
holder thereof until written notice of transfer shall have been filed with the
Agent signed by such payee in form satisfactory to the Agent. Each Bank
acknowledges that it has independently and without reliance on the Agent or any
other Bank, and based upon such information, investigations and inquiries as it
deems appropriate, made its own credit analysis and decision to extend credit to
the Borrowers in the manner set forth in the Loan Documents. It shall be the
responsibility of each Bank to keep itself informed as to the creditworthiness
of the Borrowers and the Agent shall have no liability to any Bank with respect
thereto.

        Section 12.6.   Indemnity. The Banks shall ratably, in accordance with
their respective Percentages, indemnify and hold the Agent, and its directors,
officers, employees, agents and representatives harmless from and against any
liabilities, losses, costs or expenses suffered or incurred by it under any Loan
Document or in connection with the transactions contemplated thereby, regardless
of when asserted or arising, except to the extent they are promptly reimbursed
for the same by the Borrowers and except to the extent that any event giving
rise to a claim was caused by the gross negligence or willful misconduct of the
party seeking to be indemnified. The obligations of the Banks under this Section
12.6 shall survive termination of this Agreement.

        Section 12.7.   Resignation of Agent and Successor Agent. The Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrowers. Upon any such resignation of the Agent, the Required Banks shall have
the right to appoint a successor Agent with the consent of the Borrowers. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be any Bank hereunder or any commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $200,000,000. Upon
the acceptance of its appointment as the Agent hereunder, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring or removed Agent under the Loan Documents, and the retiring Agent
shall be discharged from its duties and obligations thereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
12 and all protective provisions of the other Loan Documents shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.

        Section 12.8.   Syndication Agent and Documentation Agent. The financial
institutions named in the first paragraph of this Agreement as Syndication Agent
and Documentation Agent shall have no duties or responsibilities for the
administration of this Agreement or the other Loan Documents.

Section 13.    Miscellaneous.

        Section 13.1.   Withholding Taxes. (a) Payments Free of Withholding.
Except as otherwise required by law and subject to Section 13.1(b) hereof, each
payment by the Borrowers under this Agreement or the other Loan Documents shall
be made without withholding for or on account of any present or future taxes
(other than overall net income taxes on the recipient) imposed by or within the
jurisdiction in which either Borrower is domiciled, any jurisdiction from which
the

                                      -52-
<PAGE>

Borrowers make any payment, or (in each case) any political subdivision or
taxing authority thereof or therein. If any such withholding is so required, the
Borrowers shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest accrues
thereon and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by each Bank and the Agent free and clear
of such taxes (including such taxes on such additional amount) is equal to the
amount which that Bank or the Agent (as the case may be) would have received had
such withholding not been made. If the Agent or any Bank pays any amount in
respect of any such taxes, penalties or interest, the Borrowers shall reimburse
the Agent or that Bank for that payment on demand in the currency in which such
payment was made. If the Borrowers pay any such taxes, penalties or interest,
they shall deliver official tax receipts evidencing that payment or certified
copies thereof to the Bank or Agent on whose account such withholding was made
(with a copy to the Agent if not the recipient of the original) on or before the
thirtieth day after payment.

          (b) U.S. Withholding Tax Exemptions. Each Bank that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Borrowers and the Agent on or before the earlier of the initial
Credit Event and 30 days after the date hereof, two duly completed and signed
copies of either Form 1001 (or substantially similar substitute forms) (relating
to such Bank and entitling it to a complete exemption from withholding under the
Code on all amounts to be received by such Bank, including fees, pursuant to the
Loan Documents and the Loans) or Form 4224 (or substantially similar substitute
forms) (relating to all amounts to be received by such Bank, including fees,
pursuant to the Loan Documents and the Loans) of the United States Internal
Revenue Service. Thereafter and from time to time, each Bank shall submit to the
Borrowers and the Agent such additional duly completed and signed copies of one
or the other of such Forms (or such successor forms as shall be adopted from
time to time by the relevant United States taxing authorities) as may be (i)
requested by the Borrowers in a written notice, directly or through the Agent,
to such Bank and (ii) required under then-current United States law or
regulations to avoid or reduce United States withholding taxes on payments in
respect of all amounts to be received by such Bank, including fees, pursuant to
the Loan Documents or the Loans.

         (c) Inability of Bank to Submit Forms. If any Bank determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Borrowers or Agent any form or certificate that such Bank is obligated to submit
pursuant to subsection (b) of this Section 13.1 or that such Bank is required to
withdraw or cancel any such form or certificate previously submitted or any such
form or certificate otherwise becomes ineffective or inaccurate, such Bank shall
promptly notify the Borrowers and Agent of such fact and the Bank shall to that
extent not be obligated to provide any such form or certificate and will be
entitled to withdraw or cancel any affected form or certificate, as applicable.

        Section 13.2. No Waiver of Rights. No delay or failure on the part of
the Agent or any Bank or on the part of any holder or holders of any of the
Obligations in the exercise of any power or right under any Loan Document shall
operate as a waiver thereof, nor as an acquiescence in any default, nor shall
any single or partial exercise thereof preclude any other or further exercise of
any other power or right. The rights and remedies hereunder of the Agent, the

                                      -53-
<PAGE>

Banks and any holder or holders of any of the Obligations are cumulative to, and
not exclusive of, any rights or remedies which any of them would otherwise have.

        Section 13.3. Non-Business Day. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.

        Section 13.4. Documentary Taxes. The Borrowers agree that they will pay
any documentary, stamp or similar taxes payable in respect of any Loan Document,
including interest and penalties, in the event any such taxes are assessed,
irrespective of when such assessment is made and whether or not any credit is
then in use or available hereunder.

        Section 13.5. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Loan Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as any credit is in use or available hereunder.

        Section 13.6. Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield of the Banks with respect to the Loans, including, but not
limited to, Section 4.6, Section 11.3 and Section 13.15 hereof, shall survive
the termination of this Agreement and the other Loan Documents and the payment
of the Loans and all other Obligations.

        Section 13.7. Sharing of Set-Off. Each Bank agrees with each other Bank
which is a party hereto that if such Bank shall receive and retain any payment,
whether by set-off or application of deposit balances or otherwise ("Set-off"),
on any of the Loans or Reimbursement Obligations in excess of its ratable share
of payments on all such obligations then outstanding to the Banks, then such
Bank shall purchase for cash at face value, but without recourse, ratably from
each of the other Banks such amount of the Loans or Reimbursement Obligations,
or participations therein, held by each such other Banks (or interest therein)
as shall be necessary to cause such Bank to share such excess payment ratably
with all the other Banks; provided, however, that if any such purchase is made
by any Bank, and if such excess payment or part thereof is thereafter recovered
from such purchasing Bank, the related purchases from the other Banks shall be
rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest. For purposes of this Section
13.7, amounts owed to or recovered by, the Agent in connection with
Reimbursement Obligations in which Banks have been required to fund their
participation shall be treated as amounts owed to or recovered by the Agent as a
Bank hereunder.

        Section 13.8. Notices. Except as otherwise specified herein, all notices
under the Loan Documents shall be in writing (including telecopy or other
electronic communication) and shall be given to a party hereunder at its address
or telecopier number set forth below or such other address or telecopier number
as such party may hereafter specify by notice to the Agent and the

                                      -54-
<PAGE>

Borrowers, given by courier, by United States certified or registered mail, or
by other telecommunication device capable of creating a written record of such
notice and its receipt. Notices under the Loan Documents to the Banks and the
Agent shall be addressed to their respective addresses, telecopier or telephone
numbers set forth on the signature pages hereof, and to the Borrowers shall be
addressed in care of Gallagher as follows:

                          Arthur J. Gallagher & Co.
                          The Gallagher Centre
                          Two Pierce Place
                          Itasca, Illinois 60143-3141
                          Attention:  General Counsel
                          Telephone: (630) 285-3457
                          Telecopy: (630) 285-3483

          Each such notice, request or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section 13.8 or on the signature pages hereof and a
confirmation of receipt of such telecopy has been received by the sender, (ii)
if given by courier, when delivered, (iii) if given by mail, three business days
after such communication is deposited in the mail, registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section 13.8 or on the
signature pages hereof; provided that any notice given pursuant to Section 1
hereof shall be effective only upon receipt.

        Section 13.9.   Counterparts. This Agreement may be executed in any
number of counterpart signature pages, and by the different parties on different
counterparts, each of which when executed shall be deemed an original but all
such counterparts taken together shall constitute one and the same instrument.

       Section 13.10.   Successors and Assigns. This Agreement shall be binding
upon the Borrowers and their successors and assigns, and shall inure to the
benefit of each of the Banks and the benefit of their respective successors and
assigns, including any subsequent holder of any Note. The Borrowers may not
assign any of their rights or obligations under any Loan Document without the
written consent of all of the Banks.

       Section 13.11.   Participants and Note Assignees. Each Bank shall have
the right at its own cost to grant participations (to be evidenced by one or
more agreements or certificates of participation) in the Loans made and
Reimbursement Obligations and/or Commitments and/or participations in Swing
Loans held by such Bank at any time and from time to time, and to assign its
rights under such Loans or the Notes evidencing such Loans or Reimbursement
Obligations, to one or more other banks, insurance companies, commercial lenders
and other financial institutions; provided that no such participation or
assignment shall relieve any Bank of any of its obligations under this
Agreement, and provided further that no such assignee or participant shall have
any rights under this Agreement except as provided in this Section 13.11, and
the Agent shall have no obligation or responsibility to such participant or
assignee, except that nothing herein provided is intended to affect the rights
of an assignee of a Note to enforce the Note assigned. Any party to which such a
participation or assignment has been granted shall have the

                                      -55-
<PAGE>

benefits of Section 4.6 and Section 11.3 hereof but shall not be entitled to
receive any greater payment under either such Section than the Bank granting
such participation or assignment would have been entitled to receive with
respect to the rights transferred. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrowers
hereunder including, without limitation, the right to approve any amendment or
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement that would (A) increase any
Commitment of such Bank if such increase would also increase the participant's
obligations, (B) forgive any amount of or postpone the date for payment of any
principal of or interest on any Loan or Reimbursement Obligation or of any fee
payable hereunder in which such participant has an interest or (C) reduce the
stated rate at which interest or fees accrue or other amounts payable hereunder
in which such participant has an interest. Each Borrower authorizes each Bank to
disclose to any participant or prospective participant under this Section 13.11
any financial or other information pertaining to the Borrowers, subject to
Section 13.21 hereof.

       Section 13.12. Assignment Agreements. Each Bank may, from time to time
upon at least five Business Days' notice to the Agent and the Borrowers, assign
to other Persons all or any part of its rights and obligations under this
Agreement (including without limitation the indebtedness evidenced by each Note
then owned by such assigning Bank, together with an equivalent proportion of its
obligation to make Loans and advances and participate in Letters of Credit and
Swing Loans hereunder) pursuant to written agreements in the form attached
hereto as Exhibit K executed by such assigning Bank, such assignee Bank or
Banks, the Borrowers and the Agent, which agreements shall specify in each
instance the portion of the indebtedness evidenced by each Note which is to be
assigned to each such assignee lender and the portion of the Commitments, and
obligations to participate in Letters of Credit and Swing Loans, in each case of
the assigning Bank to be assumed by such assignee lender (the "Assignment
Agreements"); provided, however, that (i) each such assignment shall be of a
constant, and not a varying, percentage of the assigning Bank's rights and
obligations under this Agreement and the assignment shall cover the same
percentage of such Bank's Commitments, Loans, Notes and interests in Letters of
Credit and Swing Loans; (ii) the aggregate amount of the Revolving Credit
Commitment and Short-Term Revolving Credit Commitment of the assigning Bank
being assigned pursuant to each such assignment (determined as of the effective
date of the relevant Assignment Agreement) shall in no event be less than
$5,000,000; (iii) the assigning Bank shall assign an identical percentage of its
Revolving Credit Commitment and its Short-Term Credit Commitment, (iv) each Bank
shall maintain for its own account at least $5,000,000 of its Revolving Credit
Commitment and Short-Term Revolving Credit Commitment and the Agent must retain
all of the Swing Line Commitment; (v) the Agent and the Borrowers must each
consent (which consents shall not be unreasonably withheld) to each such
assignment (except that the Borrowers' consent shall not be required if such
assignment is made after an Event of Default has occurred and is continuing) to
a party which is not a Bank at such time except that such consents shall not be
required in connection with an assignment by a Bank to a wholly-owned subsidiary
of such Bank; and (vi) the assigning Bank must pay to the Agent a processing and
recordation fee of $3,500 and any out-of-pocket attorney's fees incurred by the
Agent in connection with such Assignment Agreement. Upon the execution of each
Assignment

                                      -56-
<PAGE>

Agreement by the assigning Bank thereunder, the assignee lender thereunder, the
Borrowers (if applicable) and the Agent and payment to such assigning Bank by
such assignee lender of the purchase price for the portion of the indebtedness
of the Borrowers being acquired by it, (i) such assignee lender shall thereupon
become a "Bank" for all purposes of this Agreement with Commitments (including
the related obligations to participate in Letters of Credit and Swing Loans) in
the amounts set forth in such Assignment Agreement and with all the rights,
powers and obligations afforded a Bank hereunder, (ii) such assigning Bank shall
have no further liability for funding the portion of its Commitments (including
the related obligations to participate in Letters of Credit and Swing Loans)
assumed by such new assignee Bank and (iii) the address for notices to such
assignee Bank shall be as specified in the Assignment Agreement executed by it.
Concurrently with the execution and delivery of such Assignment Agreement, the
Borrowers shall upon request execute and deliver new Notes to the assignee Bank
in the amount of its Revolving Credit Commitment, Short-Term Revolving Credit
Commitment and Bid Loans (and a Swing Line Note if such assignee Bank is
concurrently with such assignment becoming a new Agent), and new Bid Notes to
the assigning Bank in the amount of its Bid Loans after giving effect to the
reduction occasioned by such assignment, all such Notes to constitute "Notes"
for all purposes of this Agreement. Nothing in this Section 13.12 shall prevent
or prohibit any Bank which is a bank, trust company or other financial
institution from pledging its Notes or Loans to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank; no such
pledge, or any assignment pursuant to or in lieu of an enforcement of such a
pledge, shall relieve the transferor Bank from its obligations hereunder.

       Section 13.13.   Amendments. Any provision of the Loan Documents may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by (a) the Borrowers, (b) the Required Banks, and (c) if the rights or
duties of the Agent are affected thereby, the Agent; provided that:

                   (i)  no amendment or waiver pursuant to this Section 13.13
         shall (A) increase any Commitment of any Bank without the consent of
         such Bank or (B) forgive, or reduce the amount of, or postpone any
         fixed date for payment of, any principal of or interest on any Loan or
         Reimbursement Obligation or any fee payable hereunder without the
         consent of each Bank or (C) reduce the stated rate at which interest or
         any fee hereunder is calculated; and

                  (ii)  no amendment or waiver pursuant to this Section 13.13
         shall, unless signed by each Bank, change any provision of Section 8,
         Section 10.1(a), Section 11, this Section 13.13, or the definition of
         Required Banks, or affect the number of Banks required to take any
         action under the Loan Documents.

       Section 13.14.   Headings. Section headings used in this Agreement are
for reference only and shall not affect the construction of this Agreement.

       Section 13.15.   Legal Fees, Other Costs and Indemnification. The
Borrowers jointly and severally agree to pay all costs and expenses of the Agent
in connection with the preparation and negotiation of the Loan Documents,
including without limitation, the fees and disbursements of Chapman and Cutler,
counsel to the Agent, in connection with the preparation and execution of

                                      -57-
<PAGE>

the Loan Documents, and any amendment, waiver or consent related hereto, whether
or not the transactions contemplated herein are consummated. The Borrowers
further agree to indemnify each Bank, the Agent, and their respective directors,
officers and employees against all losses, claims, damages, penalties,
judgments, liabilities and related expenses (including, without limitation, all
expenses of litigation or preparation therefor, whether or not the indemnified
Person is a party thereto) which any of them may incur or reasonably pay arising
out of or relating to any Loan Document or any of the transactions contemplated
thereby or the direct or indirect application or proposed application of the
proceeds of any Loan or Letter of Credit, other than those which arise from the
gross negligence or willful misconduct of the party claiming indemnification.
The Borrowers, upon demand by the Agent or a Bank at any time, shall reimburse
the Agent or Bank for any legal or other expenses incurred in connection with
investigating or defending against any of the foregoing except if the same is
directly due to the gross negligence or willful misconduct of the party to be
indemnified.

       Section 13.16. Set Off. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Bank and each subsequent holder of any Note is hereby authorized by the
Borrowers at any time or from time to time, without notice to the Borrowers or
to any other Person, any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured, but not including trust accounts, and in
whatever currency denominated) and any other indebtedness at any time held or
owing by that Bank or that subsequent holder to or for the credit or the account
of either Borrower, whether or not matured, against and on account of the
obligations and liabilities of the Borrowers to that Bank or that subsequent
holder under the Loan Documents, including, but not limited to, all claims of
any nature or description arising out of or connected with the Loan Documents,
irrespective of whether or not (a) that Bank or that subsequent holder shall
have made any demand hereunder or (b) the principal of or the interest on the
Loans or Notes and other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or any of
them, may be contingent or unmatured.

       Section 13.17. Currency. Each reference in this Agreement to U.S. Dollars
or to an Alternative Currency (the "relevant currency") is of the essence. To
the fullest extent permitted by law, the obligation of the Borrowers in respect
of any amount due in the relevant currency under this Agreement shall,
notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in the
relevant currency that the Person entitled to receive such payment may, in
accordance with normal banking procedures, purchase with the sum paid in such
other currency (after any premium and costs of exchange) on the Business Day
immediately following the day on which such Person receives such payment. If the
amount of the relevant currency so purchased is less than the sum originally due
to such Person in the relevant currency, the Borrowers agree, as a separate
obligation and notwithstanding any such judgment, to indemnify such Person
against such loss, and if the amount of the specified currency so purchased
exceeds the sum of (a) the amount originally due to the relevant Person in the
specified currency plus (b) any amounts shared with other Banks as a result of
allocations of such excess as a disproportionate payment to such Person under
Section 13.7 hereof, such Person agrees to remit such excess to the Borrowers.

                                      -58-
<PAGE>

       Section 13.18.    Entire Agreement. The Loan Documents constitute the
entire understanding of the parties thereto with respect to the subject matter
thereof and any prior or contemporaneous agreements, whether written or oral,
with respect thereto are superseded thereby.

       Section 13.19.    Governing Law. This Agreement and the other Loan
Documents, and the rights and duties of the parties hereto, shall be construed
and determined in accordance with the internal laws of the State of Illinois.

       Section 13.20.    Submission to Jurisdiction; Waiver of Jury Trial. Each
Borrower hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. Each Borrower 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. EACH BORROWER, THE AGENT, AND EACH BANK HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.

       Section 13.21.    Confidentiality. Each Bank agrees to maintain in
confidence and not to disclose without the Borrowers' consent (other than to its
employees, affiliates, auditors, counsel or other professional advisors, or to
another Bank, each of which shall also be bound by this Section 13.21) any
information concerning the Borrowers or any Subsidiaries furnished pursuant to
this Agreement and identified as confidential by the party so furnishing such
information; provided that any Bank may disclose any such information (a) that
has become generally available to the public, (b) if required or appropriate in
any report, statement or testimony submitted to any regulatory body having or
claiming to have jurisdiction over such Bank, (c) if required or appropriate in
response to any summons or subpoena or in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to such
Bank, or (e) to any prospective or actual participant under Section 13.11 or
13.12 hereof in connection with any contemplated or actual transfer of a
participating or other interest in such Bank's rights or obligations hereunder;
provided, that (i) such actual or prospective transferee executes an agreement
with such Bank containing provisions substantially identical to those contained
in this Section 13.21 and (ii) in the case of any disclosure under subsection
(c) above, such Bank shall (to the extent permitted by applicable law) notify
the Borrowers of such disclosure so that the Borrowers may seek an appropriate
protective order or waive such Bank's compliance with the provisions of this
Section, it being understood that if the Borrowers have no right to obtain such
a protective order or if the Borrowers do not commence procedures to obtain such
a protective order within ten business days of the receipt of such notice, such
Bank's compliance with this Section shall be deemed to have been waived with
respect to such disclosure.

                                      -59-
<PAGE>

         Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.

         Dated as of September 11, 2000.

                                           ARTHUR J. GALLAGHER & CO.

                                           By
                                             Name:  __________________________
                                             Title: __________________________

                                           AJG FINANCIAL SERVICES, INC.

                                           By
                                              Name:  _________________________
                                              Title: _________________________

                                      -60-
<PAGE>

Accepted and agreed to as of the day and year last above written.

Address and Amount of Commitments:

Address:                                    Harris Trust and Savings Bank, in
                                              its individual capacity as a Bank
                                              and in its capacity as Agent

Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois  60690
Attn.:  Emerging Majors Illinois            By__________________________________
Telecopy:  (312) 293-4856                     Name: ____________________________
Telephone:  (312) 461-2781                    Title: ___________________________

Revolving Credit Commitment:  $15,000,000

Short-Term Revolving Credit Commitment:  $30,000,000

Swing Line Commitment:  $30,000,000

Lending Offices:

Domestic Rate Loans:

         111 West Monroe Street
         Chicago, Illinois  60690

Eurocurrency Loans:

         Nassau Branch
         c/o 111 West Monroe Street
         Chicago, Illinois  60690

                                      -61-
<PAGE>

Address and Amount of Commitments:

Address:                                         Citibank, N.A.

Citibank, N.A.
399 Park Avenue
12th Floor - Zone 8                              By_____________________________
New York, New York  10043                          Name:________________________
Attn.: Peter Bickford                              Title:_______________________
Telecopy: (212) 935-4285
Telephone: (212) 559-8146

Revolving Credit Commitment:  $12,500,000

Short-Term Revolving Credit Commitment:  $25,000,000

Lending Offices:

Domestic Rate Loans:

         2 Penn's Way
         Suite 200
         New Castle, Delaware  19720
         Attn.: Sally Schoenleber
         Telephone:  (302) 894-6061

Eurocurrency Loans:

         2 Penn's Way
         Suite 200
         New Castle, Delaware  19720
         Attn.: Sally Schoenleber
         Telephone:  (302) 894-6061

                                      -62-
<PAGE>

Address and Amount of Commitments:

Address:                                         Bank of America, N.A.

Bank of America, N.A.
231 South LaSalle Street

10th Floor                                       By_____________________________
Chicago, Illinois  60697                           Name:________________________
Attn.: Elizabeth Bishop                            Title:_______________________
Telecopy: (312) 987-0889
Telephone: (312) 828-6550

Revolving Credit Commitment:  $12,500,000

Short-Term Revolving Credit Commitment:  $25,000,000

Lending Offices:

Domestic Rate Loans:

         231 South LaSalle Street
         10th Floor
         Chicago, Illinois  60697
         Attn.: Chris Morris

Eurocurrency Loans:

         231 South LaSalle Street
         10th Floor
         Chicago, Illinois  60697
         Attn.: Chris Morris

                                      -63-
<PAGE>

Address and Amount of Commitments:

Address:                                      LaSalle Bank National Association

LaSalle Bank National Association
135 South LaSalle Street

Suite 1126                                    By________________________________
Chicago, Illinois  60603                        Name:___________________________
Attn.: Kyle Freimuth                            Title:__________________________
Telecopy: (312) 904-6546
Telephone: (312) 904-4623

Revolving Credit Commitment:  $5,000,000

Short-Term Revolving Credit Commitment:  $10,000,000

Lending Offices:

Domestic Rate Loans:

         135 South LaSalle Street
         Suite 1126
         Chicago, Illinois  60603
         Attn.: Amy Ahmad
         Telephone:  (312) 904-2694

Eurocurrency Loans:

         135 South LaSalle Street
         Suite 1126
         Chicago, Illinois  60603
         Attn.: Amy Ahmad
         Telephone:  (312) 904-2694

                                      -64-
<PAGE>

Address and Amount of Commitments:

Address:                                         The Northern Trust Company

The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois  60675                         By_____________________________
Attn.: Nicole Boehm                                Name:________________________
Telecopy: (312) 444-3640                           Title:_______________________
Telephone: (312) 630-6062

Revolving Credit Commitment:  $5,000,000

Short-Term Revolving Credit Commitment:  $10,000,000

Lending Offices:

Domestic Rate Loans:

         50 South LaSalle Street
         Chicago, Illinois  60675
         Attn.: Linda Honda

Eurocurrency Loans:

         50 South LaSalle Street
         Chicago, Illinois  60675
         Attn.: Linda Honda

                                      -65-
<PAGE>

                                   Exhibit A

                           Notice of Payment Request

[Name of Bank]                                                          [Date]
[Address]

Attention:

        Reference is made to the Credit Agreement, dated as of September 11,
2000 among Arthur J. Gallagher & Co., AJG Financial Services, Inc., the Banks
named therein, and Harris Trust and Savings Bank, as Agent (the "Credit
Agreement"). Capitalized terms used herein and not defined herein have the
meanings assigned to them in the Credit Agreement. [The relevant Borrower,
________, has failed to pay its Reimbursement Obligation in the amount of
$__________. Your Bank's Percentage of the unpaid Reimbursement Obligation is
$____________] or [Harris Trust and Savings Bank has been required to return a
payment by the relevant Borrower, ________, of a Reimbursement Obligation in the
amount of $____________. Your Bank's Percentage of the returned Reimbursement
Obligations is $____________.]

                                                Very truly yours,

                                                Harris Trust and Savings Bank

                                                By

                                                  Its___________________________
<PAGE>

                                   Exhibit B

                             Revolving Credit Note

                                                             September 11, 2000

     FOR VALUE RECEIVED, the undersigned, ARTHUR J. GALLAGHER & CO., a Delaware
corporation ("Gallagher"), and AJG FINANCIAL SERVICES, INC., a Delaware
corporation ("AJG"; Gallagher and AJG being referred to herein collectively as
the "Borrowers" and individually as a "Borrower"), jointly and severally promise
to pay to the order of ________________________________ (the "Bank") on the
Termination Date of the hereinafter defined Credit Agreement, at the principal
office of Harris Trust and Savings Bank, in Chicago, Illinois, (or in the case
of Eurocurrency Loans denominated in an Alternative Currency, at such office as
the Agent has previously notified the Borrowers) in the currency of such Loan in
accordance with Section 5.1 of the Credit Agreement, the aggregate unpaid
principal amount of all Revolving Loans made by the Bank to the Borrowers
pursuant to the Credit Agreement, together with interest on the principal amount
of each Revolving Loan from time to time outstanding hereunder at the rates, and
payable in the manner and on the dates, specified in the Credit Agreement.

     The Bank shall record on its books or records or on a schedule attached to
this Note, which is a part hereof, each Revolving Loan made by it pursuant to
the Credit Agreement, together with all payments of principal and interest and
the principal balances from time to time outstanding hereon, whether the
Revolving Loan is a Domestic Rate Loan or a Eurocurrency Loan, the currency
thereof and the interest rate and Interest Period applicable thereto, provided
that prior to the transfer of this Note all such amounts shall be recorded on a
schedule attached to this Note. The record thereof, whether shown on such books
or records or on a schedule to this Note, shall be prima facie evidence of the
same, provided, however, that the failure of the Bank to record any of the
foregoing or any error in any such record shall not limit or otherwise affect
the obligation of the Borrowers to repay all Revolving Loans made to it pursuant
to the Credit Agreement together with accrued interest thereon.

     This Note is one of the Notes referred to in the Credit Agreement dated as
of September 11, 2000, among the Borrowers, Harris Trust and Savings Bank,
individually and as Agent, and the banks from time to time party thereto (said
Credit Agreement, as amended, modified or restated from time to time, being
referred to herein as the "Credit Agreement"), and this Note and the holder
hereof are entitled to all the benefits provided for thereby or referred to
therein, to which Credit Agreement reference is hereby made for a statement
thereof. All defined terms used in this Note, except terms otherwise defined
herein, shall have the same meaning as in the Credit Agreement.

     Prepayments may be made hereon and this Note may be declared due prior to
the expressed maturity hereof, all in the events, on the terms and in the manner
as provided for in the Credit Agreement.

     This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois.
<PAGE>

     The Borrowers hereby jointly and severally promise to pay all reasonable
costs and expenses (including attorneys' fees) suffered or incurred by the
holder hereof in collecting this Note or enforcing any rights in any collateral
therefor, all as more particularly provided in the Credit Agreement. The
Borrowers hereby waive demand, presentment, protest or notice of any kind
hereunder except as expressly provided in the Credit Agreement.

                                          Arthur J. Gallagher & Co.

                                          By
                                             Its________________________________

                                          AJG Financial Services, Inc.

                                          By
                                             Name: _____________________________
                                             Title: ____________________________

                                      -2-
<PAGE>

                                   Exhibit C

                       Short-Term Revolving Credit Note

                                                             September 11, 2000

     FOR VALUE RECEIVED, the undersigned, ARTHUR J. GALLAGHER & CO., a Delaware
corporation ("Gallagher"), and AJG FINANCIAL SERVICES, INC., a Delaware
corporation ("AJG"; Gallagher and AJG being referred to herein collectively as
the "Borrowers" and individually as a "Borrower"), jointly and severally promise
to pay to the order of ________________________________ (the "Bank") on the
Short-Term Revolving Credit Termination Date of the hereinafter defined Credit
Agreement, at the principal office of Harris Trust and Savings Bank, in Chicago,
Illinois, (or in the case of Eurocurrency Loans denominated in an Alternative
Currency, at such office as the Agent has previously notified the Borrowers) in
the currency of such Loan in accordance with Section 5.1 of the Credit
Agreement, the aggregate unpaid principal amount of all Short-Term Revolving
Loans made by the Bank to the Borrowers pursuant to the Credit Agreement,
together with interest on the principal amount of each Short-Term Revolving Loan
from time to time outstanding hereunder at the rates, and payable in the manner
and on the dates, specified in the Credit Agreement.

     The Bank shall record on its books or records or on a schedule attached to
this Note, which is a part hereof, each Short-Term Revolving Loan made by it
pursuant to the Credit Agreement, together with all payments of principal and
interest and the principal balances from time to time outstanding hereon,
whether the Short-Term Revolving Loan is a Domestic Rate Loan or a Eurocurrency
Loan, the currency thereof and the interest rate and Interest Period applicable
thereto, provided that prior to the transfer of this Note all such amounts shall
be recorded on a schedule attached to this Note. The record thereof, whether
shown on such books or records or on a schedule to this Note, shall be prima
facie evidence of the same, provided, however, that the failure of the Bank to
record any of the foregoing or any error in any such record shall not limit or
otherwise affect the obligation of the Borrowers to repay all Short-Term
Revolving Loans made to it pursuant to the Credit Agreement together with
accrued interest thereon.

     This Note is one of the Notes referred to in the Credit Agreement dated as
of September 11, 2000, among the Borrowers, Harris Trust and Savings Bank,
individually and as Agent, and the banks from time to time party thereto (said
Credit Agreement, as amended, modified or restated from time to time, being
referred to herein as the "Credit Agreement"), and this Note and the holder
hereof are entitled to all the benefits provided for thereby or referred to
therein, to which Credit Agreement reference is hereby made for a statement
thereof. All defined terms used in this Note, except terms otherwise defined
herein, shall have the same meaning as in the Credit Agreement.

     Prepayments may be made hereon and this Note may be declared due prior to
the expressed maturity hereof, all in the events, on the terms and in the manner
as provided for in the Credit Agreement.
<PAGE>

     This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois.

     The Borrowers hereby jointly and severally promise to pay all reasonable
costs and expenses (including attorneys' fees) suffered or incurred by the
holder hereof in collecting this Note or enforcing any rights in any collateral
therefor, all as more particularly provided in the Credit Agreement. The
Borrowers hereby waive demand, presentment, protest or notice of any kind
hereunder except as expressly provided in the Credit Agreement.

                                       Arthur J. Gallagher & Co.

                                       By
                                          Its_________________________________

                                       AJG Financial Services, Inc.

                                       By
                                          Name:  _____________________________
                                          Title:  ____________________________

                                      -2-
<PAGE>

                                   Exhibit D

                                Swing Line Note

$30,000,000.00                                              September 11, 2000

     On the Termination Date, for value received, the undersigned, ARTHUR J.
GALLAGHER & CO., a Delaware corporation ("Gallagher"), and AJG FINANCIAL
SERVICES, INC., a Delaware corporation ("AJG"; Gallagher and AJG being referred
to herein collectively as the "Borrowers" and individually as a "Borrower"),
jointly and severally promise to pay to the order of Harris Trust and Savings
Bank (the "Bank"), at the principal office of Harris Trust and Savings Bank in
Chicago, Illinois, the principal sum of (i) Thirty Million and 00/100 Dollars
($30,000,000.00), or (ii) such lesser amount as may at the time of the maturity
hereof, whether by acceleration or otherwise, be the aggregate unpaid principal
amount of all Swing Loans owing from the Borrowers to the Bank under the Swing
Line Commitment provided for in the Credit Agreement hereinafter mentioned.

     This Note evidences Swing Loans made and to be made to the Borrowers by the
Bank under the Swing Line Commitment provided for under that certain Credit
Agreement dated as of September 11, 2000 by and between the Borrowers, Harris
Trust and Savings Bank, individually and as Agent, and the banks from time to
time party thereto (said Credit Agreement, as amended, modified or restated from
time to time, being referred to herein as the "Credit Agreement"), and the
Borrowers hereby jointly and severally promise to pay interest at the office
specified above on each Swing Loan evidenced hereby at the rates and times
specified therefor in the Credit Agreement.

     Each Swing Loan made under the Swing Line Commitment provided for in the
Credit Agreement by the Bank to the Borrowers against this Note, any repayment
of principal hereon and the interest rates applicable thereto shall be endorsed
by the holder hereof on the reverse side of this Note or recorded on the books
and records of the holder hereof (provided that such entries shall be endorsed
on the reverse side hereof prior to any negotiation hereof) and the Borrowers
agree that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries so endorsed on the reverse side hereof or
recorded on the books and records of the Bank shall be prima facie evidence of
the unpaid balance of this Note and the interest rates applicable thereto.

     This Note is issued by the Borrowers under the terms and provisions of the
Credit Agreement, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity as specified in the
Credit Agreement, and certain prepayments are required to be made hereon, all in
the events, on the terms and with the effects provided in the Credit Agreement.
All capitalized
<PAGE>

terms used herein without definition shall have the same meaning herein as such
terms have in the Credit Agreement.

     This Note shall be construed in accordance with, and governed by, the
internal laws of the State of Illinois without regard to principles of conflict
of law.

     The Borrowers hereby jointly and severally promise to pay all reasonable
costs and expenses (including attorneys' fees) suffered or incurred by the
holder hereof in collecting this Note or enforcing any rights in any collateral
therefor, all as more particularly provided in the Credit Agreement. The
Borrowers hereby waive demand, presentment, protest or notice of any kind
hereunder except as expressly provided in the Credit Agreement.

                                         Arthur J. Gallagher & Co.

                                         By
                                            Its_________________________________

                                         AJG Financial Services, Inc.

                                         By
                                            Name:  _____________________________
                                            Title:  ____________________________

                                      -2-
<PAGE>

                                    Exhibit E

                                    Bid Note

                                                            _____________, 20___

         For Value Received, the undersigned Arthur J. Gallagher & Co., a
Delaware corporation ("Gallagher"), and AJG Financial Services, Inc., a Delaware
corporation ("AJG", Gallagher and AJG being referred to herein collectively as
the "Borrowers" and individually as a "Borrower"), jointly and severally promise
to pay to the order of ________________________________________ (the "Bank") on
the Short-Term Revolving Credit Termination Date, at the principal office of
Harris Trust and Savings Bank in Chicago, Illinois in immediately available
funds, the aggregate unpaid principal amount of all Bid Loans made by the Bank
to either Borrower pursuant to the Credit Agreement hereinafter identified and
defined, and with each Bid Loan to mature and become payable on the last day of
the Interest Period applicable thereto, but in no event later than the
Short-Term Revolving Credit Termination Date, together with interest on the
principal amount of each Bid Loan from time to time outstanding hereunder at the
rates, and payable in the manner and on the dates, specified in the Credit
Agreement.

         The Bank shall record on its books and records or on a schedule
attached to this Note, which is a part hereof, each Bid Loan made by it pursuant
to the Credit Agreement, together with all payments of principal and interest
and the principal balances thereof from time to time outstanding hereon and the
interest rate and Interest Period applicable thereto, provided that prior to the
transfer of this Note all such amounts shall be recorded on a schedule attached
to this Note. The record thereof, whether shown on such books and records or on
a schedule to this Note, shall be prima facie evidence of the same, provided,
however, that the failure of the Bank to record any of the foregoing or any
error in any such record shall not limit or otherwise affect the obligation of
the Borrowers to repay all Bid Loans made to them pursuant to the Credit
Agreement together with accrued interest thereon.

         This Bid Note is one of the Notes referred to in the Credit Agreement
dated as of September 11, 2000, among the Borrowers, Harris Trust and Savings
Bank as Agent, and the Banks party thereto (the "Credit Agreement"), and this
Note and the holder hereof are entitled to all the benefits provided for thereby
or referred to therein, to which Credit Agreement reference is hereby made for a
statement thereof. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning herein as such terms have in the
Credit Agreement.

         This Note may be declared due prior to the expressed maturity hereof on
the terms and in the manner provided for in the Credit Agreement.

         This Note shall be governed and construed in accordance with the
internal laws of the State of Illinois.
<PAGE>

         The Borrowers hereby jointly and severally promise to pay all
reasonable costs and expenses (including attorneys' fees) suffered or incurred
by the holder hereof in collecting this Note or enforcing any rights in any
collateral therefor, all as more particularly provided for in the Credit
Agreement. The Borrowers hereby waive demand, presentment, protest or notice of
any kind hereunder except as expressly provided in the Credit Agreement.

                                       Arthur J. Gallagher & Co.

                                       By

                                         Its____________________________________

                                       AJG Financial Services, Inc.

                                       By

                                         Its____________________________________

                                       -2-
<PAGE>

                                    Exhibit F

                          Bid Loan Request Confirmation

[Date]

Harris Trust and Savings Bank,
    as Agent for the Banks
    party to the Credit Agreement
    referred to below

Attention:

         The undersigned, ___________________________________________ (the
"Borrower") refers to the Credit Agreement dated as of September 11, 2000 (the
"Credit Agreement"), among Arthur J. Gallagher & Co., AJG Financial Services,
Inc., the Banks named therein and Harris Trust and Savings Bank as Agent for the
Banks. Capitalized terms used and not defined herein have the meanings assigned
to them in the Credit Agreement. The undersigned Borrower hereby confirms that
it has, on the date hereof, given you notice pursuant to Section 3.2 of the
Credit Agreement that it requests a Borrowing of a Bid Loan under the Credit
Agreement, and in that connection sets forth below the terms on which such
Borrowing is requested to be made:

                  (A)  Date of proposed Borrowing of Bid Loan/1/    __________

                  (B)  Aggregate Principal Amount
                       of Borrowing of Bid Loan/2/      ______________

                  (C)  Interest Period/3/               ______________

                                                        ______________

                                                        ______________

___________________

/1/      The Bid Loan Request Confirmation must be received on a Business Day by
         the Agent not later than 2:30 p.m. (Chicago time) one Business Day
         before the proposed Borrowing Date.

/2/      Not less than $5,000,000 and in integral multiples of $1,000,000.

/3/      Which shall be no more than 180 days or less than 7 days and shall end
         not later than the Short-Term Revolving Credit Termination Date.
<PAGE>

                  (D)   If applicable, maximum amount               __________
                        requested for each Interest                 __________
                        Period/4/                     ______________

         Upon acceptance of any or all of the Bids offered by Banks in response
to this request, the Borrowers shall be deemed to affirm as of such date the
representations and warranties made in the Credit Agreement to the extent
specified in Section 8 thereof.

                                                 Very truly yours,

                                                 [Name of Relevant Borrower]

                                                 By
                                                   Its__________________________

_____________________

/4/      May not exceed amount in (B) for any Interest Period and for each
         Interest Period must be not less than $5,000,000 and in integral
         multiples of $1,000,000.

                                      -2-
<PAGE>

                                   Exhibit G

                               Invitation to Bid

[Name of Bank]                                                     [Date]
[Address]

Attention:

         Reference is made to the Credit Agreement, dated as of September 11,
2000 (the "Credit Agreement") among Arthur J. Gallagher & Co., AJG Financial
Services, Inc., the Banks named therein and Harris Trust and Savings Bank as
Agent for the Banks. Capitalized terms used and not defined herein have the
meanings assigned to them in the Credit Agreement. [Borrower]   made a Bid Loan
                                                  --------------
Request on ______________, ____ pursuant to Section 3.2 of the Credit Agreement,
and in that connection you are invited to submit a Bid by [Date] . Your Bid must
                                                         --------
comply with Section 3.2 of the Credit Agreement and the terms set forth below on
which the Bid Loan Request was made.

         (A)    Date of proposed Borrowing of Bid Loan       _________________

         (B)    Aggregate Principal Amount of
                of Competitive Advance                       Interest Periods

                           1.    ________________________    _________________

                           2.    ________________________    _________________

                           3.    ________________________      ______________

         (C) The Bid must be received by Harris Trust and Savings Bank not later
than 9:00 a.m. (Chicago time) on the proposed Borrowing Date.

                                                Very truly yours,

                                                Harris Trust and Savings Bank
                                                  as Agent for the Banks

                                                By
                                                  Its___________________________
<PAGE>

                                    Exhibit H

                               Confirmation of Bid

[Date]

Harris Trust and Savings Bank,
    as Agent for the Banks party to the
    Credit Agreement referred to below

Attention:

         The undersigned, [Name of Bank] ,  refers to the Credit Agreement dated
                         ----------------
as of September 11, 2000 (the "Credit Agreement") among Arthur J. Gallagher &
Co., AJG Financial Services, Inc., the Banks named therein and Harris Trust and
Savings Bank as Agent for the Banks. Capitalized terms used and not defined
herein have the meanings assigned to them in the Credit Agreement. The
undersigned hereby confirms that on the date hereof it has made a Bid pursuant
to Section 3.2 of the Credit Agreement, in response to the Bid Loan Request made
by  [Borrower]   on _____________, 20__, and in that connection sets forth below
  --------------
the terms on which such Bid is made:

         Date of proposed Borrowing of Bid Loan:  ________________________/1/

         Principal                Interest                          Interest
         Amount/2/                Period/3/                            Rate/4/

                                              Very truly yours,

                                              [Name of Bank]

                                              By
                                                Its_____________________________

_____________________

/1/      As specified in the related Invitation to Bid.

/2/      Principal amount bid for each Interest Period may not exceed the
         principal amount requested by the Borrower or the maximum amount
         requested for that Interest Period, if less. Bids must be made in a
         minimum amount of $5,000,000 and in integral multiples of $1,000,000.

/3/      Up to 180 days and not less than 7 days, as specified in the related
         Invitation to Bid.

/4/      Specify rate of interest per annum computed on the basis of a year of
         360 days and actual days elapsed.
<PAGE>

                                    Exhibit I

                           Notice of Acceptance of Bid

[Name of Bank]                                                       [Date]
[Address]

Attention:

         Reference is made to the Credit Agreement, dated as of September 11,
2000 (the "Credit Agreement") among Arthur J. Gallagher & Co., AJG Financial
Services, Inc., the Banks named therein and Harris Trust and Savings Bank as
Agent for the Banks. Capitalized terms used and not defined herein have the
meanings assigned to them in the Credit Agreement.  [Borrower]   made a Bid Loan
                                                  --------------
Request on _____________, ____ pursuant to Section 3.2 of the Credit Agreement,
and in that connection you have submitted a Bid. Your Bid has been accepted as
set forth below.

         (A)    Date of proposed Borrowing of Bid Loan           __________

         (B)    Principal Amount of Bid Loan(s)                  __________

         (C)    Your Bid accepted:

                                    Interest
         Amount:   __________       Period:     __________   Rate:  __________
                   __________                   __________          __________
                   __________                   __________          __________

         (D) Aggregate winning bids:

                                    Interest
         Amount:   __________       Period:     __________   Rate:  __________
                   __________                   __________          __________
                   __________                   __________          __________

                                             Very truly yours,
                                             Harris Trust and Savings Bank,
                                             as Agent for the Banks

                                             By
                                               Its______________________________
<PAGE>

                                    Exhibit J

                             Compliance Certificate

         This Compliance Certificate is furnished to Harris Trust and Savings
Bank as Agent pursuant to the Credit Agreement, dated as of September 11, 2000
among Arthur J. Gallagher & Co., AJG Financial Services, Inc., the Banks
signatory thereto and Harris Trust and Savings Bank, as Agent (the "Credit
Agreement"). Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit Agreement.

         The Undersigned Hereby Certifies That:

                   1.  I am the duly elected ________________________________ of
         Gallagher;

                   2.  I have reviewed the terms of the Credit Agreement and I
         have made, or have caused to be made under my supervision, a detailed
         review of the transactions and conditions of Gallagher and its
         Subsidiaries during the accounting period covered by the attached
         financial statements;

                   3.  The examinations described in paragraph 2 did not
         disclose, and I have no knowledge of, the existence of any condition or
         the occurrence of any event which constitutes a Default or Event of
         Default during or at the end of the accounting period covered by the
         attached financial statements or as of the date of this Certificate,
         except as set forth below;

                   4.  The financial statements required by Section 9.5 of the
         Credit Agreement and being furnished to you concurrently with this
         certificate are, to the best of my knowledge, true, correct and
         complete as of the dates and for the periods covered thereby; and

                   5.  The Attachment hereto sets forth financial data and
         computations evidencing the Borrowers' compliance with certain
         covenants of the Credit Agreement, all of which data and computations
         are, to the best of my knowledge, true, complete and correct and have
         been made in accordance with the relevant Sections of the Credit
         Agreement.

         Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrowers have taken, are taking, or propose to
take with respect to each such condition or event:

         _______________________________________________________________________
         _______________________________________________________________________
         _______________________________________________________________________
         _______________________________________________________________________
<PAGE>

         The foregoing certifications, together with the computations set forth
in the Attachment hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _________ day of
__________________ 20___.

                                    ____________________________________________
                                    ________________________________, __________
                                    (Type or Print Name)               (Title)

                                      -2-
<PAGE>

                     ATTACHMENT TO COMPLIANCE CERTIFICATE
          ARTHUR J. GALLAGHER & CO. AND AJG FINANCIAL SERVICES, INC.

                 Compliance Calculations for Credit Agreement
                        Dated as of September 11, 2000
                    Calculations as of _____________, 20___

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

A.   NET WORTH (SECTION 9.7)

     1.   Net Worth as defined                                     _________

     2.   Net Worth (Line 1) must not be
          less than                                             $200,000,000
                                                                ============

     3.   Borrowers are in compliance?
          (Circle yes or no)                                        Yes/No
                                                                  ==========

B.   DEBT TO NET WORTH RATIO (SECTION 9.8)

     1.   Funded Debt as defined                                   _________

     2.   Net Worth as defined                                     _________

     3.   Ratio of Funded Debt
          (Line 1) to Net Worth (Line 2)
          ("Debt to Net Worth Ratio")                                     :1
                                                                  ==========

     4.   As listed in Section 9.8, for
          the date of this Certificate, the
          Debt to Net Worth Ratio must not

          be more than                                                 1.0:1
                                                                  ==========

     5.   Borrowers are in compliance?
          (Circle yes or no)                                        Yes/No
                                                                  ==========

C.   FIXED CHARGE COVERAGE RATIO (SECTION 9.9)

     1.   Net Income as defined                                   __________

     2.   Amounts deducted in arriving
          at Net Income in respect of
<PAGE>

           (a) Interest Expense as defined                        ___________

           (b) Federal, state, and local income taxes             ___________

           (c) Depreciation of fixed assets and
               amortization of intangible assets                  ___________

           (d) Amounts payable in respect of leases
               similar arrangements                               ___________

     3.   Sum of Lines 1, 2(a), 2(b), (2(c)
          and 2(d) ("EBITDAR")                                    ___________

     4.   Capital Expenditures as defined                         ___________

     5.   Restricted Payments as defined                          ___________

     6.   Line 3 minus Line 4 minus Line 5                        ___________

     7.   Interest Expense as defined                             ___________

     8.   Current Maturities as defined                           ___________

     9.   Amounts payable in respect of leases
          and similar arrangements                                ___________

     10.  Sum of Lines 7, 8 and 9                                 ___________

     11.  Ratio of Line 6 to Line 10
          ("Fixed Charge Coverage Ratio")                                  :1
                                                                  ===========

     12.  As listed in Section 9.9, for the date
          of this Certificate, the Fixed Charge

          Coverage Ratio must not be less than                         1.50:1
                                                                  ===========

     13.  Borrowers are in compliance
          (Circle yes or no)                                         Yes/No
                                                                  ===========

                                      -2-
<PAGE>

                                   EXHIBIT K

                           ASSIGNMENT AND ACCEPTANCE

                         Dated _____________, 20_____

          Reference is made to the Credit Agreement dated as of September 11,
2000 (the "Credit Agreement") among Arthur J. Gallagher & Co., AJG Financial
Services, Inc., the Banks and Harris Trust and Savings Bank, as Agent for the
Banks. Terms defined in the Credit Agreement are used herein with the same
meaning.

         _____________________________________________________ (the "Assignor")
and _________________________________ (the "Assignee") agree as follows:

          1.   The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a _______% interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
as of the Effective Date (as defined below), including, without limitation, such
percentage interest in the Assignor's Revolving Credit Commitment as in effect
on the Effective Date and the Revolving Loans, if any, owing to the Assignor on
the Effective Date and the Assignor's Percentage of any outstanding L/C
Obligations and Revolving Swing Loans, if any, and the Assignor's Short-Term
Revolving Credit Commitment as in effect on the Effective Date and the Short-
Term Revolving Loans and Bid Loans, if any, owing to the Assignor on the
Effective Date and the Assignor's Percentage of outstanding Short-Term Swing
Loans, if any.

          2.   The Assignor (i) represents and warrants that as of the date
hereof (A) its Revolving Credit Commitment is $____________, (B) the aggregate
outstanding principal amount of Revolving Loans made by it under the Credit
Agreement that have not been repaid is $____________ and a description of the
interest rates, currencies and interest periods for such Revolving Loans is
attached as Schedule I hereto, (C) the aggregate principal amount of Assignor's
outstanding L/C Obligations is $___________, (D) the aggregate amount of
Assignor's participations (whether or not funded) in outstanding Revolving Swing
Loans is $_____________ (E) its Short-Term Revolving Credit Commitment is
$__________, (F) the aggregate outstanding principal amount of Short-Term
Revolving Loans made by it under the Credit Agreement that have not been repaid
is $__________ and a description of the interest rates, currencies and interest
periods for such Short-Term Revolving Loans is attached as Schedule I hereto,
(G) the aggregate amount of Assignor's participations (whether or not funded) in
outstanding Short-Term Swing Loans is $___________ and (H) the aggregate
outstanding principal amount of Bid Loans made by it under the Credit Agreement
that have not been repaid is $____________ and a description of the interest
rates and interest periods for such Bid Loans is attached as Schedule I hereto;
(ii) represents and warrants that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim, lien, or encumbrance of any kind; (iii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in
<PAGE>

or in connection with the Credit Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
other instrument or document furnished pursuant thereto; and (iv) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Borrowers or the performance or observance by either
Borrower of any of their respective obligations under the Credit Agreement or
any other instrument or document furnished pursuant thereto.

          3.   The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the most recent financial statements
delivered to the Banks pursuant to Section 9.5(a) and Section 9.5(b) thereof and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and Acceptance;
(ii) agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) appoints and
authorizes the Agent to take such action as Agent on its behalf and to exercise
such powers under the Credit Agreement as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank; and (v) specifies as its lending offices (and address
for notices) the offices set forth beneath its name on the signature pages
hereof.

          4.   As consideration for the assignment and sale contemplated in
Section 1 hereof, the Assignee shall pay to the Assignor on the date hereof in
Federal funds an amount equal to $________________*. It is understood that
facility and/or Letter of Credit fees accrued to the date hereof with respect to
the interest assigned hereby are for the account of the Assignor and such fees
accruing from and including the date hereof are for the account of the Assignee.
Each of the Assignor and the Assignee hereby agrees that if it receives any
amount under the Credit Agreement which is for the account of the other party
hereto, it shall receive the same for the account of such other party to the
extent of such other party's interest therein and shall promptly pay the same to
such other party.

          5.   The effective date for this Assignment and Acceptance shall be
_____________, 20___ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Borrowers for their
acceptance, to the extent required by the Credit Agreement, and to the Agent for
acceptance and recording by the Agent.

          6.   Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Bank thereunder and (ii) the Assignor shall, to

___________________________
*   Amount should combine principal together with accrued interest and breakage
    compensation, if any, to be paid by the Assignee, net of any portion of any
    upfront fee to be paid by the Assignor to the Assignee. It may be preferable
    in an appropriate case to specify these amounts generically or by formula
    rather than as a fixed sum.
<PAGE>

the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement.

          7.   Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Credit Agreement in respect of
the interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement for periods prior to the Effective Date directly
between themselves.

          8.   In accordance with Section 13.12 of the Credit Agreement, the
Assignor and the Assignee request and direct that the Agent prepare and cause
the Borrowers to execute and deliver (a) to the Assignee a Revolving Credit Note
payable to the Assignee, a Short-Term Revolving Credit Note payable to the
Assignee and a Bid Note (or Bid Notes, as the case may be) payable to the
Assignee to reflect its Revolving Credit Commitment, Short-Term Revolving Credit
Commitment and Bid Loans, respectively, after giving effect to the assignment
hereunder and (b) to the Assignor a new Bid Note (or Bid Notes, as the case may
be) payable to the Assignor to reflect its Bid Loans after giving effect to the
assignment hereunder.

          9.   This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Illinois.

                              [ASSIGNOR LENDER]

                              By:________________________________________
                                 Title:

                              [ASSIGNEE LENDER]

                              By:________________________________________
                                 Title:

                              Lending Office (and address for notices):

                              ___________________________________________
                              ___________________________________________
                              ___________________________________________

                              LIBOR Funding Office:

                              ___________________________________________
                              ___________________________________________
                              ___________________________________________

                                      -3-
<PAGE>

Accepted and consented this
____ day of ___________, ____

ARTHUR J. GALLAGHER & CO.

By:_________________________________________
Title:______________________________________

AJG FINANCIAL SERVICES, INC.

By:_________________________________________
Title:______________________________________

Accepted and consented to by the Agent this
_______ day of ___________, ____

[AGENT]

By:_________________________________________
Title:______________________________________

                                      -4-
<PAGE>

                                  SCHEDULE I
                                      TO
                           ASSIGNMENT AND ACCEPTANCE

                                 REVOLVING LOANS
                                 ---------------

                 Type of
Principal       Revolving                         Interest         Last Day of
 Amount           Loan            Currency          Rate         Interest Period

                           SHORT-TERM REVOLVING LOANS
                          ---------------------------

                 Type of
Principal       Revolving                         Interest         Last Day of
 Amount           Loan            Currency          Rate         Interest Period

                                    BID LOANS
                                    ---------

          Principal                 Interest                  Last Day of
           Amount                     Rate                  Interest Period
<PAGE>

                                Schedule 1.2(a)

                          Existing Letters Of Credit
<TABLE>
<CAPTION>
  Letter of           Stated            Stated
Credit Number      Maturity Date          Amount                  Beneficiary
-------------      -------------          ------                  -----------
<S>                <C>                 <C>              <C>
  SPL 34032           10/1/00           $2,000,000      Hartford Fire Insurance
                                                        Company

  SPL 32852           10/1/00             $380,000      Travelers

  SPL 34959          11/15/00             $187,756      Cooperative Self-Insured Fund

  SPL 36487           6/12/01           $2,200,000      Peachtree/First Union

  SPL 37047           6/30/06            1,000,000      MacQuarie Bank
                                       (Australian
                                         Dollars)

  SPL 37054           5/10/01              $90,000      Ameren CIPS

  SPL 37055           5/10/01             $180,000      Ameren CIPS

  SPL 37304          11/16/00           $5,000,000      Rabobank-Amsterdam Raubles Corp.

  SPL 37312          11/22/00           $4,379,608      IL Dept. of Natural Resources

  SPL 37331           1/28/01           $3,700,000      Chase Manhattan

SPL 90002459          4/19/01             $100,000      Mercantile Bank

SPL 90002448          4/19/01             $300,000      Mercantile Bank
</TABLE>
<PAGE>

                                 Schedule 7.2

                             Existing Subsidiaries

     Those companies which are indented represent Subsidiaries of the
corporation under which they are indented. Except for directors' qualifying
shares, 100% of the Voting Stock of each of the Subsidiaries listed below, other
than those indicated by footnote, is owned of record or beneficially by its
indicated parent./1/

<TABLE>
<CAPTION>
                                                                                       State or Other
                                                                                       Jurisdiction of
                                       Name                                            Incorporation
<S>                                                                                    <C>
Arthur J. Gallagher & Co.                                                                 Delaware

     Arthur J. Gallagher & Co. (Illinois)                                                 Illinois

         Arthur J. Gallagher & Co. of Oklahoma, Inc.                                      Oklahoma

         Arthur J. Gallagher Risk Management Services, Inc.                               Illinois

              Arthur J. Gallagher & Co. of Michigan, Inc.                                 Michigan

              Arthur J. Gallagher & Co. of Wisconsin, Inc.                                Wisconsin

              Arthur J. Gallagher & Co. of Pennsylvania, Inc.                           Pennsylvania

              Gallagher Captive Services, Inc.                                            Delaware

     Arthur J. Gallagher & Co.--Chicago Metro                                             Illinois

     Arthur J. Gallagher & Co. (St. Louis)                                                Delaware

     Gallagher Holt, Inc.                                                                   Texas

         Arthur J. Gallagher, Inc.                                                          Texas

     Gallagher Braniff, Inc.                                                                Texas

     Arthur J. Gallagher & Co. (Florida)                                                   Florida

     Arthur J. Gallagher & Co. of New York, Inc.                                          New York

     Arthur J. Gallagher & Co. Ohio Agency, Inc.                                            Ohio

     Risk Placement Services, Inc.                                                        Illinois
</TABLE>

________________________
/1/ Gallagher conducts some of its operations under the following names:
Gallagher Bassett Information Services; Gallagher Risk Management Services;
Pacific Atlantic Administrators; The Boston Insurance Center; Gallagher
Heffernan; Broussard, Bush & Hurst; Henley, Williams & Associates; Gallagher
Steel Agency; Bryce Insurance; CMC Claims Management Corporation; The Planning
Corporation; Environmental Claims Management Incorporated; Gallagher Byerly,
Inc.; Innovative Risk Services, Inc.; and International Special Risk Services,
Inc.
<PAGE>

<TABLE>
<S>                                                                                  <C>
 Arthur J. Gallagher & Co.--Greenville                                               South Carolina

     Arthur J. Gallagher and Co. of Massachusetts, Inc.                               Massachusetts

         Gallagher Insurance Advisors, Inc.                                           Massachusetts

     Arthur J. Gallagher & Co. of Rhode Island, Inc.                                  Rhode Island

     Arthur J. Gallagher International, Inc.                                            Delaware

     Arthur J. Gallagher & Co. (Bermuda) Limited                                         Bermuda

         Arthur J. Gallagher Intermediaries (Bermuda) Limited                            Bermuda

         Arthur J. Gallagher Management (Bermuda) Limited                                Bermuda

         Gallagher Captive Services (Cayman) Limited                                 Cayman Islands

         Scholastic Risk Services Limited                                                Bermuda

         Artex Insurance Company Ltd./2/                                                 Bermuda

         Artex Underwriting Managers Ltd.                                                Bermuda

     Protected Insurance Company                                                         Bermuda

     Arthur J. Gallagher & Co.--Little Rock                                              Arkansas

     Arthur J. Gallagher & Co. of Georgia, Inc.                                          Georgia

     Arthur J. Gallagher (UK) Limited                                                    England

         Risk Management Partners Ltd./3/                                                England

         John Plumer & Company Limited                                                   England

         Morgan Insurance Services Limited                                               England

     Gallagher Bassett Services, Inc.                                                   Delaware

         Gallagher Bassett of New York, Inc.                                            New York

         Gallagher Bassett International Ltd.                                           Delaware

         Gallagher Bassett International Ltd. (UK)                                       England

         Gallagher Bassett Canada Inc.                                                   Canada

         Gallagher Benefit Administrators, Inc.                                         Illinois

         Gallagher Bassett Investigative Services, Inc.                                 Delaware

         Wyatt Gallagher Bassett Pty Ltd./3/                                            Australia
</TABLE>

_______________
/2/ 76% of the Common Stock of this subsidiary is owned by two third parties.

/3/ 50% of the Common Stock of each of these subsidiaries is owned by an
    unrelated party.

                                      -2-
<PAGE>

<TABLE>
<S>                                                                                 <C>
         Gallagher Bassett Australia Pty Ltd.                                        Australia

         Wyatt Emerson Pty Ltd.                                                      Australia

         Wyatt Group (PNG) Pty Ltd.                                                 New Guinea

Gallagher Bassett International S.A.                                                  France

Arthur J. Gallagher & Co. Insurance Brokers of California, Inc.                     California

    Charity First Insurance Services, Inc.                                          California

Arthur J. Gallagher & Co. of Connecticut, Inc.                                      Connecticut

Arthur J. Gallagher Intermediaries, Inc.                                             New York

Arthur J. Gallagher & Co.--Denver                                                     Colorado

Arthur J. Gallagher & Co. of Washington, Inc.                                       Washington

Gallagher Louisiana, Inc.                                                            Louisiana

    Arthur J. Gallagher of Louisiana, Inc.                                           Louisiana

Arthur J. Gallagher & Co. of Mississippi, Inc.                                      Mississippi

Arthur J. Gallagher & Co.--Kansas City, Inc.                                          Missouri

    IMC Insurance Management Corporation                                             Missouri

         IMC Services Corporation                                                    Missouri

GBS Retirement Services, Inc.                                                        New York

Arthur J. Gallagher & Co. of New Jersey, Inc.                                       New Jersey

Arthur J. Gallagher & Co. Ohio Life Agency, Inc.                                       Ohio

Gallagher Pipino, Inc.                                                                 Ohio

Arthur J. Gallagher & Co. of Minnesota, Inc.                                         Minnesota

Gallagher Alliance Insurance Services, Inc.                                           Arizona

AJG Financial Services, Inc.                                                         Delaware

    AJG Capital, Inc./4/                                                             Illinois

    AJG Investments, Inc.                                                            Delaware

    AJG Premium Finance, Inc.                                                        Illinois

Lamberson Koster & Company                                                          California

Arthur J. Gallagher & Co. of Tennessee, Inc.                                         Tennessee

Arthur J. Gallagher & Co. of Kentucky, Inc.                                          Kentucky
</TABLE>

__________________
/4/  10% of the Common Stock of this subsidiary is owned by an unrelated party.

                                      -3-
<PAGE>

<TABLE>
<S>                                                                             <C>
Gallagher Benefit Services, Inc.                                                   Delaware

    Gallagher Benefit Services of Michigan, Inc.                                   Michigan

    Gallagher Benefit Services of the Carolinas, Inc.                           North Carolina

    Gallagher Benefit Services of Colorado, Inc.                                   Colorado

    Gallagher Benefit Services of Kansas City, Inc.                                Delaware

    Gallagher Benefit Services of New York, Inc.                                   New York

    Gallagher Benefit Services of Texas, Inc.                                        Texas

    Gallagher Benefit Services of Washington, D.C.                                 Delaware

Generation 2000 Loss Control Services, Inc.                                        Tennessee

Risk Placement Services of Texas, Inc.                                               Texas

Arthur J. Gallagher Service Company                                                Delaware

Risk Placement Services of Arkansas, Inc.                                          Arkansas

Arthur J. Gallagher Australasia Pty Ltd.*                                          Australia

AJG Two Pierce, Inc.                                                               Delaware

Gallagher Woods & Co., Inc.                                                        Delaware

Arthur J. Gallagher & Co. of Maryland, Inc.                                        Maryland
</TABLE>

_______________
* 40% of the Common Stock of this subsidiary is owned by unrelated parties.

                                      -4-

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